As
filed with the Securities and Exchange Commission on September 23, 2019
Registration
No. 333-230981
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
AMENDMENT
NO. 5
TO
FORM
F-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
TODOS
MEDICAL LTD.
(Exact
name of Registrant as specified in its charter)
Israel
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2835
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Not
Applicable
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(State
or other jurisdiction of
incorporation
or organization)
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(Primary
Standard Industrial
Classification
Code)
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(I.R.S.
Employer
Identification
No.)
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1
Hamada Street
Rehovot,
Israel
+972-8-633-3964
(Address
and telephone number of Registrant's principal executive offices)
Puglisi
& Associates
850
Library Avenue, Suite 204
Newark,
Delaware 19711
302-738-6680
(Name,
address, including zip code, and telephone number,
including
area code, of agent for service)
Copies
of all Correspondence to:
SRK
Kronengold Law Offices
7
Oppenheimer Street
Rabin
Science Park
Rehovot,
Israel
Telephone
No.: (516) 231-2057
Facsimile
No.: +972-8-936-6000
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Ralph V. De Martino, Esq.
Schiff Hardin LLP
901 K Street NW, Suite 700
Washington, DC 20001
Telephone No.: (202)
724-6848
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Approximate
date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If
any securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended, check the following box: ☒
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement number of the earlier effective registration statement for the
same offering. ☐
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate
by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.
Emerging
growth company ☒
If
an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
Calculation
of Registration Fee
Title of Each Class of Securities to be Registered(1)
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Proposed
Maximum
Aggregate
Offering
Price(2)
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Amount of
Registration
Fee(3)
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Units consisting of:
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(i) Ordinary Shares, par value NIS 0.01
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$
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4,800,000
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$
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581.76
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(ii) Warrants to purchase Ordinary
Shares, par value NIS 0.01(4)
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--
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Ordinary shares, par value NIS 0.01, issuable upon exercise
of Warrants included in the Units
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$
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12,000,000
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$
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1,454.40
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Ordinary Shares, par value NIS 0.01, issuable upon exercise
of Representative’s Warrants
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$
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480,000
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$
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58.18
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TOTAL
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$
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17,280,000
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$
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2,094.34
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(1)
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In
the event of a stock split, stock dividend or similar transaction involving our ordinary shares, the number of shares registered
shall automatically be increased to cover the additional ordinary shares issuable pursuant to Rule 416 under the Securities
Act of 1933, as amended.
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(2)
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Estimated
solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
Includes the ordinary shares that the underwriters have the option to purchase
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(3)
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Calculated
pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.
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(4)
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In accordance with Rule 457(i) under the Securities Act, no separate
registration fee is required with respect to the warrants registered hereby.
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The
Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective
on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The
information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission becomes effective. This preliminary prospectus is not an offer to
sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Preliminary
Prospectus
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Subject
to Completion. Dated September 23, 2019
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TODOS
MEDICAL LTD.
24,000,000
Units
Consisting
of Ordinary Shares and Warrants to Purchase Ordinary Shares
at
$ Per Unit
This prospectus relates to our public offering
of 24,000,000 units, with each unit consisting of (i) one new ordinary share of Todos Medical Ltd., and two warrants, each to
purchase one ordinary share of Todos, which will be exercisable upon issuance and will expire five (5) years from issuance, at
an offering price of $ per unit. Each warrant will have an exercise
price equal to 125% of the offering price for each unit. The units will not be issued or certificated. The ordinary shares and
warrants comprising the units are immediately separable and will be issued separately. Our ordinary shares are currently quoted
on the U.S. OTCQB marketplace of OTC Link, or OTCQB, under the symbol “TOMDF”. On September 18, 2019, the closing
price of our ordinary shares, as reported on the OTCQB, was $0.27 per share. We are in the process of applying to list our ordinary
shares and the warrants on The Nasdaq Capital Market under the symbols “TOMD” and “TOMDW”, respectively.
No assurance can be given that our application will be approved.
We
are an “emerging growth company” as that term is used in the Jumpstart Our Business Start-ups Act of 2012 and, as
such, have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings.
Investing
in our ordinary shares involves a high degree of risk. See “Risk Factors” on page 7 to read about factors you
should consider before buying our ordinary shares.
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Per
Share
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Total
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Public
offering price
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$
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$
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Underwriting
discount(1)
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$
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$
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Proceeds
to Todos Medical Ltd., before expenses
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$
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$
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(1)
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Does
not include additional compensation payable to the underwriters. We have also agreed to issue to the underwriter warrants
to purchase a number of ordinary shares equal to 8% of the number of ordinary shares sold in this offering with an exercise
price equal to 125% of the public offering price. In addition, we have agreed to reimburse the underwriters for certain expenses.
The registration statement of which this prospectus forms a part also covers the ordinary shares issuable upon exercise of
the underwriters’ warrant. See “Underwriting” beginning on page 93 for additional information regarding
underwriting compensation.
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The
underwriters have the option to purchase up to an additional 3,600,000 units, 3,600,000 ordinary shares and/or 7,200,000 warrants
from us at the public offering price less the underwriting discount.
Neither
the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed
upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
The
underwriters expect to deliver the units against payment in New York, NY on or about September __, 2019.
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Dawson James Securities
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ViewTrade
Securities
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Prospectus
September__, 2019
TABLE
OF CONTENTS
Neither
we nor the underwriters have authorized anyone to provide you with information that is different from that contained in this prospectus,
any amendment or supplement to this prospectus, or in any free writing prospectus we may authorize to be delivered or made available
to you. Neither we nor the underwriters take responsibility for, and can provide no assurance as to the reliability of, any other
information that others may give you. We and the underwriters are offering to sell ordinary shares and seeking offers to purchase
ordinary shares only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate
only as of the date on the front of this prospectus, regardless of the time of delivery of this prospectus or any sale of ordinary
shares. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover
of this prospectus.
Neither
we nor any of the underwriters have taken any action to permit this offering or possession or distribution of this prospectus
in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves
about and to observe any restrictions relating to this offering and the distribution of this prospectus.
Unless
the context otherwise requires, references in this prospectus to the “Company,” “Todos Medical,” “Todos,”
“we,” “us,” “our” and other similar designations refer to Todos Medical Ltd. The terms “shekel,”
“Israeli shekel” and “NIS” refer to New Israeli Shekels, the lawful currency of the State of Israel, and
the terms “dollar,” “U.S. dollar” or “$” refer to United States dollars, the lawful currency
of the United States of America. All references to “shares” in this prospectus refer to the pre-reverse split ordinary
shares of Todos Medical Ltd., par value NIS 0.01 per share.
MARKET,
INDUSTRY AND OTHER DATA
This
prospectus contains estimates, projections and other information concerning our industry, our business, and the markets for our
products. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently
subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed
in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from our own
internal estimates and research as well as from reports, research surveys, studies and similar data prepared by market research
firms and other third parties, industry, medical and general publications, government data, and similar sources.
In
addition, assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree
of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and
other factors could cause our future performance to differ materially from our assumptions and estimates. See “Cautionary
Statement Regarding Forward-Looking Statements.”
PROSPECTUS
SUMMARY
This
summary highlights selected information contained elsewhere in this prospectus and does not contain all of the information
that you should consider in making your investment decision. Before deciding to invest in our ordinary shares, you should
read this entire prospectus carefully, including the sections of this prospectus entitled “Risk Factors” and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated
financial statements and the related notes included elsewhere in this prospectus.
Overview
of the Company
We
are a clinical-stage cancer in-vitro diagnostic, or IVD, company engaged in the development of a series of blood tests for the
detection of a variety of cancers based on our Todos Biochemical Infrared Analysis method, or TBIA, a proprietary technology for
detection of solid tumors using peripheral blood analysis. The method incorporates biochemistry, physics and signal processing.
The TBIA detection method is based on the cancer’s influence on the immune system which triggers biochemical changes in
peripheral blood mononuclear cells, or PBMC, and plasma. Our core technology, TBIA, is based on research conducted and technology
invented by the research teams at Ben Gurion University, or BGU, and Soroka Medical Center of Israel, or Soroka, whose intellectual
property has been licensed to us in consideration of our contractual obligation to pay certain licensing fees. In addition, we
are engaged in the development of blood tests for the early detection of neurodegenerative disorders, such as Alzheimer's disease.
We are pursuing this activity through our subsidiary, Breakthrough Diagnostics, Inc., which holds an exclusive license to the
LymPro Test®, an immune-based neurodiagnostic blood test developed at the University of Leipzig.
Products
Our
products serve as a preliminary cancer detection tool and cannot be regarded as providing a final diagnosis. Our products consist
of a blood test that causes what we believe to be minor risk and pain to the patient that is analyzed by our proprietary technology
to detect the presence of various cancers. Our test analysis results will be provided to the healthcare provider who may decide
to refer the patient for additional detections such as colonoscopy for further determination of cancer presence. Our cancer detection
kit includes a glass slide upon which the PBMC and the plasma are placed. Some tests might also include a salt solution that is
needed for the blood separation process. There is a different test for each cancer type.
We
have developed two cancer detection kits for breast cancer screening and diagnosis and are developing a colon cancer screening
product.
TM-B1
is a test designed specifically for breast cancer screening. It is indicated for women who meet the following criteria: female
subjects aged 25 years and older, without a diagnosis of inflammatory or autoimmune disease. TM-B1 is to be used as a diagnostic
method to indicate whether a malignancy is present or not. TM-B1 assay results should be used in conjunction with other common
diagnostic tests as part of breast cancer screening.
TM-B2
is a test designed specifically for breast cancer screening and indicated for women who meet the following criteria: Female subjects,
aged 25 years and older, without a diagnosis of inflammatory or autoimmune disease, who were diagnosed as presenting with a Breast
Imaging-Reporting and Data System, or BI-RADS, score of three or four (or equivalent). TM-B2 is to be used to further assess if
a malignancy is present or not. TM-B2 test results should be used in conjunction with other common diagnostic tests as part of
breast cancer screening and should not be used as stand-alone assay.
The
TM-C1 is a test designed specifically for colon cancer screening and is intended for the qualitative detection, and for the semi-quantitative
detection, of biochemical characteristics of the infrared readings of peripheral blood mononuclear cells and plasma, which may
be indicative of polyps and colorectal cancer. The TM-C1 test may integrate with an overall screening program for colorectal cancer.
Recent
Developments
Reverse
Split
At our annual general meeting of shareholders
held on April 29, 2019, our shareholders voted to approve a reverse share split of the Company’s ordinary shares within
a range of 10:1 to 150:1, to be effective at the ratio and on a date to be determined by the Board of Directors of the Company
(the “Reverse Split”). Although our shareholders approved the Reverse Split, all per share amounts and
calculations in this prospectus and the accompanying consolidated financial statements do not reflect the effects of the Reverse
Split, as the Board of Directors has not determined the final ratio or the effective date of the Reverse Split.
Amarantus
Transaction
Background
Amarantus
Bioscience Holdings, Inc., (“Amarantus”) had entered into an amended and restated license agreement with the University
of Leipzig (the “License Agreement”), pursuant to which Amarantus obtained an exclusive license to develop and commercialize
the LymPro Test®, an immune-based neurodiagnostic blood test for the detection of Alzheimer’s disease (the “License”)
On February 27, 2019, the Company entered
into a joint venture agreement with Amarantus, pursuant to which the Company issued Ordinary Shares representing 19.99% of the
Company to Amarantus, in exchange for Amarantus transferring to the Company 19.99% of the outstanding equity securities of Breakthrough
Diagnostics, Inc. (“Breakthrough”), a wholly owned subsidiary of Amarantus, and for Amarantus assigning the License
Agreement to Breakthrough. In addition, as part of the transaction, the Company provided Amarantus with an interest-free loan
in the amount of $45,000 to be used to pay certain financial obligations of Amarantus owed to the University of Leipzig prior
to the assignment of the License to Breakthrough, in connection with the license agreement and a related sponsored research agreement.
The maturity date of the loan is May 1, 2019. In addition, the Company provided Breakthrough with an interest-free loan in the
amount of $135,000 to be used to pay certain financial obligations of Breakthrough owed to the University of Leipzig after the
assignment of the License to Breakthrough, in connection with the license agreement and the related sponsored research agreement.
The maturity date of this loan is September 30, 2019. To date, the Company has loaned Amarantus and Breakthrough a total of $502,000
to cover fees owed by Amarantus and Breakthrough to the University of Leipzig in connection with the license agreement and the
sponsored research agreement.
As
part of the joint venture with Amarantus, the Company was granted an option to acquire the remaining 80.01% of Breakthrough held
by Amarantus in exchange for the issuance to Amarantus of Ordinary Shares of the Company representing an additional thirty percent
(30%) of the Company, such that upon consummation of the transaction the Company will own 100% of Breakthrough and Amarantus will
own 49.99% of the Company.
Exercise
of the Option
On April 14, 2019, we notified Amarantus
of our decision to exercise our option. The consummation of the change of control transaction with Amarantus, whereby we will
issue to Amarantus an additional thirty percent (30%) of the Company in exchange for obtaining Amarantus’s 80.01% ownership
stake in our jointly-owned subsidiary Breakthrough, such that we will own 100% of Breakthrough and Amarantus will own 49.99% of
the Company, is subject to shareholder approval. At the annual meeting of shareholders of the Company held on April 29, 2019,
the Company’s shareholders voted on a resolution approving the Company’s exercise of this option. We expect the formal
closing of the exercise of the option to take place this week.
The
LymPro Test is a diagnostic blood test that determines the ability of peripheral blood lymphocytes (PBLs) and monocytes to withstand
an exogenous mitogenic stimulation that induces them to enter the cell cycle. Scientists believe that certain diseases, most notably
Alzheimer’s disease, may be the result of compromised cellular machinery that leads to aberrant cell cycle re-entry by neurons
which then leads to apoptosis. LymPro Test uses peripheral blood lymphocytes as a surrogate for neuronal cell function, suggesting
a common relationship between PBLs and neurons in the brain. The LymPro Test focuses on measuring immune markers that are directly
linked to the cell proliferation processes and expands our understanding of how the body’s immune system responds to disease.
The Company believes that the LymPro Test may use the body’s immune system response to diagnose early and monitor the progression
of Alzheimer’s disease, which has the potential to be an invaluable tool for pharmaceutical companies’ development
of novel treatments for Alzheimer’s.
Convertible
Bridge Loan Transaction
We recently raised $1,473,750 from the
sale of convertible notes, which have an outstanding principal balance of $1,637,500. On February 27, 2019, we entered into the
first of several convertible bridge loan agreements, and have issued notes and warrants relating thereto, to obtain aggregate
loans in the principal amount of $1,637,500 from several private lenders, to finance the Company’s activities through the
consummation of a proposed public offering and our planned uplisting to the NASDAQ Capital Market. The loans, which have an original
issue discount of ten percent (10%), bear interest at a flat rate of ten percent (10%) and have a maturity date six months after
receipt of the loan funds. The loans are convertible into ordinary shares of the Company after the maturity date at a conversion
price equal to 70% of the average closing bid price of the Company’s Ordinary Shares in the five days prior to the conversion.
In the event the Company defaults under the loan agreement, the conversion price will be reduced to 60% of the average closing
bid price of the Company’s Ordinary Shares in the 15 days prior to the conversion. In addition, each lender received a warrant
to purchase an amount of ordinary shares equal to 25% of the amount loaned by such lender, with the warrant exercise price to
be equal to the offering price in the proposed public offering, or, in the event its loan is converted into shares, the warrant
exercise price will be equal to the applicable closing bid price of the Company’s shares at the time of the conversion of
the loan. The warrants may be exercised only during the period beginning on the date that is six months after the date that the
warrant exercise price and the number of warrant shares are determined, and ending on the date that is three years thereafter.
On March 10, 2019, we entered into an
amendment to the bridge loan agreement that we had entered into on February 27, 2019. The amendment provides for a 10% penalty
if we repay the loan prior to the maturity date. In addition, we agreed to grant each lender a warrant to purchase an additional
amount of ordinary shares equal to 25% of the amount loaned by such lender, under the same terms as the original warrant, but
with a warrant exercise price equal to 150% of the closing bid price of our shares on the day prior to the closing of the bridge
loan transaction.
We are in default of some of the convertible loan agreements
since the maturity date has passed and we have not repaid the loans that have become due.
Distribution
Agreements
On
December 20, 2018, we entered into a Marketing and Reseller Agreement with Care G.B. Plus Ltd. (“Care”) for the resale
of our breast cancer screening products in Israel. We appointed Care as our exclusive distributor in Israel, and Care undertook
to establish at least one laboratory in Israel to support the assay protocol and to run a fifty (50) patient pilot trial to evaluate
the performance of the laboratory and Care’s support team. Care is fifty-percent owned by Assaf Gold, who was the beneficial
owner of 5.49% of our issued and outstanding shares at the time the Care agreement was signed by the Company.
On
March 28, 2019, we entered into a Distribution Agreement with Orot Plus Ltd. for the distribution of our breast cancer screening
products in Romania and Austria. We appointed Orot as our exclusive distributor in Romania and Austria, and Orot undertook to
utilize local laboratories or establish its own laboratories in the territory to support the assay protocol and to run a fifty
(50) patient survey to evaluate the performance of our products.
Corporate
Background
We
were incorporated in the State of Israel in April 2010, and are subject to the Companies Law. Since March 7, 2017, our Ordinary
Shares have been quoted on the OTCQB under the symbol TOMDF. In January 2016, we incorporated our fully held subsidiary, Todos
(Singapore) Pte. Ltd. In March 2016, Todos (Singapore) Pte. Ltd. changed its name to Todos Medical Singapore Pte. Ltd., or Todos
Singapore. Todos Singapore has not yet commenced its business operations.
Our
principal executive office is located at 1 HaMada Street, Rehovot, Israel and our telephone number in Israel is
+972-8-633-3964. Our web address is www.todosmedical.com. The information contained on our website or available through our
website is not incorporated by reference into and should not be considered a part of this prospectus, and the reference to
our website in this prospectus is an inactive textual reference only. Any website references (URL’s) in this
Registration Statement are inactive textual references only and are not active hyperlinks. The contents of our website is not
part of this prospectus, and you should not consider the contents of our website in making an investment decision with
respect to our ordinary shares. Puglisi & Associates is our agent in the United States, and its address is 850 Library
Avenue, Suite 204 Newark, Delaware 19711.
All
per share amounts and calculations in this Registration Statement and the accompanying financial statements do not reflect the
effects of the planned Reverse Split.
Our independent registered public accounting
firm indicated in its report on our financial statements for the year ended December 31, 2018, as included elsewhere in this registration
statement, that conditions raise substantial doubts about our ability to continue as a “going concern.” In addition,
our financial status creates substantial doubt whether we will continue as a going concern.
Implications
of Being an “Emerging Growth Company” and a Foreign Private Issuer
As
a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company”
as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage
of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions
include:
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reduced
executive compensation disclosure;
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exemptions
from the requirement to hold a non-binding advisory vote on executive compensation, including
golden parachute compensation; and
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an
exemption from the auditor attestation requirement in the assessment of our internal
control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002.
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We
may take advantage of these provisions until December 31, 2022 or such earlier time that we are no longer an emerging growth company.
We would cease to be an emerging growth company upon the earlier to occur of: (1) the last day of the fiscal year in which we
have total annual gross revenue of $1.07 billion or more; (2) the date on which we have issued more than $1.0 billion in nonconvertible
debt during the previous three years; or (3) the date on which we are deemed to be a large accelerated filer under the rules of
the Securities and Exchange Commission, or the SEC. In addition, Section 107 of the JOBS Act also provides that an emerging growth
company can take advantage of an extended transition period for complying with new or revised accounting standards applicable
to public companies.
We
currently report and will continue to report under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as a
non-U.S. company with foreign private issuer status. Even after we no longer qualify as an emerging growth company, as long as
we continue to qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange
Act that are applicable to U.S. domestic public companies, including:
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the
sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations
with respect to a security registered under the Exchange Act;
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the
sections of the Exchange Act requiring insiders to file public reports of their share
ownership and trading activities and liability for insiders who profit from trades made
in a short period of time; and
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the
rules under the Exchange Act requiring the filing with the SEC of quarterly reports on
Form 10-Q containing unaudited financial statements and other specified information,
and current reports on Form 8-K upon the occurrence of specified significant events,
although we intend to report our results of operations voluntarily on a quarterly basis.
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Both
foreign private issuers and emerging growth companies are also exempt from certain more stringent executive compensation disclosure
rules. Thus, even if we no longer qualify as an emerging growth company, but remain a foreign private issuer, we will continue
to be exempt from the more stringent compensation disclosures required of companies that are neither an emerging growth company
nor a foreign private issuer.
We
would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by U.S.
residents, and any one of the following three circumstances applies: (i) the majority of our executive officers or directors are
U.S. citizens or residents, (ii) more than 50% of our assets are located in the United States or (iii) our business is administered
principally in the United States.
In
this prospectus, we have taken advantage of certain of the reduced reporting requirements as a result of being an emerging growth
company and a foreign private issuer. Accordingly, the information contained herein may be different than the information you
receive from other public companies in which you hold equity securities.
The
Offering
Number
of shares outstanding before the offering
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101,502,961 ordinary
shares.
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Securities being
offered by the Company
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24,000,000 units,
with each unit consisting of one ordinary share and two warrants, each to purchase one ordinary share.
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Offering price
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$ per
unit.
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Number of shares
outstanding immediately after the offering
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125,502,961 ordinary shares, assuming no
exercise of the warrants.
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Over-Allotment
Option
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We have granted
the underwriters an option for a period of 45 days after the date of this prospectus to purchase up to an additional 3,600,000 units,
up to an additional 3,600,000 ordinary shares and/or up to an additional 7,200,000 warrants.
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Proposed Nasdaq
Capital Market listing
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We are in the
process of applying to list our ordinary shares and warrants on the Nasdaq Capital Market under the symbols “TOMD”
and “TOMDW,” respectively
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OTCQB Symbol
for our ordinary shares
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“TOMDF”
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Use of proceeds
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We estimate that the net proceeds to us from this
offering will be approximately $ million, or approximately $ million if the underwriters exercise
their option to purchase additional units, ordinary shares and/or warrants in full, after deducting the estimated underwriting
discount and estimated offering expenses payable by us, based on the public offering price of $
per ordinary share, without giving effect to the potential exercise of the warrants.
We intend to use the net proceeds from this offering,
together with our existing cash and cash equivalents and short-term deposits: (i) to repay our outstanding convertible
bridge loans, (ii) to fund clinical development and clinical trials of our products, and (iii) for general corporate purposes
and working capital.
See “Use of Proceeds” for a complete
description.
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Terms of the
warrants offered as part of the units
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Each unit issued
in this offering includes two warrants, each to purchase one ordinary share at an exercise price of $ per
ordinary share. The warrants are exercisable immediately and will expire on the fifth anniversary date of the closing
of this offering. This prospectus also relates to the offering of the ordinary shares issuable upon exercise of the warrants. See
“Description of Share Capital – Warrants Included in the Units” for a complete description.
|
|
|
|
Underwriters’
Warrants
|
|
We are obligated
to issue Dawson James Securities Inc. or its designees at the closing of this offering warrants to purchase the number of
ordinary shares equal to 8% of the aggregate number of ordinary shares sold in this offering. The underwriters’
warrants will be exercisable at any time beginning six months after the closing of this offering, in whole or in part, and
will expire five years after the effective date of the registration statement of which this prospectus forms a part. The
exercise price of the underwriters’ warrants will equal 125% of the public offering price. This prospectus also
relates to the offering of ordinary shares issuable upon exercise of the underwriters’ warrants.
|
|
|
|
Risk Factors
|
|
See “Risk
Factors” and the other information in this prospectus for a discussion of the factors you should consider before
deciding to invest in our ordinary shares.
|
Unless
otherwise indicated, all information in this prospectus assumes or gives effect to:
|
●
|
no exercise of the
underwriters’ option to purchase up to an additional 3,600,000 units, up to an additional 3,600,000 ordinary shares
or up to an additional 7,200,000 warrants.
|
Summary
Financial Data
The
following tables summarize our consolidated financial data. We have derived the following statements of operations
data for the years ended December 31, 2018, 2017, and 2016, and balance sheet data as of December 31, 2018 and 2017, from
our audited consolidated financial statements included elsewhere in this prospectus. Our selected consolidated
statements of operations data for the years ended December 31, 2015 and 2014, and the selected consolidated balance sheet data
as of December 31, 2016, 2015, and 2014 have been derived from our audited consolidated financial statements not included in this
prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future, and
our results for any interim period are not necessarily indicative of results that may be expected for any full year. The
following consolidated summary financial data should be read in conjunction with “Selected Consolidated Financial Data,”
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated
financial statements and related notes included elsewhere in this prospectus.
U.S. dollars in thousands, except share data
|
|
Year Ended December 31,
|
|
Consolidated Statements of Operations Data
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Research and development expenses, net
|
|
$
|
(459
|
)
|
|
|
(721
|
)
|
|
|
(318
|
)
|
|
|
(374
|
)
|
|
|
(336
|
)
|
General and administrative expenses
|
|
|
(920
|
)
|
|
|
(617
|
)
|
|
|
(411
|
)
|
|
|
(457
|
)
|
|
|
(64
|
)
|
Operating loss
|
|
|
(1,379
|
)
|
|
|
(1,338
|
)
|
|
|
(729
|
)
|
|
|
(831
|
)
|
|
|
(401
|
)
|
Financing income (expenses), net
|
|
|
921
|
|
|
|
(1,337
|
)
|
|
|
75
|
|
|
|
12
|
|
|
|
(79
|
)
|
Net loss
|
|
|
(458
|
)
|
|
|
(2,675
|
)
|
|
|
(653
|
)
|
|
|
(819
|
)
|
|
|
(322
|
)
|
Net loss per share (basic and diluted)
|
|
$
|
(0.006
|
)
|
|
|
(0.04
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
Basic and diluted weighted average number of Ordinary Shares outstanding
|
|
|
70,869,924
|
|
|
|
68,587,261
|
|
|
|
62,467,556
|
|
|
|
45,190,017
|
|
|
|
28,450,908
|
|
Balance
Sheet Data
U.S. dollars in thousands, except share data
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Cash and cash equivalents
|
|
$
|
64
|
|
|
$
|
683
|
|
|
$
|
439
|
|
|
$
|
156
|
|
|
$
|
61
|
|
Working capital (deficit)
|
|
$
|
(1,093
|
)
|
|
$
|
468
|
|
|
$
|
325
|
|
|
$
|
107
|
|
|
$
|
25
|
|
Total assets
|
|
$
|
199
|
|
|
$
|
816
|
|
|
$
|
584
|
|
|
$
|
292
|
|
|
$
|
129
|
|
Total current liabilities
|
|
$
|
1,199
|
|
|
$
|
245
|
|
|
$
|
135
|
|
|
$
|
79
|
|
|
$
|
100
|
|
Total long-term liabilities
|
|
$
|
217
|
|
|
$
|
1,911
|
|
|
$
|
853
|
|
|
$
|
742
|
|
|
$
|
617
|
|
Shareholders’ deficit
|
|
$
|
(1,216
|
)
|
|
$
|
(1,340
|
)
|
|
$
|
(404
|
)
|
|
$
|
(528
|
)
|
|
$
|
(588
|
)
|
Number of Ordinary Shares outstanding
|
|
|
72,399,932
|
|
|
|
70,256,911
|
|
|
|
63,747,504
|
|
|
|
59,125,670
|
|
|
|
33,352,200
|
|
Number of Preferred Shares Outstanding
|
|
|
-
|
|
|
|
-
|
|
|
|
3,333,471
|
|
|
|
3,096,195
|
|
|
|
3,000,000
|
|
RISK
FACTORS
An
investment in our ordinary shares involves a high degree of risk. You should carefully consider the following factors and other
information in this prospectus before deciding to invest in us. If any of the following risks actually occur, our business, financial
condition, results of operations and prospects for growth would likely suffer. As a result, you could lose all or part of your
investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may materially
and adversely affect our business, financial condition and results of operations. See also “Cautionary Statement Regarding
Forward-Looking Statements.”
Risks
Related to Our Business
We
have a history of losses, may incur future losses and may not achieve profitability.
We
are a clinical-stage medical diagnostics company with a limited operating history. We have incurred net losses in each fiscal
year since we commenced operations in 2010. We incurred net losses of $653,461, $2,675,372, and $457,541 in the fiscal years ended
December 31, 2016, 2017, and 2018, respectively. As of December 31, 2018, our accumulated deficit was $5,693,353. Our losses could
continue for the foreseeable future, as we continue our investment in research and development and clinical trials to complete
the development of our technology and to attain regulatory approvals, begin the commercialization efforts for our cancer detection
kits, increase our marketing and selling expenses, and incur additional costs as a result of being a publicly reporting company
in the United States. The extent of our future operating losses and the timing of becoming profitable are highly uncertain, and
we may never achieve or sustain profitability.
Even
if this offering is successful, we have a need for substantial additional financing and will have to significantly delay, curtail
or cease operations if we are unable to secure such financing.
The
Company requires substantial additional financing to fund its operations. As of March 31, 2019, our unaudited cash holdings were
$212,000. In 2018, we managed our research and development activities taking into account our available resources. We continued
with clinical trials at Kaplan Hospital and Beilinson Hospital (Israel) for TM-B1 and TM-C1, but did not expand our clinical trials
activities. We believe that our currently available capital resources, together with the net proceeds of this offering, will be
sufficient to fund our operations and meet our obligations for up to eighteen months. We will need to raise additional funds to
expand the commercialization of our products.
We
will require significant additional financing in the future to fund our operations. Our future funding requirements will depend
on many factors, including, but not limited to:
|
●
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the
progress, results and costs of our current and planned clinical trials of our current
products and our other future products;
|
|
●
|
the
cost, timing and outcomes of regulatory review of our products and our other future products;
|
|
●
|
the
scope, progress, results and costs of product development, laboratory testing, manufacturing,
preclinical development and clinical trials for any other products that we may develop
or otherwise obtain in the future;
|
|
●
|
the
cost of our future activities, including establishing sales, marketing and distribution
capabilities for any product candidates in any particular geography where we receive
marketing approval for such products;
|
|
●
|
the
terms and timing of any collaborative, licensing and other arrangements that we may establish;
|
|
●
|
the
costs of preparing, filing and prosecuting patent applications, maintaining and enforcing
our intellectual property rights and defending intellectual property-related claims;
and
|
|
●
|
the
level of revenue, if any, received from commercial sales of any products for which we
receive marketing approval.
|
In order to market and sell our products
in Israel, we require the approval of the Israeli Ministry of Health, which approval we have obtained. To the best of our knowledge,
approval of our products by the Ministry of Health requires us to comply with CE mark approval and International Organization
for Standardization (ISO) 13485 (both of which we have already obtained).
Identifying
potential products and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process
that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and
achieve product sales. In addition, our products, if approved, may not achieve commercial success. Our product revenue, if any,
will be derived from or based on sales of products that may not be commercially available for many years, if at all. Accordingly,
we will need to continue to rely on additional financing to achieve our business objectives. Any additional fundraising efforts
may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize
our products.
Furthermore,
if adequate additional financing on acceptable terms is not available, we may not be able to develop our cancer detection kits
at the rate or to the stage we desire. and we may have to delay or abandon the commercialization of our cancer detection kits.
Alternatively, we may be required to prematurely license to third parties the rights to further develop or to commercialize our
cancer detection kits on terms that are not favorable to us. Any of these factors could materially adversely affect our business,
financial condition and results of operations.
We
cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all, and the
terms of any financing may adversely affect the interests or rights of our shareholders. Even if we believe that we have sufficient
funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have
specific strategic considerations. The issuance of additional securities, whether equity or debt, by us, or the possibility of
such issuance, may cause the market price of our shares to decline.
The
report of our independent registered public accounting firm expresses substantial doubt about our ability to continue as a going
concern.
Our
independent registered public accounting firm indicated in its report on our financial statements for the year ended December
31, 2018, that conditions exist that raise substantial doubt about our ability to continue as a “going concern.” A
going concern paragraph included in our independent registered public accounting firm’s report on our consolidated financial
statements could impair investor perceptions and our ability to finance our operations through the sale of equity, incurring debt,
or other financing alternatives. Our ability to continue as a going concern will depend upon many factors beyond our control including
the availability and terms of future funding. If we are unable to achieve our goals and raise the necessary funds to finance our
operations, our business would be jeopardized, and we may not be able to continue. If we ceased operations, it is likely that
all of our investors would lose their investment.
We
may not succeed in completing the development of our products, commercializing our products or generating significant revenues.
Since
commencing our operations, we have focused on the research and development and limited clinical trials of our cancer detection
kits. Our ability to generate revenues and achieve profitability depends on our ability to successfully complete the development
of our products, obtain market approval and generate significant revenues. The future success of our business cannot be determined
at this time, and we do not anticipate generating revenues from product sales for the foreseeable future. In addition, we face
a number of challenges with respect to our future commercialization efforts, including, among others, that:
|
●
|
we
may not have adequate financial or other resources to complete the development of our
product, including two stages of clinical development that are necessary in order to
commercialize our products;
|
|
●
|
we
may not be able to manufacture our products in commercial quantities, at an adequate
quality or at an acceptable cost;
|
|
●
|
we
may not be able to meet the timing schedule for (a) completing successful clinical trials
in the U.S.; and (b) receiving U.S. Food and Drug Administration, or FDA, approval within
our goal of approximately two to four years;
|
|
●
|
we
may not be able to maintain our CE mark due to the regulatory changes;
|
|
●
|
we
may never receive FDA approval for our intended development plans;
|
|
●
|
we
may not be able to establish adequate sales, marketing and distribution channels;
|
|
●
|
healthcare
professionals and patients may not accept our cancer detection kits;
|
|
●
|
technological
breakthroughs in cancer detection, treatment and prevention may reduce the demand for
our products;
|
|
●
|
changes
in the market for cancer detection, new alliances between existing market participants
and the entrance of new market participants may interfere with our market penetration
efforts;
|
|
●
|
third-party
payors may not agree to reimburse patients for any or all of the purchase price of our
products, which may adversely affect patients’ willingness to purchase our cancer
detection kits;
|
|
●
|
uncertainty
as to market demand may result in inefficient pricing of our cancer detection kits;
|
|
●
|
we
may face third-party claims of intellectual property infringement;
|
|
●
|
we
may fail to obtain or maintain regulatory approvals for our cancer detection kits in
our target markets or may face adverse regulatory or legal actions relating to our cancer
detection kits even if regulatory approval is obtained; and
|
|
●
|
we
are dependent upon the results of ongoing clinical studies relating to our cancer detection
kits and the products of our competitors. We may fail in obtaining positive results.
|
If
we are unable to meet any one or more of these challenges successfully, our ability to effectively commercialize our cancer detection
kits could be limited, which in turn could have a material adverse effect on our business, financial condition and results of
operations.
We
are currently in the process of improving our technology and adapting to the high throughput methodology.
We
plan to change our protocol and measurement instrument as well as our sample handling in order to adapt it to new high throughput
methodology. The changes we plan to implement in the protocol and measurement instrument are significant. The new protocol aims
to be more robust, reproducible, fast and easy to handle, however, this transformation from the older manual protocol to the new
protocol incurs several risks. To our management’s knowledge, the new protocol will not impact the previously obtained European
Conformity, or CE, mark of approval of the TBIA method. The results may not be as promising as the former version and although
some procedures may be more reproducible, these procedures will unfortunately damage some molecules, which were part of the diagnostic
features in the previous protocol.
The
previous tests we performed were preliminary or limited un-blinded studies.
We
consider the tests conducted by us, as of the current date, under our method, to be preliminary or limited, as they include a
relatively small number of test subjects. Thus, there is a risk in having less sufficient sensitivity and/or specificity in the
trials we plan on conducting with larger populations, in comparison to the preliminary data we have gathered thus far. Increasing
the population can increase the variance in the medical condition of the control patients as well as the cancer patients, thus
affecting our test performances with regard to cancer detection.
If
healthcare professionals do not recommend our product to their patients, our cancer detection kits may not achieve market acceptance
and we may not become profitable.
Cancer
detection candidates are generally referred to a specified device by their healthcare professional and detection technologies
are purchased by prescription. If healthcare professionals, including physicians, do not recommend or prescribe our product to
their patients, our cancer detection kits may not achieve market acceptance and we may not become profitable. In addition, physicians
have historically been slow to change their medical diagnostic and treatment practices because of perceived liability risks arising
from the use of new products. Delayed adoption of our cancer detection kits by healthcare professionals could lead to a delayed
adoption by patients and third-party payors. Healthcare professionals may not recommend or prescribe our cancer detection kits
until certain conditions have been satisfied, including, among others:
|
●
|
sufficient
long-term clinical evidence to convince them to supplement their existing detection methods
and device recommendations;
|
|
●
|
recommendations
from other prominent physicians, educators and/or associations that our cancer detection
kits are safe and effective;
|
|
●
|
obtainment
of favorable data from clinical studies for our cancer detection kits; and
|
|
●
|
availability
of reimbursement or insurance coverage from third-party payors.
|
We
cannot predict when, if ever, healthcare professionals and patients may adopt the use of our cancer detection kits. Even if favorable
data is obtained from clinical studies for our cancer detection kits, there can be no assurance that prominent physicians would
endorse it or that future clinical studies will continue to produce favorable data regarding our cancer detection kits. In addition,
prolonged market exposure may also be a pre-requisite to reimbursement or insurance coverage from third-party payors. If our cancer
detection kits do not achieve an adequate level of acceptance by patients, healthcare professionals and third-party payors, we
may not generate significant product revenues and we may not become profitable.
Our
reliance on limited source suppliers could harm our ability to meet demand for our product in a timely manner or within budget.
We
currently depend on a limited number of source suppliers for some of the components necessary for the production of our product.
Our current suppliers have been able to supply the required quantities of such components to date. However, if the supply of these
components is disrupted or terminated or if our current suppliers are unable to supply required quantities of components, we may
not be able to find alternative sources for these key components in a timely manner. Although we are planning to maintain strategic
inventory of key components, the inventory may not be sufficient to satisfy the demand for our products if such supply is interrupted
or otherwise affected by catastrophic events. As a result, we may be unable to meet the demand for our cancer detection kits,
which could harm our ability to generate revenues, lead to customer dissatisfaction and damage our reputation. If we are required
to change the manufacturer of any of these key components, there may be a significant delay in locating a suitable alternative
manufacturer. The delays associated with the identification of a new manufacturer could delay our ability to manufacture our cancer
detection kits in a timely manner or within budget. Furthermore, in the event that the manufacturer of a key component of our
cancer detection kits ceases operations or otherwise ceases to do business with us, we may not have access to the information
necessary to enable another supplier to manufacture the component. The occurrence of any of these events could harm our ability
to meet demand for our cancer detection kits in a timely manner or within budget.
The
use of any of our cancer detection kits could result in product liability or similar claims that could have an adverse effect
on our business, financial condition, results of operations and our reputation.
Our
business exposes us to an inherent risk of potential product liability or similar claims related to the manufacturing, marketing
and sale of medical devices. The medical device industry has historically been litigious, and we face financial exposure to product
liability or similar claims if the use of our cancer detection kits were to cause or contribute to injury or death, including,
without limitation, harm to the body caused by the procedure or inaccurate diagnoses from the procedure that could affect treatment
options. There is also the possibility that defects in the design or manufacture of any of these products might necessitate a
product recall. Although we plan to maintain product liability insurance, the coverage limits of these policies may not be adequate
to cover future claims. In the future, we may be unable to maintain product liability insurance on acceptable terms or at reasonable
costs and such insurance may not provide us with adequate coverage against potential liabilities. A product liability claim, regardless
of merit or ultimate outcome, or any product recall could result in substantial costs to us, damage to our reputation, customer
dissatisfaction and frustration, and a substantial diversion of management attention. A successful claim brought against us in
excess of, or outside of, our insurance coverage could have a material adverse effect on our business, financial condition, results
of operations and our reputation.
In
addition, from time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course
of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise
from time to time that may harm our business. Our management is currently not aware of any such legal proceedings or claims that
we believe will have a material adverse effect on our business, financial condition or operating results.
We
are entering a potentially highly competitive market.
The
diagnostic, pharmaceutical and biopharmaceutical industries are characterized by intense competition and rapid, significant technological
changes. Many companies, research institutions and universities are conducting research and development in a number of areas similar
to those that we focus on that could lead to the development of new products which could possibly compete with our own. Most of
the companies against which we will compete have substantially greater financial, technical, manufacturing, marketing, distribution
and other resources. A number of these companies may have or may develop technologies for developing products for detecting various
cancers that could prove to be the same or even superior to ours. We expect technological developments in the diagnostic, pharmaceutical,
biopharmaceutical and related fields to occur at a rapid rate, and we believe competition will intensify as advances in these
fields are made.
Our
future success depends in part on our ability to retain our executive officers and to attract, retain and motivate other qualified
personnel.
We
are highly dependent on the principal members of our management, research and development team and scientific staff. In order
to implement our business strategy, we will need to retain our key personnel with expertise in the areas of research and development,
clinical testing, government regulation, manufacturing, finance, marketing and sales. The inability to recruit and retain qualified
personnel, or the loss of the services of our executive officers, without proper replacement, may impede the progress of our development
and commercialization objectives.
Any
disruption at our facility could materially adversely affect our business, financial condition and results of operations.
We
take precautions to safeguard our facility, including obtaining insurance coverage and implementing health and safety protocols
and off-site storage of computer data. However, a natural or other disaster, such as a fire, flood or an armed conflict involving
Israel, as detailed further below, could damage or destroy our facility and our manufacturing equipment or inventory, cause substantial
delays in our operations and otherwise cause us to incur additional unanticipated expenses. In addition, the insurance we maintain
against fires, floods and other natural disasters may not be adequate to cover our losses in any particular case and it does not
cover losses resulting from armed conflicts or terrorist attacks in Israel. Damage to our facility, our other property or to any
of our suppliers, whether located in Israel or elsewhere, due to fire, a natural disaster or casualty event or an armed conflict,
could materially adversely affect our business, financial condition and results of operations, with or without insurance.
We
may face tax liability as a result of the Amarantus transaction.
On February 27, 2019, the Company entered
into a joint venture agreement with Amarantus, pursuant to which the Company issued Ordinary Share representing 19.99% of the
Company to Amarantus, in exchange for Amarantus transferring to the Company 19.99% of Breakthrough, a wholly owned subsidiary
of Amarantus, and for Amarantus assigning its amended and restated license agreement with the University of Leipzig for an exclusive
license to develop and commercialize the LymPro Test®, an immune-based neurodiagnostic blood test for the detection of Alzheimer’s
disease to Breakthrough. On April 14, 2019, the Company notified Amarantus of the Company’s decision to exercise its option
to acquire the remaining 80.01% of Breakthrough held by Amarantus in exchange for the issuance to Amarantus of Ordinary Shares
of the Company representing an additional thirty percent (30%) of the Company, such that the Company will own 100% of Breakthrough,
and Amarantus will own 49.99% of the Company. At the annual meeting of shareholders of the Company held on April 29, 2019, the
Company’s shareholders voteed on a resolution approving the Company’s exercise of this option. To the extent that
the value of the assets transferred to the Company in the transaction is not comparable to the value of the shares of the Company
issued to Amarantus in this transaction, then the Company may face a tax liability.
Risks
Related to Our Intellectual Property
We
may not successfully maintain our existing license agreement with BGU and Soroka, and we are currently not in compliance with
the repayment terms of the license agreement, which could adversely affect our ability to develop and commercialize our product
candidates.
We
rely on our existing License Agreement with B.G. Negev Technologies and Applications Ltd., an affiliate of BGU, and Mor
Research Applications Ltd., an affiliate of Soroka, with respect to the development of our core cancer-screening technology,
TBIA. We will rely on Breakthrough's license agreement with the University of Leipzig with respect to the development of our
Alzheimer's detection technology. Our business also relies on establishing new collaborative and licensing arrangements in
the future. Our failure to maintain our existing licenses, or to develop new collaborative and licensing arrangements in the
future, could adversely affect our ability to develop and commercialize our products and could adversely affect our business
prospects, financial condition or ability to develop and commercialize our products. With respect to our cancer-screening
technology, we are not currently in compliance with the repayment terms of the License Agreement with our licensor, BG Negev.
As such, we are currently negotiating an amendment to the License Agreement which would allow us to pay the abovementioned
payments at a later date.
We
may not be able to further establish or maintain such licensing and collaboration arrangements necessary to develop and commercialize
our products. Even if we are able to maintain or establish licensing or collaboration arrangements, these arrangements may not
be on favorable terms and may contain provisions that will restrict our ability to develop, test and market our product. Any failure
to maintain or establish licensing or collaboration arrangements on favorable terms could adversely affect our business prospects,
financial condition or ability to develop and commercialize our products.
