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Artemis Therapeutics, Inc.

 

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF SEPTEMBER 30, 2017

 

U.S. DOLLARS IN THOUSANDS

 

(UNAUDITED)

 

INDEX

 

	PAGE
Interim Condensed Consolidated Balance Sheets	4
Interim Condensed Consolidated Statements of Operations	5
Interim Condensed Statements of Changes in Stockholders’ Equity	6
Interim Condensed Consolidated Statements of Cash Flows	7
Notes to Interim Condensed Consolidated Financial Statements	8 - 16

 

 

						As of September 30,				As of December 31,
		Note				2017 (Unaudited)				2016 (Audited)
ASSETS
Current assets
Cash and cash equivalents							345				907
Other accounts receivable and prepaid expenses							30				65
Total current assets							375				972
TOTAL ASSETS							375				972
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accrued expenses and other payables							51				58
Total current liabilities							51				58
Commitments and Contingencies			3				-				-
Total Liabilities							51				58
Stockholders’ equity
Preferred stock, $0.01 par value - Authorized: 10,000,000 shares; issued and outstanding: 453 shares as of September 30, 2017 and as of December 31, 2016							(*	)			(*	)
Common stock, $0.01 par value - Authorized: 51,000,000; issued and outstanding: 5,151,243 as of September 30, 2017 and 5,116,041 as of December 31, 2016							51				51
Additional paid in capital			7				1,185				1,127
Accumulated deficit							(912	)			(264	)
Total stockholders’ equity							324				914
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY							375				972

 

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

 

		Nine Months Ended September 30, 2017				For the period from April 19, 2016 (Inception), to September 30, 2016				Three Months Ended September 30, 2017				Three Months Ended September 30, 2016
Research and development expenses			224				-				78				-
General and administrative			429				36				149				18
Operating loss			653				36				227				18
Finance Income			5				-				-				-
Net loss			648				36				227				18
Net loss used in the calculation of basic and diluted net loss per share (Note 6)			575				36				201				18
Net loss per share, basic and diluted (Note 6)			0.11				0.00				0.04				0.00
Weighted average number of common stock used in calculation of net loss per share: Basic and diluted			5,126,614				4,552,745				5,147,417				4,841,119

 

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

 

 

		Common Stock								Preferred Stock								Additional paid-in				Accumulated				Total shareholders’
		Number of Shares				USD				Number				Amount				Capital				(deficiency)				equity
Balance as of December 31, 2016 (**)			5,116,041				51				453				(*	)			1,127				(264	)			914
Share based compensation																			58								58
Exercised options			35,202				(*	)																			(*	)
Net loss for nine months ended September 30, 2017																							(648	)			(648	)
Balance as of September 30, 2017			5,151,243				51				453				(*	)			1,185				(914	)			324

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

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

 

 

		Nine Months Ended September 30, 2017				For the period from April 19, 2016 (Inception), to September 30, 2016				Three Months Ended September 30, 2017				Three Months Ended September 30, 2016
Net cash used in operating activities
Net Loss			(648	)			(36	)			(227	)			(18	)
Share based compensation expenses			58				-				11				-
Decrease in other accounts receivable and prepaid expenses			35				-				10				-
Decrease in accrued expenses and other payables			(7	)			(19	)			(4	)			(36	)
Net cash used in operating activities			(562	)			(55	)			(210	)			(55	)
Cash flows from financing activities
Exercise of options			(*	)			-				(*	)			-
Issuance of common stock			-				481				-				481
Acquisition of subsidiary in connection with a reverse acquisition			-				575				-				575
Cash flows from financing activities			(*	)			1,056				(*	)			1,056
Increase (decrease) in cash and cash equivalents			(562	)			1,001				(210	)			1,001
Cash and cash equivalents at the beginning of the period			907				-				555				-
Cash and cash equivalents at the end of the period			345				1,001				345				1,001
(*) Represents an amount lower than 1,000 USD

 

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

 

 

NOTE 1 -   GENERAL

 

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 7).

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

 

 

NOTE 2 -   BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

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 does not expect the adoption of this standard to have a material impact on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments.” With respect to assets measured at amortized cost, such as held-to-maturity assets, the update requires presentation of the amortized cost net of a credit loss allowance. The update eliminates the probable initial recognition threshold that was previously required prior to recognizing a credit loss on financial instruments. The credit loss estimate can now reflect an entity’s current estimate of all future expected credit losses as opposed to the previous standard, when an entity only considered past events and current conditions. With respect to available for sale debt securities, the update requires that credit losses be presented as an allowance rather than as a write-down. The update is effective beginning in the first quarter of 2020; early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.