Our
license agreement contains provisions that could give rise to disputes regarding the rights and obligations of the parties. These
and other possible disagreements could lead to termination of the agreement or delays in collaborative research, development,
supply, or commercialization of certain products, or could require or result in litigation or arbitration. Moreover, disagreements
could arise with our collaborators over rights to intellectual property or our rights to share in any of the future revenues of
products developed by our collaborators. These kinds of disagreements could result in costly and time-consuming litigation. Any
such conflicts with our collaborators could reduce our ability to obtain future collaboration agreements and could have a negative
impact on our relationship with existing collaborators.
If
we are unable to protect our intellectual property rights, our competitive position could be harmed.
Our
success and ability to compete depends in large part upon our ability to protect our intellectual property. We face several risks
and uncertainties in connection with our intellectual property rights, including, among others:
|
●
|
pending
and future patent applications may not result in the issuance of patents or, if issued,
may not be issued in a form that will be advantageous to us;
|
|
●
|
our
issued patents may be challenged, invalidated or legally circumvented by third parties;
|
|
●
|
our
patents may not be upheld as valid and enforceable or prevent the development of competitive
products;
|
|
●
|
the
eligibility of certain inventions related to diagnostic medicine, more specifically diagnostic
methods and processes, for patent protection in the United States has been limited recently
which may affect our ability to enforce our issued patents in the United States or may
make it difficult to obtain broad patent protection going forward in the United States;
|
|
●
|
for
a variety of reasons, we may decide not to file for patent protection on various improvements
or additional features; and
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intellectual
property protection and/or enforcement may be unavailable or limited in some countries
where laws or law enforcement practices may not protect our proprietary rights to the
same extent as the laws of the United States, the European Union, or the EU, or Israel.
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Consequently,
our competitors could develop, manufacture and sell products that directly compete with our products, which could decrease our
sales and diminish our ability to compete. In addition, competitors could attempt to develop their own competitive technologies
that fall outside of our intellectual property rights. If our intellectual property does not adequately protect us from our competitors’
products and methods, our competitive position could be materially adversely affected.
Because
the medical device industry is litigious, we are susceptible to intellectual property suits that could cause us to incur substantial
costs or pay substantial damages or prohibit us from selling our cancer detection kits.
There
is a substantial amount of litigation over patent and other intellectual property rights in the medical device industry. Whether
or not a product infringes a patent involves complex legal and factual considerations, the determination of which is often uncertain.
Our management is presently unaware of any other parties’ valid patents and proprietary rights which our evolving product
designs would infringe. Searches typically performed to identify potentially infringed patents of third parties are often not
conclusive and, because patent applications can take many years to issue, there may be applications now pending, which may later
result in issued patents which our current or future products may infringe. In addition, our competitors or other parties may
assert that our cancer detection kits and the methods employed may be covered by patents held by them. If any of our products
infringes a valid patent, we could be prevented from manufacturing or selling such product unless we are able to obtain a license
or able to redesign the product in such a manner as to avoid infringement. A license may not always be available or may require
us to pay substantial royalties. We also may not be successful in any attempt to redesign our product to avoid infringement. Infringement
and other intellectual property claims, with or without merit, can be expensive and time-consuming to litigate and could divert
our management’s attention from operating our business.
The
steps we have taken to protect our intellectual property may not be adequate, which could have a material adverse effect on our
ability to compete in the market.
In
addition to filing patent applications, we rely on confidentiality, non-compete, non-disclosure and assignment of inventions provisions,
as appropriate, in our agreements with our employees, consultants, and service providers, to protect and otherwise seek to control
access to, and distribution of, our proprietary information. These measures may not be adequate to protect our intellectual property
from unauthorized disclosure, third-party infringement or misappropriation, for the following reasons:
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the
agreements may be breached, may not provide the scope of protection we believe they provide
or may be determined to be unenforceable;
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we
may have inadequate remedies for any breach;
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proprietary
information could be disclosed to our competitors; or
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others
may independently develop substantially equivalent or superior proprietary information
and techniques or otherwise gain access to our trade secrets or disclose such technologies.
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Specifically,
with respect to non-compete agreements, we may be unable to enforce these agreements, in whole or in part, and it may be difficult
for us to restrict our competitors from gaining the expertise that our former employees gained while working for us. If our intellectual
property is disclosed or misappropriated, it could harm our ability to protect our rights and could have a material adverse effect
on our business, financial condition and results of operations.
We
may need to initiate lawsuits to protect or enforce our patents and other intellectual property rights, which could be expensive
and, if we lose, could cause us to lose some of our intellectual property rights, which would harm our ability to compete in the
market.
We
rely on patents to protect a portion of our intellectual property and our competitive position. Patent law relating to the scope
of claims in the technology fields in which we operate is still evolving and, consequently, patent positions in the medical device
industry are generally uncertain. In order to protect or enforce our patent rights, we may initiate patent and related litigation
against third parties, such as infringement suits or interference proceedings. Any lawsuits that we initiate could be expensive,
take significant time and divert our management’s attention from other business concerns and the outcome of litigation to
enforce our intellectual property rights in patents, copyrights, trade secrets or trademarks is highly unpredictable. Litigation
also puts our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing.
In addition, we may provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and
the damages or other remedies awarded, including attorney fees, if any, may not be commercially valuable. The occurrence of any
of these events could have a material adverse effect on our business, financial condition and results of operations.
Risks
Related to Regulations
If
we or our future distributors do not obtain and maintain the necessary regulatory clearances or approvals in a specific country
or region, we will not be able to market and sell our cancer detection kits or future products in that country or region.
We
intend to market our cancer detection kits in a number of international markets. To be able to market and sell our cancer detection
kits in a specific country or region, we or our distributors must comply with the regulations of that country or region. While
the regulations of some countries do not impose barriers to marketing and selling part or all of our products or only require
notification, others require that we or our distributors obtain the approval of a specified regulatory authority. These regulations,
including the requirements for approvals and the time required for regulatory review, vary from country to country. Obtaining
regulatory approvals is expensive and time-consuming, and we cannot be certain that we or our distributors will receive regulatory
approvals for our cancer detection kits or any future products in each country or region in which we plan to market such products.
If we modify our cancer detection kits or any future products, we or our distributors may need to apply for new regulatory approvals
or regulatory authorities may need to review the planned changes before we are permitted to sell them.
The
Medicines and Healthcare products Regulatory Agency, or MHRA, is the United Kingdom-based European Authority responsible for the
issuance of CE Mark approval. In 2013, our regulatory authorized representative in Europe submitted an application to the MHRA
for the CE Mark approval of our TBIA method. We obtained this approval on December 9, 2013 with the receipt of a Certificate of
Conformance from our regulatory authorized representative in Europe. The European regulatory demands regarding IVD have recently
been revised and major changes need to be made in order to keep our CE Mark. These changes need to be made until 2022. We may
not meet the quality and safety standards required to maintain any authorizations we receive in the future or maintain the CE
Certificate of Conformance that we have already received. If we or our distributors are unable to maintain our authorizations
or CE Certificate of Conformance in a particular country or region, we will no longer be able to sell our cancer detection kits
or any future products in that country or region, and our ability to generate revenues will be materially and adversely affected.
If
we are unable to successfully complete clinical trials with respect to our cancer detection kits, we may be unable to receive
regulatory approvals or clearances for our cancer detection kits and/or our ability to achieve market acceptance of our cancer
detection kits will be harmed.
The
development of cancer diagnostics typically includes pre-clinical studies. Certain other devices require the submission of data
generated from clinical trials, which can be a long, expensive and uncertain process, subject to delays and failure at any stage.
The data obtained from the studies and trials may be inadequate to support regulatory clearances or approvals, or to obtain third
country approval equivalent to CE approval, or to allow market acceptance of the products being studied. Our cancer detection
kits are currently undergoing clinical development.
We
conducted clinical studies in cooperation with leading hospitals in Israel. A study with the Soroka (along with BGU) formed the
basis of our methodology. We then conducted studies, with both Rabin Medical Center, or Rabin, and Kaplan Medical Center, or Kaplan,
which focused on breast and colorectal cancers.
Currently,
we are engaged in completing clinical trials at Kaplan Hospital and Beilinson Hospital concerning breast cancer and colorectal
cancer that are required for product development. The data from these clinical trials may be used or required in order to obtain
regulatory approvals for our products including for the purpose of seeking FDA approval.
As
for the FDA, our products’ intended use or other specifications that are under development today may not be accepted by
the FDA. Under such circumstances, we may be required to change the intended use or specifications of our products, and be required
to perform additional trials and provide new supportive material to the FDA.
We
are an IVD company, developing proprietary technology which will analyze a blood sample to detect the presence of various cancers.
Since we are not developing a drug, we believe that we will not need to submit an investigational new drug application to the
FDA prior to conducting clinical trials in the U.S. We believe that we will only need institutional review board, or IRB, approval
prior to conducting clinical trials in the U.S.
We
expect that obtaining FDA approval for the marketing and selling of our products in the U.S. will take anywhere between two to
four years and will cost us approximately $10 million to $15 million. As we do not have this amount of money, we would need to
raise additional funds to perform clinical trials in the U.S. in order to receive FDA approval. If we are unable to raise such
funds, we will not be able proceed with our efforts to obtain FDA approval. Inability to obtain FDA approval would significantly
harm our viability as a company.
We
estimate that we will need a “small pilot” clinical trial (less than 100 patients) to enable us to approach the FDA
with the results and begin a dialogue with the FDA to seek the FDA’s recommendation (not their approval) as to trial size
and the protocols for future U.S. clinical trials. We plan to submit a formal application to the FDA for approval of the TBIA
method after we have completed our clinical trials in the U.S.
Our
intentions are to evaluate opening a Clinical Laboratory Improvement Amendments laboratory, or CLIA laboratory, and retain our
product as a Laboratory Developed Test, or LDT, which are assays developed in the laboratory for internal use, in parallel to
the FDA evaluation.
Further,
any regulatory authority whose approval we will require in order to market and sell our products in any territory may require
us to submit data on a greater number of patients than we originally anticipated and/or for a longer follow-up period or they
may change the data collection requirements or data analysis applicable to our clinical trials.
The
commencement or completion of any of our clinical studies or trials may be delayed or halted, or be inadequate to support regulatory
clearance, approval or product acceptance, or to obtain local regulatory approvals in any country that we wish to sell our products,
for numerous reasons, including, among others:
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patients
do not enroll in the clinical trial at the rate we expect;
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patients
do not comply with trial protocols;
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patient
follow-up is not at the rate we expect;
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patients
experience adverse side effects;
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patients
die during a clinical trial, even though their death may be unrelated to our product;
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regulatory
authorities do not approve a clinical trial protocol or a clinical trial, or place a
clinical trial on hold;
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IRBs,
Ethics Committees and third-party clinical investigators may delay or reject our trial
protocol and Informed Consent Form;
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third-party
clinical investigators decline to participate in a study or trial or do not perform a
study or trial on our anticipated schedule or consistent with the investigator agreements,
study or trial protocol, good clinical practices or FDA, IRBs, Ethics Committees, or
other applicable requirements;
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third-party
organizations such as the Contract Research Organization, do not perform data collection,
monitoring and analysis in a timely or accurate manner or consistent with the study or
trial protocol or investigational or statistical plans;
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regulatory
inspections of our studies, trials or manufacturing facilities may require us to, among
other things, undertake corrective action or suspend or terminate our studies or clinical
trials;
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changes
in governmental regulations or administrative actions;
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the
interim or final results of the study or clinical trial are inconclusive or unfavorable
as to safety or efficacy; and
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a
regulatory agency or our notified body concludes that our trial design is or was inadequate
to demonstrate different parameters of the assay.
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The
results of pre-clinical and clinical studies do not necessarily predict future clinical trial results, and predecessor clinical
trial results may not be repeated in subsequent clinical trials. Additionally, any regulatory authority whose approval we will
require in order to market and sell our products in any territory may disagree with our interpretation of the data from our pre-clinical
studies and clinical trials, or may find the clinical trial design, conduct or results inadequate to demonstrate safety or efficacy,
and may require us to pursue additional pre-clinical studies or clinical trials, which could further delay the clearance or approval
of the sale of our products. The data we collect from our non-clinical testing, our pre-clinical studies and other clinical trials
may not be sufficient to support regulatory approval.
If
the third parties on which we rely to conduct our clinical trials and clinical development do not perform as contractually required
or expected, we may not be able to obtain regulatory clearance or approval for, or commercialize, our cancer detection kits or
future products.
We
do not have the ability to independently conduct our clinical trials for our cancer detection kits and we must rely on third parties,
such as contract research organizations, medical institutions, clinical investigators and contract laboratories to conduct such
trials. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected
deadlines, if these third parties need to be replaced, or if the quality or accuracy of the data they obtain is compromised due
to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our pre-clinical development
activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory clearance
for, or successfully commercialize, our cancer detection kits or future products on a timely basis, if at all, and our business,
operating results and prospects may be adversely affected. Furthermore, our third-party clinical trial investigators may be delayed
in conducting our clinical trials for reasons outside of their control.
The
results of our clinical trials may not support our product claims or may result in the discovery of adverse side effects.
Even
if our clinical trials are completed as planned, we cannot be certain that their results will support our product claims or that
any regulatory authority whose approval we will require in order to market and sell our products in any territory will agree with
our conclusions regarding them. Success in pre-clinical studies and early clinical trials does not ensure that later clinical
trials will be successful, and we cannot be sure that clinical trials will replicate the results of prior trials and pre-clinical
studies. The clinical trial process may fail to demonstrate that our cancer detection kits, or any future products, are safe and
effective for the proposed indicated uses, which could cause us to abandon a product and may delay development of others. Any
delay or termination of our clinical trials will delay the filing of our product submissions and, ultimately, our ability to commercialize
our cancer detection kits, or any future products, and generate revenues. It is also possible that patients enrolled in clinical
trials will experience adverse side effects that are not currently part of the product candidate’s profile.
Our
cancer detection kits may in the future be subject to product recalls that could harm our reputation, business and financial results.
The
FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products in the event
of material deficiencies or defects in design or manufacture. In the case of the FDA, the authority to require a recall must be
based on an FDA finding that there is a reasonable probability that the device would cause serious injury or death. In addition,
foreign governmental bodies have the authority to require the recall of our products in the event of material deficiencies or
defects in design or manufacture. Manufacturers may, under their own initiative, recall a product if any material deficiency in
a device is found. A government-mandated or voluntary recall by us or one of our distributors could occur as a result of component
failures, manufacturing errors, design or labeling defects or other deficiencies and issues. Once marketed, recalls of any of
our products, including our cancer detection kits, would divert managerial and financial resources and have an adverse effect
on our business, financial condition and results of operations. The FDA requires that certain classifications of recalls be reported
to the FDA within 10 working days after the recall is initiated. Companies are required to maintain certain records of recalls,
even if they are not reportable to the FDA. We may initiate voluntary recalls involving our products in the future that we determine
do not require us to notify the FDA. If the FDA disagrees with our determinations, they could require us to report those actions
as recalls. A future recall announcement could harm our reputation with customers and negatively affect our sales. In addition,
the FDA could take enforcement action against us based on our failure to report the recalls when they were conducted.
If
we are unable to achieve reimbursement and coverage from third-party payors for laboratory tests using our cancer detection kits,
or if reimbursement is insufficient to create an economic benefit for purchasing or using our cancer detection kits when compared
to alternative tests, demand for our products may not grow at the rate we expect.
The
demand for our cancer detection kits will depend significantly on the eligibility of the tests performed using our cancer detection
kits for reimbursement through government-sponsored healthcare payment systems and private third-party payors. Reimbursement practices
vary significantly from country to country and within some countries, by region, and we must obtain reimbursement approvals on
a country-by-country and/or region-by-region basis. In general, the process of obtaining reimbursement and coverage approvals
has been longer outside of the United States. We may not be able to obtain reimbursement approvals in a timely manner or at all
and existing reimbursement and coverage policies may be revised from time to time by third-party payors. If physicians, hospitals
and other healthcare providers are unable to obtain sufficient coverage and reimbursement from third-party payors for tests using
our cancer detection kits, if reimbursement is, or is perceived by our customers to be, insufficient to create an economic incentive
for purchasing or using our cancer detection kits, or if such reimbursement does not adequately compensate physicians and health
care providers compared to the other tests they offer, demand for our products may not grow at the rate we expect.
Federal
and state privacy laws, and equivalent laws of third countries, may increase our costs of operation and expose us to civil and
criminal sanctions.
The
Health Insurance Portability and Accountability Act of 1996, as amended, and the regulations that have been issued under it, or
collectively HIPAA, and similar laws outside the United States, contain substantial restrictions and requirements with respect
to the use and disclosure of individuals’ protected health information. The HIPAA privacy rules prohibit “covered
entities,” such as healthcare providers and health plans, from using or disclosing an individual’s protected health
information, unless the use or disclosure is authorized by the individual or is specifically required or permitted under the privacy
rules. Under the HIPAA security rules, covered entities must establish administrative, physical and technical safeguards to protect
the confidentiality, integrity and availability of electronic protected health information maintained or transmitted by them or
by others on their behalf. While we do not believe that we will be a covered entity under HIPAA, we believe many of our customers
will be covered entities subject to HIPAA. Such customers may require us to enter into business associate agreements, which will
obligate us to safeguard certain health information we obtain in the course of our relationship with them, restrict the manner
in which we use and disclose such information and impose liability on us for failure to meet our contractual obligations.
In
addition, under The Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, which was signed into
law as part of the U.S. stimulus package in February 2009, certain of HIPAA’s privacy and security requirements are now
also directly applicable to “business associates” of covered entities and subject them to direct governmental enforcement
for failure to comply with these requirements. We may be deemed as a “business associate” of some of our customers.
As a result, we may be subject as a “business associate” to civil and criminal penalties for failure to comply with
applicable privacy and security rule requirements. Moreover, HITECH created a new requirement obligating “business associates”
to report any breach of unsecured, individually identifiable health information to their covered entity customers and imposes
penalties for failing to do so.
In
addition to HIPAA, most U.S. states have enacted patient confidentiality laws that protect against the disclosure of confidential
medical information, and many U.S. states have adopted or are considering adopting further legislation in this area, including
privacy safeguards, security standards, and data security breach notification requirements. These U.S. state laws, which may be
even more stringent than the HIPAA requirements, are not preempted by the federal requirements, and we are therefore required
to comply with them to the extent they are applicable to our operations.
These
and other possible changes to HIPAA or other U.S. federal or state laws or regulations, or comparable laws and regulations in
countries where we conduct business, could affect our business and the costs of compliance could be significant. Failure by us
to comply with any of the standards regarding patient privacy, identity theft prevention and detection, and data security may
subject us to penalties, including civil monetary penalties and in some circumstances, criminal penalties. In addition, such failure
may damage our reputation and adversely affect our ability to retain customers and attract new customers.
The
protection of personal data, particularly patient data, is subject to strict laws and regulations in many countries. The collection
and use of personal health data in the EU is governed by the provisions of Directive 95/46/EC of the European Parliament and of
the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free
movement of such data, commonly known as the Data Protection Directive. The Directive imposes a number of requirements including
an obligation to seek the consent of individuals to whom the personal data relates, the information that must be provided to the
individuals, notification of data processing obligations to the competent national data protection authorities of individual EU
Member States and the security and confidentiality of the personal data. The Data Protection Directive also imposes strict rules
on the transfer of personal data out of the EU to the U.S. Failure to comply with the requirements of the Data Protection Directive
and the related national data protection laws of the EU Member States may result in fines and other administrative penalties and
harm our business. We may incur extensive costs in ensuring compliance with these laws and regulations, particularly if we are
considered to be a data controller within the meaning of the Data Protection Directive.
Once
we commercialize our product, if ever, security breaches, loss of data and other disruptions could compromise sensitive information
related to our business or prevent us from accessing critical information and expose us to liability, which could adversely affect
our business and our reputation.
Once
we commercialize our product, in the ordinary course of our business, it is highly likely that we and our third-party providers
will collect and store sensitive data, including legally protected health information and personally identifiable information
about patients, our healthcare provider customers and payors. We also may store sensitive intellectual property and other proprietary
business information, including that of our customers and payors. We plan to manage and maintain our data utilizing a combination
of on-site systems and cloud-based data center systems. This data will encompass a wide variety of business-critical information,
including research and development information, commercial information and business and financial information.
We
face four primary risks relative to protecting this critical information: loss of access risk, inappropriate disclosure risk,
inappropriate modification risk and the risk of our being unable to identify and audit our controls over the first three risks.
We
will be highly dependent on information technology networks and systems, including the Internet, to securely process, transmit
and store this critical information. Security breaches of this infrastructure, including physical or electronic break-ins, computer
viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure or modification
of confidential information. The secure processing, storage, maintenance and transmission of this critical information will be
vital to our operations and business strategy, and we plan to devote significant resources to protecting such information. Although
we will take measures to protect sensitive information from unauthorized access or disclosure, our information technology and
infrastructure, and that of our third-party providers, may be vulnerable to attacks by hackers or viruses or breached due to employee
error, malfeasance or other disruptions.
A
security breach or privacy violation that leads to disclosure or modification of or prevents access to consumer information (including
personally identifiable information or protected health information) could harm our reputation, compel us to comply with disparate
state breach notification laws, require us to verify the correctness of database contents and otherwise subject us to liability
under laws that protect personal data, resulting in increased costs or loss of revenue. If we are unable to prevent such security
breaches or privacy violations or implement satisfactory remedial measures, our operations could be disrupted, and we may suffer
loss of reputation, financial loss and other regulatory penalties because of lost or misappropriated information, including sensitive
consumer data. In addition, these breaches and other inappropriate access can be difficult to detect, and any delay in identifying
them may lead to increased harm of the type described above.
Any
such breach or interruption could compromise our networks or those of our third-party providers, and the information stored there
could be inaccessible or could be accessed by unauthorized parties, publicly disclosed, lost or stolen. Any such interruption
in access, improper access, disclosure or other loss of information could result in legal claims or proceedings, liability under
laws that protect the privacy of personal information, such as HIPAA, and regulatory penalties. Unauthorized access, loss or dissemination
could also disrupt our operations, including our ability to perform tests, provide test results, bill payers or patients, process
claims and appeals, provide customer assistance services, conduct research and development activities, collect, process and prepare
company financial information, provide information about our current and future products and other patient and clinician education
and outreach efforts through our website, and manage the administrative aspects of our business and damage our reputation, any
of which could adversely affect our business. Any such breach could also result in the compromise of our trade secrets and other
proprietary information, which could adversely affect our competitive position.
In
addition, the interpretation and application of consumer, health-related, privacy and data protection laws in the U.S., the EU
and elsewhere are often uncertain, contradictory and in flux. It is possible that these laws may be interpreted and applied in
a manner that is inconsistent with our practices. If so, this could result in government-imposed fines or orders requiring that
we change our practices, which could adversely affect our business. Complying with these various laws could cause us to incur
substantial costs or require us to change our business practices and compliance procedures in a manner adverse to our business.
If
we fail to comply with the U.S. federal Anti-Kickback Statute and similar state and third country laws, we could be subject to
criminal and civil penalties and exclusion from federally funded healthcare programs including the Medicare and Medicaid programs
and equivalent third country programs, which would have a material adverse effect on our business and results of operations.
A
provision of the Social Security Act, commonly referred to as the federal Anti-Kickback Statute, prohibits the knowing and willful
offer, payment, solicitation or receipt of any form of remuneration, directly or indirectly, in cash or in kind, to induce or
reward the referring, ordering, leasing, purchasing or arranging for, or recommending the ordering, purchasing or leasing of,
items or services payable, in whole or in part, by Medicare, Medicaid or any other federal healthcare program. Although there
are a number of statutory exemptions and regulatory safe harbors to the federal Anti-Kickback Statute protecting certain common
business arrangements and activities from prosecution or regulatory sanctions, the exemptions and safe harbors are drawn narrowly,
and practices that do not fit squarely within an exemption or safe harbor may be subject to scrutiny. The federal Anti-Kickback
Statute is very broad in scope and many of its provisions have not been uniformly or definitively interpreted by existing case
law or regulations. In addition, most of the states have adopted laws similar to the federal Anti-Kickback Statute, and some of
these laws are even broader than the federal Anti-Kickback Statute in that their prohibitions may apply to items or services reimbursed
under Medicaid and other state programs or, in several states, apply regardless of the source of payment. Violations of the federal
Anti-Kickback Statute may result in substantial criminal, civil or administrative penalties, damages, fines and exclusion from
participation in federal healthcare programs.
All
of our future financial relationships with U.S. healthcare providers, purchasers, formulary managers, and others who provide products
or services to federal healthcare program beneficiaries will potentially be governed by the federal Anti-Kickback Statute and
similar state laws. We believe our operations will be in compliance with the federal Anti-Kickback Statute and similar state laws.
However, we cannot be certain that we will not be subject to investigations or litigation alleging violations of these laws, which
could be time-consuming and costly to us and could divert management’s attention from operating our business, which in turn
could have a material adverse effect on our business. In addition, if our arrangements were found to violate the federal Anti-Kickback
Statute or similar state laws, the consequences of such violations would likely have a material adverse effect on our business,
results of operations and financial condition.
There
are other federal and state laws that may affect our ability to operate, including the federal civil False Claims Act, which prohibits,
among other things, individuals or entities from knowingly presenting, or causing to be presented, a false or fraudulent claim
for payment of government funds or knowingly making, using or causing to be made or used, a false record or statement material
to an obligation to pay money to the government or knowingly concealing or knowingly and improperly avoiding, decreasing, or concealing
an obligation to pay money to the federal government. Moreover, we may be subject to other federal false claim laws, including,
among others, federal criminal healthcare fraud and false statement statutes that extend to non-government health benefit programs.
Moreover, there are analogous state laws. Violations of these laws can result in substantial criminal, civil or administrative
penalties, damages, fines and exclusion from participation in federal healthcare programs.
Similar
restrictions are imposed by the national legislation of many third countries in which our medical devices will be marketed. Moreover,
the provisions of the Foreign Corrupt Practices Act of 1997 and other similar anti-bribery laws in other jurisdictions generally
prohibit companies and their intermediaries from providing money or anything of value to officials of foreign governments, foreign
political parties, or international organizations with the intent to obtain or retain business or seek a business advantage. Recently,
there has been a substantial increase in anti-bribery law enforcement activity by U.S. regulators, with more aggressive and frequent
investigations and enforcement by both the SEC and the Department of Justice. A determination that our operations or activities
violated U.S. or foreign laws or regulations could result in imposition of substantial fines, interruption of business, loss of
supplier, vendor or other third-party relationships, termination of necessary licenses and permits, and other legal or equitable
sanctions. In addition, lawsuits brought by private litigants may also follow as a consequence.
Risks
Related to Our Operations in Israel
Exchange
rate fluctuations between the U.S. dollar, the NIS and the Euro and inflation may negatively affect our earnings and we may not
be able to hedge our currency exchange risks successfully.
The
U.S. dollar is our functional and reporting currency. However, a significant portion of our operating expenses, including personnel
and facilities related expenses, are incurred in NIS. As a result, we are exposed to the risks that the NIS may appreciate relative
to the U.S. dollar, or, if the NIS instead devalues relative to the U.S. dollar, that the inflation rate in Israel may exceed
such rate of devaluation of the NIS, or that the timing of such devaluation may lag behind inflation in Israel. In any such event,
the dollar cost of our operations in Israel would increase and our dollar-denominated results of operations would be adversely
affected. In addition, we expect to incur operating expenses denominated in various currencies, and therefore, our operating results
are also subject to fluctuations due to changes in the various exchange rates. Given our general lack of currency hedging arrangements
to protect us from fluctuations in the exchange rates of the NIS, the Euro and other foreign currencies in relation to the U.S.
dollar (and/or from inflation of such foreign currencies), we may be exposed to material adverse effects from such movements.
We cannot predict any future trends in the rate of inflation in Israel or the rate of devaluation (if any) of the NIS against
any other currency.
Our
principal offices, research and development facilities and some of our suppliers are located in Israel and, therefore, our business,
financial condition and results of operation may be adversely affected by political, economic and military instability in Israel.
We
are incorporated under Israeli law and our principal executive offices are located in Israel. In addition, all of our employees
and officers, and most of our directors, are residents of Israel. Accordingly, political, economic and military conditions in
Israel may directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have
taken place between Israel and its neighboring Arab countries, the Hamas (an Islamist militia and political group that has historically
controlled the Gaza strip) and the Hezbollah (an Islamist militia and political group based in Lebanon). Any hostilities involving
Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations
and results of operations. Ongoing and revived hostilities or other Israeli political or economic factors, such as, an interruption
of operations at the Tel Aviv airport, could prevent or delay shipments of our components or products. If continued or resumed,
these hostilities may negatively affect business conditions in Israel in general and our business in particular. In the event
that hostilities disrupt the ongoing operation of our facilities or the airports and seaports on which we depend to import and
export our supplies and product candidates, our operations may be materially adversely affected.
In
addition, instability in the region may lead to deterioration in the political and trade relationships that exist between the
State of Israel and certain other countries. Any armed conflicts, terrorist activities or political instability in the region
could adversely affect business conditions, could harm our results of operations and could make it more difficult for us to raise
capital. Parties with whom we do business may sometimes decline to travel to Israel during periods of heightened unrest or tension,
forcing us to make alternative arrangements when necessary in order to meet our business partners face to face. Several countries,
principally in the Middle East, still restrict doing business with Israel and Israeli companies, and additional countries may
impose restrictions on doing business with Israel and Israeli companies if hostilities in Israel or political instability in the
region continues or increases. Similarly, Israeli companies are limited in conducting business with entities from several countries.
For instance, in 2008, the Israeli legislature passed a law forbidding any investments in entities that transact business with
Iran. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving
performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force
majeure provisions in such agreements.
Our
commercial insurance does not cover losses that may occur as a result of an event associated with the security situation in the
Middle East. Although the Israeli government has in the past covered the reinstatement value of certain damages that were caused
by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained or, if maintained,
will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred by us could have a material adverse
effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions
generally and could harm our results of operations and product development.
Furthermore,
in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict
business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on
our operating results, financial conditions or the expansion of our business. Similarly, Israeli corporations are limited in conducting
business with entities from several countries.
Your
rights and responsibilities as a shareholder will be governed by Israeli law which differs in some material respects from the
rights and responsibilities of shareholders of U.S. companies.
The
rights and responsibilities of the holders of our Ordinary Shares are governed by our articles of association, as most recently
amended on March 16, 2017, or the Amended Articles, and by Israeli law. These rights and responsibilities differ in some material
respects from the rights and responsibilities of shareholders in U.S.-based corporations. In particular, a shareholder of an Israeli
company has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards
the company and other shareholders, and to refrain from abusing its power in the company, including, among other things, in voting
at a general meeting of shareholders on matters such as amendments to a company’s articles of association, increases in
a company’s authorized share capital, mergers and acquisitions and related party transactions requiring shareholder approval.
In addition, a shareholder who is aware that it possesses the power to determine the outcome of a shareholder vote or to appoint
or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company. There
is limited case law available to assist us in understanding the nature of this duty or the implications of these provisions. These
provisions may be interpreted to impose additional obligations and liabilities on holders of our Ordinary Shares that are not
typically imposed on shareholders of U.S. corporations.
It
may be difficult to enforce a judgment of a U.S. court against us, our officers and directors in Israel or the United States,
to assert U.S. securities laws claims in Israel or to serve process on our officers and directors.
We
were incorporated in Israel. All of our executive officers and directors reside outside of the U.S., and all of our assets and
most of the assets of these persons are located outside the U.S. Therefore, a judgment obtained against us, or any of these persons,
including a judgment based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the
U.S. and may not necessarily be enforced by an Israeli court. It also may be difficult to affect service of process on these persons
in the United States or to assert U.S. securities law claims in original actions instituted in Israel. Additionally, it may be
difficult for an investor, or any other person or entity, to initiate an action with respect to U.S. securities laws in Israel.
Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoning that Israel is not the
most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine
that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable
U.S. law must be proven as a fact by expert witnesses, which can be a time consuming and costly process. Certain matters of procedure
will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters described above. As
a result of the difficulty associated with enforcing a judgment against us in Israel, you may not be able to collect any damages
awarded by either a U.S. or foreign court.
Provisions
of Israeli law and our Amended Articles may delay, prevent or otherwise impede a merger with, or an acquisition of, us, even when
the terms of such a transaction are favorable to us and our shareholders.
Israeli
corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special
approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant
to such types of transactions. For example, a tender offer for all of a company’s issued and outstanding shares can only
be completed if the acquirer receives positive responses from the holders of at least 95% of the issued share capital and the
approval of a majority of the offerees that do not have a personal interest in the tender offer, unless at least 98% of the company’s
outstanding shares are tendered. Furthermore, the shareholders, including those who indicated their acceptance of the tender offer
(unless the acquirer stipulated in its tender offer that a shareholder that accepts the offer may not seek appraisal rights),
may, at any time within six months following the completion of the tender offer, petition an Israeli court to alter the consideration
for the acquisition. In addition, a merger may not be consummated unless at least 50 days have passed from the date on which a
proposal for approval of the merger was filed by each party with the Israeli Registrar of Companies and at least 30 days have
passed from the date on which the merger was approved by the shareholders of each party. See “Description of Share Capital
– Acquisitions Under Israeli Law” for additional information.
Furthermore,
Israeli tax considerations may make potential transactions unappealing to us or to our shareholders whose country of residence
does not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize
tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral
in certain circumstances but makes the deferral contingent on the fulfillment of a number of conditions, including, in some cases,
a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating
companies are subject to certain restrictions. Moreover, with respect to certain share swap transactions, the tax deferral is
limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares has occurred.
We
received Israeli government grants for certain of our research and development activities. The terms of those grants may require
us to pay royalties and to satisfy specified conditions in order to manufacture products and transfer technologies outside of
Israel. We may be required to pay penalties in addition to repayment of the grants.
From
inception through December 31, 2018, we have been awarded an aggregate of approximately $272,237 in the form of grants from Israel
Innovation Authority, or the IIA, formerly known as Israel’s Office of the Chief Scientist of the Ministry of Economy. The
requirements and restrictions for such grants are found in the Israeli Encouragement of Research and Development Law, 5744-1984
and the regulations, or the Research Law. Under the Research Law, royalties of 3% to 5% on the revenues derived from sales of
products or services developed in whole or in part using these IIA grants are payable to the Israeli government. We developed
our technologies, at least in part, with funds from these grants, and accordingly we would be obligated to pay these royalties
on sales of any of our product candidates that achieve regulatory approval. The maximum aggregate royalties paid generally cannot
exceed 100% of the grants made to us, plus annual interest equal to the 12-month LIBOR applicable to dollar deposits, as published
on the first business day of each calendar year. As of December 31, 2018, we had not paid any royalties to the IIA. In 2018, we
did not receive a grant from the IIA. When a company develops know-how, technology or products using IIA grants, the terms of
these grants and the Research Law restrict the transfer of such know-how, and the transfer of manufacturing or manufacturing rights
of such products, technologies or know-how outside of Israel, without the prior approval of the IIA. Therefore, the discretionary
approval of an IIA committee would be required for any transfer to third parties inside or outside of Israel of know-how or manufacturing
or manufacturing rights related to those aspects of such technologies. We may not receive those approvals. Furthermore, the IIA
may impose certain conditions on any arrangement under which it permits us to transfer technology or development out of Israel
The
transfer of IIA-supported technology or know-how outside of Israel may involve the payment of significant amounts, depending upon
the value of the transferred technology or know-how, our research and development expenses, the amount of IIA support, the time
of completion of the IIA-supported research project and other factors. These restrictions and requirements for payment may impair
our ability to sell or otherwise transfer our technology assets outside of Israel or to outsource or transfer development or manufacturing
activities with respect to any product or technology outside of Israel. Furthermore, the consideration available to our shareholders
in a transaction involving the transfer outside of Israel of technology or know-how developed with IIA funding (such as a merger
or similar transaction) may be reduced by any amounts that we are required to pay to the IIA.
These
restrictions will continue to apply even after we have repaid the full amount of royalties on the grants. For the years ended
December 31, 2016, 2017, and 2018, we recorded grants totaling $166,046, $0, and $0 from the IIA, respectively. The grants represented
34%, 0%, and 0%, respectively, of our gross research and development expenditures for the years ended December 31, 2016, 2017,
and 2018.
Risks Related to Our Ordinary Shares, the Warrants and this
Offering
An active trading market for our Ordinary Shares and
warrants may not develop and our shareholders may not be able to resell their Ordinary Shares.
Although our Ordinary Shares are quoted
on the OTCQB, an active trading market for our Ordinary Shares has not developed. Although we are in the process of applying to
have our ordinary shares and warrants listed on The Nasdaq Capital Market, an active trading market for our shares may never develop
or be sustained following this offering. We cannot predict the extent to which an active market for our ordinary shares or warrants
will develop or be sustained after the listing of such securities on Nasdaq. If an active market for our ordinary shares or warrants
does not develop, it may be difficult for you to sell securities you purchase in this offering without depressing the market price
for the shares or warrants, or at all.
Future
issuance of our Ordinary Shares could dilute the interests of existing shareholders.
We
may issue additional Ordinary Shares in the future. The issuance of a substantial number of Ordinary Shares could have the effect
of substantially diluting the interests of our shareholders. In addition, the sale of a substantial amount of Ordinary Shares
in the public market, in the initial issuance, in a situation in which we acquire a company and the acquired company receives
Ordinary Shares as consideration and the acquired company subsequently sells its Ordinary Shares, or by investors who acquired
such Ordinary Shares in a private placement, could have an adverse effect on the market price of our Ordinary Shares.
We
have a significant number of options and warrants outstanding, and while these options and warrants are outstanding, it may be
more difficult to raise additional equity capital.
As of March 31, 2019, we had outstanding
options and warrants to purchase 1,758,315 and 4,730,906 Ordinary Shares, respectively. In addition, in connection with our recent
bridge financing transaction, we have issued warrants for the purchase of Ordinary Shares, with the actual number of warrants
to be determined following the closing of this offering. The holders of these options and warrants are given the opportunity to
profit from a rise in the market price of our Ordinary Shares. We may find it more difficult to raise additional equity capital
while these options and warrants are outstanding. At any time during which these warrants are likely to be exercised, we may be
unable to obtain additional equity capital on more favorable terms from other sources. Additionally, the exercise of these options
and warrants will cause the increase of our outstanding Ordinary Shares, which could have the effect of substantially diluting
the interests of our current shareholders.
Sales
of a substantial number of shares of our ordinary shares in the public market by our existing shareholders could cause our
share price to fall.
Sales
of a substantial number of shares of our ordinary shares in the public market, or the perception that these sales might occur,
could depress the market price of our ordinary shares and could impair our ability to raise capital through the sale of additional
equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our ordinary shares.
All of the shares owned by our directors, officers and shareholders that own over 5% of our ordinary shares on a fully diluted
basis are subject to lock-up agreements with the underwriters of this offering that restrict such shareholders’ ability
to transfer our ordinary shares for at least six months from the date of this prospectus. All of our outstanding shares held by
our directors, officers and shareholders that own over 5% of our ordinary shares on a fully diluted basis will become eligible
for unrestricted sale upon expiration of the lockup period, as described in the sections of this prospectus entitled “Shares
Eligible for Future Sale” and “Underwriting.” In addition, shares issued or issuable upon exercise
of options and warrants vested as of the expiration of the lock-up period will be eligible for sale at that time. Sales of shares
by these shareholders could have a material adverse effect on the trading price of our ordinary shares. We intend to register
the offering, issuance, and sale of all ordinary shares that we may issue under our equity compensation plans. Once we register
these shares, they can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates
and the lock-up agreements described in the “Underwriting” section of this prospectus. Also, we have granted
“piggyback” registration rights to the holders of the convertible debt securities we issued during the first quarter
of fiscal 2019, giving such holders the right to include the resale of our ordinary shares issuable to them upon conversion of
the convertible debt securities in any registration statement we file, other than the registration statement of which this prospectus
forms a part and any registration statements filed on Form S-8. Upon the effectiveness of such future registration statement,
the holders of piggyback registration rights will be able to freely sell their ordinary shares in the public market without restriction,
which sales could materially and adversely affect the trading price of our ordinary shares.
We
are an Emerging Growth Company, which may reduce the amount of information available to investors.
The
Jumpstart Our Business Start-ups Act, or the JOBS Act, and our status as a foreign private issuer will allow us to postpone the
date by which we must comply with some of the laws and regulations intended to protect investors and to reduce the amount of information
we provide in our reports filed with the SEC, which could undermine investor confidence in our company and adversely affect the
market price of our Ordinary Shares.
For
as long as we remain an “emerging growth company” as defined in the JOBS Act, we intend to take advantage of certain
exemptions from various requirements that are applicable to public companies that are not emerging growth companies including:
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the
provisions of the Sarbanes-Oxley Act requiring that our independent registered public
accounting firm provide an attestation report on the effectiveness of our internal control
over financial reporting;
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Section
107 of the JOBS Act, which provides that an “emerging growth company” can
take advantage of the extended transition period provided in Section 7(a)(2)(B) of the
Securities Act of 1933, as amended, or the Securities Act, for complying with new or
revised accounting standards. This means that an “emerging growth company”
can delay the adoption of certain accounting standards until those standards would otherwise
apply to private companies. We may elect to delay such adoption of new or revised accounting
standards. As a result of this adoption, our financial statements may not be comparable
to companies that comply with the public company effective date; and
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any
rules that may be adopted by the Public Company Accounting Oversight Board requiring
mandatory audit firm rotation or a supplement to the auditor’s report on the financial
statements.
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We
intend to take advantage of these exemptions until we are no longer an “emerging growth company.” We will remain an
emerging growth company until the earlier of (1) the last day of the fiscal year (a) ending on December 31, 2022, (b) in which
we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which
means the market value of our Ordinary Shares that is held by non-affiliates exceeds $700 million as of the prior June 30, and
(2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
We
cannot predict if investors will find our Ordinary Shares less attractive because we may rely on these exemptions. If some investors
find our Ordinary Shares less attractive as a result, there may be a less active trading market for our Ordinary Shares, and our
share price may be more volatile and may decline.
We
are a foreign private issuer and, as a result, we are not subject to U.S. proxy rules and are subject to reporting obligations
that, to some extent, are more lenient and less frequent than those applicable to a U.S. issuer.
Because
we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the Exchange Act that
are applicable to U.S. publicly reporting companies, including (i) the sections of the Exchange Act regulating the solicitation
of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (ii) the sections of the Exchange
Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit
from trades made in a short period of time, and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly
reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the
occurrence of specified significant events. In addition, while U.S. domestic issuers that are not large accelerated filers or
accelerated filers are required to file their annual reports on Form 10-K within 90 days after the end of each fiscal year,
foreign private issuers are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal
year. Foreign private issuers are also exempt from the Regulation Fair Disclosure, aimed at preventing issuers from making selective
disclosures of material information.
We
have never paid cash dividends on our capital stock and we do not anticipate paying any dividends in the foreseeable future. Consequently,
any gains from an investment in our Ordinary Shares will likely depend on whether the price of our Ordinary Shares increases,
which may not occur.
We
have not paid cash dividends on any of our classes of capital stock to date and we currently intend to retain our future earnings,
if any, to fund the development and growth of our business. In addition, the Israeli Companies Law 5759-1999, or the Companies
Law, imposes restrictions on our ability to declare and pay dividends. As a result, capital appreciation, if any, of our Ordinary
Shares will be your sole source of gain for the foreseeable future. Consequently, in the foreseeable future, you will likely only
experience a gain from your investment in our Ordinary Shares if the price of our Ordinary Shares increases beyond the price in
which you originally acquired the Ordinary Shares.
The
potential future application of the SEC’s “penny stock” rules to our Ordinary Shares could limit trading activity
in the market, and our shareholders may find it more difficult to sell their shares.
If
our Ordinary Shares trade at less than $5.00 per share we will be subject to the SEC’s penny stock rules. Penny stocks generally
are equity securities with a price of less than $5.00. Penny stock rules require a broker-dealer, prior to a transaction in a
penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information
about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly
account statements showing the market value of each penny stock held in the customer’s account. The broker-dealer must also
make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s
written agreement to the transaction. These requirements may have the effect of reducing the level of trading activity, if any,
in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers
by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit their
market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our Ordinary
Shares and may affect our shareholders’ ability to resell their Ordinary Shares.
In
the event a market develops for our Ordinary Shares, the market price of our Ordinary Shares may be volatile.
In
the event a market develops for our Ordinary Shares, the market price of our Ordinary Shares may be highly volatile. Some of the
factors that may materially affect the market price of our Ordinary Shares are beyond our control, such as changes in financial
estimates by industry and securities analysts, conditions or trends in the industry in which we operate or sales of our Ordinary
Shares. These factors may materially adversely affect the market price of our Ordinary Shares, regardless of our performance.
In addition, the public stock markets have experienced extreme price and trading volume volatility. This volatility has significantly
affected the market prices of securities of many companies for reasons frequently unrelated to the operating performance of the
specific companies. These broad market fluctuations may adversely affect the market price of our Ordinary Shares.
Our
executive officers, directors and principal shareholders will maintain the ability to exert significant control over matters
submitted to our shareholders for approval.
Assuming the sale by us of 24,000,000
units in this offering (or 27,600,000 units if the underwriters exercise their option to purchase additional shares in full),
and assuming the formal closing of the Amarantus transaction, our executive officers, directors and principal shareholders (in
particular, Amarantus) who owned more than 5% of our outstanding ordinary shares before this offering will, in the aggregate,
beneficially own shares representing approximately 55.58% (or 54.5% if the underwriters exercise in full their option
to purchase additional units, ordinary shares and/or warrants) of our share capital following the completion of this offering.
Amarantus, which will own approximately 49.99% of our outstanding ordinary shares prior to this offering assuming the formal closing
of the Amarantus transaction, will beneficially own shares representing approximately 43.38% (or 42.54% if the underwriters
exercise in full their option to purchase additional units, ordinary shares and/or warrants) of our share capital following the
completion of this offering. As a result, if these shareholders were to act together, they would be able to control all matters
submitted to our shareholders for approval, as well as our management and affairs. For example, these persons, if they act together,
would control the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets.
This concentration of voting power could delay or prevent an acquisition of our company on terms that other shareholders may desire
or result in management of our company that our public shareholders disagree with.
If
you purchase our ordinary shares in this offering, you will incur immediate and substantial dilution in the book value of
your shares.
The public offering price of the units
offered by us in this offering will be substantially higher than the net tangible book value per share of our ordinary shares.
Therefore, if you purchase units in this offering, you will pay a price per unit that substantially exceeds our net tangible book
value per share after this offering. To the extent outstanding options and warrants are exercised, you will incur further dilution.
Based on the public offering price of $ per unit, you will experience immediate
dilution of $ per share, representing the difference between our as adjusted
net tangible book value per share after giving effect to this offering at the assumed initial public offering price. In addition,
purchasers of units in this offering will have contributed approximately %
of the aggregate price paid by all purchasers of our shares but will own only approximately %
of our ordinary shares outstanding after this offering.
You
may experience dilution of your ownership interest due to the issuance of additional ordinary shares upon the conversion of our
convertible debt, especially since our convertible debt has fluctuating conversion rates that are set at a discount to market
prices of our ordinary shares during the period immediately preceding conversion.
We
have raised approximately $1.6 million in financing through the issuance of convertible debt. While our intent is to repay these
convertible loans from the proceeds from this offering, in the event we do not repay our convertible debt prior to the maturity
date for these loans, the lenders may choose to convert their loans, which are convertible into ordinary shares of the Company
after the maturity date at a conversion price equal to 70% of the average closing bid price of the Company’s Ordinary Shares
in the five days prior to the conversion. In the event the Company defaults under the loan agreement, the conversion price will
be reduced to 60% of the average closing bid price of the Company’s Ordinary Shares in the 15 days prior to the conversion.
This could result in material dilution to existing shareholders of the Company. Because the conversion price is based upon the
trading prices of our ordinary shares at the time of conversion, the number of ordinary shares into which the convertible debt
may be converted may increase without an upper bound. If the trading prices of our common shares are low when the conversion price
of the convertible debt is determined, we would be required to issue a greater number of ordinary shares to the converting debtholder,
which could cause substantial dilution to our shareholders. In addition, if any or all of the holders of our convertible debt
convert and then sell our common stock, this could result in an imbalance of supply and demand for our common stock and reduce
our stock price. The further our stock price declines, the further the adjustment of the conversion price will fall and the greater
the number of ordinary shares we will have to issue upon conversion, resulting in further dilution to our shareholders. Because
a market price-based conversion formula can lead to dramatic stock price reductions and corresponding negative effects on both
a company and its shareholders, convertible security financings with market price-based conversion ratios have colloquially been
called “floorless,” “toxic,” “death spiral,” and “ratchet” convertibles.
The
trading price of our ordinary shares may be reduced as a result of our grant of registration rights.
We
have granted the lenders who participated in our convertible bridge loan financing with piggyback registration rights. This mean
that they will have the right to require us to register their shares for resale under the Securities Act in the event we file
a registration statement with the SEC following the filing of the Registration Statement on Form F-1 of which this prospectus
forms a part. Registration of those shares for resale under the Securities Act would result in the shares becoming freely tradable
without restriction under the Securities Act immediately upon the effectiveness of such registration. Any sales of the registered
securities by these shareholders could adversely affect the trading price of our ordinary shares.
Our
management will have broad discretion in the use of the net proceeds from this offering and may allocate the net proceeds
from this offering in ways that you and other shareholders may not approve.
Our
management will have broad discretion in the use of the net proceeds, including for any of the purposes described in the section
titled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess
whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our
use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure
of our management to use these funds effectively could harm our business. Pending their use, we may invest the net proceeds from
this offering in short-term, investment-grade, interest-bearing securities and depositary institutions. These investments may
not yield a favorable return to our shareholders.
The warrants to be issued to investors in this offering
are speculative in nature.
The warrants to be issued to investors
in this offering do not confer any rights of ordinary share ownership on their holders, such as voting rights or the right to
receive dividends, but rather merely represent the right to purchase ordinary shares at $ per
ordinary share for a limited period of time. There can be no assurance that the fair market value of our ordinary shares will
ever equal or exceed the exercise price of the warrants, and consequently, whether it will ever be profitable for holders of the
warrants to exercise the warrants.
If
we are or become classified as a passive foreign investment company, our U.S. shareholders may suffer adverse tax consequences
as a result.
Generally,
for any taxable year, if at least 75% of our gross income is passive income, or at least 50% of the value of our assets is attributable
to assets that produce passive income or are held for the production of passive income, including cash, we would be characterized
as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. For purposes of these tests, passive income
includes dividends, interest gains from commodities and securities transactions, the excess of gains over losses from the disposition
of assets which produce passive income (including amounts derived by reason of the temporary investment of funds raised in offerings
of our shares) and rents and royalties other than rents and royalties which are received from unrelated parties in connection
with the active conduct of a trade or business. If we are characterized as a PFIC, our U.S. shareholders may suffer adverse tax
consequences, including having gains realized on the sale of our ordinary shares treated as ordinary income, rather than capital
gain, the loss of the preferential rate applicable to dividends received on our ordinary shares by individuals who are U.S. holders,
and having interest charges apply to distributions by us and gains from the sales of our shares.
Our
status as a PFIC will depend on the nature and composition of our income and the nature, composition and value of our assets (which,
assuming we are not a “controlled foreign corporation,” or a CFC, under Section 957(a) of the Internal Revenue Code
of 1986, as amended, or the Code, for the year being tested, may be determined based on the fair market value of each asset, with
the value of goodwill and going concern value determined in large part by reference to the market value of our common shares,
which may be volatile). Our status may also depend, in part, on how quickly we utilize the cash proceeds from this offering in
our business. Based upon the value of our assets, including any goodwill, and the nature and composition of our income and assets,
we do not believe that we were classified as a PFIC for the taxable year ended December 31, 2018 and we do not believe that we
will be classified as a PFIC for the taxable year ending December 31, 2019 or in the immediately foreseeable future. Because the
determination of whether we are a PFIC for any taxable year is a factual determination made annually after the end of each taxable
year, there can be no assurance that we will not be considered a PFIC in any taxable year. Accordingly, our legal counsel expresses
no opinion with respect to our PFIC status for our taxable year ended December 31, 2018, and also expresses no opinion with regard
to our expectations regarding our PFIC status in the future.
The
tax consequences that would apply if we are classified as a PFIC would also be different from those described above if a U.S.
shareholder were able to make a valid qualified electing fund, or QEF, election. At this time, we do not expect to provide U.S.
shareholders with the information necessary for a U.S. shareholder to make a QEF election. Prospective investors should assume
that a QEF election will not be available.
The
intended tax effects of our corporate structure and intercompany arrangements depend on the application of the tax laws of
various jurisdictions and on how we operate our business.
Significant
judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course
of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. For example,
our effective tax rates could be adversely affected by changes in foreign currency exchange rates or by changes in the relevant
tax, accounting and other laws, regulations, principles and interpretations. As we intend to operate in numerous countries and
taxing jurisdictions, the application of tax laws can be subject to diverging and sometimes conflicting interpretations by tax
authorities of these jurisdictions. It is not uncommon for taxing authorities in different countries to have conflicting views,
for instance, with respect to, among other things, the manner in which the arm’s length standard is applied for transfer
pricing purposes, or with respect to the valuation of intellectual property. In addition, tax laws are dynamic and subject to
change as new laws are passed and new interpretations of the law are issued or applied. For example, on December 22, 2017, the
Tax Cuts and Jobs Act was enacted, which introduced a comprehensive set of tax reforms. We continue to assess the impact of such
tax reform legislation on our business and may determine that changes to our structure, practice or tax positions are necessary
in light of the Tax Cuts and Jobs Act. Certain impacts of this legislation have been taken into account in our financial statements,
including the reduction of the U.S. corporate income tax rate from the previous 35 percent to 21 percent. The Tax Cuts and Jobs
Act in conjunction with the tax laws of other jurisdictions in which we operate, however, may require consideration of changes
to our structure and the manner in which we conduct our business. Such changes may nevertheless be ineffective in avoiding an
increase in our consolidated tax liability, which could adversely affect our financial condition, results of operations and cash
flows.
If
tax authorities in any of the countries in which we operate were to successfully challenge our transfer prices as not reflecting
arms’ length transactions, they could require us to adjust our transfer prices and thereby reallocate our income to reflect
these revised transfer prices, which could result in a higher tax liability to us. In addition, if the country from which the
income is reallocated does not agree with the reallocation, both countries could tax the same income, potentially resulting in
double taxation. If tax authorities were to allocate income to a higher tax jurisdiction, subject our income to double taxation
or assess interest and penalties, it would increase our consolidated tax liability, which could adversely affect our financial
condition, results of operations and cash flows.
The
tax benefits that are available to us require us to continue to meet various conditions and may be terminated or reduced
in the future, which could increase our costs and taxes.
Some
of our operations in Israel may entitle us to certain tax benefits under the Law for the Encouragement of Capital Investments,
5719-1959, or the Investment Law, once we begin to produce revenue. If we do not meet the requirements for maintaining these benefits,
they may be reduced or cancelled and the relevant operations would be subject to Israeli corporate tax at the standard rate, which
is set at 23% in 2018 and thereafter. In addition to being subject to the standard corporate tax rate, we could be required to
refund any tax benefits that we will receive, plus interest and penalties thereon. Even if we continue to meet the relevant requirements,
the tax benefits that our current “Preferred Enterprise” is entitled to may not be continued in the future at their
current levels or at all. If these tax benefits were reduced or eliminated, the amount of taxes that we will pay would likely
increase, as all of our operations would consequently be subject to corporate tax at the standard rate, which could adversely
affect our results of operations. Additionally, if we increase our activities outside of Israel, for example, by way of acquisitions,
our increased activities may not be eligible for inclusion in Israeli tax benefits programs.
If
securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market,
or if they adversely change their recommendations or publish negative reports regarding our business or our shares, our share
price and trading volume could decline.
The
trading market for our ordinary shares will be influenced by the research and reports that industry or securities analysts may
publish about us, our business, our market or our competitors. We do not have any control over these analysts, and we cannot provide
any assurance that analysts will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change
their recommendation regarding our shares, or provide more favorable relative recommendations about our competitors, our share
price would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish
reports on us, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume
to decline.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Some
discussions in this prospectus may contain forward-looking statements that involve risks and uncertainties. These statements relate
to future events or future financial performance. A number of important factors could cause our actual results to differ materially
from those expressed in or implied by any forward-looking statements made by us in this prospectus. Forward-looking statements
are often identified by words like: “believe,” “expect,” “estimate,” “anticipate,”
“intend,” “project,” “may,” “will,” “should,” “plans,”
“predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology.
These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks
in the section titled “Risk Factors” beginning on page 7, that may cause our or our industry's actual results,
levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance
or achievements expressed or implied by these forward-looking statements. In addition, you are directed to factors discussed in
the “Description of Business” section beginning on page 39, the “Management's Discussion and Analysis
of Financial Condition and Results of Operations” section beginning on page 32, as well as those discussed elsewhere
in this prospectus.
Although
we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, or achievements. Except as required by applicable law, including the securities laws of the United States,
we do not intend to update any of the forward-looking statements to conform these statements to actual results.
USE
OF PROCEEDS
We estimate that the net proceeds from
the sale of ordinary shares in this offering will be approximately $ million, after
deducting the estimated underwriting discount and estimated offering expenses payable by us, based on the public offering price
of $ per unit. If the underwriters exercise their option in full to purchase up to an
additional 3,600,000 units, up to 3,600,000 additional ordinary shares or up to an additional 7,200,000 warrants, we estimate
that the net proceeds to us from this offering will be approximately $ million, after
deducting the estimated underwriting discount and estimated offering expenses payable by us. This amount does not include the
proceeds that we may receive in connection with the exercise of the warrants included in the units. We cannot predict when or
if the warrants will be exercised, and it is possible that the warrants will expire and never be exercised.
We
intend to use the net proceeds from this offering, together with our existing cash and cash equivalents, available for sale and
short-term deposits, as follows:
|
●
|
approximately
$1.8 million to repay the outstanding convertible bridge loans;
|
|
●
|
approximately
$ million to fund further research and development, clinical trials, and commercialization
of our cancer screening and diagnosis products and our blood tests for the early detection
of neurodegenerative disorders, such as Alzheimer's disease;
|
|
●
|
the
balance for other general corporate purposes, including general and administrative expenses
and working capital.
|
We
may also use a portion of the net proceeds from this offering to acquire or invest in complementary products, technologies or
businesses, although we have no present agreements or commitments to do so.
Although
we currently anticipate that we will use the net proceeds from this offering as described above, there may be circumstances where
a reallocation of funds is necessary. Due to the uncertainties inherent in the clinical development and regulatory approval process,
it is difficult to estimate with certainty the exact amounts of the net proceeds from this offering that may be used for any of
the above purposes on a stand-alone basis. Amounts and timing of our actual expenditures will depend upon a number of factors,
including our sales, marketing and commercialization efforts, regulatory approval and demand for our product candidates, operating
costs and other factors described under “Risk Factors” in this prospectus. Accordingly, our management will
have flexibility in applying the net proceeds from this offering. An investor will not have the opportunity to evaluate the economic,
financial or other information on which we base our decisions on how to use the proceeds.
Based
on our current plans, we believe that the net proceeds from this offering together with our existing cash and cash equivalents,
available-for-sale financial assets and short-term deposits will be sufficient to enable us to commercialize our breast cancer
screening products, further develop our colon cancer screening product, and develop our LymPro assay for the detection of neurodegenerative
disorders. We have based this estimate on assumptions that may prove to be incorrect, and we could use our available capital resources
sooner than we currently expect.
Pending
our application of the net proceeds from this offering, we plan to invest such proceeds in in short-term, investment-grade, interest-bearing
securities and depositary institutions.
DILUTION
If you invest in our securities in this
offering, your interest will be immediately diluted to the extent of the difference between the public offering price per unit
in this offering and the as further adjusted net tangible book value per ordinary share after this offering. Dilution results
from the fact that the public offering price per ordinary share and corresponding warrant is substantially in excess of the net
tangible book value per ordinary share. As of December 31, 2018, we had a historical net tangible book value of $(1.2 million),
or $(0.0168) per ordinary share. Our net tangible book value per share represents total tangible assets less total liabilities,
divided by the number of ordinary shares outstanding on December 31, 2018.
After giving effect to the sale of ordinary
shares and warrants in this offering at the public offering price of $ per ordinary
share and corresponding warrant (attributing none of the combined public offering price to the warrants offered hereby), after
deducting the estimated underwriting discount and estimated offering expenses and after adjusting for the issuance of additional
ordinary shares to Amarantus upon the formal closing of the Amarantus transaction, our as adjusted net tangible book value at
December 31, 2018 would have been $ per share. This represents an immediate increase
in as adjusted net tangible book value of $ per
share to existing shareholders and immediate dilution of $ per ordinary share to new
investors.
The
following table illustrates this dilution per ordinary share:
Public
offering price per unit
|
|
|
|
$
|
|
|
Historical
net tangible book value per ordinary share as of December 31, 2018
|
$
|
(0.0168
|
)
|
|
|
|
Increase
in as adjusted net tangible book value per ordinary share
|
$
|
|
|
|
|
|
As
adjusted net tangible book value per ordinary share after this offering
|
|
|
|
$
|
|
|
Dilution
per ordinary share to new investors participating in this offering
|
|
|
|
$
|
|
|
If the underwriters exercise in full
their option to purchase additional units, ordinary shares and/or warrants, the as adjusted net tangible book value will increase
to $ per ordinary share, representing an immediate increase in as adjusted net tangible
book value to existing shareholders of $ per ordinary share and an immediate dilution
of $ per ordinary share to new investors participating in this offering.
The foregoing table and calculations assume that the warrants sold in the offering are not exercised.
We
may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient
funds for our current or future operating plans. To the extent that we raise additional capital through the sale of equity or
convertible debt securities, the issuance of these securities could result in further dilution to our equity holders.
The
following table shows, as of December 31, 2018, on an as-adjusted basis, the number of ordinary shares purchased from us, the
total consideration paid to us and the average price paid per share by existing shareholders and by new investors purchasing ordinary
shares in this offering at the public offering price of $ per ordinary share, before deducting the estimated underwriting discount
and estimated offering expenses payable by us:
(in
thousands, except share and per share amounts and percentages)
|
|
Shares
Subscribed for/Purchased
|
|
|
Total
Consideration
|
|
|
|
Average Price
per
|
|
|
|
Number
|
|
|
Percent
|
|
|
Number
|
|
|
Percent
|
|
|
|
Share
|
|
Existing
shareholders (Dec. 31, 2018)
|
|
|
72,399,932
|
|
|
|
75.1
|
%
|
|
$
|
|
|
|
|
%
|
|
$
|
|
|
Investors participating
in this offering*
|
|
|
24,000,000
|
|
|
|
24.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
96,399,932
|
|
|
|
100
|
%
|
|
$
|
|
|
|
100.0
|
%
|
|
|
|
|
* Before deducting estimated offering expenses
DIVIDEND
POLICY
We
have not declared or paid any dividend since inception on our ordinary shares. We do not anticipate that we will declare or pay
dividends in the foreseeable future on our ordinary shares. Instead, we anticipate that all of our earnings will be used for the
operation and growth of our business. Any future determination to declare cash dividends would be subject to the discretion of
our board of directors and would depend upon various factors, including our results of operations, financial condition and liquidity
requirements, restrictions that may be imposed by applicable law and our contracts and other factors deemed relevant by our board
of directors.
CAPITALIZATION
The
following table sets forth our consolidated capitalization as of December 31, 2018:
|
-
|
on
an actual basis, as determined in accordance with US GAAP; and
|
|
-
|
on an as-adjusted
basis to reflect the net proceeds from our sale of 24,000,000 units in this offering at the public offering price of
$ per unit, after deducting the underwriting discounts and commissions and the estimated
offering expenses and after adjusting for the issuance of additional ordinary shares to Amarantus upon the formal closing
of the Amarantus transaction.
|
This table should be read in conjunction
with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and
“Use of Proceeds” sections, as well as our audited financial statements, included elsewhere in this prospectus.
The following table assumes (i) no exercise by the underwriters of the overallotment option to purchase additional units, additional
ordinary shares and/or additional warrants in this offering and (ii) no exercise of the warrants sold in the offering.
|
|
Year Ended
December 31, 2018
|
|
U.S. dollars in thousands
|
|
Actual
|
|
|
As
adjusted
|
|
Cash and cash equivalents
|
|
$
|
64
|
|
|
|
|
|
Working capital (deficit)
|
|
$
|
(1,093
|
)
|
|
|
|
|
Total assets
|
|
$
|
199
|
|
|
|
|
|
Total current liabilities
|
|
$
|
1,199
|
|
|
|
|
|
Total long-term liabilities
|
|
$
|
217
|
|
|
|
|
|
Shareholders’ equity (deficit)
|
|
$
|
(1,216
|
)
|
|
|
|
|
Number of Ordinary Shares outstanding
|
|
|
72,399,932
|
|
|
|
|
|
PRICE
RANGE OF OUR ORDINARY SHARES
Our
ordinary shares have been quoted on the OTCQB under the symbol “TOMDF” since March 7, 2017. The OTCQB is a regulated
quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter equity securities.
The OTCQB is a quotation medium for subscribing members, not an issuer listing service, and should not be confused with The NASDAQ
Stock Market.
On September 18, 2019, the last reported
sale price of our ordinary shares on the OTCQB was $0.27 per ordinary share.
Holders
We had 63 holders of record for our
ordinary shares as of June 30, 2019.
ENFORCEABILITY
OF CIVIL LIABILITIES
We
are incorporated under the laws of the State of Israel. Service of process upon us and upon our directors and officers and the
Israeli experts named in this prospectus, substantially all of whom reside outside the United States, may be difficult to obtain
within the United States. Furthermore, because substantially all of our assets, and those of our directors and officers and
the Israeli experts named herein, are located outside the United States, any judgment obtained in the United States against us
or any of these persons may not be collectible within the United States.
We
have been informed by our legal counsel in Israel that it may be difficult to assert U.S. securities laws claims in original actions
instituted in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws on
the grounds that Israel is not the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees
to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable,
the content of applicable U.S. law must be proved as a fact by expert witnesses, which can be a time-consuming and costly process. Certain
matters of procedure will also be governed by Israeli law.
Subject
to certain time limitations and legal procedures, Israeli courts may enforce a U.S. judgment in a civil matter, including a judgment
based upon the civil liability provisions of the Securities Act and the Exchange Act and including a monetary or compensatory
judgment in a non-civil matter, provided that, among other things:
|
●
|
the
judgment was rendered by a court which was, according to the laws of the state of the
court, competent to render the judgment;
|
|
●
|
the
judgment may no longer be appealed;
|
|
●
|
the
obligation imposed by the judgment is enforceable according to the rules relating to
the enforceability of judgments in Israel and the substance of the judgment is not contrary
to public policy; and
|
|
●
|
the
judgment is executory in the state in which it was given.
|
Even
if such conditions are met, an Israeli court may not declare a foreign civil judgment enforceable if:
|
●
|
the
judgment was given in a state whose laws do not provide for the enforcement of judgments
of Israeli courts (subject to exceptional cases);
|
|
●
|
the
enforcement of the judgment is likely to prejudice the sovereignty or security of the
State of Israel;
|
|
●
|
the
judgment was obtained by fraud;
|
|
●
|
the
opportunity given to the defendant to bring its arguments and evidence before the court
was not reasonable in the opinion of the Israeli court;
|
|
●
|
the
judgment was rendered by a court not competent to render it according to the laws of
private international law as they apply in Israel;
|
|
●
|
the
judgment is contradictory to another judgment that was given in the same matter between
the same parties and that is still valid; or
|
|
●
|
at
the time the action was brought in the foreign court, a lawsuit in the same matter and
between the same parties was pending before a court or tribunal in Israel.
|
Foreign
judgments enforced by Israeli courts will generally be payable in Israeli currency, which can then be converted into non-Israeli
currency and transferred out of Israel. The usual practice in an action before an Israeli court to recover an amount in a
non-Israeli currency is for the Israeli court to render judgment for the equivalent amount in Israeli currency at the rate of
exchange in force on the date of the judgment, but the judgment debtor may make payment in foreign currency. Pending collection,
the amount of the judgment of an Israeli court stated in Israeli currency ordinarily will be linked to the Israeli consumer price
index plus interest at the annual statutory rate set by Israeli regulations prevailing at that time. Judgment creditors must
bear the risk of unfavorable exchange rates.
SELECTED
CONSOLIDATED FINANCIAL DATA
The
following tables summarize our financial data. We have derived the following statements of operations data for the years ended
December 31, 2018, 2017 and 2016 and the balance sheet data as of December 31, 2018 and 2017 from our audited consolidated financial
statements included elsewhere in this prospectus, which have been prepared in accordance with US GAAP. Our selected consolidated
statements of operations data for the years ended December 31, 2015 and 2014, and the selected consolidated balance sheet data
as of December 31, 2016, 2015, and 2014 have been derived from our audited consolidated financial statements not included in this
prospectus.
Our
historical results are not necessarily indicative of the results that may be expected in the future, and our results for any interim
period are not necessarily indicative of results that may be expected for any full year. The following selected financial data
should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus
U.S. dollars in thousands, except share data
|
|
Year Ended December 31,
|
|
Consolidated Statements of Operations Data
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Research and development expenses, net
|
|
$
|
(459
|
)
|
|
|
(721
|
)
|
|
|
(318
|
)
|
|
|
(374
|
)
|
|
|
(336
|
)
|
General and administrative expenses
|
|
|
(920
|
)
|
|
|
(617
|
)
|
|
|
(411
|
)
|
|
|
(457
|
)
|
|
|
(64
|
)
|
Operating loss
|
|
|
(1,379
|
)
|
|
|
(1,338
|
)
|
|
|
(729
|
)
|
|
|
(831
|
)
|
|
|
(401
|
)
|
Financing income (expenses), net
|
|
|
921
|
|
|
|
(1,337
|
)
|
|
|
75
|
|
|
|
12
|
|
|
|
(79
|
)
|
Net loss
|
|
|
(458
|
)
|
|
|
(2,675
|
)
|
|
|
(653
|
)
|
|
|
(819
|
)
|
|
|
(322
|
)
|
Net loss per share (basic and diluted)
|
|
$
|
(0.006
|
)
|
|
|
(0.04
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
Basic and diluted weighted average number of Ordinary Shares outstanding
|
|
|
70,869,924
|
|
|
|
68,587,261
|
|
|
|
62,467,556
|
|
|
|
45,190,017
|
|
|
|
28,450,908
|
|
Balance
Sheet Data
U.S. dollars in thousands, except share data
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Cash and cash equivalents
|
|
$
|
64
|
|
|
$
|
683
|
|
|
$
|
439
|
|
|
$
|
156
|
|
|
$
|
61
|
|
Working capital (deficit)
|
|
$
|
(1,093
|
)
|
|
$
|
468
|
|
|
$
|
325
|
|
|
$
|
107
|
|
|
$
|
25
|
|
Total assets
|
|
$
|
199
|
|
|
$
|
816
|
|
|
$
|
584
|
|
|
$
|
292
|
|
|
$
|
129
|
|
Total current liabilities
|
|
$
|
1,199
|
|
|
$
|
245
|
|
|
$
|
135
|
|
|
$
|
79
|
|
|
$
|
100
|
|
Total long-term liabilities
|
|
$
|
217
|
|
|
$
|
1,911
|
|
|
$
|
853
|
|
|
$
|
742
|
|
|
$
|
617
|
|
Shareholders’ deficit
|
|
$
|
(1,216
|
)
|
|
$
|
(1,340
|
)
|
|
$
|
(404
|
)
|
|
$
|
(528
|
)
|
|
$
|
(588
|
)
|
Number of Ordinary Shares outstanding
|
|
|
72,399,932
|
|
|
|
70,256,911
|
|
|
|
63,747,504
|
|
|
|
59,125,670
|
|
|
|
33,352,200
|
|
Number of Preferred Shares Outstanding
|
|
|
-
|
|
|
|
-
|
|
|
|
3,333,471
|
|
|
|
3,096,195
|
|
|
|
3,000,000
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere
in this prospectus. This discussion and other parts of this prospectus contain forward-looking statements based upon current expectations
that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those
anticipated in these forward-looking statements as a result of several factors, including those set forth under “Risk
Factors” and elsewhere in this prospectus. We report financial information under US GAAP and our financial statements
were prepared in accordance with generally accepted accounting principles in the United States. Unless otherwise indicated, U.S.
dollar convenience translations of NIS amounts presented in this prospectus for the period ended on December 31, 2018 are translated
using the rate of NIS 3.748 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2018, and U.S. dollar convenience
translations of NIS amounts presented in this prospectus for the period ended December 31, 2017 are translated using the rate
of NIS 3.467 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2017, and U.S. dollar convenience translations
of NIS amounts presented in this prospectus for the period ended on December 31, 2016 are translated using the rate of NIS 3.845
to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016.
Overview
We
are an IVD for cancer diagnosis company, engaged in the development of a series of cancer detection kits designed to detect a
variety of cancers from blood samples based on our TBIA, a proprietary method for detection of solid tumors using peripheral blood
analysis. The method incorporates biochemistry, physics and signal processing. The TBIA detection method is based on the cancer’s
influence on the immune system which triggers biochemical changes in PBMC, and plasma. Our core technology, TBIA, is based on
research conducted and technology invented by the research teams at BGU and Soroka, whose intellectual property has been licensed
to us by affiliates of BGU and Soroka in consideration of our contractual obligation to pay certain licensing fees. On December
9, 2013, our TBIA method obtained the CE mark approval. In addition, we are engaged in the development of blood tests for the
early detection of neurodegenerative disorders, such as Alzheimer's disease. We are pursuing this activity through our subsidiary,
Breakthrough, which holds an exclusive license to the LymPro Test®, an immune-based neurodiagnostic blood test developed at
the University of Leipzig.
We
believe that our clinical results conducted to date demonstrate the capability to simply and rapidly detect malignant breast and
colon tumors in comparison to a controlled healthy group. We anticipate that future broad clinical studies should reveal the full
potential of our technology. We believe our proprietary innovation is conducive to constant improvement in the algorithm as we
ascend the learning curve, thereby perfecting our test performances and expand the intended population with each test. Accordingly,
we will be required to continue to devote substantial resources and efforts to research and development activities in order to
potentially achieve and maintain a competitive position in this field. We plan to increase our products portfolio and improve
the existing products by improving the algorithms and optimizing and automating the process. As of March 31, 2019, our unaudited
cash holdings were $212,000.
One
of our objectives in the next two years is to make our products known in the medical and scientific fields by publishing peer
reviewed, high impact articles in medical journals about our TBIA method. During this period, we plan to begin selling our products
in Israel, Europe and the Far East and to prepare the groundwork for FDA approval in the United States. We will also focus on
enhancing our TBIA proprietary automation and algorithms in order to obtain a higher level of accuracy and reproducibility for
the results of the blood tests. In addition, we believe that automating the process will reduce the relevant costs for the general
public. We believe that proper robots and optimized spectrometers will enhance our method to the higher productivity levels needed
for the TBIA detection tool to be able to perform a higher volume of tests.
Prior
to selling our products, we first need to complete the automation process. This process includes several steps including qualifying
a robust new test protocol, making our test measurement more automated in order to reduce our dependency on the skills of lab
technicians, installing the proper web cloud data warehouse, and integrating a full business-to-business network. We plan to protect
the confidentiality of patient medical data and personally identifiable information by means of: (i) having a secure facility
where the data and information we hold will be stored; and (ii) requiring our third-party providers of data storage to comply
with HIPAA and applicable state privacy and security laws and regulations. These changes will enable our customers to run the
tests with lower costs while obtaining faster results. To the knowledge of our management, these changes will not impact the previously
obtained CE mark approval of the TBIA method. At this point there can be no assurance that our plan will be implemented in accordance
with what we currently envision, and future clinical results may lead to different conclusions about our products.
We
are an IVD company, developing proprietary technology which will analyze a blood test to detect the presence of various cancers.
As we are not developing a drug, we believe that we will not need to submit an investigational new drug application to the FDA
prior to conducting clinical trials in the U.S. We believe that we will only need IRB approval prior to conducting clinical trials
in the U.S.
Critical
Accounting Policies and Estimates
Our
management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial
statements, which we have prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements requires
us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the consolidated financial statements, as well as the reported revenue and expenses during
the reporting periods. Actual results may differ from these estimates under different assumptions or conditions.
While
our significant accounting policies are more fully described in the notes to our consolidated financial statements appearing elsewhere
in this prospectus, we believe that the accounting policies discussed below are critical to our financial results and to the understanding
of our past and future performance, as these policies relate to the more significant areas involving management’s estimates
and assumptions. We consider an accounting estimate to be critical if: (i) it requires us to make assumptions because information
was not available at the time or it included matters that were highly uncertain at the time we were making our estimate; and (ii)
changes in the estimate could have a material impact on our financial condition or results of operations.
Government
Grants from the Israeli Innovation Authority (IIA) (formerly the Office of the Chief Scientist)
Research
and development expenses are charged to operations as incurred. Grants received by the Company from the Government of Israel through
the IIA for the development of approved projects are recognized as a reduction of expenses against the related costs incurred.
Royalty-bearing
grants from the IIA for funding approved research and development projects are recognized at the time the Company is entitled
to such grants (i.e. at the time that there is reasonable assurance that the Company will comply with the conditions attached
to the grant and that there is reasonable assurance that the grant will be received), on the basis of the costs incurred and reduce
research and development costs. The cumulative research and development grants received by the Company from inception through
December 2018 amounted to $272,237.
Share-Based
Compensation
The
Company measures and recognizes the compensation expense for all equity-based payments to employees based on their estimated fair
values in accordance with ASC 718, “Compensation-Stock Compensation”. Share-based payments including grants of stock
options are recognized in the statement of comprehensive loss as an operating expense based on the fair value of the award at
the date of grant. The fair value of stock options granted is estimated using the Black-Scholes option-pricing model. The Company
has expensed compensation costs, net of estimated forfeitures, applying the accelerated vesting method, over the requisite service
period or over the implicit service period when a performance condition affects the vesting, and it is considered probable that
the performance condition will be achieved.
Share-based
payments awarded to consultants (non-employees) are accounted for in accordance with ASC Topic 505-50, “Equity-Based Payments
to Non-Employees.”
Results
of Operations
We
have not generated any revenue from operations since our commencement of business. Our current operating expenses consist of two
components - research and development expenses, and general and administrative expenses.
Research
and Development Expenses
Our
research and development expenses consist primarily of salaries and related personnel expenses, subcontracted work and consulting,
liabilities for royalties and other related research and development expenses.
The
following table discloses the breakdown of research and development expenses:
|
|
Year ended December 31
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Salaries and related expenses
|
|
$
|
178,486
|
|
|
$
|
144,250
|
|
|
$
|
145,997
|
|
Stock-based compensation
|
|
|
12,077
|
|
|
|
22,883
|
|
|
|
48,056
|
|
Professional fees
|
|
|
22,271
|
|
|
|
18,888
|
|
|
|
37,426
|
|
Laboratory and materials, Clinical trials
|
|
|
70,779
|
|
|
|
143,644
|
|
|
|
109,299
|
|
Patent expenses
|
|
|
82,367
|
|
|
|
65,654
|
|
|
|
24,956
|
|
Rent and maintenance
|
|
|
40,146
|
|
|
|
58,381
|
|
|
|
41,289
|
|
Liability for minimum royalties expenses
|
|
|
--
|
|
|
|
238,000
|
|
|
|
50,000
|
|
Depreciation
|
|
|
25,650
|
|
|
|
24,083
|
|
|
|
20,695
|
|
Travel expenses
|
|
|
3,804
|
|
|
|
2,152
|
|
|
|
2,942
|
|
Insurance and other expenses
|
|
|
23,604
|
|
|
|
2,592
|
|
|
|
3,293
|
|
|
|
|
459,184
|
|
|
|
720,527
|
|
|
|
483,953
|
|
Less: Grants from the OCS and others
|
|
|
-
|
|
|
|
-
|
|
|
|
(166,046
|
)
|
|
|
$
|
459,184
|
|
|
$
|
720,527
|
|
|
$
|
317,907
|
|
We
expect that our research and development expenses will materially increase as we plan to rapidly recruit more employees in order
to accelerate our research and development efforts. We anticipate that our expanded research and development efforts will include
recruiting additional software developers to enhance our software; hiring additional lab technicians; performing additional clinical
trials for our various blood screening tests, and expanding our production and quality assurance teams to support commercialization.
General
and administrative
General
and administrative expenses consist primarily of salaries, share-based compensation expense, professional service fees (for accounting,
legal, bookkeeping, intellectual property and facilities), directors fee and insurance and other general and administrative expenses.
The
following table discloses the breakdown of general and administrative expenses:
|
|
Year ended December 31
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and related expenses
|
|
$
|
190,207
|
|
|
$
|
67,541
|
|
|
$
|
29,254
|
|
Stock-based compensation
|
|
|
35,595
|
|
|
|
90,875
|
|
|
|
162,124
|
|
Communication and investor relations
|
|
|
230,194
|
|
|
|
83,836
|
|
|
|
5,121
|
|
Professional fees
|
|
|
269,980
|
|
|
|
224,407
|
|
|
|
150,341
|
|
Insurance and other expenses
|
|
|
193,718
|
|
|
|
150,428
|
|
|
|
64,142
|
|
|
|
$
|
919,694
|
|
|
$
|
617,087
|
|
|
$
|
410,982
|
|
Comparison
of the year ended December 31, 2018 to the year ended December 31, 2017
Research
and Development Expenses. Our net research and development expenses for the year ended December 31, 2018 were $459,184, compared
to $720,527 for the year ended December 31, 2017, representing a net decrease of $261,343, or 36.23%. The decrease in 2018 is
primarily due to liabilities to minimum royalties that posted in 2017 to reflect the present value of the liability we have to
Ben Gurion University and a decrease in laboratory and materials expenses resulting from decreased activities due to limited resources
in 2018.
General
and Administrative Expenses. Our expenses for the year ended December 31, 2018 were $919,694, compared to $617,087 for the
year ended December 31, 2017, providing an increase of $302,607 or 51%. The increase is primarily due to the increase from communication
and investor relations expenses and an increase in salaries and related expenses mainly related to the hiring of our new CEO.
Finance
Income and Expenses. Our net finance (Income) expenses for the year ended December 31, 2018 was ($921,337), compared to expenses
of $1,337,758 for the year ended December 31, 2017, providing a decrease of $2,259,095. The decrease is primarily due to the change
in the fair value of warrants liability in the amount of $2,027,908 and inducement related to warrants exercised in the amount
of $166,500, and the impact of exchange rate transaction of $114,687. We issued warrants that are classified as liability instruments.
As such, the fair value of these warrants is re-measured at the end of each accounting period with changes in this fair value
reflected in the financial statement caption “Long Term Liabilities.” The exchange rate differentials affected the
balances appearing on the balance sheet.
Net
Loss. Our net loss for the year ended December 31, 2018 was $457,541, compared to $2,675,372 for the year ended December 31,
2017, providing a $2,217,831 decrease in the amount of the loss or an 82.9% decrease. The decrease is primarily due to the change
in the fair value of warrants liability, inducement related to warrants exercised, and research and development expenses.
Comparison
of the year ended December 31, 2017 to the year ended December 31, 2016
Research
and Development Expenses. Our net research and development expenses for the year ended December 31, 2017 were $720,527, compared
to $317,907 for the year ended December 31, 2016, representing a net increase of $402,620, or 126%. The increase is primarily
due to research and development grants we have received from the IIA and Horizon 2020 (the EU Framework Program for Research and
Innovation) of $166,000 in 2016 that are included as an offset to research and development expenses in 2016, and royalties expenses
to B.G. Negev Technologies and Applications Ltd., an affiliate of BGU.
General
and Administrative Expenses. Our expenses for the year ended December 31, 2017 were $617,087, compared to $410,982 for the
year ended December 31, 2016, providing an increase of $206,105 or 50.1%. The increase is primarily due to the increase from professional
services expenses.
Finance
Income and Expenses. Our net finance expenses for the year ended December 31, 2017 was $1,337,758, compared to income of $75,428
for the year ended December 31, 2016, providing an increase of $1,413,186. The increase is primarily due to the change in the
fair value of warrants liability in the amount of $1,101,229 and inducement related to warrants exercised in the amount of 166,500.
We issued warrants that are classified as liability instruments. As such, the fair value of these warrants is re-measured at the
end of each accounting period with changes in this fair value reflected in the financial statement caption “Long Term Liabilities.”
The exchange rate differentials affected the balances appearing on the balance sheet.
Net
Loss. Our net loss for the year ended December 31, 2017 was $2,675,372, compared to $653,461 for the year ended December 31,
2016, providing a $2,021,911 increase in the amount of the loss or a 309% increase. The increase is primarily due to the change
in the fair value of warrants liability, inducement related to warrants exercised and research and development expenses.
Going
Concern Uncertainty
We
devoted substantially all of our efforts to research and development and raising capital and have not yet generated any revenues.
The development and commercialization of our products are expected to require substantial further expenditures. We have not yet
generated any revenues from operations, and therefore we are dependent upon external sources for financing our operations. Since
inception, we have incurred substantial accumulated losses and negative operating cash flow and have a significant shareholders’
deficit. These factors raise substantial doubt about our ability to continue as a going concern. Our financial statements for
the year ended December 31, 2018 do not include any adjustments that might result from the outcome of this uncertainty. As of
March 31, 2019, our unaudited cash holdings were $212,000. We plan to finance our operations through the sale of equity and, to
the extent available, short term and long-term loans. There can be no assurance that we will succeed in obtaining the necessary
financing to continue our operations. See also “Risk Factors” under the caption “The report of our independent
registered public accounting firm expresses substantial doubt about our ability to continue as a going concern.”
Liquidity
and Capital Resources
Overview
To
date, we have funded our operations primarily with loans, grants from the IIA, and issuing Ordinary Shares and warrants.
The
table below presents our cash flows:
STATEMENTS
OF CASH FLOWS
U.S. dollars in thousands
|
|
For the Year ended December
31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year
|
|
$
|
(458
|
)
|
|
$
|
(2,675
|
)
|
|
$
|
(653
|
)
|
Adjustments to reconcile loss for the year to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
26
|
|
|
|
24
|
|
|
|
21
|
|
Liability for minimum royalties
|
|
|
50
|
|
|
|
238
|
|
|
|
50
|
|
Change in fair value of warrants liability and fair value of warrants expired
|
|
|
(926
|
)
|
|
|
1,101
|
|
|
|
(118
|
)
|
Stock-based compensation
|
|
|
48
|
|
|
|
114
|
|
|
|
210
|
|
Inducement related to warrants exercised
|
|
|
-
|
|
|
|
167
|
|
|
|
-
|
|
Financing expenses of long term loans & other Shekel denominated balances
|
|
|
(48
|
)
|
|
|
67
|
|
|
|
8
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in other current assets
|
|
|
(13
|
)
|
|
|
1
|
|
|
|
6
|
|
Increase (decrease) in accounts payable
|
|
|
163
|
|
|
|
(22
|
)
|
|
|
14
|
|
(Decrease) increase in other current liabilities
|
|
|
102
|
|
|
|
81
|
|
|
|
(8
|
)
|
Net cash used in operating activities
|
|
|
(1,056
|
)
|
|
|
(904
|
)
|
|
|
(469
|
)
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(15
|
)
|
|
|
(4
|
)
|
|
|
(35
|
)
|
Net cash used in investing activities
|
|
|
(15
|
)
|
|
|
(4
|
)
|
|
|
(35
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds received from issuance of convertible bridge loan
|
|
|
27
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds allocated to Ordinary Shares, net
|
|
|
80
|
|
|
|
563
|
|
|
|
567
|
|
Proceeds allocated to warrants
|
|
|
20
|
|
|
|
-
|
|
|
|
244
|
|
Proceeds allocated from exercise of warrants
|
|
|
324
|
|
|
|
599
|
|
|
|
-
|
|
Proceeds from exercise of stock options
|
|
|
-
|
|
|
|
0.226
|
|
|
|
0.273
|
|
Repayments of shareholders loans
|
|
|
-
|
|
|
|
-
|
|
|
|
(24
|
)
|
Net cash provided by financing activities
|
|
|
451
|
|
|
|
1,162
|
|
|
|
788
|
|
(Decrease) Increase in cash and cash equivalents
|
|
|
(620
|
)
|
|
|
224
|
|
|
|
283
|
|
Cash, cash equivalents and restricted cash at beginning of the year
|
|
|
693
|
|
|
|
439
|
|
|
|
156
|
|
Cash, cash equivalents and restricted cash at end of the year
|
|
$
|
73
|
|
|
$
|
693
|
|
|
$
|
439
|
|
Operating
Activities
Net
cash used in operating activities for the year ended December 31, 2018 was $1,056,296, compared to $904,410 in the year ended
December 31, 2017, and $469,389 in the year ended December 31, 2016. The increase in the net cash used in operating activities
in 2018 compared to 2017 was not material. The increase in the net cash used in operating activities in 2017 compared to 2016
is primarily due to an increase in operating expenses mainly due to the research and development activities that were performed
in 2017 and the general and administrative expenses incurred in 2017.
Investing
Activities
Net
cash used in investing activities for the for the year ended December 31, 2018 was $15,370, compared to net cash used in the year
ended December 31, 2017 of $3,596, compared to net cash used in the year ended December 31, 2016 of $34,971.