 

NOTE 2 -   BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Cont.)

In May 2017, the FASB issued “ASU No. 2017-09, “Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting,” which clarifies when a change to terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the vesting condition, fair value or the award classification is not the same both before and after a change to the terms and conditions of the award. The new guidance is effective on a prospective basis beginning on January 1, 2018 and early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on its consolidated 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; early adoption is permitted. The Company does not expect the adoption of this standard to have a material 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).

NOTE 4 -   INCOME TAX (Cont.)

 

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 September 30, 2017				As of December 31, 2016
Deferred tax assets:
Deferred taxes due to carryforward losses			3,693				3,583
Valuation allowance			(3,693	)			(3,583	)
Net deferred tax asset			-				-

 

C.

Tax loss carry-forwards

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

		As of September 30, 2017				As of December 31, 2016
Israel			4,742				4,518
United States (*)			7,435				7,011
			12,177				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 September 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”.

 

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):

 

		Nine Months Ended September 30, 2017				The period from April 19 (Inception), 2016 to September 30, 2016				Three Months Ended September 30, 2017				Three Months Ended September 30, 2016
Net loss available to shareholders of the company			(648	)			(36	)			(227	)			(18	)
Net loss attributable to shareholders of preferred shares and to shareholders of preferred shares contingently issuable for little or no cash			73				4				26				2
Net loss used in the calculation of basic loss per share			(575	)			(32	)			(201	)			(16	)
Net loss per share			0.11				0.00				0.04				0.00
Weighted average number of common stock			5,126,614				4,552,745				5,147,416				4,841,119

 

 

 

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 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 $58, included in Research and Development Expenses. 35,202 of these options were exercised in July 2017.

 

 

NOTE 7 -   STOCK CAPITAL (Cont.)

 

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

 

		For the nine months ended September 30, 2017
		Number of stock options				Weighted average exercise price				Aggregate intrinsic value
Outstanding at beginning of period			126,730
Granted			-
Exercised			35,202
Cancelled			-
Outstanding at end of period			91,528			$	0.01				113,494
Options exercisable at period end			49,285			$	0.01				61,113

 

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 September 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 September 30, 2017, have been separated into exercise price, as follows:

 

Exercise price				Stock options outstanding as of September 30,				Weighted average remaining contractual life – years as of September 30,				Stock options exercisable as of September 30,
$				2 0 1 7				2017				2017
	0.01				126,730				8.9				49,285

 

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 6, the Company issued preferred shares 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 previous fillings erroneously 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)

 

		December 31, 2016
		As Reported				Adjustments				As Restated
Shareholders’ equity
Preferred stock, $0.01 par value - Authorized: 10,000,000 shares; issued and outstanding: 0 and 453 shares (as reported and as restated) as of December 31, 2016			-				(*	)			(*	)
Common stock, $0.01 par value - Authorized: 51,000,000; issued and outstanding: 5,774,549 and 5,116,041 (as reported and as restated) as of December 31, 2016			2,887				(2836	)			51
Additional paid in capital			(1,709	)			2,836				1,127
Accumulated deficit			(264	)			-				(264	)
Total shareholders’ equity			914				-				914

 

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

 

NOTE 9 -   Subsequent Events

 

On October 23, 2017, the Company executed Securities Purchase Agreements (each, a “Securities Purchase Agreement”) with a total of 6 accredited investors relating to a private placement offering (the “Offering”) of an aggregate of 300,000 shares of the Company’s common stock, $0.01 par value per share, at a purchase price of $1.00 per share, and of 250 shares of the Company’s newly designated Series C Convertible Preferred Stock (the “Series C Preferred Stock”), at a purchase price of $1,000.00 per share, with such shares of Series C Preferred Stock initially convertible into an aggregate of 250,000 shares of Common Stock (subject to adjustment for future price-based and customary stock-based anti-dilution protections). In addition, each investor received a warrant (each, a “Warrant”) to purchase fifty percent of the number of shares of Common Stock effectively purchased in the Offering, for an aggregate of 275,000 shares of Common Stock, at an exercise price of $2.00 per share. The closing of the Offering took place on October 23, 2017.

 

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