Financing
Activities
Net
cash provided by financing activities for the year ended December 31, 2018 was $451,258, compared to net cash provided by financing
activities for the year ended December 31, 2017 of $1,162,230, compared to net cash provided by financing activities for the year
ended December 31, 2016 of $787,759. This decrease is primarily due to cash received in 2018 from the exercise of warrants, proceeds
from private placements, and proceeds from convertible loans.
Current
Outlook
As
of March 31, 2019, our unaudited cash holdings were $212,000.
We
cannot assure that our cancer detection kits will be commercialized, work as indicated, or that they will receive regulatory approval
and that we will earn revenues sufficient to support our operations or that we will ever be profitable. Furthermore, other than
our plan to raise funds in this public offering, we have no committed source of financing. If we do not raise the necessary funds
in this public offering, we may be required to severely curtail, or even to cease, our operations.
We
have limited experience with IVD. While we expect that we will need approximately $1.5 million to commercialize our cancer screening
products, our budget estimates may not be accurate. As further work is performed, additional work may become necessary or a change
in plans or workload may occur. Such changes may have an adverse impact on our estimated budget. Such changes may also have an
adverse impact on our projected timeline of product commercialization.
Funding
Requirements
We
believe that our existing funds, together with the net proceeds from this offering, will enable us to fund our operating expenses
and capital expenditure requirements for the next eighteen months. We have based this estimate on assumptions that may prove to
be wrong, and we could use our capital resources sooner than we currently expect.
Our
present and future funding requirements will depend on many factors, including, among other things:
|
●
|
the
progress, timing and completion of our clinical trials for our breast cancer products;
|
|
●
|
the
progress, timing and completion of preclinical studies and clinical trials for our colon
cancer product and any of our other future products;
|
|
●
|
the
costs related to obtaining regulatory approval for our products, and any delays we may
encounter as a result of regulatory requirements or adverse clinical trial results with
respect to any of these products’
|
|
●
|
selling,
marketing and patent-related activities undertaken in connection with the commercialization
of our products, and costs involved in the development of an effective sales and marketing
organization;
|
|
●
|
the
costs involved in filing and prosecuting patent applications and obtaining, maintaining
and enforcing patents or defending against claims or infringements raised by third parties,
and license royalties or other amounts we may be required to pay to obtain rights to
third party intellectual property rights; and
|
|
●
|
establishing
a sales, marketing and distribution infrastructure and scale up manufacturing capabilities
to commercialize any products for which we obtain regulatory approval.
|
Furthermore,
we expect to continue to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain
substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or
on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization
efforts.
Until
such time, if ever, as we can generate substantial product revenue, we may finance our cash needs through a combination of equity
offerings, debt financings, collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional
capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of any
additional securities may include liquidation or other preferences that adversely affect your rights as a shareholder. Debt financing,
if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such
as incurring additional debt, making capital expenditures or declaring dividends.
If
we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have
to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant
licenses on terms that may not be favorable to us.
If
we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce
or terminate our product development or future commercialization efforts or grant rights to develop and market products that we
would otherwise prefer to develop and market ourselves.
In
addition, if we are unable to raise additional funds when needed, we may need to do one or more of the following:
|
●
|
seek
strategic alliances or business combinations
|
|
●
|
attempt
to sell our company;
|
Any
debt financing secured by us in the future could involve restrictive covenants relating to our capital-raising activities and
other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business
opportunities, including potential acquisitions.
The
above conditions raise substantial doubt about our ability to continue as a going concern. The financial statements included elsewhere
herein were prepared under the assumption that we would continue our operations as a going concern. Our financial statements do
not include any adjustments that may result from the outcome of this uncertainty. Without additional funds from debt or equity
financing, sales of our intellectual property or technologies, or from a business combination or a similar transaction, we will
soon exhaust our resources and will be unable to continue operations. If we cannot continue as a viable entity, our shareholders
may lose some or all of their investment in us.
Our
management intends to attempt to secure additional required funding primarily through additional equity or debt financings. We
may also seek to secure required funding through sales or out-licensing of intellectual property assets, seeking partnerships
with other pharmaceutical companies or third parties to co-develop and fund research and development efforts, or similar transactions.
However, there can be no assurance that we will be able to obtain required funding. If we are unsuccessful in securing funding
from any of these sources, we will defer, reduce or eliminate certain planned expenditures in our research protocols. If we do
not have sufficient funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that
could result in our shareholders losing some or all of their investment in us.
Off-Balance
Sheet Arrangements
We
currently do not have any off-balance sheet arrangements.
Tabular
Disclosure of Contractual Obligations
The
following table summarizes our contractual obligations as of December 31, 2018:
|
|
Payments due by period
|
|
|
|
(US$)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Less
than
1 year
|
|
|
1-3
years
|
|
|
3-5 years
|
|
|
More
than
5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ loans (1)
|
|
|
611,925
|
|
|
|
611,925
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Royalties to BGU (2)
|
|
|
373,000
|
|
|
|
185,000
|
|
|
|
|
|
|
|
|
|
|
|
188,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (3)
|
|
|
984,925
|
|
|
|
796,925
|
|
|
|
-
|
|
|
|
-
|
|
|
|
188,000
|
|
|
(1)
|
Between the
years 2011 and 2014, we received loans from two shareholders. The loans are denominated in NIS, mature on December 31, 2019
and bear no interest. The loans are linked to the Israeli CPI as of January 1, 2015. The loans may be repaid by us from time
to time according to our cash availability.
|
|
(2)
|
This balance
was measured based on the future cash payments discounted using an interest rate of 21%, which represents, according to management’s
estimate, the applicable rate of risk for us.
|
|
(3)
|
This
does not include the repayment of approximately $272,237 of grants we received from the IIA and interest thereon, which shall
be repaid as royalties upon the commercialization of our products.
|
The
amounts owed by us under the convertible bridge loan financing are not included in this table because the convertible bridge loan
transactions were entered into in 2019, subsequent to the 2018 fiscal year end.
Quantitative
and Qualitative Disclosure about Market Risk
Market
risk is the risk of loss related to changes in market prices, including interest rates and foreign exchange rates, of financial
instruments that may adversely impact our financial position, results of operations or cash flows.
Foreign
currency exchange risk
The
U.S. dollar is our functional and reporting currency. However, a portion of our operating expenses are incurred in NIS. As a result,
we are exposed to the risk that the NIS may appreciate relative to the dollar, or, if the NIS instead devalues relative to the
dollar, that the inflation rate in Israel may exceed such rate of devaluation of the NIS, or that the timing of such devaluation
may lag behind inflation in Israel. In any such event, the dollar cost of our operations in Israel would increase and our dollar-denominated
results of operations would be adversely affected. We cannot predict any future trends in the rate of inflation in Israel or the
rate of devaluation, if any, of the NIS against the dollar. If the dollar cost of our operations in Israel increases, our dollar-measured
results of operations will be adversely affected. We have a similar issue to a lesser extent with certain Euro-denominated expenses
in connection with our material costs. Our operations also could be adversely affected if we are unable to effectively hedge against
currency fluctuations in the future. We expect that the percentage of our NIS denominated expenses will materially decrease in
the near future, therefore reducing our exposure to exchange rate fluctuations.
We
do not currently engage in currency hedging activities in order to reduce this currency exposure, but we may begin to do so in
the future. Instruments that may be used to hedge future risks may include currency forward and swap contracts. These instruments
may be used to selectively manage risks, but there can be no assurance that we will be fully protected against material currency
fluctuations.
Liquidity
risk
We
monitor forecasts of our liquidity reserve (comprising cash and cash equivalents available-for-sale financial assets and short-term
deposits). We generally carry this out based on our expected cash flows in accordance with practice and limits set by our management.
We are in the research and development stage and we are therefore exposed to liquidity risk. However, we believe that our existing
funds, together with the net proceeds from this offering, will enable us to fund our operating expenses and capital expenditure
requirements for the next eighteen months.
DESCRIPTION
OF BUSINESS
Overview
of the Company
We
are a clinical-stage cancer in-vitro diagnostic, or IVD, company engaged in the development of a series of cancer detection kits
designed to detect a variety of cancers from blood samples based on our Todos Biochemical Infrared Analysis method, or TBIA, a
proprietary technology for detection of solid tumors using peripheral blood analysis. The method incorporates biochemistry, physics
and signal processing. The TBIA detection method is based on the cancer’s influence on the immune system which triggers
biochemical changes in peripheral blood mononuclear cells, or PBMC, and plasma. Our core technology, TBIA, is based on research
conducted and technology invented by the research teams at Ben Gurion University, or BGU, and Soroka Medical Center of Israel,
or Soroka, whose intellectual property has been licensed to us in consideration of our contractual obligation to pay certain licensing
fees. In addition, through our subsidiary Breakthrough, we are engaged in the development of blood tests for the early detection
of neurodegenerative disorders, such as Alzheimer's disease.
Recent
Developments
Reverse
Split
At our annual general meeting of shareholders
held on April 29, 2019, our shareholders voted to approve the Reverse Split of the Company’s ordinary shares within a range
of 10:1 to 150:1, to be effective at the ratio and on a date to be determined by the Board of Directors of the Company. Although
the shareholders approved the Reverse Split, all per share amounts and calculations in this prospectus and the accompanying consolidated
financial statements do not reflect the effects of the Reverse Split, as the Board of Directors has not determined the final ratio
or the effective date of the Reverse Split.
Amarantus
Transaction
Background
Amarantus
had entered into the License Agreement with the University of Leipzig, pursuant to which Amarantus obtained the License to develop
and commercialize the LymPro Test®, an immune-based neurodiagnostic blood test for the detection of Alzheimer’s disease.
On
February 27, 2019, the Company entered into a joint venture agreement with Amarantus, pursuant to which the Company issued Ordinary
Shares representing 19.99% of the Company to Amarantus, in exchange for Amarantus transferring to the Company 19.99% of the outstanding
equity securities of Breakthrough, a wholly owned subsidiary of Amarantus, and for Amarantus assigning the License Agreement to
Breakthrough. In addition, as part of the transaction, the Company provided Amarantus with an interest-free loan in the amount
of $45,000 to be used to pay certain financial obligations of Amarantus owed to the University of Leipzig prior to the assignment
of the License to Breakthrough, in connection with the license agreement and a related sponsored research agreement. The maturity
date of the loan is May 1, 2019. In addition, the Company provided Breakthrough with an interest-free loan in the amount of $135,000
to be used to pay certain financial obligations of Breakthrough owed to the University of Leipzig after the assignment of the
License to Breakthrough, in connection with the license agreement and the related sponsored research agreement. The maturity date
of this loan is September 30, 2019. To date, the Company has loaned Amarantus and Breakthrough a total of $502,000 to cover fees
owed by Amarantus and Breakthrough to the University of Leipzig in connection with the license agreement and the sponsored research
agreement.
As
part of the joint venture with Amarantus, the Company was granted an option to acquire the remaining 80.01% of Breakthrough held
by Amarantus in exchange for the issuance to Amarantus of Ordinary Shares of the Company representing an additional thirty percent
(30%) of the Company, such that upon consummation of the transaction the Company will own 100% of Breakthrough and Amarantus will
own 49.99% of the Company.
Exercise
of the Option
On April 14, 2019, we notified Amarantus
of our decision to exercise our option. The consummation of the change of control transaction with Amarantus, whereby we issue
to Amarantus an additional thirty percent (30%) of the Company in exchange for obtaining Amarantus’s 80.01% ownership stake
in our jointly-owned subsidiary Breakthrough, such that we will own 100% of Breakthrough and Amarantus will own 49.99% of the
Company, is subject to shareholder approval. At the annual meeting of shareholders of the Company held on April 29, 2019, the
Company’s shareholders voted on a resolution approving the Company’s exercise of this option. We expect the formal
closing of the exercise of the option to take place this week.
The
LymPro Test is a diagnostic blood test that determines the ability of peripheral blood lymphocytes (PBLs) and monocytes to withstand
an exogenous mitogenic stimulation that induces them to enter the cell cycle. Scientists believe that certain diseases, most notably
Alzheimer’s disease, may be the result of compromised cellular machinery that leads to aberrant cell cycle re-entry by neurons
which then leads to apoptosis. LymPro Test uses peripheral blood lymphocytes as a surrogate for neuronal cell function, suggesting
a common relationship between PBLs and neurons in the brain. The LymPro Test focuses on measuring immune markers that are directly
linked to the cell proliferation processes and expands our understanding of how the body’s immune system responds to disease.
The Company believes that the LymPro Test may use the body’s immune system response to diagnose early and monitor the progression
of Alzheimer’s disease, which has the potential to be an invaluable tool for pharmaceutical companies’ development
of novel treatments for Alzheimer’s.
Convertible
Bridge Loan Transaction
We recently raised $1,473,750 from the
sale of convertible notes, which have an outstanding principal balance of $1,637,500. On February 27, 2019, we entered into the
first of several convertible bridge loan agreements, and have issued notes and warrants relating thereto, to obtain aggregate
loans in the principal amount of $1,637,500 from several private lenders, to finance the Company’s activities through the
consummation of a proposed public offering and our planned uplisting to the NASDAQ Capital Market. The loans, which have an original
issue discount of ten percent (10%), bear interest at a flat rate of ten percent (10%) and have a maturity date six months after
receipt of the loan funds. The loans are convertible into ordinary shares of the Company after the maturity date at a conversion
price equal to 70% of the average closing bid price of the Company’s Ordinary Shares in the five days prior to the conversion.
In the event the Company defaults under the loan agreement, the conversion price will be reduced to 60% of the average closing
bid price of the Company’s Ordinary Shares in the 15 days prior to the conversion. In addition, each lender received a warrant
to purchase an amount of Ordinary Shares equal to 25% of the amount loaned by such lender, with the warrant exercise price to
be equal to the offering price in the proposed public offering, or, in the event the loan is converted into shares, the warrant
exercise price will be equal to the applicable closing bid price of the Company’s shares at the time of the conversion of
the loan. The warrant may be exercised only during the period beginning on the date that is six months after the date that the
warrant exercise price and the number of warrant shares are determined, and ending on the date that is three years thereafter.
We
are in default of some of the convertible loan agreements since the maturity date has passed and we have not repaid the loans
that have become due.
On March 10, 2019, we entered into an
amendment to the bridge loan agreement that we had entered into on February 27, 2019. The amendment provides for a 10% penalty
if we repay the loan prior to the maturity date. In addition, we agreed to grant each lender a warrant to purchase an additional
amount of of our Ordinary Shares equal to 25% of the amount loaned by such lender, under the same terms as the original warrant,
but with a warrant exercise price equal to 150% of the closing bid price of our shares on the day prior to the closing of the
bridge loan transaction.
Distribution
Agreements
On
December 20, 2018, we entered into a Marketing and Reseller Agreement with Care G.B. Plus Ltd. (“Care”) for the resale
of our breast cancer screening products in Israel. We appointed Care as our exclusive distributor in Israel, and Care undertook
to establish at least one laboratory in Israel to support the assay protocol and to run a fifty (50) patient pilot trial to evaluate
the performance of the laboratory and Care’s support team. Care is fifty-percent owned by Assaf Gold, who was the beneficial
owner of 5.49% of our issued and outstanding shares at the time the Care agreement was signed by the Company.
On
March 28, 2019, we entered into a Distribution Agreement with Orot Plus Ltd. for the distribution of our breast cancer screening
products in Romania and Austria. We appointed Orot as our exclusive distributor in Romania and Austria, and Orot undertook to
utilize local laboratories or establish its own laboratories in the territory to support the assay protocol and to run a fifty
(50) patient survey to evaluate the performance of our products.
Industry
Overview
Cancer
is the second largest cause of morbidity and mortality worldwide. According to the World Health Organization, in 2012, 14 million
people were newly diagnosed with cancer and there were 8.8 million cancer-related deaths in 2015. The number of cancer related
deaths is expected to rise by 70% in the next twenty years. The World Health Organization further states that early detection
can greatly reduce the current mortality rates. The cost of cancer in the EU alone was stated at over 51 billion Euro for 2009
(Report From The Commission To The European Parliament, The Council, The European Economic And Social Committee And The Committee
Of The Regions published September 23, 2014). Meanwhile, the cost of cancer in the United States for the year 2001 was over $88.7
billion. The costs of cancer in terms of lives and suffering as well as financial, are staggering on a global basis.
While
much work must be done to reduce the incidence rates of cancer and the treatment of cancer itself, we believe the early detection
of cancer is a critical step towards saving lives. The EU has established a target of conducting cancer detection for 300 million
people, annually. In 2008, only 56 million cancer detections were preformed (International Agency for Research on Cancer, Cancer
Detection in EU 2008). Similarly, the United States has set a target to screen 200 million people per year (American Cancer Society,
Cancer Detection in 2008).
Although
cancer detections are necessary if not vital, there are many reasons that they are not more widely used. We believe these reasons
include:
|
●
|
Uncomfortable
for the patient (mammogram, colonoscopy, MRI);
|
|
●
|
Not
accessible to large segments of the population;
|
|
●
|
Risk
is involved (Radiation and Invasive tests);
|
|
●
|
Requires
specialists to interpret results; and
|
|
●
|
Low
sensitivity or specificity.
|
In
summary, we believe that a large segment of world-wide population who need to be checked regularly for cancer forego the detection
process due to the above reasons.
Products
Cancer
Detection Assays
Our
product serves as a preliminary cancer detection tool and cannot be regarded as providing a final diagnosis. Our product consists
of a blood test that causes what we believe to be minor risk and pain to the patient (as demonstrated by the diagram below) that
is analyzed by our proprietary technology to detect the presence of various cancers. Our test analysis results will be provided
to the healthcare provider who may decide to refer the patient for additional detections such as a mammogram or a colonoscopy
for further determination of cancer presence. Our cancer detection product includes kits with several consumables needed for blood
extraction, for isolation of blood components, and for spectral measurements. The analysis of the spectra is performed utilizing
our proprietary software. Each kit includes blood collection disposable tubes and liquids, and other disposable tubes and liquids
for the blood separation lab work. We also provide a slide that is used by the lab to measure the sample by the spectrometer.
The size of the kit is in the range of 30cm x 30cm x 30cm.
We
develop several products for cancer screening and diagnosis as follows:
TM-B1
is a test designed specifically for breast cancer screening. It is indicated for women who meet the following criteria: female
subjects aged 25 years and older, without a diagnosis of inflammatory or autoimmune disease. TM-B1 is to be used as a diagnostic
method to indicate whether a malignancy is present or not. TM-B1 assay results should be used in conjunction with other common
diagnostic tests as part of breast cancer screening.
TM-B2,
which is also designed for breast cancer screening, is a test indicated for women who meet the following criteria: Female subjects,
aged 25 years and older, without a diagnosis of inflammatory or autoimmune disease, who were diagnosed as presenting with a Breast
Imaging-Reporting and Data System, or BI-RADS, score of three or four (or equivalent). TM-B2 is to be used to further assess if
a malignancy is present or not. TM-B2 test results should be used in conjunction with other common diagnostic tests as part of
breast cancer screening and should not be used as stand-alone assay.
The
TM-C1 is a test designed for colon cancer screening and is intended for the qualitative detection, and for the semi-quantitative
detection, of biochemical characteristics of the infrared readings of peripheral blood mononuclear cells and plasma, which may
be indicative of polyps and colorectal cancer. The TM-C1 screening method may integrate with an overall screening program for
colorectal cancer.
Alzheimer’s
Detection Assay
Utilizing
a proprietary assay developed at the University of Leipzig, the LymPro Test determines cell cycle dysfunction by mitogenic stimulation
of peripheral lymphocytes and conducting routine flow cytometry testing indicating evidence of or lack of dysfunction. We are
engaged in further research and development to enable us to use the Lympro Test to diagnose early and monitor the progression
of Alzheimer’s disease.
Work
Flow
A
blood sample is taken from the patient in the clinic. The blood sample is then sent to a laboratory for mononuclear cells (PBMC)
and plasma separation. After the separation, the PBMC and the plasma are sent to a laboratory for infrared spectral measurement
by a Fourier Transform Infra-Red (FTIR) spectrometer. The data from the FTIR spectrometer is sent to our server via the internet
cloud, which then processes the data and sends the screening results via the internet cloud to the patient’s physician.
1
Fourier Transform Infra-Red (FTIR) spectroscopic analysis of the immune system’s response to cancer
Data
flow
We
will sell the test kit to the lab or clinic, that lab will process the blood sample and send the spectrum from the spectrometer
to our server via the internet cloud. After our analysis (instant process) we will send the results to the lab.
Our
Challenges
Because
we are still in the clinical trials stage, we are subject to certain challenges, including, among others:
|
●
|
our
technology has been tested on a limited basis and therefore we cannot assure the product’s
clinical value;
|
|
●
|
although
we have obtained CE mark approval for our tests in the EU, the European regulatory demands,
regarding IVD, have been recently revised and major changes need to be made in order
to keep our CE Mark. These changes need to be made by 2022. It will require significant
efforts and funds to update our test accordingly;
|
|
●
|
although
we have obtained CE mark approval for our tests in the EU, we still need to obtain the
requisite regulatory approvals in the United States and other markets where we plan to
focus our commercialization efforts;
|
|
●
|
We
need to raise an amount of capital sufficient to continue the development of our technology,
obtain the requisite regulatory approvals, and commercialize our current and future products;
and
|
|
●
|
we
need to obtain reimbursement coverage from third-party payors for procedures using our
tests.
|
Our
ability to operate our business and achieve our goals and strategies is subject to numerous risks as described more fully in “Risk
Factors” above.
The
Technology
In
the last decade many scientific articles have been published showing that the body’s immune system detects the existence
of cancer but, for various reasons, fails to attack it. For our developed detection methodology, only a small amount of peripheral
blood from the patient is needed. The method is multidisciplinary and incorporates hematology, biochemistry, physics and signal
processing and is based on infrared spectroscopy measurements of the blood sample and computerized analysis. The basic concept
in our technology is to measure the biochemical changes in the PBMC and plasma, due to cancer presence. As the PBMC are part of
the body’s immune system, we believe our methodology will detect overall biochemical changes of the immune system due to
cancer presence. The technology involves special IR, measurement of a blood sample. We are using the Fourier Transform Infrared
Analysis, or FTIR, spectrometer for reading the biochemical content of the PBMC and plasma. We believe the FTIR has some unique
advantages in this aspect as it requires no reagents and the reading is swift. Most of the biochemical materials can be detected
using the FTIR. The test uses conventional lab methods and the mathematical analysis is made automatically by proprietary algorithms.
The
TBIA detection method is based on the cancer’s influence on the immune system which triggers cellular and biochemical changes
in the PBMC and plasma. These biochemical changes are detected by the FTIR whose results undergo rigorous testing of sophisticated
signal processing in order to detect if the entire biochemical signature under detection have the typical biochemical indications
for cancer existence. The principle behind our proprietary technology, TBIA, is to observe the immune system response to tumor
presence anywhere in the body rather than looking for the tumor cells themselves. We analyze multiple elements of the biochemical
signature (including proteins, lipids, nucleic acids and carbohydrates) of the effected immune cells from the peripheral blood
in conjunction with plasma using infrared spectroscopy, instead of focusing on a single specific protein as a biomarker.
Our
research, using spectral analysis, thus far indicates that the “IR signatures” of several types of cancer are significantly
distinct from the “IR signatures” of healthy patients. These differences can be related to several biological effects
which exist during malignancy.
Licensing
Agreements
BG
Negev Research and License Agreement
In
April 2010, we entered into a research and license agreement with BG Negev and Mor Research Applications Ltd. (a wholly owned
subsidiary of Clalit Medical Services - Israel), or together with BG Negev, the Licensor. The Licensor, pursuant to the agreement,
granted us an exclusive, worldwide, license to commercialize certain intellectual property covered by the agreement (i.e. research,
development, manufacturing, marketing, distribution, and sale of any product containing the licensable IP under the agreement).
Pursuant
to the agreement, we are under an obligation to pay to the Licensor a minimum annual royalty of $10,000 in 2015, $25,000 in 2016
and, from 2017 through the termination of the agreement, $50,000 per year. We have not paid any royalties yet under the Agreement.
In March 2017, we agreed with the Licensor that the $85,000 we currently owe the Licensor will be paid by us by the earlier of
(a) August 2017, or (b) our sale of equity securities to investors with gross proceeds to the Company of at least $10,000,000.
We are not currently in compliance with the repayment terms of the license agreement with our Licensor. As such, we are currently
negotiating an amendment to the license agreement which would allow us to pay the accrued but unpaid payments due thereunder at
a later date. Once there are sales of products or sublicensing receipts based on the licensed intellectual property, we are under
an obligation to pay the Licensor a certain percentage of such sales or sublicensing receipts, as running royalties, but in any
event not less than the minimum annual royalties. Any minimum annual royalties will be credited against the running royalties
in any given year.
The following table sets forth the percentage of our net sales that we will pay as royalties to the Licensor:
|
○
|
|
leukemia related products
|
|
|
3.0
|
%
|
○
|
|
other products
|
|
|
2.5
|
%
|
○
|
|
in certain limited circumstances, rates may be reduced to
|
|
|
2.0
|
%
|
On fixed sublicense income (with no sub license income on sales by sub licensee):
|
|
|
|
|
○
|
|
leukemia related products
|
|
|
20.0
|
%
|
○
|
|
other products
|
|
|
15.0
|
%
|
|
|
|
|
|
|
|
On fixed sublicense income (with Company income on sales by the sub licensee.
|
|
|
|
|
These rates are in addition to the net sales rates listed above.):
|
|
|
|
|
○
|
|
leukemia related products
|
|
|
10.0
|
%
|
○
|
|
Other products
|
|
|
7.5
|
%
|
The
minimum royalties will be paid to the Licensor regardless of whether we are able to generate sales from the products arising from
the usage of the license.
The
license agreement is for an unlimited term, unless terminated earlier by either of the parties under certain circumstances as
described in the agreement, including termination as a result of a material breach or a failure to comply with a material term
by the other party, as a result of liquidation or insolvency of the other party. In addition, we were entitled to terminate the
agreement if at any time, during the period of 7 years following the effective date of the transaction, we, at our sole discretion,
would determine that commercialization of the leukemia licensed products is not commercially viable.
Dr.
Udi Zelig, our Chief Technical Officer, is one of the inventors of the know-how licensed under the agreement and is entitled to
receive from BG Negev between 10% to 15% of all payments that BG Negev is entitled to receive from us under the license agreement.
University
of Leipzig License Agreement
On
November 7, 2018, Amarantus entered into an amended license agreement with the University of Leipzig (the “Leipzig License
Agreement”) whereby the University of Leipzig granted Amarantus an exclusive license to the University of Leipzig’s
patent that underlies the Lympro Test. As part of the Amarantus transaction, Amarantus assigned the Leipzig License Agreement
to our subsidiary, Breakthrough.
Under
the Leipzig License Agreement, the licensee is required to pay the University of Leipzig the following fees and royalties:
|
●
|
a
license issuance fee of $80,000 as partial reimbursement of patent expenses related to the patent rights;
|
|
●
|
an
annual royalty of $35,000 on the first and second anniversary of the effective date of the Leipzig License Agreement, and an annual
royalty of $15,000 on each subsequent anniversary of the effective date;
|
|
●
|
the
following milestone payments:
|
|
○
|
$75,000
on first commercial sale of a licensed product;
|
|
○
|
$150,000
on obtaining first FDA approval for a licensed product; and
|
|
○
|
$150,000
upon reaching $5,000,000 in cumulative net sales;
|
|
●
|
the
annual royalty and milestone payments will be treated as an advance on royalty payments due from sales, and after the royalties
from sales equal the aggregate annual royalty and the milestone payments made, a royalty of 3% of net sales, provided that with
regard to each country in which a licensed product is sold, after seven years, the royalty will be reduced to 2% of net sales;
and
|
|
●
|
10%
of non-royalty sub-licensing income.
|
Clinical
Trials
Our
plan was to conduct two-stage clinical trials - the first was a training stage and the second is a validation stage. We define,
in consultation with our bio-statisticians, our algorithm development team and our future hospital partners, the number of participants
needed for each clinical trial. While the minimum number we are targeting is 200 participants per trial, the number may vary from
trial to trial.
We
completed the first stage (training) for breast cancer detection at a single site in Israel and a single site in Singapore. We
intend to complete the first stage of the clinical trials for colorectal cancer detection at two sites in Israel. In the training
stage, we aim to train our algorithm to: (a) determine the final performances of the test in terms of accuracy and reproducibility;
and (b) optimize the algorithm so that it will be compatible with the population of a country where we perform such clinical trials.
In this process, we make the necessary adaptation to our proprietary technology, using mathematical tools in order to reach substantially
the same diagnosis results as are found in earlier clinical studies we conducted between 2010 and 2013, as described under “Description
of Business - Past Clinical Studies” (which form the baseline of comparison). This baseline may, in the future, include
the diagnosis results found in the fifth clinical study, which ended on October 2017, described under “Description of
Business – Past Clinical Studies.”
Once
the necessary adaptation to our proprietary technology is made, the second stage of clinical trials will be to validate that the
tests are indeed able to detect breast cancer and colorectal cancer. Prior to beginning any clinical trials, a local Institutional
review board, or IRB, needs to grant us approval to begin the trial. The second stage (validation) is a blinded trial and intended
to verify the performances of our product following the aforementioned amendments implemented following the first stage. The validation
may not meet our expectations, regulatory demands and/or other partner’s demands.
Past
Clinical Studies
Four
clinical studies whose results were published in what we believe to be well-known peer-reviewed journals have been conducted to
date, all of which were not blind tests. The first of these studies was conducted by B.G. Negev Technologies and Applications
Ltd., or BG Negev, a wholly owned subsidiary of BGU, while we conducted the other three studies. The goal of these studies was
to evaluate whether TBIA could be a novel, simple, and low-cost method for the early detection of cancer.
“Sensitivity”
as used below is the number of detected cancers divided by the full population having cancer that participated in the study. A
sensitivity of 100% means that our product detected cancer in all of the people with cancer that were diagnosed using our product.
A sensitivity of 80% means that out of 100 people with cancer the test will detect 80 people as being diagnosed with the relevant
cancer and the rest will be defined as healthy.
“Specificity”
as used below is the number of detected healthy subjects divided by the full population of healthy subjects that participated
in the study. A specificity of 80% means that out of 100 healthy people who participated in the study - we diagnosed 80 people
as healthy. The 20 other healthy subjects were falsely diagnosed as having cancer.
The
First Study was conducted by BGU. This study included 15 acute leukemic children, 19 children who had a high fever
with a diagnosis of infection or inflammation, and 27 healthy volunteers. T test and cluster analysis was done with the following
results for control versus leukemia and infection versus leukemia. For all, P value <= 0.05. Cluster analysis - all cancers
were distinct in a different branch for healthy and infection. Based on the chosen wave numbers the cluster analysis was able
to distinguish completely between leukemia and control groups. The first objective of the study was to distinguish between children
diagnosed as having acute leukemia and healthy subjects by FTIR spectroscopy analysis of PBMCs. The second objective was to follow
and analyze leukemic patients’ response to chemotherapy by FTIR spectroscopy of PBMCs in comparison to what we believe to
be the standard practice of bone marrow examination by flow cytometry. A third objective of the clinical trial was to distinguish
between leukemic children and children with similar clinical symptoms such as high fever and white blood count (which also appears
following infection or inflammation) using FTIR technology.
Results
of First Study:
The
first objective was achieved successfully - all subjects, healthy and leukemic, were diagnosed correctly - 100% sensitivity and
specificity. The second objective of the follow-up treatment was achieved by identifying three different responses to treatment
by FTIR method - good, intermediate and unfavorable response. FTIR identified responses to treatment earlier (33 days vs. 100
days) than flow-cytometry analysis of bone marrow. A good response (meaning, a good response to chemotherapy) was a fast return
of the PBMC values towards normal control values (according to the FTIR method). An intermediate response was a slow return of
the PBMC values towards normal control values. An unfavorable response was the PBMC values not returning towards normal control
values. No T test was done in order to distinguish between the three tendencies. The third objective was achieved as well. The
children having similar symptoms to leukemia were successfully distinguished from children with acute leukemia by FTIR analysis
- 100% sensitivity and specificity. These results were published in the Biochimica et Biophysica Acta (Zelig et al. Biochimica
et Biophysica Acta 1810 (2011) 827-835).
Below
are details regarding the other four studies that we completed on our own. The results are described in terms of sensitivity and
specificity.
The
Second Study included 41 cancer patients and 45 healthy volunteers. This study was intended to evaluate the utility
of our method in detecting several types of cancers using an advance computerized algorithm. The performances of the algorithm
presented what we believe were promising results for breast and colorectal cancer as well as other cancers. Following these results,
we chose to focus our efforts into the detection of breast and colorectal cancers.
The
first objective of the study was to distinguish between cancer patients of multiple types and healthy subjects by FTIR spectroscopy
analysis of PBMCs and plasma - we refer to this as the TM-T1 method - our product for diagnosing multiple types of cancers. All
patients were diagnosed by standard practice such as histopathology of tissue samples taken from the tumor. The second objective
was to distinguish between different types of cancers utilizing FTIR spectroscopy analysis of PBMCs and plasma.
Results
of Second Study:
The
first objective of the study was achieved successfully - 93% sensitivity for detecting different types of cancers and 80% specificity
for identifying correctly the healthy population. As for the second objective, although different spectral patterns were observed
for each type of cancer, indicating that there is the potential of successful classification between the various cancers, the
statistical parameters were not established due to low patient numbers for each individual type of cancer, preventing a reliable
statistical analysis. As for this objective, our observation was qualitative rather than quantitative. We will need to conduct
larger trials in the future in order to better understand and distinguish between different cancers. The results of the study
were published in the Institute of Electrical and Electronics Engineers Journal (Ostrovsky et al. IEEE Transactions on Biomedical
Engineering, Vol. 60, No. 2, February 2013, 343-353).
The
Third Study was conducted between April 27, 2011 and April 26, 2013 at Rabin in Israel. The number of the study was
0336-10-RMC and its purpose was evaluation of our detection method for breast cancer. This study included 29 breast cancer patients
and 30 subjects who were healthy or had benign tumors. All subjects were tested for breast cancer by standard detection procedures
(mammography / ultrasound) and had not yet undergone surgical treatment, chemotherapy or radiotherapy.
The
first objective of the study was to distinguish between cancer patients and healthy subjects or patients having a benign tumor
using FTIR spectroscopy analysis of PBMCs and plasma - we refer to this as the TM-B1 method - our product for diagnosing breast
cancer. The second objective was to distinguish between three groups: cancer patients, patients having benign tumors, and healthy
subjects without pathological findings related to breast tumors.
Results
of Third Study:
The
first objective of the study was achieved successfully - approximately 90% sensitivity for detection of breast cancer and approximately
80% specificity for identifying correctly the healthy patients and patients with benign tumors. As for the second objective, although
different spectral patterns were observed for each group - healthy, benign, and malignant, the statistical parameters were not
established due to low patient numbers in each group, preventing a reliable statistical analysis. As for this objective, our observation
was qualitative rather than quantitative. We will need to conduct larger trials in the future in order to better understand and
distinguish between different groups. The results of the study were published in the BMC Cancer Journal (Zelig et al. BMC Cancer
(2015) 15:408).
The
Fourth Study was conducted between April 27, 2011 and April 26, 2013 at the Rabin in Israel. The number of the study
was 0336-10-RMC and its purpose was to evaluate our detection method for colorectal cancer. This study included 30 colorectal
cancer and high-grade dysplasia, or HGD, patients, 10 patients with benign polyps and 18 healthy subjects, all tested for colorectal
cancer by colonoscopy. The premalignant HGD was joined with the malignant group.
The
first objective of the study was to distinguish between cancer patients and healthy subjects using FTIR spectroscopy analysis
of PBMCs and plasma, which we refer to as the “TM-C1 method”, our product for diagnosing colorectal cancer. The second
objective was to distinguish between three groups: colorectal cancer patients, patients having benign tumors, and healthy subjects
without pathological findings related to colorectal tumors such as polyps.
Results
of Fourth Study:
The
first objective of the study was achieved successfully - approximately 82% sensitivity for detection of colorectal cancer and
approximately 71% specificity for detecting healthy populations without pathological findings. The benign tumors were classified
in between the cancer and healthy groups. As for the second objective, although different spectral patterns were observed for
each group - healthy, benign, and malignant, the statistical parameters were not established due to low patient numbers in each
group preventing a reliable statistical analysis. As for this objective, our observation was qualitative rather than quantitative.
We will need to conduct larger trials in the future in order to better understand and distinguish between different groups. The
results of the study were published in the Journal of Gastroenterology (Barlev et al. Journal of Gastroenterology (First Online:
26 June 2015): 1-8.).
Clinical
Studies in Process
Multi-center
(Kaplan and Rabin) breast cancer verification (training) study
The
objectives of the multi-center breast cancer verification study are twofold. The first objective is to distinguish between cancer
patients and healthy subjects or patients having benign tumors using FTIR spectroscopy analysis of PBMCs and plasma - the TBIA
method. The second objective is to distinguish between all three groups: cancer patients, patients with benign tumors, and healthy
subjects without pathological findings related to breast tumors.
Kaplan
Medical Center Trial
On
June 6, 2013, we initiated a verification study at Kaplan Medical Center in Israel. The number of the study is 0152-12-KMC. The
recruiting phase at Kaplan has been completed and included 220 patients. All subjects were tested for breast cancer by standard
detection procedures (mammography / ultrasound / biopsy) and have not yet undergone surgical treatment, chemotherapy or radiotherapy.
We added Rabin Medical Center as an additional site for this multi-center study. The number of the study at Rabin Medical Center
is 0386-17-RMC and will include about 105 patients.
We
are in the process of analyzing the results. In the training phase, an accuracy (sensitivity and specificity) of about 90% was
demonstrated. The validation phase has not been completed yet; hence, final results for this study are not yet available.
Rabin
Medical Center Trial
We
added Rabin Medical Center as an additional site for this multi-center study. The number of the study at Rabin Medical Center
is 0386-17-RMC and will include about 105 patients. The recruitment of patients for this trial is still in progress.
Singapore
breast cancer verification (training) study
On
June 1, 2016, we entered into a clinical trial agreement with the Singapore Hospital for a training trial. We made a judgment,
along with the Singapore Hospital, that 280 participants is the appropriate number for the purpose of this training trial. This
clinical study evaluated, in terms of sensitivity and specificity, our TM-B1 method for the detection of malignant and benign
breast cancer tumors in comparison with standard diagnostic methods.
Under
the agreement, the Singapore Hospital was primarily in charge of the recruitment procedure and blood sample collection from recruited
participants, all pursuant to the clinical study protocol, which was approved by the Singapore Centralized IRB in April 2016.
The Singapore Hospital also provided the prognosis of the recruited participants which will enable us to measure the sensitivity
and specificity of the TM-B1 method.
Enrolment
of the patients has been completed and we are in the process of analyzing the results.
Multi-center
(Rabin and Kaplan) colon cancer verification (training) study
In
addition, on April 27, 2017, we commenced a training study at Rabin Medical Center for TM-C1 for colorectal cancer screening.
The Kaplan site is about to join Rabin Medical Center as a multi-center study. In total we aim to recruit 350 patients. The study
is prospective, un-blinded, tree arms.
Multi-center
(Rabin and Kaplan) breast cancer validation study
On
January 22, 2018, we initiated the validation study at Kaplan for screening for breast cancer. NIH number NCT03343691. Rabin intends
to join to this study as a multi-center study. A total of 200 patients are expected to participate in the multi-center validation
study. The study is prospective, blinded, double arm.
Intellectual
Property
The
proprietary nature of, and protection for, our current and/or any future product candidates, processes and know-how are important
to our business as is our ability to operate without infringing on the proprietary rights of others, and to prevent others from
infringing our proprietary rights. We seek patent protection in the United States and internationally for our current and future
product candidates we may develop and other technology. In order to protect our proprietary technologies, we rely on combinations
of application for patent and trade secret protection, as well as confidentiality agreements with employees, consultants, and
third parties.
We
have filed and own all rights in the following patent applications, all of which are currently pending or have been issued as
patents:
Category
I: These applications relate to analysis of an IR spectrum of a PBMC sample. Claims are generally directed to indicating the
presence of a solid tumor based on analysis of an IR spectrum of a PBMC sample.
|
(1)
|
US
Patent Application 13/701,262. This has claims for a method (process). The claims in
this application are generally directed to indicating the presence of a solid tumor in
breast tissue based on analysis of an IR spectrum of a PBMC sample. On March 28, 2017,
this application issued as US Patent 9,606,057. This patent is expected to expire on
June 1, 2031.
|
|
(2)
|
US
Patent Application 15/443,674. This application is a continuation application of US 13/701,262
and has claims for a method (process) and is expected to expire on June 1, 2031. The
claims in this application are generally directed to indicating the presence of a solid
tumor in tissue of a gastrointestinal tract based on analysis of an IR spectrum of a
PBMC sample.
|
|
(3)
|
European Patent Application
No. 11789348.7. This has claims for a method (process) and a system and is expected to expire on June 1, 2031. On April
17, 2019, we received an intention to grant notice from the European Patent Office regarding this application.
|
|
(4)
|
Israel
Patent Application 223,237. This has claims for a method (process), a system, and for
a computer program product and is expected to expire on June 1, 2031.
|
Category
II: These applications relate to analysis of an IR spectrum of a blood plasma sample. Claims are generally directed to indicating
the presence of a solid tumor based on analysis of an IR spectrum of a blood plasma sample.
|
(5)
|
US
Patent Application 14/116,506. This has claims for a method (process), a system, and
for a computer program product. The claims in this application are generally directed
to indicating the presence of a solid tumor in a gastrointestinal tract based on analysis
of an IR spectrum of a blood plasma sample. On August 1, 2017, this application issued
as US Patent 9,719,937. This patent is expected to expire on May 10, 2032.
|
|
(6)
|
US
Patent Application 15/645,168. This application is a continuation application of US 14/116,506.
This has claims for a method (process), a system, and for a computer program product
and is expected to expire on May 10, 2032. The claims in this application are generally
directed to indicating the presence of a solid tumor in breast tissue based on analysis
of an IR spectrum of a blood plasma sample.
|
|
(7)
|
European
Patent Application No. 12782256.7. This has claims for a method (process) and a system
and is expected to expire on May 10, 2032.
|
|
(8)
|
Israel Patent Application
229,109. This has claims for a method (process), a system, and for a computer program product and is expected to expire on
May 10, 2032. This application issued as Israel Patent Application 229,109 on September 1, 2018.
|
|
(9)
|
US
Patent Application 16/173838. This application is a continuation application of US 15/645,168. This has claims for a method
(process), a system, and a computer program product and is expected to expire on May 10, 2032. The claims in this application
are generally directed to indicating the presence of a solid tumor in lung tissue based on analysis of an IR spectrum of a blood
plasma sample. The application received a Notice of Allowance on April 3, 2019.
|
Category
III: These applications relate to analysis of an IR spectrum of a blood plasma sample and PBMC samples.
|
(10)
|
US
Patent Application 14/894,128. This has claims for a method (process). The claims in
this application are generally directed to (i) analysis of an IR spectrum of a PBMC to
indicate the presence of a benign tumor in breast tissue and in the gastrointestinal
tract, and (ii) analysis of an IR spectrum of a blood plasma sample to indicate the presence
of a benign tumor. On October 31, 2017, this application issued as US Patent 9,804,145.
This patent is expected to expire on November 14, 2033.
|
|
(11)
|
US
Patent Application 15/785,801. This application is a continuation application of US 14/894,128.
This has claims for a method (process), a system, and for a computer program product
and is expected to expire on November 14, 2033. The claims in this application are generally
directed to (i) analysis of an IR spectrum of a PBMC sample, and a blood plasma sample
to indicate the presence of a benign tumor in ovarian tissue, and (ii) preparation of
a sample for analyzing by infrared spectroscopy.
|
|
(12)
|
European
Patent Application No. 13885931.9. This has claims for a method (process) and is expected
to expire on November 14, 2033. The claims in this application are generally directed
to indicating the presence of a benign tumor in breast tissue based on analysis of an
IR spectrum of a PBMC sample. This application has been granted as a patent and mention
of the grant was published on January 2, 2019. This patent is validated in Germany, France,
United Kingdom and Holland.
|
|
|
|
|
(13)
|
European
Patent Application No. 18214760.3.
This application is a divisional application of European Patent Application No. 13885931.9 and
is expected to expire on November 14, 2033. This application has claims for a method
(process). The claims in this application are generally directed to indicating the presence
of a benign tumor in the gastrointestinal tract based on analysis of an IR spectrum of
a PBMC sample.
|
There
are no patents or patent applications which are licensed to the Company pursuant to the Company’s License agreement with
BG Negev and Mor Research Applications Ltd. (a wholly owned subsidiary of Clalit Medical Services - Israel) referenced below.
Nevertheless, the Company’s products are based on intellectual property licensed from BG Negev and Mor.
There
are no patents or patent applications which are licensed to the Company from any other entity.
Breakthrough
licenses the following patents and patent applications:
LymPro:
o
German Patent 19936035
o
PCT/EP2004/010889 (expired)
MSPrecise:
o US Patent Application 15/546,171
o Chinese Patent Application No. 201480075681.6
NeuroPro:
o
US Patent 9,547,012
To
the knowledge of the Company’s management, there are no contested proceedings or third-party claims over any of our patent
applications. Our success depends upon our ability to protect our technologies through intellectual property agreements including
patents, trademarks, know-how, and confidentiality agreements. However, there can be no assurance that the above-mentioned patent
applications will be approved by the appropriate agencies.
All
of the technology for which the patents are sought is owned by the Company. Our patents are entirely owned by the Company.
The
Company has also filed applications in the United States and Israel to register the Todos name as a trademark.
Competition
Current
prevailing cancer detection tests utilize the standard procedures which, we believe, are typically uncomfortable, such as colonoscopy
for colorectal cancer and mammography for breast cancer. In addition, we believe, these tests generally have medium to low sensitivities/specificity,
along with adverse risks. Furthermore, many of the existing detection methods depend on the technician’s or the physician’s
capabilities, knowledge and interpretation. The existing detection methods also carry a high cost.
In
light of these drawbacks, our assays will be a part of standard clinical protocol for cancer screening and not a replacement of
any of these gold standard procedures. Our aim is to improve the screening process, reducing false negatives and increasing sensitivity,
thus, saving lives, pain and expenses.
Many
of our anticipated competitors, such as those listed in the below table, have substantially greater financial, technical, and
other resources and larger, more established marketing, sales and distribution systems than we have. Many of our competitors also
offer broad product lines outside of the diagnostic testing market and have brand recognition. Moreover, our competitors may make
rapid technological developments that may result in our intended technologies and products becoming obsolete before we are able
to enter the market, recover the expenses incurred to develop them or generate significant revenue. Our success will depend, in
part, on our ability to develop our intended products in a timely manner, keep our future products current with advancing technologies,
achieve market acceptance of our future products, gain name recognition and a positive reputation in the healthcare industry,
and establish successful marketing, sales and distribution efforts.
Company
|
|
Symbol
|
|
Company
Description
|
Exact Sciences
|
|
EXAS
|
|
Marketing
Cologuard stool-based detection test for the detection of colorectal cancer
|
Volition
Rx
|
|
VNRX
|
|
Developing
blood-based diagnostic tests for colorectal, lung, prostate, ovarian and other cancer types based on nucleosomics
|
Epigenomics
|
|
EPGNF
|
|
Engages
in developing and commercializing in vitro diagnostic tests for the detection and diagnosis of cancer (EpiproColon -
methylated Septin9 DNA in human plasma)
|
Cancer
Genetics
|
|
CGIX
|
|
Focuses
on developing and commercializing proprietary genomic tests to improve and personalize the diagnosis and response to
treatment of cancer.
|
Sources
and Availability of Products and Supplies
The
nature of our products does not mandate any dependence on one or a few major products or suppliers, but if we are required to
change our current suppliers of the components of our products, we may encounter significant delay in locating suitable alternative
suppliers.
Existing
or Probable Government Regulations
Our
cancer screening products are subject to governmental regulation, which regulation may be different for each country or region
where we intend to commercialize our products. We plan to initially commercialize our products in Israel and the European Union
(EU), and then afterwards enter the U.S. market.
EU
In
Europe, medical devices are regulated by self-certification through the CE Mark system. Under the system, developers and manufacturers
must operate a Quality System and validate medical devices in a limited clinical trial to demonstrate the manufacturer has met
analytical and clinical performance criteria. We have implemented an International Organization for Standardization standard -
ISO 13485 - quality management system for the design and manufacture of medical devices. ISO 13485 addresses managerial awareness
of regulatory requirements, control systems, inspection and traceability, device design, risk and performance criteria as well
as verification for corrective and preventative measures for device failure. ISO 13485 certification establishes conformity to
specific European Union directives related to medical devices and allows CE Marking and sale of the device.
The
Medicines and Healthcare products Regulatory Agency, or MHRA, is the United Kingdom-based European Authority responsible for the
issuance of CE Mark approval. In 2013, our regulatory authorized representative in Europe submitted an application to the MHRA
for the CE Mark approval of our TBIA method. We obtained this approval on December 9, 2013 with the receipt of a Certificate of
Conformance from our regulatory authorized representative in Europe. The European regulatory demands regarding IVD have recently
been revised and major changes need to be made in order to keep our CE Mark. These changes need to be made until 2022.
The
new European In Vitro Diagnostic Regulation (IVDR - 2017/746), or the IVDR, became effective as of May 25, 2017, marking the start
of a transition period for manufacturers selling IVD devices into Europe. The IVDR, which replaces IVD Directive (98/79/EC), or
the Directive, has a transition period of five years, after which the IVDR will apply in full, and no new applications pursuant
to the Directive will be accepted. Manufacturers have the duration of the five-year transition period to update their technical
documentation and processes to meet the new, more stringent EU regulatory requirements. We believe that the most challenging areas
under the IVDR will be regarding the classification of products and the performance evaluation of IVDs, which will not only include
the classic clinical performance and analytical performance but also scientific validity, the role and responsibilities of the
economic actors of the supply chain, the traceability and the transparency of the devices with, in particular, the introduction
of the UDI-system and an expanded EUDAMED database.
During 2019, we plan to commence updating our technical files in accordance with the new IVDR.
Israel
In
Israel, medical devices are regulated by the Israeli Ministry of Health (MoH) medical device department.
On January 23, 2019, we applied to the
MoH for approval for our products and we have obtained MoH approval.
U.S.
United
States federal and state governmental agencies subject the health care industry to intense regulatory scrutiny, including heightened
civil and criminal enforcement efforts. The federal government scrutinizes, among other things, the marketing, labeling, promotion,
manufacturing and export of diagnostic health care products. Our cancer screening products fall within the IVD medical device
category and are subject to FDA clearance or approval in the United States.
The
federal government has increased funding in recent years to fight health care fraud, and various agencies, such as the United
States Department of Justice, the Office of Inspector General of the Department of Health and Human Services, or OIG, and state
Medicaid fraud control units, are coordinating their enforcement efforts.
In
the United States, we anticipate that our cancer screening products will have to be cleared through the FDA’s premarket
notification or 510(k), process or its premarket approval, or PMA, process. The determination of whether a 510(k) or a PMA is
necessary will depend in part on the proposed indications for use and the FDA’s assessment of the risk associated with the
use of the IVD for a particular indication.
Research
and Development Activities and Costs
For
information regarding our clinical studies, please see above under the caption “– Clinical Studies in Process.”
For
the years ended December 31, 2018, 2017 and 2016, we incurred $459,184, $720,527, and $317,907, respectively, of net research
and development expense.
Our
research and development efforts are financed in part through grants received from the IIA. As of December 31, 2018, we have received
an aggregate amount of $272,237 from the IIA. Aside from payment of royalties to the IIA, we are required to comply with the requirements
of the Research Law. Under the Research Law, royalties of 3% to 3.5% on the revenues derived from sales of products or services
developed in whole or in part using these IIA grants are payable to the Israeli government. We developed our technologies, at
least in part, with funds from these grants, and accordingly we would be obligated to pay these royalties on sales of any of our
product candidates that achieve regulatory approval. The maximum aggregate royalties paid generally cannot exceed 100% of the
grants made to us, plus annual interest equal to the 12-month LIBOR applicable to dollar deposits, as published on the first business
day of each calendar year.
Production
and Manufacturing
We
are revising our production line for kits for laboratories and physicians. All of our product production is conducted under ISO
13485 and by conforming to CE instructions, we aim to reduce risks and be more prepared for commercialization of our assays.
We
currently have several third-party suppliers, from various geographic locations, that provide us with raw materials. While we
are currently relying on these suppliers, we plan to locate other suppliers upon strict inspection. We plan to have a minimum
of two suppliers for each component in our system and it is our intention to eventually produce the raw material internally. However,
because we are in a highly specialized industry, there can be no assurance that we will be able to achieve that.
Listed
below are our current material suppliers. There is no assurance that they will be able to continue supply of our raw materials
or that, if necessary, we will be able find replacement vendors on a timely basis on favorable terms.
List
of the raw material suppliers for kits
SUPPLIERS
|
|
MATERIAL
|
BD
|
|
PUSH BUTTON
SET 21G GREEN
|
BD
|
|
Vacutainer®
K2EDTA 6 mL Blood collection tube
|
Eppendorf
|
|
Pipette tips
100-1000 ?l
|
Eppendorf
|
|
Pipette tips
0.1-10 ?l
|
Eppendorf
|
|
Centrifuge
tube 50 ml
|
Eppendorf
|
|
Eppendorf
tubes 1.5 ml
|
Grenier
|
|
Freezing
vials 2.0 ml
|
Grenier
|
|
Leucosep®
50 ml tube
|
Costs
and Effects of Compliance with Environmental Laws and Regulations
We
are not in a business that involves the use of materials in a manufacturing stage where such materials are likely to result in
the violation of any existing environmental rules and/or regulations. Further, we do not own any real property that could lead
to liability as a landowner. However, until our distributors establish local laboratories in their respective territories, we
expect to receive blood samples for analysis. We currently comply and will continue to comply with all Israeli Ministry of Health
regulations governing the handling of blood samples, and all Israeli laws and regulations regarding the disposal of biohazard
waste, including blood samples. The cost of compliance with these regulations has not been material. Therefore, we do not anticipate
that there will be any substantial costs associated with the compliance of environmental laws and regulations.
Employees
As
of December 31, 2018, we had four full-time employees and two part-time employees, all located in Israel.
In
addition, we engage specialists and consultants in fields such as optics, physics, medicine, mathematical algorithms, biochemistry,
regulatory and patents from time to time as required by our operations. Furthermore, Mr. David Ben Naim, our Chief Financial Officer,
is engaged by us as an external consultant.
Sales
and Marketing
We
currently do not sell our products. Our goal is to have a diversified pool of customers worldwide, including the United States.
However, we plan to focus initially on the Western EU nations, Singapore and Israel since we have the CE mark, whereas entering
the U.S. market will require more time, effort and substantial funding in order to obtain FDA approval. Assuming we successfully
raise additional funding, over the next 12 months we plan to commence clinical trials in Israel and Singapore in order to complete
the trials and validation stages prior to commencement of sales. Furthermore, once the clinical trials tests are successfully
completed in Singapore, we plan to apply to obtain regulatory approvals in Singapore to sell our products there. Our plans depend
on us financing our operations through the sale of equity, incurring debt, or other financing alternatives.
Organizational
Structure
Assuming the formal closing of the Amarantus
option, we have two wholly-owned subsidiaries: Todos Medical Singapore Pte. Ltd., which is incorporated in Singapore, and Breakthrough,
which is incorporated in Nevada.
Property,
Plant and Equipment
We
do not own any real property. Our offices, research and development facility and in-house laboratory are located at our headquarters
at 1 Hamada Street, Rehovot, Israel, where we currently occupy approximately 108 square meters for a monthly consideration of
NIS 7,400 (approximately $2,000). The lease automatically renewed for an additional one year on February 1, 2019. Lease payments
are linked to the Israeli Consumer Price Index, or CPI, based on the CPI published on February 15, 2015. We own lab equipment,
including a spectroscopy, with an aggregate value of approximately $157,000, which is being allocated as a depreciation expense
over the useful life of the equipment.
We
consider our current office space sufficient to meet our anticipated needs for the foreseeable future and is suitable for the
conduct of our business.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
We
have filed with the SEC a registration statement on Form F-1 covering the securities in this offering. This prospectus, which
forms part of the registration statement, does not contain all of the information set forth in the registration statement and
the exhibits to the registration statement. Some items are omitted in accordance with the rules and regulations of the SEC. For
further information regarding both our Company and the securities in this offering, we refer you to the registration statement
and the exhibits to the registration statement filed as part of the registration statement. The SEC maintains an internet site
at www.sec.gov, from which you can electronically access the registration statement, including the exhibits to the registration
statement. We also maintain a website at http://www.todosmedical.com. You may access these materials free of charge as soon as
reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information contained on our website
is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference
only.
LEGAL
PROCEEDINGS
We
are not a party to existing or pending legal proceedings against us, and we have no knowledge of any threatened litigation, nor
are we involved as a plaintiff in any proceeding or pending litigation. There are no proceedings in which any of our Directors,
officers or any of their respective affiliates, or any beneficial stockholder, is an adverse party or has a material interest
adverse to our interest.
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our
Directors hold office until the next annual general meeting of the stockholders or until their successors are elected and qualified,
except for our External Directors who are elected for a term of three years. Our officers are appointed by our Board of Directors
and hold office until the earlier of their death, retirement, resignation, or removal.
Our
officers and Directors and their ages and positions are as follows:
Name
|
|
Age
|
|
Position(s)
|
Dr. Herman Weiss
|
|
48
|
|
Chief Executive
Officer and Director
|
Rami Zigdon
|
|
55
|
|
Chief Business Officer
and Director
|
Udi Zelig
|
|
39
|
|
Chief Technology
Officer
|
David Ben Naim
|
|
50
|
|
Chief Financial
Officer
|
Alon Ostrovitzky
|
|
33
|
|
Director
|
Moshe Schlisser
|
|
29
|
|
Director
|
Moshe Abramovitz
|
|
36
|
|
Director
|
Colin Bier
|
|
72
|
|
Director
|
Alon Shalev
|
|
46
|
|
External Director
|
Ronit Even-Zahav
Meitin
|
|
53
|
|
External Director
|
Dr.
Herman Weiss, CEO and Director
Dr.
Herman Weiss has been a director since June 22, 2017. Dr. Weiss was appointed CEO of the Company on July 30, 2018. Dr.
Weiss previously served as the vice president of medical affairs and clinical development at Juniper Pharmaceuticals Inc. in Boston,
MA. Before that, Dr. Weiss previously served as the Global Medical Director of women’s health and bone health at Teva Pharmaceutical
Industries, Ltd. in Petah Tikve, Israel. Dr. Weiss has served as a consultant to multiple medical device and pharmaceutical companies,
including American medical systems and venture capital firms in New York City, and also founded and served as the chief medical
officer of FibroControl, a biotech medical device company in Herzliya, Israel. Dr. Weiss owns multiple patents and is the author
of numerous publications in the area of women’s health and gynecology. Dr. Weiss holds an M.B.A. from the George Washington
University, Washington DC, an M.D. from the Ohio State University College of Medicine, and a B.A. in Philosophy (summa cum laude)
from the Ramapo College of New Jersey. The Board has concluded that Dr. Weiss should serve as director of the Company because
of his extensive medical knowledge and experience, and his extensive business development and executive experience.
Rami
Zigdon, Chief Business Officer and Director
Mr.
Rami Zigdon was appointed CBO of the Company on July 30, 2018. Before that, he served as our Chief Executive Officer
from our inception in 2010 and also served as a director on our board from May 12, 2011 until June 3, 2015. On May 10, 2016, he
was elected again to serve as a director. Since January 2016, Mr. Zigdon has also served as a director on the board of our subsidiary,
Todos Singapore. Mr. Zigdon is an experienced business manager of technology-based companies. From 2003 to 2009, Mr. Zigdon served
as the Israeli country manager of Renesas Technology, a leading Japanese semiconductors corporation. Prior to his position at
Renesas, Mr. Zigdon served as the manager of Hitachi Semiconductors Israel and as the embedded systems group manager at RDT. Mr.
Zigdon has held various technical and management positions at Scitex Belgium, NI Medical and Spectronix. Mr. Zigdon graduated
with honors from the Hebrew University of Jerusalem and holds a B.S in Biology from the Hebrew University of Jerusalem, a B.S.
in Electrical Engineering from the Ben Gurion University of the Negev, and an MBA from the Heriot-Watt University, Edinburgh.
The Board has concluded that Mr. Zigdon should serve as director of the Company because of his scientific knowledge, his experience
in managing technology-based companies, and his knowledge of the Company.
Udi
Zelig, Chief Technology Officer
Dr.
Udi Zelig has served as our full-time Chief Technology Officer since January 1, 2012. Prior to that, Dr. Zelig served
as our non-employee Chief Technology Officer from our inception through November 15, 2009, while concurrently being employed by
Crow Technologies 1977, Ltd. Dr. Zelig is a nuclear and biomedical engineer with more than a decade of research experience in
conducting and managing of in-vitro and clinical experiments. His main field of research concerns various applications of infrared
spectroscopy for blood cancer detection and investigation of chemotherapeutic drug influence on blood cells. Dr. Zelig is the
author of numerous scientific publications in leading biophysics and medicinal journals. Dr. Zelig holds a B.S. in Nuclear Engineering,
a Master of Science and a Ph.D. in bio-medical engineering, all from the Ben-Gurion University of the Negev.
David
Ben Naim, Chief Financial Officer
Mr.
David Ben Naim has served as our Chief Financial Officer since January 2018. Since 2014, Mr. Ben Naim has been the owner and
manager of DBN Finance, a company that provides full outsourcing financial services to companies located in Israel. From 2012
until 2014, Mr. Ben Naim served as the chief financial officer of Insuline Medical Inc., which is traded on the Tel Aviv Stock
Exchange, or TASE, under the symbol INSL. Mr. Ben Naim served as the chief financial officer for Crow Technologies 1977, Ltd.
(OTCQB - CRWTF) from 2008 until 2011 and for Ilex Medical Limited (TASE) from 2007 until 2008. Other positions held by Mr. Ben
Naim include, in connection with his ownership of DBN Finance, chief financial officer since 2016 of Microbot Medical (Nasdaq
- MBOT) and Vonetize PLC (TASE - VNTZ). Additionally, Mr. Ben Naim served as the Corporate Controller of Tadiran Telecom Limited
from 2003 until 2007. Mr. Ben Naim holds an MBA from Ono Academic College as well as a C.P.A. license from the Ramat Gan College.
Alon
Ostrovitzky, Director
Mr.
Alon Ostrovitzky has been a director since December 5, 2013. Since 2008, Mr. Ostrovitzky has acted as the President of
Ostrovitzky Holdings Company, a company which has developed a variety of real estate projects in the Czech Republic, Germany,
and Israel. As President, Mr. Ostrovitzky supervised sub-contractors and service providers among other things. Mr. Ostrovitzky
has also developed and spearheaded renewable energy projects in Greece, planned and oversaw construction of photo-voltaic parks
in Greece, and provided management for a medical center (Dialysis and specialists) in the Czech Republic. Mr. Ostrovitzky holds
a B.A. in business administration from the Interdisciplinary Center Herzliya, where he specialized in finance, and also studied
economics at Tel Aviv University. The Board has concluded that Mr. Ostrovitzky should serve as a director of the Company because
of his management and business development knowledge and experience.
Moshe
Schlisser, Director
Mr.
Moshe Schlisser has been a director since February 27, 2016. Mr. Schlisser currently also serves as a director at SmartGreen
Ltd, Tantel Group Ltd and III Pte Ltd. Mr. Schlisser is a General Partner at Shefa Capital Ltd a growth venture fund with a focus
on mid to later stage deep technology investments. Mr. Schlisser held managerial positions in various investment firms and has
experience with investments, structured finance and mergers and acquisitions. In 2010, Mr. Schlisser co-founded and currently
serves as a director of a soup kitchen in Jerusalem that serves to over 50 homeless and underprivileged individuals a hot prepared
dinner every night and that delivers weekend food packages to over 250 underprivileged families. The Board has concluded that
Mr. Schlisser should serve as a director of the Company because of his extensive business development knowledge and experience.
Moshe
Abramovitz, Director
Mr.
Moshe Abramovitz has been a director since February 27, 2016. Mr. Abramovitz has held managerial positions in various
organizations (Israeli companies and charities) including serving as the deputy chief executive officer of A.S. Mehadrin Ltd.
since 2008. Mr. Abramovitz holds a B.A. in business administration, specializing in information systems, from Ono Academic College
and an MBA in business administration specializing in business strategy from Ono Academic College. Mr. Abramowitz received training
and a certificate to serve as a mediator from Bar Ilan University. The Board has concluded that Mr. Abramovitz should serve as
a director of the Company because of his extensive business knowledge and experience.
Colin
Bier, Director
Dr.
Colin Bier was added to the Board of Directors on March 25, 2019. Dr. Bier currently serves as Managing Director of ABA BioResearch,
Inc. From September 2013 until 2018, he served as a Corporate Advisor of Amarantus Bioscience Holdings, Inc. He also served as
a Senior Advisor of TVM V Life Science Ventures and NGN Capital. From November 2001 to June 15, 2002, Dr. Bier served as Chairman
of the Board and Chief Executive Officer of Soligenix, Inc. From 1996 through 2008, Dr. Bier was a Director of Neurochem Inc.
Dr. Bier serves as a Director of Lomir Biomedical Inc., a private company in the business of the design and manufacture of animal
jackets for laboratory animal species, of Mount Sinai Hospital Montreal, and of Receptagen Ltd., a Canadian publicly traded biopharmaceutical
company. He has published more than twenty-five scientific articles in his field in peer-reviewed journals. Dr. Bier received
his Ph.D. in Experimental Pathology from Colorado State University in 1978 and then pursued additional training in experimental
pathology and toxicology as a Medical Research Council Postdoctoral Fellow and the Dr. Douglas James Fellow in the Department
of Pathology, McGill University. He received his M.Sc. from Long Island University in 1974, and his B.A. from Sir George Williams
University in 1967. The Board has concluded that Dr. Bier should serve as a director of the Company because of his extensive scientific
knowledge and management experience.
Alon
Shalev, Director
Mr.Alon
Shalev has been a director since June 22, 2017. Mr. Shalev led BrainsGate from its inception phase, into its European
clinical trials with a highly innovative technological and clinical platform. Subsequently, he led Nicast from initial exploratory
work in different fields through a process of application definition, prioritization and selection, and into its First-In-Man
clinical trials as well as the CE approval process. Under his direction, Nicast has become the first medical device company to
introduce an implantable medical device based on polymer electrospinning. In 2008, Mr. Shalev started generating the core IP upon
which Endospan was later founded. Mr. Shalev has been the chief executive officer of Endospan since 2013 and also serves on its
board of directors. Mr. Shalev is an inventor of numerous patents in the medical field. Mr. Shalev holds an MS in Solid State
Electronics, Physical Electronics (cum laude) and a B.S. in Electrical Engineering both from Tel Aviv University. The Board has
concluded that Mr. Shalev should serve as a director of the Company because of his extensive technical and business knowledge
and experience.
Ronit
Even-Zahav Meitin, Director
Ms.
Ronit Even-Zahav Meitin has been a director since June 22, 2017. Since 2014, Ms. Even Zahav Meitin has provided financial
consulting services to various companies. Previously, Ms. Even Zahav Meitin served as chief financial officer with the Afcon Group
(a public company traded on the TASE). Ms. Even-Zahav Meitin also serves as a director and chairperson of the finance committee
for Cross Israeli Highway (a governmental company), and as an independent director in Inter Green Ltd. (a public company traded
on the TASE). Until 2012, Ms. Even-Zahav Meitin served, among other positions, as chief financial officer of Paz Industries and
Services (Oil) and a director of its subsidiaries. Ms. Even-Zahav Meitin is a certified accountant in Israel and holds a BA in
Accounting and Economics from Tel Aviv University and an MBA in Finance from Bar Ilan University. The Board has concluded that
Ms. Even-Zahav Meitin should serve as a director of the Company because of her extensive financial and business knowledge and
experience.
Foreign
Private Issuer
Under
the Companies Law, companies incorporated under the laws of the State of Israel whose shares are publicly traded, including companies
with shares quoted on the OTCQB or listed on The Nasdaq Stock Market, are considered public companies under Israeli law and are
required to comply with various corporate governance requirements under Israeli law relating to matters such as external directors,
the audit committee, the compensation committee and an internal auditor. This is the case even if our shares are not listed on
a stock exchange in Israel. These requirements are in addition to the corporate governance requirements imposed by the Listing
Rules of the Nasdaq Stock Market and other applicable provisions of U.S. securities laws to which we are subject (as a foreign
private issuer).
We
are currently a “foreign private issuer” under the U.S. securities laws and the Nasdaq corporate governance rules.
We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by U.S.
residents and any one of the following three circumstances applies: (i) the majority of our executive officers or directors are
U.S. citizens or residents, (ii) more than 50% of our assets are located in the United States or (iii) our business is administered
principally in the United States. As a foreign private issuer, we are exempt from the rules under the Exchange Act related to
the furnishing and content of proxy statements, and our executive officers, directors and principal shareholders are exempt from
the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. Also, we are not required
to comply with Regulation FD, which restricts the selective disclosure of material information. However, we are required to file
with the SEC, within 120 days after the end of each fiscal year, or such applicable time as required by the SEC, an annual report
on Form 20-F containing financial statements audited by an independent registered public accounting firm, and to submit to the
SEC from time to time, on Form 6-K, reports of information that would likely be material to an investment decision in our ordinary
shares.
As
a foreign private issuer, we are permitted to follow certain Israeli corporate governance practices instead of the Nasdaq corporate
governance rules, provided that we disclose which requirements we are not following and the equivalent Israeli requirement.
Board
Practices
General
According
to the Companies Law, the management of our business is vested in our Board of Directors. Our Board of Directors may exercise
all powers and may take all actions that are not specifically granted to our shareholders. Our executive officers are responsible
for our day-to-day management and have individual responsibilities established by our Board of Directors. Executive officers are
appointed by and serve at the discretion of our Board of Directors, subject to any applicable employment agreements we have entered
into with the executive officers.
Under
the Companies Law, we are not required to have a majority of independent directors. We are required to appoint at least two external
directors. According to our Amended Articles, our Board of Directors must consist of at least five and not more than nine directors,
including external directors. Currently, our Board of Directors consists of eight directors. Pursuant to our Amended Articles,
other than the external directors, for whom special election requirements apply under the Companies Law, our directors are elected
at an annual or special general meeting of our shareholders and serve on our Board of Directors until the next annual general
meeting at which one or more directors are elected or until they are removed by the majority of our shareholders at an annual
or special general meeting of our shareholders or upon the occurrence of certain events, in accordance with the Companies Law
and our Amended Articles. In addition, our Amended Articles allow our Board of Directors to appoint directors, other than external
directors, to fill vacancies on our Board of Directors to serve until the next annual meeting or special general meeting, or earlier
if required by our Amended Articles or applicable law. For additional information concerning external directors, see “–
External Directors” below.
Under
the Companies Law, our Board of Directors must determine the minimum number of directors who are required to have financial and
accounting expertise. Under applicable regulations, a director with financial and accounting expertise is a director who, by reason
of his or her education, professional experience and skill, has a high level of proficiency in and understanding of business accounting
matters and financial statements. He or she must be able to thoroughly comprehend the financial statements of the listed company
and initiate debate regarding the manner in which financial information is presented. In determining the number of directors required
to have such expertise, a company’s board of directors must consider, among other things, the type and size of the company
and the scope and complexity of its operations. Our Board of Directors has determined that we require at least one director with
the requisite financial and accounting expertise.
The
term office holder is defined in the Companies Law as a general manager, chief business manager, deputy general manager, vice
general manager, executive vice president, vice president, or any other person assuming the responsibilities of any of the foregoing
positions, without regard to such person’s title, or a director or any other manager directly subordinate to the general
manager.
External
Directors
Under
the Companies Law, a public company is required to appoint at least two external directors to serve on its board of directors.
External directors must meet stringent standards of independence. As of the date hereof, our external directors are Ms. Ronit
Even-Zahav and Mr. Alon Shalev.
The
provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors
must be elected by a majority vote of the shares present and voting on the matter at a shareholders meeting, provided that either:
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such
majority includes at least a majority of the shares held by all shareholders who are
non-controlling shareholders and shareholders who do not have a personal interest in
the election of the external director (other than a personal interest not deriving from
a relationship with a controlling shareholder) that are voted at the meeting, excluding
abstentions, which we refer to as a disinterested majority;
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the
total number of shares held by shareholders who are non-controlling shareholders and
shareholders who do not have a personal interest in the election of the external director
(other than a personal interest not derived from a relationship with a controlling shareholder)
voted against the election of the external director does not exceed 2% of the aggregate
voting rights in the company
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The
term “controlling shareholder” is defined in the Companies Law as a shareholder with the ability to direct the activities
of a company, other than by virtue of being an office holder. A shareholder is deemed to be a controlling shareholder if the shareholder
holds 50% or more of the voting rights in the company or has the right to appoint 50% or more of the directors of a company or
its general manager.
The
term “personal interest” is defined in the Companies Law as a person’s or entity’s personal interest in
an act or a transaction of a company, (i) including the personal interest of (a) any spouse, sibling, parent, grandparent or descendant
of the persons, any descendant, sibling or parent of a spouse of the person and the spouse of any of the foregoing; and (b) an
entity in which the person or entity or any of the foregoing relatives of the person serves as a director or the chief executive
officer, owns at least 5% of its issued share capital or voting rights or has the right to appoint one or more directors or the
chief executive officer, but (ii) excluding a personal interest arising solely from the ownership of shares. In the case of a
person voting by proxy, “personal interest” includes the personal interest of the proxy holder or the shareholder
granting the proxy (even if the proxy holder has no personal interest in the matter), whether or not the proxy holder has discretion
how to vote.
The
initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve
in that capacity for up to two additional three-year terms, provided that either:
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his
or her service for each such additional term is recommended by one or more shareholders
holding at least 1% of the company’s voting rights and is approved at a shareholders
meeting by a disinterested majority, where the total number of shares held by non-controlling,
disinterested shareholders voting for such reelection exceeds 2% of the aggregate voting
rights in the company, and provided further that the external director is not an affiliated
or competing shareholder, as defined in the Companies Law, or a relative of such a shareholder
at the time of the appointment, and is not affiliated with such a shareholder at the
time of appointment or within the two years preceding the date of appointment; or
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his
or her service for each such additional term is recommended by the board of directors
and is approved at a shareholders meeting by the same majority required for the initial
election of an external director (as described above).
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External
directors may be removed only by a special general meeting of shareholders called by the board of directors after the board has
determined that circumstances allow such dismissal, at the same special majority of shareholders required for their election or
by a court, and in both cases only if the external directors cease to meet the statutory qualifications for their appointment
or if they violate their duty of loyalty to our company. In the event of a vacancy created by an external director which causes
the company to have fewer than two external directors, the board of directors is required under the Companies Law to call a shareholders
meeting as soon as possible to appoint such number of new external directors in order that the company thereafter has two external
directors.
Each
committee of the board of directors that exercises the powers of the board of directors must include at least one external director,
except that the audit committee and the compensation committee must include all external directors then serving on the board of
directors. Under the Companies Law, external directors of a company are prohibited from receiving, directly or indirectly, any
compensation for their services as external directors other than pursuant to the Companies Law and the regulations promulgated
thereunder. Compensation of an external director is determined prior to his or her appointment and may not be changed during any
three-year term subject to certain exceptions.
The
Companies Law provides that a person is not qualified to serve as an external director if (i) the person is a relative of a controlling
shareholder of the company, or (ii) if that person or his or her relative, partner, employer, another person to whom he or she
was directly or indirectly subordinate, or any entity under the person’s control, has or had, during the two years preceding
the date of appointment as an external director: (a) any affiliation with the company, with any person or entity controlling the
company or a relative of such person at the time of appointment, or with any entity controlled by or under common control with
the company at the time of appointment or during the two years preceding the appointment; or (b) in the case of a company with
no controlling shareholder or a shareholder holding 25% or more of its voting rights, had at the date of appointment as an external
director, any affiliation with a person then serving as chairman of the board or chief executive officer, a holder of 5% or more
of the issued share capital or voting power in the company or the most senior financial officer.
The
term “relative” is defined as a spouse, sibling, parent, grandparent or descendant; spouse’s sibling, parent
or descendant; and the spouse of each of the foregoing persons.
The
term “affiliation” includes (subject to certain exceptions): an employment relationship; a business or professional
relationship even if not maintained on a regular basis (excluding insignificant relationships); control; and service as an office
holder, excluding service as a director in a private company prior to the initial public offering of its shares if such director
was appointed as a director of the private company in order to serve as an external director following the initial public offering.
In
addition, no person may serve as an external director if that person’s positions or professional or other activities create,
or may create, a conflict of interest with that person’s responsibilities as a director or otherwise interfere with that
person’s ability to serve as a director or if the person is an employee of the Israel Securities Authority or of an Israeli
stock exchange. A person may furthermore not continue to serve as an external director if he or she received direct or indirect
compensation other than as permitted by the Companies Law and the regulations promulgated thereunder.
Following
the termination of an external director’s service on a board of directors, such former external director and his or her
spouse and children and other relatives may not be provided a direct or indirect benefit by the company, its controlling shareholder
or any entity under its controlling shareholder’s control. This includes engagement as an officer or director of the company
or a company controlled by its controlling shareholder or employment by, or provision of services to, any such company for consideration,
either directly or indirectly, including through a corporation controlled by such person. This restriction extends for a period
of two years with regard to the former external director and his or her spouse or child and for one year with respect to other
relatives of the former external director.
If
at the time at which an external director is appointed all members of the board of directors who are not controlling shareholders
or relatives of controlling shareholders of the company are of the same gender, the external director to be appointed must be
of the other gender. A director of one company may not be appointed as an external director of another company if a director of
the other company is acting as an external director of the first company at such time.
According
to the Companies Law and regulations promulgated under the Companies Law, a person may be appointed as an external director only
if he or she has professional qualifications or if he or she has accounting and financial expertise (each, as defined below).
At least one of the external directors must be determined by our Board of Directors to have accounting and financial expertise.
We have determined that Ms. Ronit Even-Zahav has accounting and financial expertise.
A
director with accounting and financial expertise is a director who, due to his or her education, experience and skills, possesses
an expertise in, and an understanding of, financial and accounting matters and financial statements, such that he or she is able
to understand the financial statements of the company and initiate a discussion about the presentation of financial data. A director
is deemed to have professional qualifications if he or she has any of (i) an academic degree in economics, business management,
accounting, law or public administration, (ii) an academic degree or has completed another form of higher education in the primary
field of business of the company or in a field which is relevant to his/her position in the company, or (iii) at least five years
of experience serving in one of the following capacities, or at least five years of cumulative experience serving in two or more
of the following capacities: (a) a senior business management position in a company with a significant volume of business; (b)
a senior position in the company’s primary field of business; or (c) a senior position in public administration or service.
The board of directors is charged with determining whether a director possesses financial and accounting expertise or professional
qualifications.
Audit
Committee
Israeli
Companies Law Requirements
Under
the Companies Law, a public company is required to appoint an audit committee which must be comprised of at least three directors,
including all of the external directors, one of whom must serve as chairman of the committee.
In
addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated
directors, within the meaning of the Companies Law. In general, an “unaffiliated director” under the Companies Law
is defined as either an external director or a director who meets the following criteria:
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the
audit committee has determined that he or she meets the qualifications for being appointed
as an external director, except for (i) the requirement that the director be an Israeli
resident (which does not apply to companies such as ours whose securities have been offered
outside of Israel or are listed outside of Israel); and (ii) the requirement for accounting
and financial expertise or professional qualifications; and
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he
or she has not served as a director of the company for a period exceeding nine consecutive
years. For this purpose, a break of less than two years in the service shall not be deemed
to interrupt the continuation of the service.
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Nasdaq
requirements
Under
the Nasdaq Rules, we are required to maintain an audit committee consisting of at least three independent directors, all of whom
are financially literate and one of whom has accounting or related financial management expertise.
The
audit committee may not include the chairman of the board, a controlling shareholder of the company or a relative of a controlling
shareholder, a director employed by or providing services on a regular basis to the company, to a controlling shareholder or to
an entity controlled by a controlling shareholder or a director who derives most of his or her income from a controlling shareholder.
Audit
Committee Charter
Our
Board of Directors plans to adopt an audit committee charter setting forth the responsibilities of the audit committee consistent
with the regulations of the SEC, as well as the requirements for audit committees under the Companies Law, including the following:
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oversight
of our independent registered public accounting firm and recommending the engagement,
compensation or termination of engagement of our independent registered public accounting
firm to the board of directors or shareholders for their approval, as applicable, in
accordance with the requirements of the Companies Law;
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recommending
the engagement or termination of the person filling the office of our internal auditor;
and
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recommending
the terms of audit and non-audit services provided by the independent registered public
accounting firm for pre-approval by the board or shareholders for their approval, as
applicable, in accordance with the requirements of the Companies Law.
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Our
audit committee provides assistance to our Board of Directors in fulfilling its legal and fiduciary obligations in matters involving
our accounting, auditing, financial reporting, internal control and legal compliance functions by pre-approving the services performed
by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal control
over financial reporting. Our audit committee also oversees the audit efforts of our independent accountants and takes those actions
that it deems necessary to satisfy itself that the accountants are independent of management.
Under
the Companies Law, our audit committee is responsible for:
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determining
whether there are deficiencies in the business management practices of our company, including
in consultation with our internal auditor or the independent auditor, and making recommendations
to the board of directors to improve such practices;
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determining
whether to approve certain related party transactions (including transactions in which
an office holder has a personal interest) and whether such transaction is extraordinary
or material under Companies Law (see “– Approval of Related Party Transactions
under Israeli Law”);
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determining
whether a competitive process must be implemented for the approval of certain transactions
with controlling shareholders or a relative thereof or in which a controlling shareholder
has a personal interest (whether or not the transaction is an extraordinary transaction),
under the supervision of the audit committee or other party determined by the audit committee
and in accordance with standards determined by the audit committee, or whether a different
process determined by the audit committee should be implemented for the approval of such
transactions;
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determining
the process for the approval of certain transactions with controlling shareholders or
in which a controlling shareholder has a personal interest that the audit committee has
determined are not extraordinary transactions but are not immaterial transactions;
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where
the board approves the working plan of the internal auditor, to examine such working
plan before its submission to the board and proposing amendments thereto;
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examining
our internal controls and internal auditor’s performance, including whether the
internal auditor has sufficient resources and tools to dispose of its responsibilities;
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examining
the scope of our auditor’s work and compensation and submitting a recommendation
with respect thereto to our Board of Directors or shareholders, depending on which of
them is considering the compensation of our auditor; and
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establishing
procedures for the handling of employees’ complaints as to the management of our
business and the protection to be provided to such employees.
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Our
audit committee consists of Ms. Ronit Even-Zahav Meitin, who serves as the chairperson, Mr. Alon Shalev, and Mr. Moshe Abramovitz.
Ms. Even-Zahav Meitin serves as Chairman of the committee. All members of our audit committee meet the requirements for financial
literacy under the applicable rules and regulations of the SEC and the Nasdaq corporate governance rules and are independent directors
under such rules. Our board of directors has determined that Ms. Ronit Even-Zahav Meitin is an “audit committee financial
expert” as defined by the SEC rules and has the requisite financial experience as defined by the Nasdaq Rules. Our board
of directors has determined that each member of our audit committee is independent as such term is defined in Rule 10A-3 under
the Exchange Act, and that each member of our audit committee satisfies the additional requirements applicable under the Nasdaq
Rules to members of audit committees.
Financial
Statement Examination Committee
Under
the Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which
consists of members with accounting and financial expertise or the ability to read and understand financial statements. Our audit
committee holds the responsibilities and duties of a financial statement examination committee, as permitted under the relevant
regulations promulgated under the Companies Law. From time to time, as necessary and required in order to approve our financial
statements, the audit committee will hold separate meetings prior to the scheduled meetings of the board in respect of the financial
statements. The function of a financial statement examination committee is to discuss and provide recommendations to the board
of directors (including reporting any deficiencies found) with respect to the following issues: (a) estimations and assessments
made in connection with the preparation of financial statements; (b) internal controls related to the financial statements; (c)
completeness and appropriateness of the disclosure in the financial statements; (d) the accounting policies adopted and the accounting
treatment implemented in material matters of the Company; and (e) value evaluation, including the assumptions and assessments
on which evaluations are based and the supporting data in the financial statements.
Compensation
Committee and Compensation Policy
Under
the Companies Law, the board of directors of any public company must appoint a compensation committee. The compensation committee
must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the
members of the compensation committee. Each compensation committee member that is not an external director must be a director
whose compensation does not exceed an amount that may be paid to an external director under regulations promulgated under the
Companies Law. The compensation committee is subject to the same Companies Law restrictions as the audit committee as to who may
not be a member of the committee. See “– Audit Committee - Israeli Companies Law Requirements.”
In
accordance with the Companies Law, the roles of the compensation committee are, among others, as follows:
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recommending
to the board of directors the approval of the compensation policy for office holders
and, once every three years, any extensions to a compensation policy that was adopted
for a period of more than three years;
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reviewing
the implementation of the compensation policy and periodically recommending to the board
of directors any amendments or updates of the compensation plan;
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resolving
whether or not to approve arrangements with respect to the terms of office and employment
of office holders; and
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exempting,
under certain circumstances, a transaction with our chief executive officer from the
approval of the general meeting of our shareholders.
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Our
compensation committee consists of Ms. Ronit Even-Zahav Meitin, , Mr. Alon Shalev, who serves as the chairman, and Mr. Moshe Abramovitz.
Our board of directors has determined that each member of our compensation committee is independent under the Nasdaq Rules, including
the additional independence requirements applicable to the members of a compensation committee.
Compensation
Committee Charter
Our
Board of Directors plans to adopt a compensation committee charter setting forth the responsibilities of the committee consistent
with the Nasdaq Rules and the Companies Law, which include among others:
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recommending
to the board of directors for its approval (i) a compensation policy; (ii) whether a
compensation policy should continue in effect, if the then-current policy has a term
of greater than three years (approval of either a new compensation policy or the continuation
of an existing compensation policy must in any case occur every three years); and (iii)
periodic updates to the compensation policy. See “– Compensation Policy.”
In addition, the compensation committee is required to periodically examine the implementation
of the compensation policy;
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the
approval of the terms of employment and service of office holders (including determining
whether the compensation terms of a candidate for chief executive officer of the company
need not be brought to approval of the shareholders); and
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reviewing
and approving grants of options and other incentive awards to persons other than office
holders to the extent such authority is delegated by our Board of Directors, subject
to the limitations on such delegation as provided in the Companies Law.
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Compensation
Policy
In
general, under the Companies Law, a public company must have a compensation policy approved by the Board of Directors after receiving
and considering the recommendations of the compensation committee. In addition, our compensation policy must be approved at least
once every three years, first, by our Board of Directors, upon recommendation of our compensation committee, and second, by a
simple majority of the ordinary shares present, in person or by proxy, and voting at a shareholders meeting, provided that either:
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such
majority includes at least a majority of the shares held by shareholders who are not
controlling shareholders and do not have a personal interest in such compensation arrangement
and who are present and voting (excluding abstentions); or
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the
total number of shares of non-controlling shareholders and shareholders who do not have
a personal interest in the compensation arrangement and who vote against the arrangement,
does not exceed 2% of the company’s aggregate voting rights.
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We
refer to this as the Special Approval for Compensation. Under the Companies Law, subject to certain conditions, the Board of Directors
may ratify the compensation policy even if it is not ratified by the shareholders.
Pursuant
to the Companies Law, under special circumstances, the Board of Directors may approve the compensation policy despite the objection
of the shareholders on the condition that the compensation committee and then the Board of Directors decide, on the basis of detailed
arguments and after discussing again the compensation policy, that approval of the compensation policy, despite the objection
of the meeting of shareholders, is for the benefit of the company.
The
compensation policy must be based on certain considerations, include certain provisions and needs to reference certain matters
as set forth in the Companies Law.
The
compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office
holders, including exculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment
or engagement. The compensation policy must relate to certain factors, including advancement of the company’s objectives,
business plan and long-term strategy, and creation of appropriate incentives for office holders. It must also consider, among
other things, the company’s risk management, size and the nature of its operations.
The
compensation policy must furthermore consider the following additional factors:
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the
education, skills, experience, expertise and accomplishments of the relevant office holder;
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the
office holder’s position, responsibilities and prior compensation agreements with
him or her;
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the
ratio between the cost of the terms of employment of an office holder and the cost of
the employment of other employees of the company, including employees employed through
contractors who provide services to the company, in particular the ratio between such
cost, the average and median salary of the employees of the company, as well as the impact
of such disparities on the work relationships in the company;
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if
the terms of employment include variable components — the possibility of reducing
variable components at the discretion of the board of directors and the possibility of
setting a limit on the value of non-cash variable equity-based components; and
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if
the terms of employment include severance compensation — the term of employment
or office of the office holder, the terms of his or her compensation during such period,
the company’s performance during the such period, his or her individual contribution
to the achievement of the company goals and the maximization of its profits and the circumstances
under which he or she is leaving the company.
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The
compensation policy must also include, among others:
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with
regard to variable components;
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with
the exception of office holders who report directly to the chief executive officer, determining
the variable components on long-term performance basis and on measurable criteria; however,
the company may determine that an immaterial part of the variable components of the compensation
package of an office holder’s shall be awarded based on non-measurable criteria,
if such amount is not higher than three monthly salaries per annum, while taking into
account such office holder contribution to the company;
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the
ratio between variable and fixed components, as well as the limit of the values of variable
components at the time of their grant.
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a
condition under which the office holder will return to the company, according to conditions
to be set forth in the compensation policy, any amounts paid as part of his or her terms
of employment, if such amounts were paid based on information later to be discovered
to be wrong, and such information was restated in the company’s financial statements;
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the
minimum holding or vesting period of variable equity-based components to be set in the
terms of office or employment, as applicable, while taking into consideration long-term
incentives; and
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a
limit to retirement grants.
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Our
compensation policy is designed to promote retention and motivation of directors and executive officers, incentivize superior
individual excellence, align the interests of our directors and executive officers with our long-term performance and provide
a risk management tool. To that end, a portion of an executive officer compensation package is targeted to reflect our short and
long-term goals, as well as the executive officer’s individual performance. On the other hand, our compensation policy includes
measures designed to reduce the executive officer’s incentives to take excessive risks that may harm us in the long-term,
such as limits on the value of cash bonuses and equity-based compensation, limitations on the ratio between the variable and the
total compensation of an executive officer and minimum vesting periods for equity-based compensation.
Our
compensation policy also addresses our executive officer’s individual characteristics (such as his or her respective position,
education, scope of responsibilities and contribution to the attainment of our goals) as the basis for compensation variation
among our executive officers, and considers the internal ratios between compensation of our executive officers and directors and
other employees. Pursuant to our compensation policy, the compensation that may be granted to an executive officer may include:
base salary, annual bonuses and other cash bonuses (such as a signing bonus and special bonuses with respect to any special achievements,
such as outstanding personal achievement, outstanding personal effort or outstanding company performance), equity-based compensation,
benefits and retirement and termination of service arrangements. All cash bonuses are limited to a maximum amount linked to the
executive officer’s base salary. In addition, the total variable compensation components (cash bonuses and equity-based
compensation) may not exceed 90% of each executive officer’s total compensation package with respect to any given calendar
year.
An
annual cash bonus may be awarded to executive officers upon the attainment of pre-set periodic objectives and individual targets.
The annual cash bonus that may be granted to our executive officers other than our chief executive officer will be based on performance
objectives and a discretionary evaluation of the executive officer’s overall performance by our chief executive officer
and subject to minimum thresholds. The annual cash bonus that may be granted to executive officers other than our chief executive
officer may be based entirely on a discretionary evaluation. Furthermore, our chief executive officer will be entitled to recommend
performance objectives, and such performance objectives will be approved by our compensation committee (and, if required by law,
by our board of directors).
The
performance measurable objectives of our chief executive officer will be determined annually by our compensation committee and
board of directors, will include the weight to be assigned to each achievement in the overall evaluation. A less significant portion
of the chief executive officer’s annual cash bonus may be based on a discretionary evaluation of the chief executive officer’s
overall performance by the compensation committee and the board of directors based on quantitative and qualitative criteria.
The
equity-based compensation under our compensation policy for our executive officers (including members of our board of directors)
is designed in a manner consistent with the underlying objectives in determining the base salary and the annual cash bonus, with
its main objectives being to enhance the alignment between the executive officers’ interests with our long-term interests
and those of our shareholders and to strengthen the retention and the motivation of executive officers in the long term. Our compensation
policy provides for executive officer compensation in the form of share options or other equity-based awards, such as restricted
shares and restricted share units, in accordance with our share incentive plan then in place. All equity-based incentives granted
to executive officers shall be subject to vesting periods in order to promote long-term retention of the awarded executive officers.
The equity-based compensation shall be granted from time to time and be individually determined and awarded according to the performance,
educational background, prior business experience, qualifications, role and the personal responsibilities of the executive officer.
In
addition, our compensation policy contains compensation recovery provisions which allows us under certain conditions to recover
bonuses paid in excess, enables our chief executive officer to approve an immaterial change in the terms of employment of an executive
officer (provided that the changes of the terms of employment are in accordance our compensation policy) and allows us to exculpate,
indemnify and insure our executive officers and directors subject to certain limitations set forth thereto.
Our
compensation policy also provides for compensation to the members of our board of directors either (i) in accordance with the
amounts provided in the Companies Regulations (Rules Regarding the Compensation and Expenses of an External Director) of 2000,
as amended by the Companies Regulations (Relief for Public Companies Traded in Stock Exchange Outside of Israel) of 2000, as such
regulations may be amended from time to time, or (ii) in accordance with the amounts determined in our compensation policy.
Internal
Auditor
Under
the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor recommended by the audit
committee. An internal auditor may not be:
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a
person (or a relative of a person) who holds more than 5% of the company’s outstanding
shares or voting rights;
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a
person (or a relative of a person) who has the power to appoint a director or the general
manager of the company;
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an
office holder, within the meaning of the Companies Law (including a director and the
general manager) of the company (or a relative thereof); or
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a
member of the company’s independent accounting firm, or anyone on his or her behalf.
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The
role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures.
The audit committee is required to oversee the activities and to assess the performance of the internal auditor as well as to
review the internal auditor’s work plan.
Our
internal auditor is Mr. Doron Levin. Mr. Levin has extensive experience with internal and financial audit work, and has provided
internal audit/SOX services to public companies for over 14 years. He established his own independent consulting firm in 2009.
Approval
of Related Party Transactions under Israeli Law
Fiduciary
Duties of Office Holders
The
Companies Law codifies the fiduciary duties that office holders owe to a company.
An
office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder
to act with the level of care with which a reasonable office holder in the same position would have acted under the same circumstances.
The duty of care includes a duty to use reasonable means to obtain:
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information
on the advisability of a given action brought for his or her approval or performed by
virtue of his or her position; and
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all
other important information pertaining to any such action.
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The
duty of loyalty requires an office holder to act in good faith and in the best interests of the company, and includes, among other
things, the duty to:
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refrain
from any conflict of interest between the performance of his or her duties to the company
and his or her other duties or personal affairs;
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refrain
from any activity that is competitive with the company;
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refrain
from exploiting any business opportunity of the company to receive a personal gain for
himself or herself or others; and
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disclose
to the company any information or documents relating to the company’s affairs which
the office holder received as a result of his or her position as an office holder.
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We
may approve an act specified above which would otherwise constitute a breach of the office holder’s duty of loyalty, provided
that the office holder acted in good faith, the act or its approval does not harm the company and the office holder discloses
his or her personal interest a sufficient amount of time before the date for discussion of approval of such act.
Disclosure
of Personal Interests of an Office Holder
The
Companies Law requires that an office holder promptly disclose to the company any “personal interest” that he or she
may be aware of and all related material information or documents concerning any existing or proposed transaction with the company.
An interested office holder’s disclosure must be made promptly and in any event no later than the first meeting of the board
of directors at which the transaction is considered. A personal interest includes an interest of any person in an act or transaction
of a company, including a personal interest of such person’s relative or of a corporate entity in which such person or a
relative of such person holds 5% or more of the outstanding shares or voting rights, is a director or general manager or in which
he or she has the right to appoint at least one director or the general manager, but excluding a personal interest arising from
one’s ownership of shares in the company. A personal interest includes the personal interest of a person for whom the office
holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person
for whom he or she holds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however,
obliged to disclose a personal interest if it derives solely from the personal interest of his or her relative in a transaction
that is not considered an extraordinary transaction. Under the Companies Law, an extraordinary transaction is defined as any of
the following: a transaction other than in the ordinary course of business; a transaction that is not on market terms; or a transaction
that may have a material impact on a company’s profitability, assets or liabilities.
Generally,
a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee
may not be present at such a meeting or vote on that matter unless, with respect to an office holder, the chairman of the audit
committee or board of directors (as applicable) determines that the office holder should be present in order to present the transaction
that is subject to approval. If a majority of the members of the audit committee or the board of directors (as applicable) has
a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee
or the board of directors (as applicable) on such transaction and the voting on approval thereof. If a majority of the members
of the board of directors has a personal interest in the approval of a transaction, shareholder approval is also required for
such transaction.
Approval
of Transactions with Officer Holders
If
it is determined that an office holder has a personal interest in a transaction that is not an extraordinary transaction, approval
by the board of directors is required for the transaction, unless the company’s articles of association provide for a different
method of approval. Further, so long as an office holder has disclosed his or her personal interest in a transaction, the board
of directors may approve an act by the office holder that would otherwise be deemed a breach of his or her duty of loyalty, provided
that the transaction is in the company’s best interest and the office holder acted in good faith. An extraordinary transaction
in which an office holder has a personal interest requires approval first by the company’s audit committee and subsequently
by the board of directors.
Disclosure
of Personal Interests of Controlling Shareholders and Approval of Certain Transactions
Pursuant
to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply
to a controlling shareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling
shareholder also includes a shareholder who holds 25% or more of the voting rights in the company if no other shareholder holds
more than 50% of the voting rights in the company. For this purpose, the holdings of all shareholders who have a personal interest
in the same transaction will be aggregated. Extraordinary transactions with a controlling shareholder or in which a controlling
shareholder has a personal interest, including a private placement in which a controlling shareholder has a personal interest,
and the terms of engagement with a controlling shareholder or a relative thereof, directly or indirectly (including through a
corporation controlled by a controlling shareholder), for the provision of services to the company and his or her terms of employment
or service as an office holder or employment as other than an office holder, require the approval of each of (i) the audit committee
or the compensation committee with respect to the terms of service or employment by the company as an office holder, an employee
or service provider; (ii) the board of directors; and (iii) the shareholders, in that order. Shareholder approval in such context
requires one of the following, which we refer to as a Special Majority:
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at
least a majority of the shares held by all shareholders who do not have a personal interest
in the transaction and who are present and voting on the matter approves the transaction,
excluding abstentions; or
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the
shares voted against the transaction by shareholders who have no personal interest in
the transaction and who are present and voting at the meeting do not exceed 2% of the
voting rights in the company.
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Each
shareholder voting on the approval of an extraordinary transaction with a controlling shareholder must inform the company prior
to voting whether or not he or she has a personal interest in the approval of the transaction, otherwise, the shareholder is not
eligible to vote on the proposal and his or her vote will not be counted for purposes of the proposal.
To
the extent that any such transaction with a controlling shareholder is for a period of more than three years, approval is required
once every three years, unless, with respect to any such extraordinary transactions, the audit committee determines that the duration
of the transaction is reasonable given the related circumstances.
The
compensation committee and board approval for arrangements regarding the terms of service or employment of a controlling shareholder
must be in accordance with the company’s compensation policy. In special circumstances the compensation committee and board
of directors may approve a compensation arrangement that is inconsistent with the company’s compensation policy, provided
that they have considered the same considerations and matters required for the approval of a compensation policy in accordance
with the Companies Law and that shareholder approval was obtained by the Special Majority.
Pursuant
to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder or his or her relative,
or with directors, relating to terms of service or employment that would otherwise require approval of a company’s shareholders
may be exempt from shareholder approval upon certain determinations of the audit committee and board of directors. Under these
regulations, a shareholder holding at least 1% of the issued share capital or voting power of the company may require, within
14 days of the publication or announcement of such determinations, that despite such determinations by the audit committee and
the board of directors, such transaction will require shareholder approval under the same majority requirements that would otherwise
apply to such transactions.
In
addition, disclosure of a personal interest in a private placement of a public company (including disclosure of any material fact
or document) is required by (i) a shareholder holding 5% or more of the company’s issued and outstanding capital or its
voting rights whose holdings will increase as result of the private placement and a shareholder who will hold 5% or more of the
company’s issued and outstanding capital or its voting rights as a result of the private placement, if 20% or more of the
company’s outstanding share capital prior to the private placement is issued in the private placement and the payment for
which is not only in cash or listed securities or the transaction is not on market terms; and (ii) a person or entity that will
become a controlling shareholder as a result of the private placement.
Shareholder
Duties
Pursuant
to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders
and to refrain from abusing his or her power in the company, including, among other things, in voting at a meeting of shareholder
with respect to the following matters:
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an
amendment to the company’s articles of association;
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an
increase of the company’s authorized share capital;
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the
approval of related party transactions and acts of office holders that require shareholder
approval.
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In
addition, a shareholder has a general duty to refrain from discriminating against other shareholders.
Certain
shareholders have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder
who knows that he or she has the power to determine the outcome of a shareholder vote and any shareholder who has the power to
appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law
does not define the substance of the duty of fairness, except to state that the remedies generally available upon a breach of
contract will also apply in the event of a breach of the duty to act with fairness.
Exculpation,
Insurance and Indemnification of Directors and Officers
Under
the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli
company may exculpate an office holder in advance from liability to the company, in whole or in part, for damages caused to the
company as a result of a breach of duty of care, but only if a provision authorizing such exculpation is included in its articles
of association. Our Articles include such a provision, to the fullest extent permitted by law. The company may not exculpate in
advance a director from liability arising out of a prohibited dividend or other distribution to shareholders.
Under
the Companies Law and the Israeli Securities Law, 5728-1968, or the Israeli Securities Law, a company may indemnify an office
holder in respect of the following liabilities and expenses incurred for acts performed by him or her as an office holder, either
pursuant to an undertaking made in advance of any such event or following an event, provided its articles of association include
a provision authorizing such indemnification:
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a
financial liability imposed on him or her in favor of another person pursuant to a judgment,
including a settlement or arbitrator’s award approved by a court. However, if an
undertaking to indemnify an office holder with respect to such liability is provided
in advance, then such an undertaking must be limited to events which, in the opinion
of the board of directors, can be foreseen based on the company’s activities when
the undertaking to indemnify is given, and to an amount or according to criteria determined
by the board of directors as reasonable under the circumstances, and such undertaking
shall detail the abovementioned foreseen events and amount or criteria;
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reasonable
litigation expenses, including attorneys’ fees, incurred by the office holder (1)
as a result of an investigation or proceeding instituted against him or her by an authority
authorized to conduct such investigation or proceeding, provided that (i) no indictment
was filed against such office holder as a result of such investigation or proceeding;
and (ii) no financial liability was imposed upon him or her as a substitute for the criminal
proceeding as a result of such investigation or proceeding or, if such financial liability
was imposed, it was imposed with respect to an offense that does not require proof of
criminal intent; and (2) in connection with a monetary sanction;
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reasonable
litigation expenses, including attorneys’ fees, incurred by the office holder or
imposed by a court in proceedings instituted against him or her by the company, on its
behalf, or by a third party, or in connection with criminal proceedings in which the
office holder was acquitted, or as a result of a conviction for an offense that does
not require proof of criminal intent; and
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expenses,
including reasonable litigation expenses and legal fees, incurred by an office holder
in relation to an administrative proceeding instituted against such office holder, or
certain compensation payments made to an injured party imposed on an office holder by
an administrative proceeding, pursuant to certain provisions of the Israeli Securities
Law.
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Under
the Companies Law and the Israeli Securities Law, a company may insure an office holder against the following liabilities incurred
for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:
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a
breach of the duty of loyalty to the company, provided that the office holder acted in
good faith and had a reasonable basis to believe that the act would not harm the company;
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a
breach of the duty of care to the company or to a third party, to the extent such a breach
does not arise out of the negligent conduct of the office holder;
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a
financial liability imposed on the office holder in favor of a third party; and
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expenses,
including reasonable litigation expenses and legal fees, incurred by an office holder
in relation to an administrative proceeding instituted against such office holder or
certain compensation payments to an injured party imposed on an office holder by an administrative
proceeding, pursuant to certain provisions of the Securities Law.
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Under
the Companies Law, a company may not indemnify, exculpate or enter into an insurance contract for office holder liability, for
any of the following:
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a
breach of the duty of loyalty, except for indemnification and insurance for a breach
of the duty of loyalty to the company to the extent that the office holder acted in good
faith and had a reasonable basis to believe that the act would not prejudice the company;
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a
breach of the duty of care committed intentionally or recklessly, excluding a breach
arising out of the negligent conduct of the office holder;
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an
act or omission committed with intent to derive illegal personal benefit; or
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a
fine, monetary sanction or forfeit levied against the office holder.
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Under
the Israeli Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by
the compensation committee and the board of directors and, with respect to the chief executive officer or a director or under
certain circumstances, also by the shareholders.
Our
Amended Articles permits us to exculpate, indemnify and insure our office holders to the fullest extent permitted under the Companies
Law. We have entered into indemnification and exculpation agreements with each of our directors. This indemnification is limited
to events determined as foreseeable by our Board of Directors based on our activities, as set forth in the indemnification agreements.
We
have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue
to maintain such coverage and pay all premiums thereunder to the fullest extent permitted by the Companies Law, with coverage
of $5 million in the aggregate.
Compensation
of Directors and Executive Officers
Directors.
Under the Companies Law, the compensation of our directors requires the approval of our compensation committee, the subsequent
approval of the board of directors and, unless exempted under regulations promulgated under the Companies Law, the approval of
the shareholders at a general meeting. If the compensation of our directors is inconsistent with our stated compensation policy,
then those provisions that must be included in the compensation policy according to the Companies Law must have been considered
by the compensation committee and board of directors, and shareholder approval will also be required, provided that:
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at least a majority of the
shares held by all shareholders who are not controlling shareholders and do not have a personal interest in such matter, present
and voting at such meeting, are voted in favor of the compensation package, excluding abstentions; or
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the total number of shares
of non-controlling shareholders and shareholders who do not have a personal interest in such matter voting against the compensation
package does not exceed two percent (2%) of the aggregate voting rights in the company.
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Executive
officers other than the chief executive officer. The Companies Law requires the approval of the compensation of a public company’s
executive officers (other than the chief executive officer) in the following order: (i) the compensation committee, (ii) the company’s
board of directors, and (iii) if such compensation arrangement is inconsistent with the company’s stated compensation policy,
the company’s shareholders (by a special majority vote as discussed above with respect to the approval of director compensation).
However, if the shareholders of the company do not approve a compensation arrangement with an executive officer that is inconsistent
with the company’s stated compensation policy, the compensation committee and board of directors may override the shareholders’
decision if each of the compensation committee and the board of directors provide detailed reasons for their decision.
Chief
executive officer. Under the Companies Law, the compensation of a public company’s chief executive officer is required
to be approved by: (i) the company’s compensation committee; (ii) the company’s board of directors, and (iii) the
company’s shareholders (by a special majority vote as discussed above with respect to the approval of director compensation).
However, if the shareholders of the company do not approve the compensation arrangement with the chief executive officer, the
compensation committee and board of directors may override the shareholders’ decision if each of the compensation committee
and the board of directors provide a detailed report for their decision. The approval of each of the compensation committee and
the board of directors should be in accordance with the company’s stated compensation policy; however, in special circumstances,
they may approve compensation terms of a chief executive officer that are inconsistent with such policy provided that they have
considered those provisions that must be included in the compensation policy according to the Companies Law and that shareholder
approval was obtained (by a special majority vote as discussed above with respect to the approval of director compensation). In
addition, the compensation committee may waive the shareholder approval requirement with regards to the approval of the engagement
terms of a candidate for the chief executive officer position, if they determine that the compensation arrangement is consistent
with the company’s stated compensation policy, and that the chief executive officer did not have a prior business relationship
with the company or a controlling shareholder of the company and that subjecting the approval of the engagement to a shareholder
vote would impede the company’s ability to employ the chief executive officer candidate.
Involvement
in Legal Proceedings
None
of our Directors, nominee for Directors or officers has appeared as a party during the past ten years in any legal proceedings
that may bear on his ability or integrity to serve as a Director or officer of the Company.
Code
of Ethics
We
have adopted a written code of ethics that applies to our officers and employees, including our principal executive officer, principal
financial officer, principal controller and persons performing similar functions as well as our directors. Our Code of Business
Conduct and Ethics is posted on our website at www.todosmedical.com. If we make any amendment to the Code of Business Conduct
and Ethics or grant any waivers, including any implicit waiver, from a provision of the code, we will disclose the nature of such
amendment or waiver on our website to the extent required by the rules and regulations of the SEC. We have not granted any waivers
under our Code of Business Conduct and Ethics.
DIRECTOR
AND EXECUTIVE COMPENSATION
Compensation
of Executive Officers and Directors
The
following table presents in the aggregate of all compensation we paid to all of our directors and executive officers as a group
for work during or with respect to the year ended December 31, 2018. The table does not include any amounts we paid to reimburse
any of such persons for costs incurred in providing us with services during this period.
All
amounts reported in the tables below reflect the cost to our Company, in thousands of U.S. Dollars, for the year ended December
31, 2018. Amounts paid in NIS are translated into U.S. dollars at the rate of NIS 3.6 is equal to $1.00, based on the average
representative rate of exchange between the NIS and the U.S. dollar as reported by the Bank of Israel in the year ended December
31, 2018.
|
|
Salary and Related Benefits, including Pension, Retirement and Other Similar Benefits
|
|
|
Share Based Compensation
|
|
All directors and executive officers as a group, consisting of ten (10) persons
|
|
$
|
351,000
|
|
|
$
|
48,000
|
|
Compensation
of Directors
Except
for the directors who serve on our audit committee, we did not pay any compensation to our directors. In the year ended December
31, 2018, we paid $21,600 to each of Ronit Even-Zahav Meitin, Alon Shalev, and Moshe Abramovitz, the three members of our audit
committee.
We
do not have any written agreements with any director providing for benefits upon the termination of such director’s relationship
with us.
Pursuant
to the Israeli Companies Law, arrangements regarding the compensation of a director of an Israeli public company requires the
approval of the compensation committee, board of directors and (except for a number of exceptions) shareholders by ordinary majority,
in that order. The approval of the compensation committee and board of directors must be in accordance with the compensation policy.
In special circumstances the compensation committee and board of directors may approve a compensation arrangement that is inconsistent
with the company’s compensation policy, provided that they have considered the same considerations and matters required
for the approval of a compensation policy in accordance with the Israeli Companies Law and that shareholder approval was obtained
by the Special Approval for Compensation.
Compensation
of Executive Officers
In
accordance with the Companies Law, the table below reflects the compensation granted to our four most highly compensated officers
during or with respect to the year ended December 31, 2018.
Annual
Compensation - in thousands of USD - convenience translation
Executive Officers
|
|
Salary and Related Benefits, including Pension, Retirement and Other Similar Benefits
|
|
|
Share Based Compensation
|
|
|
Total
|
|
Herman Weiss, M.D., CEO
|
|
$
|
83
|
(1)
|
|
$
|
-
|
|
|
$
|
83
|
|
Rami Zigdon, CBO
|
|
$
|
72
|
|
|
$
|
36
|
|
|
$
|
108
|
|
Udi Zelig, CTO
|
|
$
|
81
|
|
|
$
|
12
|
|
|
$
|
93
|
|
David Ben Naim, CFO
|
|
$
|
50
|
|
|
$
|
-
|
|
|
$
|
50
|
|
|
|
$
|
286
|
|
|
$
|
48
|
|
|
$
|
334
|
|
(1) This
amount was not paid to the CEO in 2018; rather the Company made a provision in its financial statements to reflect a compensation
liability to Dr. Weiss.
Employment
Agreements with Executive Officers
We
have entered into written employment agreements with each of our executive officers. These agreements contain provisions regarding
non-competition, confidentiality of information and assignment of inventions. The enforceability of covenants not to compete in
Israel and the United States is subject to limitations. For example, Israeli courts have recently required employers seeking to
enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will
harm one of a limited number of material interests of the employer which have been recognized by the courts, such as the secrecy
of a company’s confidential commercial information or its intellectual property. In addition, we have entered into agreements
with each executive officer and director, pursuant to which, we have agreed to indemnify each of them up to a certain amount and
to the extent that these liabilities are not covered by directors and officers insurance.
The following compensation package for
our CEO was approved by our shareholders at the annual general meeting of shareholders held on April 29, 2019:
|
●
|
Salary: NIS 47,840 per month
|
|
●
|
Bonus: Annual performance
bonus of up to 35% of annual salary + 1% additional options, linked to the achievement of performance goals to be established
by the Board of Directors each year.
|
|
●
|
Equity: The Company will
grant the CEO options to purchase 5% of the Company’s issued and outstanding shares as of March 25, 2019, at an exercise
price equal to the fair market value of the Company’s shares on the date of grant, in accordance with the following
vesting schedule:
|
|
o
|
25% will vest on the consummation of the Company’s
planned public offering (the “Public Offering Date”)
|
|
o
|
25% will vest quarterly in the first year following
the Public Offering Date
|
|
o
|
25% will vest quarterly in the second year following
the Public Offering Date
|
|
●
|
Notice Period: 3 months
|
|
●
|
Severance
Payments: 6 months’ salary following effective date of termination
|
|
●
|
Change in Control Payment: In the event
the CEO is terminated due to a change of control, the Company will pay the CEO 12 months’ salary (instead of the 6 months’
salary) following the effective date of termination.
|
|
●
|
Change in Control Acceleration: In the
event of a change of control transaction following the Public Offering Date vesting will be accelerated, and all of the options
will become fully vested.
|
The Company has entered into an employment
agreement with Dr. Weiss that includes the compensation terms described above.
Effective
as of May 1, 2015, we entered into an employment agreement with Mr. Zigdon, our former CEO and current CBO. The agreement was
approved by our Board on August 16, 2015. Currently, the employment agreement is in full force and effect. The agreement may be
terminated by either party with ninety days’ prior written notice or by us under exceptional circumstances as detailed in
the agreement. Pursuant to the agreement, Mr. Zigdon is entitled to a gross monthly salary of NIS 15,000 (approximately $3,900)
linked to the Israeli CPI known at the effective date of the agreement as well as reimbursement of vehicle expenses up to an annual
amount of NIS 16,000 (approximately $4,200). The gross monthly salary shall be increased to NIS 25,000 (approximately $6,600)
as from the date on which the Company shall have cash at its bank account at least NIS 3,500,000 (approximately $920,000 (the
“Triggering Date”) that is sourced from capital injections/non-repayable amounts only, as confirmed by the Company’s
CFO in writing. In the event that during the term of the Agreement, on a certain date, the Company shall have at least NIS 4 million
(approximately $1.05 million) cash at its bank account that is sourced from capital injection/non-repayable amounts only, as confirmed
by the Company’s CFO, Mr. Zigdon shall be entitled to a payment in the sum of NIS 12,333 (approximately $3,200) multiplied
by the number of calendar months that had passed from the effective date of the agreement and until the month ending prior to
the Triggering Date. Furthermore, Mr. Zigdon is entitled to options to purchase our shares, subject to an option plan which was
adopted by the appropriate organs of the Company. Mr. Zigdon is entitled to customary fringe benefits under Israeli laws. If the
agreement is terminated by us, other than for “cause” as defined in the agreement, Mr. Zigdon shall be entitled to
an adjustment bonus equal to 3 times the last gross monthly salary or in the event that we will have more than $3 million cash
at hand, the adjustment bonus shall be equal to 6 times the last gross monthly salary. The agreement contains provisions regarding
non-competition, confidentiality of information and assignment of inventions.
Out of the 1,241,163 employee option
shares that had been granted to Mr. Zigdon, 103,428 vested options were exercised by Mr. Zigdon and are currently held by ESOP
Management & Trust Services Ltd. for the benefit of Mr. Zigdon. As of June 30, 2019, 749,869 (42.6%) of these employee option
shares have vested and are unexercised. All of the options expire on January 11, 2021.
On January 1, 2012 we entered into an
employment agreement with Dr. Zelig, our Chief Technology Officer. Pursuant to the agreement, Dr. Zelig is employed by us on a
full-time basis. The agreement may be terminated by either party with 30 days’ prior written notice or by us under exceptional
circumstances as detailed in the agreement. Under the agreement, Dr. Zelig is entitled to a gross monthly compensation of NIS
16,000 (approximately $4,100) as well as global monthly gross payment for overtime of NIS 2,500 (approximately $650). Dr. Zelig
is entitled to a company car and cellular phone in connection with his employment with us. Dr. Zelig is entitled to customary
fringe benefits under Israeli laws as well as contributions (by our Company and by Dr. Zelig) to an education fund, at the rates
specified in the agreement. Under the Company’s employee option plan, Dr. Zelig has been granted 620,581 employee options,
of which 387,862 employee options have vested and are unexercised as of March 31, 2019. All of the options expire on January 11,
2021.
Options
and Incentive Plans and Awards
In November 2015, the Board of Directors
adopted the Todos Medical Ltd. 2015 Share Option Plan, or the Option Plan. The Option Plan generally permits the reservation,
allocation and issuance of share options to our employees, directors or consultants. As of December 31, 2018, 1,758,315 options
to purchase our Ordinary Shares have been granted under the Option Plan and 4,241,685 Ordinary Shares were available for future
option grants under the Option Plan. As of March 31, 2019, 1,137,731 options are exercisable. Unless terminated earlier by our
Board of Directors, the Option Plan will terminate ten years from its date of adoption.
Our
Board of Directors administers the Option Plan, including (i) designating participants in the Option Plan; (ii) determining the
terms and provisions of respective option agreements, including the number of shares to be covered by each option, exercisability,
transferability, and other terms and conditions of the option; (iii) accelerating the right of an option-holder to exercise any
previously granted option; (iv) determining the fair market value of the shares; and (v) interpreting the provisions and supervising
the administration of the Option Plan. Our Board of Directors may amend or discontinue the Option Plan at any time, except that
generally no amendment may impair the rights of an option-holder without his or her written consent.
Share
options granted to Israeli employees under the Option Plan may be granted pursuant to the provisions of Section 102 of the Israeli
Income Tax Ordinance. Any options granted pursuant to such provision will be issued to a trustee and be held by the trustee for
at least two years from the date of grant of the options, as required under the Israeli tax ordinance.
Upon
termination of employment or service for any reason, other than for cause or death or disability, the option-holder may exercise
his or her vested options within 90 days of the date of termination. If we terminate an option-holder’s employment or service
for cause, all of the employee’s options, whether vested or unvested, expire on the termination date. Upon termination of
employment or service due to death or disability, the option-holder or his or her estate may exercise his or her vested options
within twelve months from the date of death or disability. An option may not, however, be exercised after the option’s expiration
date.
Options
are non-transferable except in the event of an option holder’s death.
If
we are party to a merger or consolidation, outstanding options and shares acquired under the Option Plan will be subject to the
agreement of merger or consolidation, which will provide for one or more of the following: (i) the continuation of such options
by us, (ii) the assumption of such options by the surviving corporation or its parent, (iii) the substitution by the surviving
corporation or its parent of new options, (iv) the cancellation of the such options in exchange for payment equaling the market
value of the shares subject to the option less the exercise price, or (v) full exercisability of the option and full vesting of
the shares subject to the option.
In
the event of any variation in our share capital, including a share dividend, share split, combination or exchange of shares, recapitalization,
or any other like event, the number, class and kind of shares subject to the Option Plan and outstanding options, and the exercise
prices of the options, will be appropriately and equitably adjusted so as to maintain the proportionate number of shares without
changing the aggregate exercise price of the options.
No
individual grants or agreements regarding future payouts under non-stock price-based plans have been made to any executive officer
or any Director or any employee or consultant since our inception; accordingly, no future payouts under non-stock price-based
plans or agreements have been granted or entered into or exercised by any of the officers or Directors or employees or consultants
since we were founded.
Warrants
The
Company granted 600,000 warrants, 4,518,406 warrants, and 3,106,000 warrants during 2018, 2016 and 2015, respectively.
The
outstanding warrants and the terms of these warrants as of December 31, 2018 are as follows:
Issuance date
|
|
Outstanding as of December 31, 2018
|
|
|
Exercise
Price
|
|
|
Exercisable as of
December 31, 2018
|
|
|
Exercisable Through
|
|
|
|
|
|
|
|
|
|
|
|
|
Series (2015)
|
|
|
1,502,500
|
|
|
$
|
0.5
|
|
|
|
1,502,500
|
|
|
April 2021
|
Series (2016)
|
|
|
2,628,406
|
|
|
$
|
0.5
|
|
|
|
2,628,406
|
|
|
May 2019
|
Series (2018)
|
|
|
600,000
|
|
|
$
|
0.125
|
|
|
|
600,000
|
|
|
November 2021
|
|
|
|
4,730,906
|
|
|
|
|
|
|
|
4,730,906
|
|
|
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information
with respect to the beneficial ownership of our ordinary shares as of September 18, 2019 (assuming the formal closing of the Amarantus
option described in Description of Business – Recent Developments above) by:
|
●
|
each
person, or group of affiliated persons, known to us to be the beneficial owner of more
than 5% of our outstanding ordinary shares;
|
|
●
|
each
of our directors and executive officers; and
|
|
●
|
all
of our directors and executive officers as a group.
|
The beneficial ownership of our ordinary
shares is determined in accordance with the rules of the SEC and generally includes any shares over which a person exercises sole
or shared voting or investment power, or the right to receive the economic benefit of ownership. For purposes of the table below,
we deem ordinary shares issuable pursuant to options and warrants that are currently exercisable or exercisable within 60 days
of September 18, 2019 to be outstanding and to be beneficially owned by the person holding the options for the purposes of computing
the percentage ownership of that person, but we do not treat them as outstanding for the purpose of computing the percentage ownership
of any other person.
The percentage of shares beneficially
owned has been computed on the basis of 166,518,340 ordinary shares outstanding as of September 18, 2019.
Unless
otherwise noted below, the address of each shareholder, director and executive officer is c/o Todos Medical Ltd., 1 HaMada St.,
Rehovot, Israel.
Except
as indicated in footnotes to this table, we believe that the shareholders named in this table have sole voting and investment
power with respect to all shares shown to be beneficially owned by them, based on information provided to us by such shareholders.
The shareholders listed below do not have any different voting rights from any of our other shareholders.
|
|
No. of
Shares
Beneficially
Owned
|
|
|
Percentage
Owned (1)
|
|
Holders of more than 5% of our voting securities:
|
|
|
|
|
|
|
Amarantus Bioscience Holdings,
Inc.(2)
|
|
|
83,484,438
|
|
|
|
49.99
|
%
|
Assaf Gold(3)
|
|
|
9,225,000
|
|
|
|
5.53
|
%
|
D.P.H. Investments Ltd.(4)
|
|
|
8,280,000
|
|
|
|
4.97
|
%
|
Directors and executive officers:
|
|
|
|
|
|
|
|
|
Dr. Herman Weiss, CEO and Director
|
|
|
300,000
|
|
|
|
*
|
|
Rami Zigdon, CBO and Director(7)
|
|
|
3,423,850
|
|
|
|
2.05
|
%
|
Moshe Abramovitz, Director
|
|
|
0
|
|
|
|
*
|
|
Alon Ostrovitzky, Director
|
|
|
0
|
|
|
|
*
|
|
Moshe Schlisser, Director
|
|
|
0
|
|
|
|
*
|
|
Colin Bier, Director
|
|
|
0
|
|
|
|
*
|
|
Ronit Even-Zahav Meitin, Director
|
|
|
0
|
|
|
|
*
|
|
Alon Shalev, Director
|
|
|
0
|
|
|
|
*
|
|
Udi Zelig, CTO
|
|
|
927,375
|
|
|
|
*
|
|
David Ben Naim, CFO
|
|
|
0
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group
(10 persons)
|
|
|
4,651,225
|
|
|
|
2.79
|
%
|
|
*
|
Indicates
beneficial ownership of less than 1% of the total ordinary shares outstanding
|
(1) The percentages shown are based on 166,518,340
Ordinary Shares issued and outstanding as of September 18, 2019. In addition, the percentages shown assume the formal closing
of the exercise of the Amarantus option.
(2) The shareholders of the Company have approved the
Company’s exercise of its option to acquire 100% of Breakthrough in exchange for issuing to Amarantus an additional 30%
of the Company such that Amarnatus will hold 49.99% of the Company. These additional shares will be issued to Amarantus upon the
formal closing of the exercise of the option which we expect to take place within the coming weeks.
(3) Assaf Gold is the owner of Sorry Doll Ltd., which
owns 3,500,000 Ordinary Shares, including options to purchase 3,500,000 Ordinary Shares, and of Care G.B. Plus Ltd., which owns
2,225,000 Ordinary Shares.
(4) D.P.H. Investments Ltd., or DPH, is an entity
that has 18 shareholders, none of whom own more than 17% of DPH. Moshe Abramovitz, a member of our Board of Directors since February
27, 2016, is also a shareholder of DPH. At least five shareholders need to agree before any action with regard to these shares
can be taken by DPH. Pursuant to its February 2016 investment, DPH had the right to appoint two members to our Board of Directors.
Moshe Schlisser and Moshe Abramovitz were appointed as DPH’s representatives on our Board of Directors. Since March 16,
2017 (the date of approval of the Amended Articles), none of our shareholders maintain rights different from the rights of other
shareholders, and DPH no longer has the right to appoint two members to our Board of Directors. Messrs. Schlisser and Abramovitz
remain Board members.
(5) Includes 749,869 employee options which are currently
exercisable. Out of the 1,241,163 employee option shares that had been granted to Mr. Zigdon in January 2016, 103,428 vested options
were exercised by Mr. Zigdon and are currently held by ESOP Management & Trust Services Ltd. for the benefit of Mr. Zigdon.
As of March 31, 2019, 749,869 (42.6%) of these employee option shares have vested and are unexercised.
We
are unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change in control
of our Company.
Record
Holders
Based upon a review of the information
provided to us by our transfer agent, as of June 30, 2019, there were a total of 63 holders of record of our shares, of which
four record holders who hold 19,746,074 shares, or approximately 21.8% of our outstanding shares, had a registered address
in the U.S., thirty-eight (38) holders had registered addresses in Israel, 14 holders had registered addresses in Singapore, three
holders had registered addresses in Canada, two holders had registered addresses in the United Kingdom, one holder had a registered
address in Germany, and one holder had a registered address in Cyprus.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The
following is a description of material transactions, or series of related material transactions since January 1, 2018, to which
we are a party and in which the other parties include our directors, executive officers, holders of more than 5% of our voting
securities, or any member of the immediate family of any of the foregoing persons.
Reseller
Agreement with Care G.B. Plus
On
December 28, 2018 we entered into a Marketing and Reseller Agreement with Care G.B. Plus Ltd. for the resale of our breast cancer
screening products in Israel. Care G.B. Plus is owned by Assaf Gold, who was the beneficial owner of 5.49% of our issued and outstanding
shares at the time the Care G.B. agreement was signed by the Company. Pursuant to the agreement, we appointed Care G.B. as our
exclusive distributor in Israel, and Care G.B. Plus undertook to establish at least one laboratory in Israel to support the assay
protocol and to run a fifty (50) patient pilot trial to evaluate the performance of the laboratory and Care G.B. Plus’s
support team. At the annual general meeting of shareholders of the Company held on April 29, 2019, the Company’s shareholders
approved the Company’s entry into this reseller agreement.
Loans
from Shareholders
Sorry
Doll Ltd. and S.B. Nihul Mekarkein Ltd.
Mr.
Yitzhak Ostrovitzky, the father of one of the Company’s directors, Alon Ostrovitzky, granted the Company a loan in order
to fund the Company’s ongoing operations. This loan had not been memorialized in a written document. Rather, the lender
was present during meetings of the Board of Directors, at which the terms of repayment were approved and agreed upon.
By
agreement dated November 28, 2018, Yitzhak Ostrovitzky assigned the unpaid balance of his loan in the amount of approximately
$350,000 to Sorry Doll Ltd. (“Sorry Doll”) and S.B. Nihul Mekarkein Ltd. (“S.B. Nihul”) (together, the
“Assignees”). Sorry Doll is owned by Assaf Gold, who was the beneficial owner of 5.49% of our issued and outstanding
shares at the time the assignment agreement was signed. S.B. Nihul, while not a related party at the time of the assignment of
the loan, will become a related in the event the loan is converted into shares, as described below.
The
Company and the Assignees agreed that, subject to shareholder approval, instead of having the Company repay the loan to the Assignees,
the Company will convert the outstanding balance of the Assignees’ loan in the amount of approximately $350,000 into 3,500,000
Ordinary Shares of the Company, par value NIS 0.01, at a conversion price of ten cents (US$0.10) per share, and grant to each
of the Assignees an option to purchase 3,500,000 Ordinary Shares of the Company, par value NIS 0.01, at an exercise price of twenty
cents (US$0.20) per share. The option shall be in effect for five years from November 28, 2018.
Following the conversion of the loan
and the grant of the options, Assaf Gold, owned 9,225,000 Ordinary Shares, representing 9.82% of the Company prior to the consummation
of the Amarantus change of control transaction (assuming exercise of the options), and S.B. Nihul held 6,500,000 Ordinary Shares,
representing 6.92% of the Company prior to the consummation of the Amarantus change of control transaction (assuming exercise
of the options).
At the annual general meeting of shareholders
of the Company held on April 29, 2019, the Company’s shareholders voted on approving the Company’s entry into this
loan conversion agreement.
Royalty
Payments from BG Negev to our Chief Technology Officer
Dr.
Udi Zelig, our Chief Technical Officer, is one of the inventors of the know-how licensed under the agreement, and is entitled
to receive from BG Negev between 10% to 15% of all payments that BG Negev is entitled to receive from us under the license agreement.
Share
Transfer from Crow Technologies
On
May 2011, Crow Technologies 1977, Ltd. (a company in which Mr. Shmuel Melman, one of our principal shareholders, is one of the
controlling shareholders), or Crow, and Mr. Rami Zigdon entered into a share transfer agreement, whereby Mr. Zigdon acquired from
Crow 100% of our share capital. Pursuant to the share transfer agreement, Crow was granted the exclusive right to produce our
products at a price which will be 50% higher than the fair market value of such production in Israel. We believe that the exclusive
right held by Crow is immaterial to the ultimate price for which we will sell our products or the overall cost of producing our
products since the exclusive right to manufacture components applies only to electronic components, of which there are not any
in our products.
Iberica
Investments LLC Consulting Agreement
In
February 2015, we entered into a consulting agreement with Iberica Investments LLC, or Iberica, and A.S. Iber Israel Ltd., or
Iber, in which, Mr. Moshe Schlisser, who serves as our director, and Mr. Ephraim Schlisser (the father of Mr. Moshe Schlisser
and a member of the Wasserman Group) hold managerial positions. Pursuant to the agreement, Iberica agreed to provide assistance
with our fundraising efforts, in consideration for up to 10% of the total value of the benefit derived by us, and Iberica assigned
its rights and obligations to Iber. From January 1, 2015 through December 31, 2018, we have paid Iber and Iberica approximately
$317,000, pursuant to this consulting agreement. On November 29, 2018, we terminated this agreement.
Warrants
Granted to Dr. Schmitt
On
January 17, 2017, we granted Dr. Schmitt, one of the advisors on our Advisory Board, warrants to purchase 620,521 Ordinary Shares
at an exercise price of NIS 0.01 per share. As of March 10, 2019, all of these warrants are fully vested. The warrants granted
to Dr. Schmitt were issued in consideration of consultancy services provided to us under a consulting agreement dated October
18, 2016. The agreement’s initial two-year term has expired, and the parties are negotiating an extension of the term.
DESCRIPTION
OF SHARE CAPITAL
The
following description of our share capital and provisions of our Amended Articles is a summary and does not purport to be complete.
This summary is subject to the Israeli Companies Law and to the complete text of our Amended Articles.
General
As of September 18, 2019, our authorized
share capital consists 1,000,000,000 ordinary shares, par value NIS 0.01 per share, of which 101,502,961 shares are issued
and outstanding. Upon the closing of this offering, without taking into consideration the effects of the Reverse Split, our authorized
share capital will consist of 1,000,000,000 ordinary shares, par value NIS 0.01 per share, of which 125,502,961
will be issued and outstanding (assuming that the underwriters do not exercise their option to purchase additional units, ordinary
shares and/or warrants). All of our outstanding ordinary shares are validly issued, fully paid and non-assessable. Our ordinary
shares are not redeemable and do not have any preemptive rights.
Registration
Number and Purposes of the Company
Our
registration number with the Israeli Registrar of Companies is 51-443712-8. Our purpose as set forth in our amended articles of
association is to engage in any lawful activity. Our Articles state that the liability of our shareholders is limited, subject
to the provisions of the Israeli Companies Law.
Transfer
of Shares
Our
fully paid ordinary shares are issued in registered form and may be freely transferred under our amended articles of association,
unless the transfer is restricted or prohibited by another instrument, applicable law or the rules of a stock exchange on which
the shares are listed for trade. The ownership or voting of our ordinary shares by non-residents of Israel is not restricted in
any way by our amended articles of association or the laws of the State of Israel, except for ownership by nationals of some countries
that are, or have been, in a state of war with Israel.
Election
of Directors
Our
ordinary shares do not have cumulative voting rights for the election of directors. As a result, the holders of a majority of
the voting power represented at a shareholders meeting have the power to elect all of our directors, subject to the special approval
requirements for external directors described under “Directors, Executive Officers, Promotors and Control Persons –
Board Practices – External Directors.”
Under
our amended articles of association, our Board must consist of at least three directors but no more than nine directors, including
two external directors as required by the Israeli Companies Law. Pursuant to our amended articles of association, other than the
external directors, for whom special election requirements apply under the Israeli Companies Law, each of our directors will be
appointed by a simple majority vote of holders of our voting shares, participating and voting at an annual general meeting of
our shareholders. Each director (other than external directors) will hold office until the next annual general meeting following
the annual general meeting at which they were elected and until his or her successor is elected and qualified, or until the occurrence
of certain events, in accordance with the Israeli Companies Law and our amended and restated articles of association, including
his or her earlier resignation, death or removal by a vote of the majority of the voting power of our shareholders at a general
meeting of until his or her office expires by operation of law. In addition, our amended articles of association allow our Board
to appoint directors (other than external directors) to fill vacancies on the Board to serve for a term of office equal to the
remaining period of the term of office of the directors(s) whose office(s) have been vacated. External directors are elected for
an initial term of three years, may be elected for additional terms of three years each under certain circumstances, and may be
removed from office pursuant to the terms of the Israeli Companies Law. See “Directors, Executive Officers, Promotors
and Control Persons – Board Practices – External Directors.”
Dividend
and Liquidation Rights
We
may declare a dividend to be paid to the holders of our ordinary shares in proportion to their respective shareholdings. Under
the Israeli Companies Law, dividend distributions are determined by the board of directors and do not require the approval of
the shareholders of a company unless the company’s articles of association provide otherwise. Our amended articles of association
do not require shareholder approval of a dividend distribution and provide that dividend distributions may be determined by our
board of directors.
Pursuant
to the Israeli Companies Law, we may declare and pay dividends only if, upon the determination of our board of directors, there
is no reasonable concern that the distribution will prevent us from being able to meet the terms of our existing and foreseeable
obligations as they become due. Under the Israeli Companies Law, the distribution amount is further limited to the greater of
retained earnings or earnings generated over the two most recent years legally available for distribution according to our then
last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months
prior to the date of distribution. In the event that we do not have retained earnings or earnings generated over the two most
recent years legally available for distribution, we must seek the approval of the court in order to distribute a dividend. The
court may approve our request if it is convinced that there is no reasonable concern that the payment of a dividend will prevent
us from satisfying our existing and foreseeable obligations as they become due.
In
the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of
our ordinary shares in proportion to the nominal value of their shareholdings. This right, as well as the right to receive dividends,
may be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential
rights that may be authorized in the future.
Exchange
Controls
There
are currently no Israeli currency control restrictions on remittances of dividends on our ordinary shares, proceeds from the sale
of the shares or interest or other payments to non-residents of Israel, except for shareholders who are residents, citizens or
subjects of countries that are, or have been, in a state of war with Israel.
Shareholder
Meetings
Under
Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year that must be held
no later than 15 months after the date of the previous annual general meeting. All meetings other than the annual general meeting
of shareholders are referred to in our amended articles of association as special general meetings. Our board of directors may
call special general meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine.
In addition, the Israeli Companies Law provides that our board of directors is required to convene a special general meeting upon
the written request of (i) any two of our directors or one-quarter of the serving members of our board of directors; or (ii) one
or more shareholders holding, in the aggregate, either (a) 5% or more of our outstanding shares and 1% of our outstanding voting
power or (b) 5% or more of our outstanding voting power.
Furthermore,
the Israeli Companies Law requires that resolutions regarding the following matters be approved by our shareholders at a general
meeting:
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amendments
to our articles of association;
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appointment,
terms of service and termination of service of our auditors;
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appointment
of external directors;
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approval
of certain related party transactions;
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increases
or reductions of our authorized share capital;
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the
exercise of our board of director’s powers by a general meeting, if our board of
directors is unable to exercise its powers and the exercise of any of its powers is essential
for our proper management.
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Subject
to the provisions of the Israeli Companies Law and regulations promulgated thereunder, shareholders entitled to participate and
vote at general meetings are the shareholders of record on a date to be decided by the board of directors, which, as a company
listed on an exchange outside Israel, may be between four and 40 days prior to the date of the meeting.
The
Israeli Companies Law requires that a notice of any annual general meeting or special general meeting be provided to shareholders
at least 21 days prior to the meeting and if the agenda of the meeting includes, among other things, the appointment or removal
of directors, the approval of transactions with office holders or interested or related parties, an approval of a merger or the
approval of the compensation policy, notice must be provided at least 35 days prior to the meeting.
Under
the Israeli Companies Law, our shareholders are not permitted to take action via written consent in lieu of a meeting.
Voting
Rights
Quorum
Requirements
Pursuant
to our amended articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters
submitted to a vote before the shareholders at a general meeting. The quorum required for general meetings of our shareholders
is at least two shareholders present in person, by proxy or written ballot, who hold or represent between them at least 25% of
the total outstanding voting rights (or if a higher percentage is required by law, such higher percentage), within half an hour
of the time fixed for the commencement of the meeting. A meeting adjourned for lack of a quorum is adjourned either to the same
day in the following week at the same time and place or to such day, time and place as specified in the notice of the meeting
or to such day, time and place as the chairman of the general meeting shall determine. At the reconvened meeting, at least two
shareholders present in person or by proxy shall constitute a lawful quorum, unless the meeting of shareholders was convened at
the demand of shareholders, in which case, the quorum shall be the presence of one or more shareholders holding at least 5% of
our issued share capital and at least one percent of the voting power of our shares, or one or more shareholders with at least
5% of the voting power of our shares.
Vote
Requirements
Our
amended articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise
required by the Israeli Companies Law or by our amended articles of association. Under the Israeli Companies Law, certain actions
require a special majority, including: (i) appointment of external directors, requiring the approval described above under “Directors,
Executive Officers, Promotors and Control Persons – Board Practices – External Directors”; (ii) approval
of an extraordinary transaction with a controlling shareholder or in which the controlling shareholder has a personal interest
and the terms of employment or other engagement of the controlling shareholder or a relative of the controlling shareholder (even
if not extraordinary), requiring the approval described above under “Directors, Executive Officers, Promotors and Control
Persons – Approval of Related Party Transactions under Israeli Law – Disclosure of Personal Interests of Controlling
Shareholders and Approval of Certain Transactions”; (iii) approval of a compensation policy, requiring the approval
described under “Directors, Executive Officers, Promoters and Control Persons – Board Practices – Compensation
Committee and Compensation Policy”; and (iv) approval of executive officer compensation inconsistent with our office
holder compensation policy or the compensation of our chief executive officer (subject to limited exceptions), requiring the approval
described above under “Directors, Executive Officers, Promotors and Control Persons – Approval of Related Party
Transactions under Israeli Law – Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain Transactions.”
In
addition, under the Israeli Companies Law the authorization of the chairman of the board to assume the role or responsibilities
of the chief executive officer, or the authorization of the chief executive officer or his or her relative thereof to assume the
role or responsibilities of the chairman of the board, for periods of no longer than three years each, is subject to receipt of
the approval of a majority of the shares voting on the matter, provided that either (i) included in such majority are at least
two-thirds of the shares of shareholders who are non-controlling shareholders and shareholders who do not have a personal interest
in the resolution that are voted at the meeting on the matter (excluding any abstentions); or (ii) the total number of shares
of shareholders specified in clause (i) who voted against the resolution does not exceed 2% of the voting rights in the company.
Another
exception to the simple majority vote requirement is a resolution for the voluntary winding up, or an approval of a scheme of
arrangement or reorganization, of the company pursuant to Section 350 of the Israeli Companies Law, which requires the approval
of holders of 75% of the voting rights represented at the meeting and voting on the resolution.
Access
to Corporate Records
Under
the Israeli Companies Law, shareholders are provided access to: minutes of the general meetings of our shareholders; our shareholders
register and principal shareholders register, articles of association and financial statements; and any document that we are required
by law to file publicly with the Israeli Companies Registrar or the Israel Securities Authority. In addition, shareholders may
request to be provided with any document in the company’s possession related to an action or transaction requiring shareholder
approval under the related party transaction provisions of the Israeli Companies Law. We may deny this request if we believe it
has not been made in good faith or if such denial is necessary to protect our interest or protect a trade secret or patent.
Modification
of Class Rights
Under
the Israeli Companies Law and our amended articles of association, the rights attached to any class of shares, such as voting,
liquidation and dividend rights, may be modified or cancelled by adoption of a resolution by the holders of a majority of all
shares as one class, without any required separate resolution of any class of shares, or otherwise in accordance with the rights
attached to such class of shares, as set forth in our amended articles of association.
Registration
Rights
The Company granted the participants
in the convertible bridge loan transactions in February through June 2019 piggy-back registration rights with regard to their
shares issued in connection therewith, excluding, however, this Form F-1 and any F-8/S-8 Registration Statement of the Company.
Acquisitions
under Israeli Law
Full
Tender Offer
A
person wishing to acquire shares of an Israeli public company, and who would as a result hold over 90% of the target company’s
issued and outstanding share capital, is required by the Israeli Companies Law to make a tender offer to all of the company’s
shareholders for the purchase of all of the issued and outstanding shares of the company. A person wishing to acquire shares of
an Israeli public company, and who would as a result hold over 90% of the issued and outstanding share capital of a certain class
of shares of the company, is required to make a tender offer to all of the shareholders who hold shares of the relevant class
for the purchase of all of the issued and outstanding shares of that class. If the shareholders who do not accept the offer hold
less than 5% of the issued and outstanding share capital of the company or of the applicable class, and more than half of the
shareholders who do not have a personal interest in the offer accept the offer, all of the shares that the acquirer offered to
purchase will be transferred to the acquirer by operation of law. However, a tender offer will also be accepted if the shareholders
who do not accept the offer hold less than 2% of the issued and outstanding share capital of the company or of the applicable
class of shares.
Upon
a successful completion of such a full tender offer, any shareholder that was an offeree in such tender offer, whether such shareholder
accepted the tender offer or not, may, within six months from the date of acceptance of the tender offer, petition an Israeli
court to determine whether the tender offer was for less than fair value and that the fair value should be paid as determined
by the court. However, under certain conditions, the offeror may include in the terms of the tender offer that an offeree who
accepted the offer will not be entitled to petition the Israeli court as described above.
If
(a) the shareholders who did not respond or accept the tender offer hold at least 5% of the issued and outstanding share capital
of the company, or of the applicable class, or the shareholders who accept the offer constitute less than a majority of the offerees
that do not have a personal interest in the acceptance of the tender offer, or (b) the shareholders who did not accept the tender
offer hold 2% or more of the issued and outstanding share capital of the company (or of the applicable class), the acquirer may
not acquire shares of the company that will increase its holdings to more than 90% of the company’s issued and outstanding
share capital or of the applicable class from shareholders who accepted the tender offer.
Special
Tender Offer
The
Israeli Companies Law provides that an acquisition of shares of an Israeli public company must be made by means of a special tender
offer if as a result of the acquisition the purchaser would become a holder of 25% or more of the voting rights in the company,
if there is no other shareholder that holds 25% or more of the voting rights in the company, subject to exceptions. Similarly,
the Israeli Companies Law provides that an acquisition of shares in an Israeli public company must be made by means of a special
tender offer if as a result of the acquisition the purchaser would become a holder of more than 45% of the voting rights in the
company, if there is no other shareholder of the company who holds more than 45% of the voting rights in the company, subject
to certain exceptions. No tender offer is required if the acquisition of shares: (i) occurs in the context of a private placement,
that was approved by the company’s shareholders and whose purpose is to give the acquirer at least 25% of the voting rights
in the company if there is no person who holds 25% or more of the voting rights in the company, or as a private placement whose
purpose is to give the acquirer 45% of the voting rights in the company, if there is no person who holds 45% of the voting rights
in the company; (ii) was from a holder of 25% or more of the voting rights in the company following which the purchaser will hold
25% or more of the voting rights in the company; or (iii) was from a holder of more than 45% of the voting rights in the company
following which the purchaser will hold more than 45% of the voting rights in the company.
A
special tender offer must be extended to all shareholders of a company but the offeror is not required to purchase shares representing
more than 5% of the voting power attached to the company’s outstanding shares, regardless of how many shares are tendered
by shareholders. A special tender offer may be consummated only if (i) at least 5% of the voting power attached to the company’s
outstanding shares will be acquired by the offeror; and (ii) the number of shares tendered in the offer exceeds the number of
shares whose holders objected to the offer (excluding the purchaser, its controlling shareholders, holders of 25% or more of the
voting rights in the company or any person having a personal interest in the acceptance of the tender offer, or anyone on their
behalf, including any such person’s relatives and entities under their control). If a special tender offer is accepted,
then the purchaser or any person or entity controlling it, at the time of the offer, and any person or entity under common control
with the purchaser or such controlling person or entity may not make a subsequent tender offer for the purchase of shares of the
target company and may not enter into a merger with the target company for a period of one year from the date of the offer, unless
the purchaser or such person or entity undertook to effect such an offer or merger in the initial special tender offer.
Merger
The
Israeli Companies Law permits merger transactions if approved by each party’s board of directors and, unless certain requirements
described under the Israeli Companies Law are met, by a majority vote of each party’s shares, and, in the case of the target
company, a majority vote of each class of its shares, voted on the proposed merger at a shareholders meeting. The board of directors
of a merging company may not approve the merger if it determines that there exists a reasonable concern that, as a result of the
merger, the surviving company will be unable to satisfy the obligations of the merging entities.
For
purposes of the shareholder vote of a merging company whose shares are held by the other merging company or a person or entity
holding 25% or more of any of the means of control of the other merging entity, unless a court rules otherwise, the merger will
not be deemed approved if a majority of the votes of shares voting on the matter at the shareholders meeting (excluding abstentions)
that are held by parties other than the other party to the merger, or by any other person or entity who holds 25% or more of the
voting rights or the right to appoint 25% or more of the directors of the other party, or any one on their behalf including their
relatives or corporations controlled by any of them, vote against the merger. If, however, the merger involves a merger with a
company’s own controlling shareholder or if the controlling shareholder has a personal interest in the merger, then the
merger is instead subject to the same Special Majority approval that governs all extraordinary transactions with controlling shareholders
(as described under “Directors, Executive Officers, Promotors and Control Persons – Approval of Related Party Transactions
under Israeli Law – Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain Transactions”).
If
the transaction would have been approved by the shareholders of a merging company but for the separate approval of each class
or the exclusion of the votes of certain shareholders as provided above, a court may still approve the merger upon the request
of holders of at least 25% of the voting rights of a company, if the court holds that the merger is fair and reasonable, taking
into account the valuation of the merging companies and the consideration offered to the shareholders.
Upon
the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that
there exists a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations
of the merging entities, and may further give instructions to secure the rights of creditors.
In
addition, a merger may not be consummated unless at least 50 days have passed from the date on which a proposal for approval of
the merger was filed by each party with the Israeli Registrar of Companies and at least 30 days have passed from the date on which
the merger was approved by the shareholders of each party.
Anti-Takeover
Measures under Israeli Law
The
Israeli Companies Law allow us to create and issue shares having rights different from those attached to our ordinary shares,
including shares providing certain preferred rights with respect to voting, distributions or other matters and shares having preemptive
rights. , Currently no preferred shares are authorized under our amended articles of association. In the future, if we do authorize,
create and issue a specific class of preferred shares, such class of shares, depending on the specific rights that may be attached
to it, may have the ability to frustrate or prevent a takeover or otherwise prevent our shareholders from realizing a potential
premium over the market value of their ordinary shares. The authorization and designation of a class of preferred shares will
require an amendment to our amended articles of association, which requires the prior approval of the holders of a majority of
the voting power attached to our issued and outstanding shares at a general meeting. The convening of the meeting, the shareholders
entitled to participate and the majority vote required to be obtained at such a meeting will be subject to the requirements set
forth in the Israeli Companies Law and our articles of association as described above in “– Voting Rights.”
Borrowing
Powers
Pursuant
to the Israeli Companies Law and our amended articles of association, our board of directors may exercise all powers and take
all actions that are not required under law or under our amended articles of association to be exercised or taken by our shareholders,
including the power to borrow money for company purposes.
Changes
in Capital
Our
amended articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions
of the Israeli Companies Law and must be approved by a resolution duly passed by our shareholders at a general meeting by voting
on such change in the capital. In addition, transactions that have the effect of reducing capital, such as the declaration and
payment of dividends in the absence of sufficient retained earnings or profits, require the approval of both our board of directors
and an Israeli court.
Transfer
Agent and Registrar
Our
transfer agent is Word Wide Stock Transfer, LLC, 1 University Plaza Drive #505, Hackensack, NJ, phone number: (201) 820-2008,
and fax number: (201) 820-2010.
Listing
We are in the process of applying to
have our ordinary shares listed on The Nasdaq Capital Market under the symbol “TOMD”.
Warrants Included in the Offering
Public Warrants. This
offering of units includes ordinary shares and warrants to purchase additional ordinary shares. Accordingly, upon completion
of this offering we will have an additional 48,000,000 ordinary share purchase warrants outstanding (55,200,000 if all of the
Units reserved for the over-allotment are sold), with each warrant exercisable for one ordinary share at an exercise price of
$ , exercisable for a period of five years from the closing of the offering. The warrant holders must pay the exercise price
in cash upon exercise of the warrants, unless the warrant holders are utilizing the cashless exercise provision of the
warrants, which is only available in certain circumstances, such as if the issuance and sale of the underlying shares is not
registered with the SEC pursuant to an effective registration statement. We intend to keep the registration statement of
which this prospectus forms a part effective when the warrants are exercised. Except as otherwise provided in the warrants or
by virtue of such holder’s ownership of ordinary shares, the holder of a warrant does not have the rights or privileges
of a holder of our ordinary shares, including any voting rights, until the holder exercises the warrant.
The number of warrants
outstanding, and the exercise price of those securities, will be adjusted proportionately in the event of a reverse or forward
stock split of our ordinary shares, a recapitalization or reclassification of our ordinary shares, payment of dividends or distributions
in shares to our shareholders, or similar transactions. In the event that the Company effects a rights offering to its common
stock holders or a pro rata distribution of its assets among its shareholders, then the holder of the warrants will have the right
to participate in such distribution and rights offering to the extent of their pro rata share of the Company’s outstanding
ordinary shares assuming they owned the number of ordinary shares issuable upon the exercise of their warrants. In the event of
a “Fundamental Transaction” by the Company, such as a merger or consolidation of it with another company, the sale
or other disposition of all or substantially all of the Company’s assets in one or a series of related transactions, a purchase
offer, tender offer or exchange offer, or any reclassification, reorganization or recapitalization of the Company’s ordinary
shares, then the warrant holder will have the right to receive, for each ordinary share issuable upon the exercise of the warrant,
at the option of the holder, the number of ordinary shares of the successor or acquiring corporation or of the Company, if it
is the surviving corporation, and any additional consideration payable as a result of the Fundamental Transaction, that would
have been issued or conveyed to the warrant holder had the holder exercised the warrant immediately preceding the closing of the
Fundamental Transaction. In lieu of receiving such ordinary shares and additional consideration in the Fundamental Transaction,
the warrant holder may elect to have the Company or the successor entity purchase the warrant holder’s warrant for its fair
market value measured by the Black Scholes method.
A holder will not
have the right to exercise any portion of the warrant if the holder (together with its affiliates) would beneficially own in excess
of 4.99% (or, upon election of the holder, 9.99%) of the number of our ordinary shares outstanding immediately after giving effect
to the exercise, as such percentage ownership is determined in accordance with the terms of the warrants. However, any holder
may increase or decrease such percentage, provided that any increase will not be effective until the 61st day after such election.
The Company will
promptly notify the warrant holders in writing of any adjustment to the exercise price or to the number of the outstanding warrants,
declaration of a dividend or other distribution, a special non-recurring cash dividend on or a redemption of the ordinary shares,
the authorization of a rights offering, the approval of the shareholders required for any proposed reclassification of the ordinary
shares, a consolidation or merger by the Company, sale of all or substantially all of the assets of the Company, any compulsory
share exchange, or the authorization of any voluntary or involuntary dissolution, liquidation, or winding up of the Company.
The warrants contain
a contractual provision stating that all questions concerning the construction, validity, enforcement and interpretation of the
warrants are governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard
to the principles of conflicts of law.
We are in the process
of applying to have the warrants listed on The NASDAQ Capital Market under the symbol “TOMDW.”
Representative Warrants. We will
issue ordinary share purchase warrants to the underwriter of this offering equal to 8% of the ordinary shares included in the
units (“Underwriter’s Warrants”). Each Underwriter’s Warrant is exercisable for one share of common stock
on a cash or cashless basis at an exercise price of $ (or 125% of the unit price). The Underwriter’s Warrants will be non-exercisable
for one hundred eighty (180) days after the closing of this offering, and will expire after five years from the effective date
of the registration statement of which this prospectus forms a part. The holder of an Underwriter’s Warrant must pay the
exercise price in cash upon exercise of such warrants, unless it is utilizing the cashless exercise provision of the Underwriter’s
Warrants, which is only available in certain circumstances, such as if the issuance and sale of the underlying shares is not registered
with the SEC pursuant to an effective registration statement. We intend to keep the registration statement of which this prospectus
forms a part effective when the warrants are exercised. Except as otherwise provided in the Underwriter’s Warrants or by
virtue of such holder’s ownership of ordinary shares, the holder of an Underwriter’s Warrant does not have the rights
or privileges of a holder of our ordinary shares, including any voting rights, until the holder exercises the warrant.
The number of Underwriter’s
Warrants outstanding and the exercise price of those securities will be adjusted proportionately, as permitted by FINRA Rule 5110(f)(2)(G),
in the event of a reverse or forward stock split of our ordinary shares, a recapitalization or reclassification of our ordinary
shares In the event of a “Fundamental Transaction” by the Company, such as a merger or consolidation of it with another
company, the sale or other disposition of all or substantially all of the Company’s assets in one or a series of related
transactions, a purchase offer, tender offer or exchange offer, or any reclassification, reorganization or recapitalization of
the Company’s ordinary shares, then the warrant holder will have the right to receive, for each ordinary share issuable
upon the exercise of the warrant, at the option of the holder, the number of ordinary shares of the successor or acquiring corporation
or of the Company, if it is the surviving corporation, and any additional consideration payable as a result of the Fundamental
Transaction that would have been issued or conveyed to the warrant holder had the holder exercised the warrant immediately preceding
the closing of the Fundamental Transaction. In lieu of receiving such ordinary shares and additional consideration in the Fundamental
Transaction, the warrant holder may elect to have the Company or the successor entity purchase the warrant holder’s warrant
for its fair market value measured by the Black Scholes method.
A holder of Underwriter’s
Warrants will not have the right to exercise any portion of such warrant if the holder (together with its affiliates) would beneficially
own in excess of 4.99% (or, upon election of the holder, 9.99%) of the number of our ordinary shares outstanding immediately after
giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Underwriter’s
Warrants. However, any holder may increase or decrease such percentage, provided that any increase will not be effective until
the 61st day after such election.
The Company will
promptly notify the holders of the Underwriter’s Warrants in writing of any adjustment to the exercise price or to the number
of the outstanding warrants, declaration of a dividend or other distribution, a special non-recurring cash dividend on or redemption
of the ordinary shares, the authorization of a rights offering, the approval of the shareholders required for any proposed reclassification
of the ordinary shares, a consolidation or merger by the Company, sale of all or substantially all of the assets of the Company,
any compulsory share exchange, or the authorization of any voluntary or involuntary dissolution, liquidation, or winding up of
the Company.
We have not applied,
and do not intend to apply, for listing of the Underwriter’s Warrants on any securities exchange or other trading system.
SHARES
ELIGIBLE FOR FUTURE SALE
Assuming that the underwriters do not
exercise their option to purchase additional units, ordinary shares and/or warrants with respect to this offering and assuming
no exercise of options outstanding following this offering, we will have an aggregate of ordinary shares outstanding upon the
closing of this offering. Of these shares, the ordinary shares sold in this offering will be freely tradable without restriction
or further registration under the Securities Act, unless purchased by “affiliates” (as that term is defined under
Rule 144 of the Securities Act, or Rule 144), who may sell only the volume of shares described below and whose sales would be
subject to additional restrictions described below.
The
remaining ordinary shares of the Company held by our existing shareholders, other than those ordinary shares sold in our June
2017 registered public offering, are deemed to be “restricted securities” under Rule 144. Subject to certain contractual
restrictions, including the lock-up agreements described below, restricted securities may only be sold in the public market pursuant
to an effective registration statement under the Securities Act or pursuant to an exemption from registration under Rule 144 under
the Securities Act. These rules are summarized below. Sales of these shares in the public market after the restrictions under
the lock-up agreements lapse, or the perception that those sales may occur, could cause the prevailing market price of our ordinary
shares to decrease or to be lower than it might be in the absence of those sales or perceptions.
Eligibility
of Restricted Shares for Sale in the Public Market
The
following indicates approximately when the ordinary shares that are not being sold in this offering, but which will be outstanding
at the time at which this offering is complete, will be eligible for sale into the public market under the provisions of Rule
144 (but subject to the further contractual restrictions arising under the lock-up agreements described below):
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with
respect to non-affiliates of the Company who hold an aggregate of 43,202,334 ordinary
shares, following the expiration of a non-affiliate’s six-month holding period
and subject to our compliance with the current public information requirements under
Rule 144; and
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with
respect to affiliates of the Company who hold an aggregate of 22,338,224 ordinary shares,
following the expiration of an affiliate’s six-month holding period and subject
to our compliance with the current public information requirements under Rule 144, and
subject to the volume, manner of sale and other limitations under Rule 144 applicable
to securities held by affiliates.
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Under
Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who is not considered to have been one of our
affiliates at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at
least one year, including the holding period of any prior owner other than one of our affiliates, is entitled to sell his, her
or its shares under Rule 144 without complying with the provisions relating to the availability of current public information
or with any other conditions under Rule 144.
Lock-Up
Agreements
All
of our directors and executive officers and holders that own over 5% of our ordinary shares on a fully-diluted basis have signed
lock-up agreements. Pursuant to such lock-up agreements, such persons have agreed, subject to certain exceptions, not to sell
or otherwise dispose of ordinary shares or any securities convertible into or exchangeable for ordinary shares for a period of
180 days after the date of this prospectus without the prior written consent of the underwriters, in their sole discretion, at
any time, release all or any portion of the ordinary shares from the restrictions in any such agreement.
TAXATION
The
following description is not intended to constitute a complete analysis of all tax consequences relating to the acquisition,
ownership and disposition of our ordinary shares. You should consult your own tax advisor concerning the tax consequences
in your particular situation, as well as any tax consequences that may arise under the laws of any taxing jurisdiction.
Material
Israeli Tax Considerations
The
following is a summary of the material Israeli tax laws applicable to us, and some Israeli Government programs benefiting us.
This section also contains a discussion of some Israeli tax consequences to persons owning our ordinary shares. This summary does
not discuss all the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment
circumstances or to some types of investors subject to special treatment under Israeli law. Examples of this kind of investor
include traders in securities or persons that own, directly or indirectly, 10% or more of our outstanding voting capital, all
of whom are subject to special tax regimes not covered in this discussion. Some parts of this discussion are based on a new tax
legislation which has not been subject to judicial or administrative interpretation. The discussion should not be construed as
legal or professional tax advice and does not cover all possible tax considerations.
SHAREHOLDERS
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE ISRAELI OR OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF OUR ORDINARY SHARES, INCLUDING, IN PARTICULAR, THE EFFECT OF ANY NON-U.S., STATE OR LOCAL TAXES.
General
Corporate Tax Structure in Israel
Israeli
resident companies are generally subject to corporate tax on their taxable income at the rate of 24% for the 2017 tax year (23%
in 2018 and thereafter). However, the effective tax rate payable by a company that derives income from a Preferred Enterprise
or a Technology Enterprise (as discussed below) may be considerably less. Capital gains derived by an Israeli resident company
are subject to tax at the prevailing corporate tax rate.
Law
for the Encouragement of Industry (Taxes), 1969
The
Law for the Encouragement of Industry (Taxes), 1969, or the Industry Encouragement Law, provides certain tax benefits for an “Industrial
Company”. The Industry Encouragement Law defines an “Industrial Company” as an Israeli resident company incorporated
in Israel, of which 90% or more of its income in any tax year, other than income from certain government loans, is derived from
an “Industrial Enterprise” owned by it and located in Israel or in the “Area”, in accordance with the
definition in the section 3a of the Israeli Income Tax Ordinance (New Version) 1961, or the Ordinance. An “Industrial Enterprise”
is defined as an enterprise which is held by an Industrial Company whose principal activity in any given tax year is industrial
production. The following tax benefits, among others, are available to Industrial Companies:
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amortization
over an eight-year period of the cost of patents and rights to use a patent and know-how
that were purchased in good faith and are used for the development or advancement of
the Industrial Enterprise, commencing from the tax year where the Industrial Enterprise
began to use them;
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under
certain conditions, the right to elect to file consolidated tax returns with Israeli
Industrial Companies controlled by it; and
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expenses
related to a public offering are deductible in equal amounts over three years commencing
on the year of this offering.
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We
believe that we qualify as an “Industrial Company” within the meaning of the Industry Encouragement Law. There can
be no assurance that we will continue to qualify as an Industrial Company or that the benefits described above will be available
to us in the future.
Tax
Benefits under the Law for the Encouragement of Capital Investments, 1959
The
Law for the Encouragement of Capital Investments, 1959, generally referred to as the “Investment Law”, provides certain
incentives for capital investments in production facilities (or other eligible assets).
The
Investment Law was significantly amended several times over the recent years, with the three most significant changes effective
as of April 1, 2005, referred to in this prospectus as the 2005 Amendment, as of January 1, 2011, referred to in this prospectus
as the 2011 Amendment, and as of January 1, 2017, referred to in this prospectus as the 2017 Amendment. Pursuant to the 2005 Amendment,
tax benefits granted in accordance with the provisions of the Investment Law prior to its revision by the 2005 Amendment remain
in force but any benefits granted subsequently are subject to the provisions of the amended Investment Law. Similarly, the 2011
Amendment introduced new benefits to replace those granted in accordance with the provisions of the Investment Law in effect prior
to the 2011 Amendment. However, companies entitled to benefits under the Investment Law as in effect prior to January 1, 2011
were entitled to choose to continue to enjoy such benefits, provided that certain conditions are met, or elect instead, irrevocably,
to forego such benefits and have the benefits of the 2011 Amendment apply. The 2017 Amendment introduces new benefits for Technological
Enterprises, alongside the existing tax benefits. We did not utilize any of the benefits for which we were eligible under the
Investment Law prior to the 2011 Amendment, and starting in the 2017 tax year we elected to apply for the new benefits under the
2011 Amendment.
Tax
benefits under the 2011 Amendment
On
December 29, 2010, the Israeli Parliament approved the 2011 Amendment. The 2011 Amendment significantly revised the tax incentive
regime in Israel and commenced on January 1, 2011.
The
2011 Amendment canceled the availability of the tax benefits granted under the Investment Law prior to 2011 and, instead, introduced
new tax benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as
such terms are defined in the Investment Law) as of January 1, 2011. The definition of a Preferred Company includes a company
incorporated in Israel that is not fully owned by a governmental entity, and that has, among other things, Preferred Enterprise
status and is controlled and managed from Israel.
A
Preferred Company is entitled to a reduced corporate tax rate with respect to the income attributed to the Preferred Enterprise,
at the following rates:
Tax Year
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Development Region “A”
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Other Areas within Israel
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2011-2012
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10
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%
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15
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%
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2013
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7
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%
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12.5
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%
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2014-2016
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9
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%
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16
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%
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2017 onwards(1)
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7.5
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%
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16
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%
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(1)
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In December 2016, the Israeli Parliament (the
Knesset) approved an amendment to the Investments Law pursuant to which the tax rate applicable to Preferred Enterprises in
Development Region "A" would be reduced to 7.5% as of January 1, 2017.
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The
classification of income generated from the provision of usage rights in know-how or software that were developed in the Preferred
Enterprise, as well as royalty income received with respect to such usage, as Preferred Enterprise income is subject to the issuance
if a pre-ruling from the Israeli Tax Authority stipulates that such income is associated with the productive activity of the Preferred
Enterprise in Israel.
Dividends
distributed from income which is attributed to a “Preferred Enterprise” will be subject to withholding tax at source
at the following rates: (i) Israeli resident corporations – 0%, (although, if such dividends are subsequently distributed
to individuals or a non-Israeli company, withholding tax at a rate of 20% or such lower rate as may be provided in an applicable
tax treaty will apply (subject to the receipt in advance of a valid certificate from the Israel Tax Authority allowing for a reduced
tax rate)) (ii) Israeli resident individuals – 20% (iii) non-Israeli residents (individuals and corporations) - 20%, subject
to a reduced tax rate under the provisions of an applicable double tax treaty (subject to the receipt in advance of a valid certificate
from the Israel Tax Authority allowing for a reduced tax rate).
The
2011 Amendment also revised the grant track to apply only to the approved programs located in Development Region “A”
and shall provide not only cash grants (as prior to the 2011 Amendment) but also the granting of loans. The rates for grants and
loans shall not be fixed but up to 20% of the amount of the approved investment (may be increased with additional 4%). In addition,
a company owning a Preferred Enterprise under the grant track may be entitled also to the tax benefits which are prescribed for
a Preferred Enterprise.
New
Tax benefits under the 2017 Amendment that became effective on January 1, 2017.
The
2017 Amendment was enacted as part of the Economic Efficiency Law that was published on December 29, 2016, and is effective as
of January 1, 2017. The 2017 Amendment provides new tax benefits for two types of “Technology Enterprises”, as described
below, and is in addition to the other existing tax beneficial programs under the Investment Law.
The
2017 Amendment provides that a technology company satisfying certain conditions will qualify as a “Preferred Technology
Enterprise” and will thereby enjoy a reduced corporate tax rate of 12% on income that qualifies as “Preferred Technology
Income”, as defined in the Investment Law. The tax rate is further reduced to 7.5% for a Preferred Technology Enterprise
located in Development Region “A”. In addition, a Preferred Technology Company will enjoy a reduced corporate tax
rate of 12% on capital gain derived from the sale of certain “Benefitted Intangible Assets” (as defined in the Investment
Law) to a related foreign company if the Benefitted Intangible Assets were acquired from a foreign company on or after January
1, 2017 for at least NIS 200 million, and the sale receives prior approval from IIA.
The
2017 Amendment further provides that a technology company satisfying certain conditions will qualify as a “Special Preferred
Technology Enterprise” and will thereby enjoy a reduced corporate tax rate of 6% on “Preferred Technology Income”
regardless of the company’s geographic location within Israel. In addition, a Special Preferred Technology Enterprise will
enjoy a reduced corporate tax rate of 6% on capital gain derived from the sale of certain “Benefitted Intangible Assets”
to a related foreign company if the Benefitted Intangible Assets were either developed by an Israeli company or acquired from
a foreign company on or after January 1, 2017, and the sale received prior approval from IIA. A Special Preferred Technology Enterprise
that acquires Benefitted Intangible Assets from a foreign company for more than NIS 500 million will be eligible for these benefits
for at least ten years, subject to certain approvals as specified in the Investment Law.
Dividends
distributed by a Preferred Technology Enterprise or a Special Preferred Technology Enterprise, paid out of Preferred Technology
Income, are subject to withholding tax at source at the rate of 20%, and if distributed to a foreign company and other conditions
are met, the withholding tax rate will be 4%.
We
are examining the impact of the 2017 Amendment and the degree to which we will qualify as a Preferred Technology Enterprise or
Special Preferred Technology Enterprise, and the amount of Preferred Technology Income that we may have, or other benefits that
we may receive from the 2017 Amendment.
Taxation
of the Company Shareholders
Capital
Gains
Capital
gain tax is imposed on the disposal of capital assets by an Israeli resident, and on the disposal of such assets by a non-Israel
resident if those assets are either (i) located in Israel, (ii) are shares or a right to a share in an Israeli resident corporation,
or (iii) represent, directly or indirectly, rights to assets located in Israel, unless a tax treaty between Israel and the seller’s
country of residence provides otherwise. The Ordinance distinguishes between “Real Capital Gain” and the “Inflationary
Surplus”. Real Capital Gain is the excess of the total capital gain over Inflationary Surplus computed generally on the
basis of the increase in the Israeli CPI between the date of purchase and the date of disposal.
The
Real Capital Gain accrued by individuals on the sale of our ordinary shares (that were purchased after January 1, 2012, whether
listed on a stock exchange or not) will be taxed at the rate of 25%. However, if such shareholder is a “Controlling Shareholder”
(i.e., a person who holds, directly or indirectly, alone or together with such person’s relative or another person who collaborates
with such person on a permanent basis, 10% or more of one of the Israeli resident company’s means of control) at the time
of sale or at any time during the preceding twelve (12) months period and/or claims a deduction for interest and linkage differences
expenses in connection with the purchase and holding of such shares, such gain will be taxed at the rate of 30%.
The
Real Capital Gain derived by corporations will be generally subject to the ordinary corporate tax (24% in 2017 and 23% in 2018
and thereafter).
Individual
shareholder dealing in securities, or to whom such income is otherwise taxable as ordinary business income are taxed in Israel
at their marginal tax rates applicable to business income (up to 50% in 2017 and 2018, including Excess Tax as detailed below).
Notwithstanding
the foregoing, capital gain derived from the sale of our ordinary shares by a non-Israeli resident (whether an individual or a
corporation) shareholder may be exempt under the Ordinance from Israeli taxation provided that such shareholders did not acquire
their shares prior to January 1, 2009 or acquired their shares after the Company was listed for trading on Nasdaq provided, among
other things, that (i) such gains were not derived from a permanent business or business activity that the non-Israeli resident
maintains in Israel, and (ii) such shareholders are not subject to the Israeli Income Tax Law (Inflationary Adjustments) 5745-1985.
These provisions dealing with capital gain are not applicable to a person whose gains from selling or otherwise disposing of the
shares are deemed to be business income. However, non-Israeli corporations will not be entitled to the foregoing exemptions if
an Israeli resident (i) has a controlling interest of more than 25% in such non-Israeli corporation or (ii) is the beneficiary
of or is entitled to 25% or more of the revenue or profits of such non-Israeli corporation, whether directly or indirectly.
In
addition, the sale of shares may be exempt from Israeli capital gain tax under the provisions of an applicable tax treaty (subject
to the receipt in advance of a valid certificate from the Israel Tax Authority allowing for an exemption). For example, the U.S.-Israel
Double Tax Treaty exempts U.S. resident holding the shares as a capital asset and is entitled to claim the benefits afforded to
such a resident by the U.S.-Israel Double Tax Treaty, or a Treaty U.S. Resident, from Israeli capital gain tax in connection with
such sale, provided (i) the U.S. resident owned, directly or indirectly, less than 10% of an Israeli resident company’s
voting power at any time within the 12 month period preceding such sale, subject to certain conditions; (ii) the seller, being
an individual, is present in Israel for a period or periods of less than 183 days in the aggregate at the taxable year; and (iii)
the capital gain from the sale, exchange or disposition was not derived through a permanent establishment that the U.S. resident
maintains in Israel, (iv) the capital gains arising from such sale, exchange or disposition is not attributed to real estate located
in Israel; or (v) the capital gains arising from such sale, exchange or disposition is not attributed to royalties. If any such
case occurs, the sale, exchange or disposition of our ordinary shares would be subject to Israeli tax, to the extent applicable.
However, under the U.S.-Israel Tax Treaty, such Treaty U.S. Resident would be permitted to claim a credit for such taxes against
U.S. federal income tax imposed on any gain from such sale, exchange or disposition, under the circumstances and subject to the
limitations specified in the U.S.-Israel Double Tax Treaty.
In
some instances where our shareholders may be liable for Israeli tax on the sale of their ordinary shares, the payment of the consideration
may be subject to withholding of Israeli tax at source. Shareholders may be required to demonstrate that they are exempt from
tax on their capital gains in order to avoid withholding at source at the time of sale. Specifically, in transactions involving
a sale of all of the shares of an Israeli resident company, in the form of a merger or otherwise, the Israel Tax Authority may
require from shareholders who are not liable for Israeli tax to sign declarations in forms specified by this authority or obtain
a specific exemption from the Israel Tax Authority to confirm their status as non-Israeli resident, and, in the absence of such
declarations or exemptions, may require the purchaser of the shares to withhold taxes at source.
Either
the purchaser, the Israeli stockbrokers or financial institution through which the shares are held is obliged, subject to the
above mentioned exemptions, to withhold tax upon the sale of securities on the amount of the consideration paid upon the sale
of the securities at the rate of 25% in respect of an individual, or at a rate of corporate tax, in respect of a corporation (24%
in 2017 and 23% in 2018 and thereafter).
At
the sale of securities traded on a stock exchange a detailed return, including a computation of the tax due, must be filed and
an advanced payment must be paid on January 31 and July 31 of every tax year in respect of sales of securities made within the
previous six months. However, if all tax due was withheld at source according to applicable provisions of the Ordinance and regulations
promulgated thereunder the aforementioned return need not be filed and no advance payment must be paid. Capital gain is also reportable
on the annual income tax return.
Dividends
A
distribution of dividends from income, which is not attributed to a Preferred Enterprise to an Israeli resident individual, will
generally be subject to income tax at a rate of 25%. However, a 30% tax rate will apply if the dividend recipient is a “Controlling
Shareholder” (as defined above) at the time of distribution or at any time during the preceding 12 months period.
Distribution
of dividends from income attributed to a Preferred Enterprise is generally subject to a tax at a rate of 20%. However, if such
dividends are distributed to an Israeli company, no tax is imposed (although, if such dividends are subsequently distributed to
individuals or a non-Israeli company, withholding tax at a rate of 20% or such lower rate as may be provided in an applicable
tax treaty (subject to the receipt in advance of a valid certificate from the Israel Tax Authority allowing for an exemption)
will apply). If the dividend is attributable partly to income derived from a Preferred Enterprise, and partly from other sources
of income, the income tax rate will be a blended rate reflecting the relative portions of the types of income. We cannot assure
you that we will designate the profits that we may distribute in a way that will reduce shareholders’ tax liability.
If
the recipient of the dividend is an Israeli resident corporation, such dividend will be exempt from income tax provided the income
from which such dividend is distributed was derived or accrued within Israel.
The
Ordinance generally provides that a non-Israeli resident (either individual or corporation) is subject to an Israeli income tax
on the receipt of dividends at the rate of 25% (30% if the dividends recipient is a “Controlling Shareholder” (as
defined above), at the time of distribution or at any time during the preceding 12 months period); those rates are subject to
a reduced tax rate under the provisions of an applicable double tax treaty (subject to the receipt in advance of a valid certificate
from the Israel Tax Authority allowing for a reduced tax rate).
For
example, under the U.S.-Israel Double Tax Treaty the following rates will apply in respect of dividends distributed by an Israeli
resident company to a Treaty U.S. Resident: (i) if the Treaty U.S. Resident is a corporation which holds during that portion of
the taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at
least 10% of the outstanding shares of the voting shares of the Israeli resident paying corporation and not more than 25% of the
gross income of the Israeli resident paying corporation for such prior taxable year (if any) consists of certain type of interest
or dividends – the maximum tax rate of withholding is 12.5%, and (ii) in all other cases, the tax rate is 25%, or the domestic
rate (if such is lower). The aforementioned rates under the Israel U.S. Double Tax Treaty will not apply if the dividend income
was derived through a permanent establishment that the Treaty U.S. Resident maintains in Israel. U.S. residents who are subject
to Israeli withholding tax on a dividend may be entitled to a credit or deduction for United States federal income tax purposes
in the amount of the taxes withheld, subject to detailed rules contained in U.S. tax legislation.
A
non-Israeli resident who receives dividend income derived from or accrued from Israel, from which the full amount of tax was withheld
at source, is generally exempt from the obligation to file tax returns in Israel with respect to such income, provided that (i)
such income was not generated from business conducted in Israel by the taxpayer, and (ii) the taxpayer has no other taxable sources
of income in Israel with respect to which a tax return is required to be filed and (iii) the taxpayer is not obliged to pay excess
tax (as further explained below).
Payors
of dividends on our shares, including the Israeli shareholder effectuating the transaction, or the financial institution through
which the securities are held, are generally required, subject to any of the foregoing exemption, reduced tax rates and the demonstration
of a shareholder of his, her or its foreign residency, to withhold taxes upon the distribution of dividends at a rate of 25%,
provided that the shares are registered with a Nominee Company (for corporations and individuals).
Excess
Tax
Individuals
who are subject to tax in Israel are also subject to an additional tax at a rate of 3% in 2017 and thereafter, on annual income
exceeding a certain threshold (NIS 640,000 for 2017 which amount is linked to the annual change in the Israeli consumer price
index), including, but not limited to income derived from dividends, interest and capital gains.
Foreign
Exchange Regulations
Non-residents
of Israel who hold our ordinary shares are able to receive any dividends, and any amounts payable upon the dissolution, liquidation
and winding up of our affairs, repayable in non-Israeli currency at the rate of exchange prevailing at the time of conversion.
However, Israeli income tax is generally required to have been paid or withheld on these amounts. In addition, the statutory framework
for the potential imposition of currency exchange control has not been eliminated, and may be restored at any time by administrative
action.
Estate
and gift tax
Israeli
law presently does not impose estate or gift taxes.
Material
U.S. Federal Income Tax Consequences to U.S. Holders
The
following discussion describes the material U.S. federal income tax consequences relating to the ownership and disposition of
our ordinary shares by U.S. Holders (as defined below). This discussion applies to U.S. Holders that purchase ordinary shares
pursuant to this offering and hold such ordinary shares as capital assets within the meaning of Section 1221 of the U.S. Internal
Revenue Code of 1986, as amended, or the Code. This discussion is based on the Code, U.S. Treasury regulations promulgated thereunder
and administrative and judicial interpretations thereof, all as in effect on the date hereof and all of which are subject to change,
possibly with retroactive effect. This discussion does not address all of the U.S. federal income tax consequences that may be
relevant to specific U.S. Holders in light of their particular circumstances or to U.S. Holders subject to special treatment under
U.S. federal income tax law (such as certain financial institutions, insurance companies, broker-dealers and traders in securities
or other persons that generally mark their securities to market for U.S. federal income tax purposes, tax-exempt entities, retirement
plans, regulated investment companies, real estate investment trusts, certain former citizens or residents of the United States,
persons who hold ordinary shares as part of a “straddle,” “hedge,” “conversion transaction,”
“synthetic security” or integrated investment, persons who received their ordinary shares as compensatory payments,
persons that have a “functional currency” other than the U.S. dollar, persons that own directly, indirectly or through
attribution 10% or more of our shares by vote or value, persons who are subject to Section 451(b) of the Code, corporations that
accumulate earnings to avoid U.S. federal income tax, partnerships and other pass-through entities and arrangements that are classified
as partnerships for U.S. federal income tax purposes, and investors in such pass-through entities). This discussion does not address
any U.S. state or local or non-U.S. tax consequences or any U.S. federal estate, gift or alternative minimum tax consequences.
As
used in this discussion, the term “U.S. Holder” means a beneficial owner of ordinary shares that is, for U.S. federal
income tax purposes, (1) an individual who is a citizen or resident of the United States, (2) a corporation (or entity treated
as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state
thereof, or the District of Columbia, (3) an estate the income of which is subject to U.S. federal income tax regardless of its
source or (4) a trust (x) with respect to which a court within the United States is able to exercise primary supervision over
its administration and one or more United States persons have the authority to control all of its substantial decisions or (y)
that has elected under applicable U.S. Treasury regulations to be treated as a domestic trust for U.S. federal income tax purposes.
If
an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds ordinary shares, the U.S. federal
income tax consequences relating to an investment in the ordinary shares will depend in part upon the status and activities of
such entity or arrangement and the particular partner. Any such entity or arrangement should consult its own tax advisor regarding
the U.S. federal income tax consequences applicable to it and its partners of the purchase, ownership and disposition of ordinary
shares.
Persons
considering an investment in ordinary shares should consult their own tax advisors as to the particular tax consequences applicable
to them relating to the purchase, ownership and disposition of ordinary shares, including the applicability of U.S. federal, state
and local tax laws and non-U.S. tax laws.
Passive
Foreign Investment Company Consequences
In
general, a corporation organized outside the United States will be treated as a passive foreign investment company, or PFIC, for
any taxable year in which either (1) at least 75% of its gross income is “passive income”, the PFIC income test, or
(2) on average at least 50% of its assets, determined on a quarterly basis, are assets that produce passive income or are held
for the production of passive income, the PFIC asset test. Passive income for this purpose generally includes, among other things,
dividends, interest, royalties, rents, and gains from the sale or exchange of property that gives rise to passive income. Assets
that produce or are held for the production of passive income generally include cash, even if held as working capital or raised
in a public offering, marketable securities, and other assets that may produce passive income. Generally, in determining whether
a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns, directly
or indirectly, at least a 25% interest (by value) is taken into account.
Our
status as a PFIC will depend on the nature and composition of our income and the nature, composition and value of our assets (which,
assuming we are not a “controlled foreign corporation,” or a CFC, under Section 957(a) of the Internal Revenue Code
of 1986, as amended, or the Code, for the year being tested, may be determined based on the fair market value of each asset, with
the value of goodwill and going concern value being determined in large part by reference to the market value of our common shares,
which may be volatile). Based upon the value of our assets, including any goodwill and the nature and composition of our income
and assets, we do not believe that we were classified as a PFIC for the taxable year ended December 31, 2018 and we do not believe
that we will be classified as a PFIC for the taxable year ending December 31, 2019 or in the immediately foreseeable future. Even
if we determine that we are not a PFIC for a taxable year, there can be no assurance that the IRS will agree with our conclusion
and that the IRS would not successfully challenge our position. Our status as a PFIC is a fact-intensive determination made on
an annual basis after the end of each taxable year. Accordingly, our U.S. counsel expresses no opinion with respect to our PFIC
status for our taxable year ended December 31, 2018, and also expresses no opinion with regard to our expectations regarding our
PFIC status in the future.
If
we are a PFIC in any taxable year during which a U.S. Holder owns ordinary shares, the U.S. Holder could be liable for additional
taxes and interest charges under the “PFIC excess distribution regime” upon (1) a distribution paid during a taxable
year that is greater than 125% of the average annual distributions paid in the three preceding taxable years, or, if shorter,
the U.S. Holder’s holding period for the ordinary shares, and (2) any gain recognized on a sale, exchange or other disposition,
including a pledge, of the ordinary shares, whether or not we continue to be a PFIC. Under the PFIC excess distribution regime,
the tax on such distribution or gain would be determined by allocating the distribution or gain ratably over the U.S. Holder’s
holding period for ordinary shares. The amount allocated to the current taxable year (i.e., the year in which the distribution
occurs or the gain is recognized) and any year prior to the first taxable year in which we are a PFIC will be taxed as ordinary
income earned in the current taxable year. The amount allocated to other taxable years will be taxed at the highest marginal rates
in effect for individuals or corporations, as applicable, to ordinary income for each such taxable year, and an interest charge,
generally applicable to underpayments of tax, will be added to the tax.
If
we are a PFIC for any year during which a U.S. Holder holds ordinary shares, we must generally continue to be treated as a PFIC
by that holder for all succeeding years during which the U.S. Holder holds the ordinary shares, unless we cease to meet the requirements
for PFIC status and the U.S. Holder makes a “deemed sale” election with respect to the ordinary shares. If the election
is made, the U.S. Holder will be deemed to sell the ordinary shares it holds at their fair market value on the last day of the
last taxable year in which we qualified as a PFIC, and any gain recognized from such deemed sale would be taxed under the PFIC
excess distribution regime. After the deemed sale election, the U.S. Holder’s ordinary shares would not be treated as shares
of a PFIC unless we subsequently become a PFIC.
If
we are a PFIC for any taxable year during which a U.S. Holder holds ordinary shares and one of our non-U.S. corporate subsidiaries
is also a PFIC (i.e., a lower-tier PFIC), such U.S. Holder would be treated as owning a proportionate amount (by value) of the
shares of the lower-tier PFIC and would be taxed under the PFIC excess distribution regime on distributions by the lower-tier
PFIC and on gain from the disposition of shares of the lower-tier PFIC even though such U.S. Holder would not receive the proceeds
of those distributions or dispositions. Each U.S. Holder is advised to consult its tax advisors regarding the application of the
PFIC rules to our non-U.S. subsidiaries.
If
we are a PFIC, a U.S. Holder will not be subject to tax under the PFIC excess distribution regime on distributions or gain recognized
on ordinary shares if such U.S. Holder makes a valid “mark-to-market” election for our ordinary shares. A mark-to-market
election is available to a U.S. Holder only for “marketable stock.” Our ordinary shares will be marketable stock as
long as they remain listed on The Nasdaq Capital Market and are regularly traded, other than in de minimis quantities,
on at least 15 days during each calendar quarter. If a mark-to-market election is in effect, a U.S. Holder generally would take
into account, as ordinary income for each taxable year of the U.S. holder, the excess of the fair market value of ordinary shares
held at the end of such taxable year over the adjusted tax basis of such ordinary shares. The U.S. Holder would also take into
account, as an ordinary loss each year, the excess of the adjusted tax basis of such ordinary shares over their fair market value
at the end of the taxable year, but only to the extent of the excess of amounts previously included in income over ordinary losses
deducted as a result of the mark-to-market election. The U.S. Holder’s tax basis in ordinary shares would be adjusted to
reflect any income or loss recognized as a result of the mark-to-market election. Any gain from a sale, exchange or other disposition
of ordinary shares in any taxable year in which we are a PFIC would be treated as ordinary income and any loss from such sale,
exchange or other disposition would be treated first as ordinary loss (to the extent of any net mark-to-market gains previously
included in income) and thereafter as capital loss.
A
mark-to-market election will not apply to ordinary shares for any taxable year during which we are not a PFIC, but will remain
in effect with respect to any subsequent taxable year in which we become a PFIC. Such election will not apply to any non-U.S.
subsidiaries that we may organize or acquire in the future. Accordingly, a U.S. Holder may continue to be subject to tax under
the PFIC excess distribution regime with respect to any lower-tier PFICs that we may organize or acquire in the future notwithstanding
the U.S. Holder’s mark-to-market election for the ordinary shares.
The
tax consequences that would apply if we are a PFIC would also be different from those described above if a U.S. Holder were able
to make a valid qualified electing fund, or QEF, election. At this time, we do not expect to provide U.S. Holders with the information
necessary for a U.S. Holder to make a QEF election. Prospective investors should assume that a QEF election will not be available.
Each
U.S. person that is an investor of a PFIC is generally required to file an annual information return on IRS Form 8621 containing
such information as the U.S. Treasury Department may require. The failure to file IRS Form 8621 could result in the imposition
of penalties and the extension of the statute of limitations with respect to U.S. federal income tax.
The
U.S. federal income tax rules relating to PFICs are very complex. Prospective U.S. investors are strongly urged to consult
their own tax advisors with respect to the impact of PFIC status on the purchase, ownership and disposition of ordinary shares,
the consequences to them of an investment in a PFIC, any elections available with respect to the ordinary shares and the
IRS information reporting obligations with respect to the purchase, ownership and disposition of ordinary shares of
a PFIC.
Distributions
As
described in the section entitled “– Dividend Policy,” we do not anticipate declaring or paying dividends
to holders of our ordinary shares in the foreseeable future. However, if we make a distribution contrary to the expectation, subject
to the discussion above under “— Passive Foreign Investment Company Consequences,” a U.S. Holder
that receives a distribution with respect to ordinary shares generally will be required to include the gross amount of such distribution
in gross income as a dividend when actually or constructively received to the extent of the U.S. Holder’s pro rata share
of our current and/or accumulated earnings and profits (as determined under U.S. federal income tax principles). To the extent
a distribution received by a U.S. Holder is not a dividend because it exceeds the U.S. Holder’s pro rata share of our current
and accumulated earnings and profits, it will be treated first as a tax-free return of capital and reduce (but not below zero)
the adjusted tax basis of the U.S. Holder’s ordinary shares. To the extent the distribution exceeds the adjusted tax basis
of the U.S. Holder’s ordinary shares, the remainder will be taxed as capital gain. Because we may not account for our earnings
and profits in accordance with U.S. federal income tax principles, U.S. Holders should expect all distributions to be reported
to them as dividends.
Distributions
on ordinary shares that are treated as dividends generally will constitute income from sources outside the United States for foreign
tax credit purposes and generally will constitute passive category income. Subject to certain complex conditions and limitations,
Israeli taxes withheld on any distributions on ordinary shares may be eligible for credit against a U.S. Holder’s federal
income tax liability. The rules relating to the determination of the U.S. foreign tax credit are complex, and U.S. Holders should
consult their tax advisors regarding the availability of a foreign tax credit in their particular circumstances and the possibility
of claiming an itemized deduction (in lieu of the foreign tax credit) for any foreign taxes paid or withheld.
Dividends
paid by a “qualified foreign corporation” are eligible for taxation to non-corporate U.S. Holders at a reduced capital
gains rate rather than the marginal tax rates generally applicable to ordinary income provided that certain requirements are met.
Each U.S. Holder is advised to consult its tax advisors regarding the availability of the reduced tax rate on dividends with regard
to its particular circumstances. Each U.S. Holder is advised to consult its tax advisors regarding the availability of the reduced
tax rate on dividends with regard to its particular circumstances. Distributions on ordinary shares that are treated as dividends
generally will not be eligible for the “dividends received” deduction generally allowed to corporate shareholders
with respect to dividends received from U.S. corporations.
A
non-United States corporation (other than a corporation that is classified as a PFIC for the taxable year in which the dividend
is paid or the preceding taxable year) generally will be considered to be a qualified foreign corporation (a) if it is eligible
for the benefits of a comprehensive tax treaty with the United States which the Secretary of Treasury of the United States determines
is satisfactory for purposes of this provision and which includes an exchange of information provision, or (b) with respect to
any dividend it pays on shares that are readily tradable on an established securities market in the United States. Our ordinary
shares will generally be considered to be readily tradable on an established securities market in the United States if they are
listed on The Nasdaq Capital Market, as we intend our common shares will be. We believe that we qualify as a resident of Israel
for purposes of, and are eligible for the benefits of, the U.S.-Israel Double Tax Treaty, although there can be no assurance in
this regard. Further, the IRS has determined that the U.S.-Israel Double Tax Treaty is satisfactory for purposes of the qualified
dividend rules and that it includes an exchange of information provision. Therefore, subject to the discussion above under “— Passive
Foreign Investment Company Consequences,” if the U.S.-Israel Double Tax Treaty is applicable, or if our ordinary shares
are readily tradable on an established securities market in the United States, such dividends will generally be “qualified
dividend income” in the hands of individual U.S. Holders, provided that certain conditions are met, including holding period
and the absence of certain risk reduction transaction requirements. Each U.S. Holder is advised to consult its tax advisors regarding
the availability of the reduced tax rate on dividends with regard to its particular circumstances.
Sale,
Exchange or Other Disposition of Ordinary Shares
Subject
to the discussion above under “— Passive Foreign Investment Company Consequences,” a U.S. Holder
generally will recognize capital gain or loss for U.S. federal income tax purposes upon the sale, exchange or other disposition
of ordinary shares in an amount equal to the difference, if any, between the amount realized (i.e., the amount of cash plus the
fair market value of any property received) on the sale, exchange or other disposition and such U.S. Holder’s adjusted tax
basis in the ordinary shares. Such capital gain or loss generally will be long-term capital gain taxable at a reduced rate for
non-corporate U.S. Holders or long-term capital loss if, on the date of sale, exchange or other disposition, the ordinary shares
were held by the U.S. Holder for more than one year. Any capital gain of a non-corporate U.S. Holder that is not long-term capital
gain is taxed at ordinary income rates. The deductibility of capital losses is subject to limitations. Any gain or loss recognized
from the sale or other disposition of ordinary shares will generally be gain or loss from sources within the United States for
U.S. foreign tax credit purposes.
Medicare
Tax
Certain
U.S. Holders that are individuals, estates or trusts and whose income exceeds certain thresholds generally are subject to a 3.8%
tax on all or a portion of their net investment income, which may include their gross dividend income and net gains from the disposition
of ordinary shares. If you are a United States person that is an individual, estate or trust, you are encouraged to consult your
tax advisors regarding the applicability of this Medicare tax to your income and gains in respect of your investment in ordinary
shares.
Information
Reporting and Backup Withholding
U.S.
Holders may be required to file certain U.S. information reporting returns with the IRS with respect to an investment in ordinary
shares, including, among others, IRS Form 8938 (Statement of Specified Foreign Financial Assets). As described above under “Passive
Foreign Investment Company Consequences”, each U.S. Holder who is a shareholder of a PFIC must file an annual report
containing certain information. U.S. Holders paying more than US$100,000 for ordinary shares may be required to file IRS Form
926 (Return by a U.S. Transferor of Property to a Foreign Corporation) reporting this payment. Substantial penalties may be imposed
upon a U.S. Holder that fails to comply with the required information reporting.
Dividends
on and proceeds from the sale or other disposition of ordinary shares may be reported to the IRS unless the U.S. Holder establishes
a basis for exemption. Backup withholding may apply to amounts subject to reporting if the holder (1) fails to provide an accurate
United States taxpayer identification number or otherwise establish a basis for exemption (usually on IRS Form W-9), or (2) is
described in certain other categories of persons. However, U.S. Holders that are corporations generally are excluded from these
information reporting and backup withholding tax rules. Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules generally will be allowed as a refund or a credit against a U.S. Holder’s U.S. federal income
tax liability if the required information is furnished by the U.S. Holder on a timely basis to the IRS.
U.S.
Holders should consult their own tax advisors regarding the backup withholding tax and information reporting rules.
EACH
PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES TO IT OF AN INVESTMENT IN ORDINARY
SHARES IN LIGHT OF THE INVESTOR’S OWN CIRCUMSTANCES.
UNDERWRITING
We have entered into an underwriting
agreement with Dawson James Securities Inc. and ViewTrade Securities, Inc., as the representatives of the underwriters (the “Representatives”),
with respect to the units being offered. Subject to the terms and conditions of an underwriting agreement between us and the Representatives,
we have agreed to sell to each underwriter named below, and each underwriter named below has severally agreed to purchase, at
the public offering price less the underwriting discounts set forth on the cover page of this prospectus, the number of units
listed next to its name in the following table:
Name of Underwriter
|
|
Number of
Units
|
|
Dawson James Securities Inc.
|
|
|
|
|
ViewTrade Securities, Inc.
|
|
|
|
|
Total
|
|
|
24,000,000
|
|
The underwriters are committed to purchase
24,000,000 units offered by this prospectus. The underwriting agreement also provides that if an underwriter defaults, the purchase
commitments of non-defaulting underwriters may be increased or the offering may be terminated. The underwriters are not obligated
to purchase the units covered by the underwriters’ over-allotment option described below. The underwriters are offering
the units, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their
counsel, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officer’s
certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to
reject orders in whole or in part.
Over-Allotment
Option
We have granted to the underwriters
an option, exercisable no later than 45 calendar days after the date of the underwriting agreement, to purchase up to an
additional 3,600,000 units, 3,600,000 ordinary shares and/or 7,200,000 warrants, at the public offering price listed on the cover
page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option only to cover
over-allotments, if any, made in connection with this offering. To the extent the option is exercised and the conditions of the
underwriting agreement are satisfied, we will be obligated to sell to the underwriters, and the underwriters will be obligated
to purchase, these additional units, ordinary shares or warrants.
Underwriter’s Warrants
We have agreed to grant to the Representatives
or their designees warrants to purchase a number of shares equal to eight percent (8%) of the total number of ordinary shares
sold in this offering at an exercise price equal to 125% of the price per ordinary share sold in this offering. The warrants (the
“Underwriter’s Warrants”) will contain a cashless exercise feature. Each Underwriter’s Warrant is exercisable
for one ordinary share on a cash or cashless basis at an exercise price of $
per share (or 125% of the price of each ordinary share sold in the offering). The Underwriter’s Warrants will be non-exercisable
for one hundred eighty (180) days after the effective date (the “Effective Date”) of the registration statement of
which this prospectus forms a part of this offering, and will expire five years after such Effective Date.
The
number of Underwriter’s Warrants outstanding, and the exercise price of those securities, will be adjusted proportionately,
as permitted by FINRA Rule 5110(f)(2)(G).
Discounts
and Commissions
The Representatives have advised us
that the underwriters propose to offer the units directly to the public at the public offering price set forth on the cover of
this prospectus. In addition, the Representatives may offer some of the units to other securities dealers at such price less a
concession of up to $ per share. After
the offering to the public, the offering price and other selling terms may be changed by the Representatives without changing
the Company’s proceeds from the underwriters’ purchase of the units.
The following table summarizes the public
offering price, underwriting commissions and proceeds before expenses to us assuming both no exercise and full exercise of the
underwriters’ option to purchase additional units, ordinary shares or warrants. The underwriting commissions are equal to
the public offering price per unit less the amount per unit the underwriters pay us for the units.
|
|
Per
Unit(1)
|
|
|
Total
Without Over Allotment
|
|
|
Total
With Over
Allotment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public offering price
|
|
$
|
|
|
|
|
|
|
|
|
|
Underwriting discounts and commissions
|
|
$
|
|
|
|
|
|
|
|
|
|
Proceeds, before expenses, to
us
|
|
$
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The
fees shown do not include the underwriters’ warrants to purchase ordinary shares
issuable to the underwriters at closing.
|
We estimate that the total expenses
of the offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding
underwriting discounts and commissions, will be approximately $450,000, all of which are payable by us. This figure includes expense
reimbursements we have agreed to pay the Representatives for reimbursement of their expenses related to the offering, which is
limited to a maximum of $135,000, of which up to a maximum of $125,000 shall be used to reimburse the underwriters for their legal
expenses.
Lock-Up
Agreements
We and each of our officers, directors,
affiliates and certain existing stockholders aggregating at least 5% of our outstanding shares have agreed, subject to certain
exceptions, not to offer, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any
ordinary shares or other securities convertible into or exercisable or exchangeable for ordinary shares for a period of six (6)
months after this offering is completed without the prior written consent of the Representatives.
The Representatives may in their sole
discretion and at any time without notice release some or all of the shares subject to lock-up agreements prior to the expiration
of the lock-up period. When determining whether or not to release shares from the lock-up agreements, the Representatives will
consider, among other factors, the security holder’s reasons for requesting the release, the number of shares for which
the release is being requested and market conditions at the time.
Right
of First Refusal
We have granted the Representatives
a right of first refusal, for a period of 24 months from the commencement of sales of this offering, to act as sole and exclusive
investment banker, book-runner, financial advisor, underwriter and/or placement agent, at the Representatives’ sole and
exclusive discretion, for each and every future public and private equity and debt offering, including all equity linked financings
(each, a “Subject Transaction”), during such 24-month period, of the Company, or any successor to or subsidiary of
the Company, on terms and conditions customary to the Representatives for such Subject Transactions.
Indemnification
We
have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, and to
contribute to payments that the underwriters may be required to make for these liabilities.
OTCQB
and NASDAQ Capital Market
Our ordinary shares are presently quoted
on the OTCQB marketplace under the symbol “TOMDF”. We are in the process of applying to have our ordinary shares and
warrants listed on The NASDAQ Capital Market under the symbols “TOMD” and “TOMDW,” respectively. No assurance
can be given that our application will be approved. Trading Quotes of securities on an over-the-counter marketplace may not be
indicative of the market price of those securities on a national securities exchange.
Price
Stabilization, Short Positions, and Penalty Bids
In
connection with this offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price
of our ordinary shares. Specifically, the underwriters may over-allot in connection with this offering by selling more ordinary
shares than are set forth on the cover page of this prospectus. This creates a short position in our ordinary shares for the underwriters’
own accounts. The short position may be either a covered short position or a naked short position. In a covered short position,
the number of ordinary shares over-allotted by the underwriters is not greater than the number of ordinary shares that they may
purchase in the over-allotment option. In a naked short position, the number of ordinary shares involved is greater than the number
of ordinary shares in the over-allotment option. To close out a short position, the underwriters may elect to exercise all or
part of the over-allotment option. The underwriters may also elect to stabilize the price of our ordinary shares or reduce any
short position by bidding for, and purchasing, ordinary shares in the open market.
The
underwriters may also impose a penalty bid. This occurs when a particular underwriter or dealer repays selling concessions allowed
to it for distributing a security in this offering because the underwriter repurchases that security in stabilizing or short covering
transactions.
Finally,
the underwriters may bid for, and purchase, shares of our ordinary shares in market making transactions, including “passive”
market making transactions as described below.
These
activities may stabilize or maintain the market price of our ordinary shares at a price that is higher than the price that might
otherwise exist in the absence of these activities. The underwriters are not required to engage in these activities, and may discontinue
any of these activities at any time without notice. These transactions may be effected on NASDAQ, in the over-the-counter market,
or otherwise.
In
connection with this offering, the underwriters and selling group members, if any, or their affiliates may engage in passive market
making transactions in our ordinary shares immediately prior to the commencement of sales in this offering, in accordance with
Rule 103 of Regulation M under the Exchange Act. Rule 103 generally provides that:
|
●
|
a
passive market maker may not effect transactions or display bids for our ordinary shares
in excess of the highest independent bid price by persons who are not passive market
makers;
|
|
●
|
net
purchases by a passive market maker on each day are generally limited to 30% of the passive
market maker’s average daily trading volume in our ordinary shares during a specified
two-month prior period or 200 shares, whichever is greater, and must be discontinued
when that limit is reached; and
|
|
●
|
passive
market making bids must be identified as such.
|
Electronic
Distribution
A
prospectus in electronic format may be made available on a website maintained by the Representatives of the underwriters and may
also be made available on a website maintained by other underwriters. The underwriters may agree to allocate a number of ordinary
shares to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the Representatives
of the underwriters to underwriters that may make Internet distributions on the same basis as other allocations. In connection
with the offering, the underwriters or syndicate members may distribute prospectuses electronically.
The
underwriters have informed us that they do not expect to confirm sales of ordinary shares offered by this prospectus to accounts
over which they exercise discretionary authority.
Other
than the prospectus in electronic or printed format, the information on any underwriter’s website and any information contained
in any other website maintained by an underwriter is not part of the prospectus or the registration statement of which this prospectus
forms a part, has not been approved and/or endorsed by us or any underwriter in its capacity as underwriter and should not be
relied upon by investors.
Certain
Relationships
Certain
of the underwriters and their affiliates may provide, from time to time, investment banking and financial advisory services to
us in the ordinary course of business, for which they may receive customary fees and commissions.
Offer
Restrictions Outside the United States
Other
than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the shares
offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus
may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in
connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances
that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this
prospectus comes are advised to inform themselves about and to observe any restrictions relating to this offering and the distribution
of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered
by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
Israel
The
shares offered by this prospectus have not been approved or disapproved by the Israeli Securities Authority (the “ISA”),
nor have such shares been registered for sale in Israel. The shares and warrants may not be offered or sold, directly or indirectly,
to the public in Israel, absent the publication of a prospectus. The ISA has not issued permits, approvals or licenses in connection
with this offering or publishing the prospectus; nor has it authenticated the details included herein, confirmed their reliability
or completeness, or rendered an opinion as to the quality of the shares being offered.
This
document does not constitute a prospectus under the Israeli Securities Law and has not been filed with or approved by the ISA.
In the State of Israel, this document is being distributed only to, and is directed only at, and any offer of the ordinary shares
is directed only at, (i) a limited number of persons in accordance with the Israeli Securities Law and (ii) investors listed in
the first addendum, or the Addendum, to the Israeli Securities Law, consisting primarily of joint investment in trust funds, provident
funds, insurance companies, banks, portfolio managers, investment advisors, members of the Tel Aviv Stock Exchange Ltd., underwriters,
venture capital funds, entities with equity in excess of NIS 50 million and “qualified individuals,” each as defined
in the Addendum (as it may be amended from time to time), collectively referred to as qualified investors (in each case purchasing
for their own account or, where permitted under the Addendum, for the accounts of their clients who are investors listed in the
Addendum). Qualified investors will be required to submit written confirmation that they fall within the scope of the Addendum,
are aware of the meaning of same and agree to it.
EXPERTS
AND LEGAL MATTERS
No
expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion
upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering
of the ordinary shares was employed on a contingency basis or had, or is to receive, in connection with the offering, a substantial
interest, directly or indirectly, in the registrant or its subsidiary. Nor was any such person connected with the Registrant or
any of its parents, subsidiaries as a promoter, managing or principal underwriter, voting trustee, Director, officer or employee.
The
financial statements included in this prospectus and elsewhere in the registration statement have been so included in reliance
upon the report of Fahn Kanne, Grant Thornton, independent registered public accountants, upon the authority of said firm as experts
in accounting and auditing.
Certain
legal matters, including the legality of the securities offered, will be passed upon for us by SRK Kronengold Law Offices. Schiff
Hardin LLP, Washington, DC, is counsel for the underwriters in connection with this offering.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL
DISCLOSURE
Fahn Kanne, Grant Thornton are our independent
auditors. There have not been any disagreements with them on accounting and financial disclosure.
EXPENSES
OF THIS OFFERING
The
estimated expenses payable by us in connection with the offering described in this Registration Statement (other than the underwriting
discounts and commissions) will be as set forth in the table below. With the exception of the U.S. Securities and Exchange Commission
registration fee, the FINRA filing fee, and the Nasdaq Capital Market listing fee, all amounts are estimates. All such expenses
will be borne by the Registrant.
Item
|
|
Amount
to be Paid
|
|
SEC registration fee
|
|
$
|
1,910
|
|
FINRA filing fee
|
|
|
1,310
|
|
The Nasdaq Capital Market listing fee
|
|
|
50,000
|
|
Printing and engraving expenses
|
|
|
3,500
|
|
Legal fees and expenses
|
|
|
100,000
|
|
Accounting fees and expenses
|
|
|
50,000
|
|
Miscellaneous expenses
|
|
|
243,280
|
|
Total
|
|
$
|
450,000
|
|
TODOS
MEDICAL LTD.
FINANCIAL
STATEMENTS
AS
OF DECEMBER 31, 2018
TODOS
MEDICAL LTD.
FINANCIAL
STATEMENTS
AS
OF DECEMBER 31, 2018
INDEX
TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Board of Directors and Shareholders
Todos Medical Ltd.
|
Fahn Kanne & Co.
Head Office
32 Hamasger Street
Tel-Aviv 6721118, ISRAEL
PO Box 36172, 6136101
T +972 3 7106666
F +972 3 7106660
www.gtfk.co.il
|
Opinion
on the financial statements
We
have audited the accompanying balance sheets of Todos Medical Ltd. (the “Company”) as of December 31, 2018 and 2017,
the related statements of loss, changes in shareholders’ deficit, and cash flows for each of the three years in the period
ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion,
the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018
and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,
in conformity with accounting principles generally accepted in the United States of America.
Going
Concern
The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. As discussed in Note 1A to the financial
statements, the Company has incurred net losses since its inception, and has not yet generated any revenues. As of December 31,
2018, there is an accumulated deficit of $5,693,353 and shareholders’ deficit of $1,215,934, and current liabilities exceed
current assets by $1,092,651. These conditions, along with other matters as set forth in Note 1A, raise substantial
doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are
also described in Note 1A. The financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
Basis
for opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
FAHN
KANNE & CO. GRANT THORNTON ISRAEL
We
have served as the Company’s auditor since 2015.
Tel
Aviv, Israel
March
27, 2019
Certified
Public Accountants
Fahn
Kanne & Co. is the Israeli member firm of Grant Thornton International Ltd
TODOS
MEDICAL LTD.
BALANCE
SHEETS
(U.S.
dollars except share and per share amounts)
|
|
|
|
As of December 31,
|
|
|
|
Note
|
|
2 0 1 8
|
|
|
2 0 1 7
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
$
|
63,550
|
|
|
$
|
683,202
|
|
Restricted cash
|
|
|
|
|
9,343
|
|
|
|
10,099
|
|
Other current assets
|
|
3
|
|
|
32,990
|
|
|
|
19,754
|
|
Total current assets
|
|
|
|
|
105,883
|
|
|
|
713,055
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
4
|
|
|
93,242
|
|
|
|
103,374
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
$
|
199,125
|
|
|
$
|
816,429
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Short-term loans from third party, net
|
|
5
|
|
$
|
18,012
|
|
|
$
|
-
|
|
Fair value of derivative liability related to conversion feature
|
|
5
|
|
|
9,000
|
|
|
|
|
|
Liability for minimum royalties
|
|
6, 10B
|
|
|
185,000
|
|
|
|
135,000
|
|
Accounts payable
|
|
|
|
|
163,174
|
|
|
|
-
|
|
Short-term loans from shareholders
|
|
8
|
|
|
611,925
|
|
|
|
-
|
|
Other current liabilities
|
|
7
|
|
|
211,423
|
|
|
|
109,791
|
|
Total current liabilities
|
|
|
|
|
1,198,534
|
|
|
|
244,791
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Long-term loans from shareholders
|
|
8
|
|
|
-
|
|
|
|
659,526
|
|
Liability for minimum royalties – long-term
|
|
6, 10B
|
|
|
188,000
|
|
|
|
188,000
|
|
Derivative warrant liability
|
|
9
|
|
|
28,525
|
|
|
|
1,063,745
|
|
Total non-current liabilities
|
|
|
|
|
216,525
|
|
|
|
1,911,271
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingent liabilities
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary Shares of NIS 0.01 par value each:
|
|
11
|
|
|
-
|
|
|
|
-
|
|
Authorized: 1,000,000,000 shares at December 31, 2018 and 2017. Issued and outstanding: 72,230,162 shares and 70,087,141 shares at December 31, 2018 and 2017, respectively
|
|
|
|
|
190,679
|
|
|
|
184,961
|
|
Additional paid-in capital
|
|
|
|
|
4,286,740
|
|
|
|
3,711,218
|
|
Accumulated deficit
|
|
|
|
|
(5,693,353
|
)
|
|
|
(5,235,812
|
)
|
Total shareholders’ deficit
|
|
|
|
|
(1,215,934
|
)
|
|
|
(1,339,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ deficit
|
|
|
|
$
|
199,125
|
|
|
$
|
816,429
|
|
The
accompanying notes are an integral part of these financial statements.
TODOS MEDICAL LTD.
STATEMENTS
OF LOSS
(U.S.
dollars except share and per share amounts)
|
|
|
|
Year ended
December 31,
|
|
|
|
Note
|
|
2 0 1 8
|
|
|
2 0 1 7
|
|
|
2 0 1 6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses, net
|
|
13
|
|
$
|
459,184
|
|
|
$
|
720,527
|
|
|
$
|
317,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
14
|
|
|
919,694
|
|
|
|
617,087
|
|
|
|
410,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
|
|
(1,378,878
|
)
|
|
|
(1,337,614
|
)
|
|
|
(728,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing income (expenses), net
|
|
15
|
|
|
921,337
|
|
|
|
(1,337,758
|
)
|
|
|
75,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
$
|
(457,541
|
)
|
|
$
|
(2,675,372
|
)
|
|
$
|
(653,461
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
17
|
|
$
|
(0.006
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average number of ordinary shares outstanding
|
|
|
|
|
70,869,924
|
|
|
|
68,587,261
|
|
|
|
62,467,556
|
|
The
accompanying notes are an integral part of these financial statements.
TODOS MEDICAL LTD.
STATEMENTS
OF CHANGES IN SHAREHOLDERS’ DEFICIT
(U.S.
dollars except share and per share amounts)
|
|
Preferred shares, NIS 0.01 Par Value
|
|
|
Ordinary shares, NIS 0.01 Par Value
|
|
|
Additional paid-in
|
|
|
Accumulated
|
|
|
Total Shareholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2015
|
|
|
3,096,195
|
|
|
|
8,810
|
|
|
|
59,125,670
|
|
|
|
154,781
|
|
|
|
1,215,878
|
|
|
|
(1,906,979
|
)
|
|
|
(527,510
|
)
|
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
237,276
|
|
|
|
614
|
|
|
|
-
|
|
|
|
-
|
|
|
|
160,816
|
|
|
|
-
|
|
|
|
161,430
|
|
Issuance of ordinary shares, net of issuance expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
4,518,406
|
|
|
|
11,669
|
|
|
|
554,900
|
|
|
|
-
|
|
|
|
566,569
|
|
Exercise of stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
103,428
|
|
|
|
273
|
|
|
|
-
|
|
|
|
-
|
|
|
|
273
|
|
Stock-based compensation for consulting services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
48,750
|
|
|
|
-
|
|
|
|
48,750
|
|
Net loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(653,461
|
)
|
|
|
(653,461
|
)
|
BALANCE AT DECEMBER 31, 2016
|
|
|
3,333,471
|
|
|
|
9,424
|
|
|
|
63,747,504
|
|
|
|
166,723
|
|
|
|
1,980,344
|
|
|
|
(2,560,440
|
)
|
|
|
(403,949
|
)
|
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of warrants, net of issuance expenses and amount classified to equity upon exercise (see Note 9)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,665,000
|
|
|
|
4,625
|
|
|
|
1,058,475
|
|
|
|
-
|
|
|
|
1,063,100
|
|
Issuance of ordinary shares, net of issuance expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
1,061,125
|
|
|
|
3,015
|
|
|
|
559,538
|
|
|
|
-
|
|
|
|
562,553
|
|
Exercise of stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
81,432
|
|
|
|
226
|
|
|
|
-
|
|
|
|
-
|
|
|
|
226
|
|
Stock-based compensation
|
|
|
18,379
|
|
|
|
51
|
|
|
|
-
|
|
|
|
-
|
|
|
|
109,957
|
|
|
|
-
|
|
|
|
110,008
|
|
Conversion of preferred shares into ordinary shares
|
|
|
(3,351,850
|
)
|
|
|
(9,475
|
)
|
|
|
3,351,850
|
|
|
|
9,475
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Stock-based compensation for consulting services
|
|
|
-
|
|
|
|
-
|
|
|
|
350,000
|
|
|
|
897
|
|
|
|
2,904
|
|
|
|
-
|
|
|
|
3,801
|
|
Net loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,675,372
|
)
|
|
|
(2,675,372
|
)
|
BALANCE AT DECEMBER 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
70,256,911
|
|
|
$
|
184,961
|
|
|
$
|
3,711,218
|
|
|
$
|
(5,235,812
|
)
|
|
$
|
(1,339,633
|
)
|
Exercise of warrants, net of issuance expenses and amount classified to equity upon exercise (see Note 9)
|
|
|
-
|
|
|
|
-
|
|
|
|
722,500
|
|
|
|
1,928
|
|
|
|
451,295
|
|
|
|
-
|
|
|
|
453,223
|
|
Issuance of ordinary shares
|
|
|
-
|
|
|
|
-
|
|
|
|
800,000
|
|
|
|
2,134
|
|
|
|
78,211
|
|
|
|
-
|
|
|
|
80,345
|
|
Exercise of stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
620,521
|
|
|
|
1,656
|
|
|
|
(1,656
|
)
|
|
|
-
|
|
|
|
-
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
47,672
|
|
|
|
-
|
|
|
|
47,672
|
|
Net loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(457,541
|
)
|
|
|
(457,541
|
)
|
BALANCE AT DECEMBER 31, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
72,399,932
|
|
|
$
|
190,679
|
|
|
$
|
4,286,740
|
|
|
$
|
(5,693,353
|
)
|
|
$
|
(1,215,934
|
)
|
The
accompanying notes are an integral part of these financial statements.
TODOS MEDICAL LTD.
STATEMENTS
OF CASH FLOWS
(U.S.
dollars except share and per share amounts)
|
|
Year ended December 31
|
|
|
|
2018
|
|
|
2017(*)
|
|
|
2016
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(457,541
|
)
|
|
$
|
(2,675,372
|
)
|
|
$
|
(653,461
|
)
|
Adjustments required to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
25,502
|
|
|
|
24,083
|
|
|
|
20,695
|
|
Liability for minimum royalties
|
|
|
50,000
|
|
|
|
238,000
|
|
|
|
50,000
|
|
Changes in fair value of warrants liability and fair value of warrants expired (see Note 9)
|
|
|
(925,910
|
)
|
|
|
1,101,229
|
|
|
|
(117,577
|
)
|
Stock-based compensation
|
|
|
47,672
|
|
|
|
113,758
|
|
|
|
210,180
|
|
Inducement related to warrants exercised (see Note 9)
|
|
|
-
|
|
|
|
166,500
|
|
|
|
-
|
|
Financing expenses of long-term loans and other NIS denominated balances
|
|
|
(47,589
|
)
|
|
|
66,658
|
|
|
|
7,962
|
|
Decrease (increase) in other current assets
|
|
|
(13,236
|
)
|
|
|
1,120
|
|
|
|
6,143
|
|
Increase (decrease) in accounts payables
|
|
|
163,174
|
|
|
|
(21,874
|
)
|
|
|
14,491
|
|
Increase (decrease) in other current liabilities
|
|
|
101,632
|
|
|
|
81,488
|
|
|
|
(7,822
|
)
|
Net cash used in operating activities
|
|
|
(1,056,296
|
)
|
|
|
(904,410
|
)
|
|
|
(469,389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(15,370
|
)
|
|
|
(3,596
|
)
|
|
|
(34,971
|
)
|
Net cash used in investing activities
|
|
|
(15,370
|
)
|
|
|
(3,596
|
)
|
|
|
(34,971
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds received from issuance of convertible bridge loan
|
|
|
27,000
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds allocated to ordinary shares
|
|
|
80,345
|
|
|
|
562,604
|
|
|
|
566,569
|
|
Proceeds allocated to warrants
|
|
|
19,655
|
|
|
|
-
|
|
|
|
244,446
|
|
Proceeds from exercise of warrants, net
|
|
|
324,258
|
|
|
|
599,400
|
|
|
|
-
|
|
Proceeds from exercise of stock options
|
|
|
-
|
|
|
|
226
|
|
|
|
273
|
|
Repayments of shareholders loans
|
|
|
-
|
|
|
|
-
|
|
|
|
(23,529
|
)
|
Net cash provided by financing activities
|
|
|
451,258
|
|
|
|
1,162,230
|
|
|
|
787,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
|
|
|
(620,408
|
)
|
|
|
224,254
|
|
|
|
283,399
|
|
CASH, CASH EQUIVALENTS, AND RESTIRICTED CASH AT BEGINNING OF YEAR
|
|
|
693,301
|
|
|
|
439,077
|
|
|
|
155,678
|
|
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF YEAR
|
|
$
|
72,893
|
|
|
$
|
693,301
|
|
|
$
|
439,077
|
|
Supplemental disclosure of non-cash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of warrants liability classified to equity in connection with warrants exercised during the period (see Note 9)
|
|
$
|
128,965
|
|
|
$
|
297,200
|
|
|
$
|
-
|
|
During the reported period, the entire balance of preferred shares were converted into ordinary shares (see Note 11)
|
|
$
|
-
|
|
|
$
|
9,424
|
|
|
$
|
-
|
|
(*)
See Note 2D
The
accompanying notes are an integral part of these financial statements.
TODOS MEDICAL LTD.
NOTES
TO FINANCIAL STATEMENTS
NOTE
1 – GENERAL
Todos
Medical Ltd. (the “Company”) was incorporated under the laws of Israel and commenced its operations on April 22, 2010. The
Company engages in the development of a series of patient-friendly blood tests for the purpose of early detection of a variety
of cancers. The method incorporates biochemistry, physics and signal processing and is based on the cancer’s influence on
the immune system which triggers biochemical changes in peripheral blood mononuclear cells. These changes are measured by spectroscopy
and examined through a processing algorithm.
The
Company’s products in development currently consist of individual kits being developed for blood test detection of breast
cancer (TB), and colorectal cancer (TC). Since inception, the Company’s operations have been limited to developing the products
and raising capital to fund this development. The Company has not generated any revenues to date.
On
January 27, 2016, the Company incorporated a wholly owned subsidiary in Singapore under the name: Todos Medical (Singapore) Pte
Ltd. (“Todos Singapore”) for the purpose of conducting clinical trials in the future in Singapore and to obtain possible
Singapore government grants to partially finance the conducting of such operations. As of December 31, 2018, Todos Singapore has
not yet commenced its business operations and as a result, consolidated financial statements were not prepared.
In
August 2016, the Company’s registration statement on Form F-1 was declared effective by the U.S. Securities & Exchange Commission,
and as of March 2017, the Company’s shares began to be quoted on the OTCQB under the symbol “TOMDF”.
Going
concern uncertainty
The Company has devoted substantially
all of its efforts to research and development and raising capital and has not yet generated any revenues. The development and
commercialization of the Company’s products are expected to require substantial further expenditures. The Company has not
yet generated any revenues from operations, and therefore it is dependent upon external sources for financing its operations.
Since inception through December 31, 2018, the Company has incurred accumulated losses of $5,693,353, current liabilities exceed
current assets by $1,092,651, and shareholders’ deficit of $1,215,934 and negative operating cash flow for all periods.
As of March 20, 2019, the total cash and cash equivalent balance (individual restricted cash) is approximately $310,000, such
balance is expected to be sufficient for at least three months. Management has considered the significance of such condition in
relation to the Company’s ability to meet its current obligations and to achieve its business targets and determined that
these conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company plans to
finance its operations through the sale of equity and to the extent available, short-term and long-term loans. There can be no
assurance that the Company will succeed in obtaining the necessary financing to continue its operations as a going concern. The
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The
Company has a limited operating history and faces various risks, including uncertainties regarding finalization of the development
process, demand and market acceptance of the Company’s products, the effects of technological changes, competition and the development
of products by competitors. Additionally, other risk factors also exist, such as the ability to manage growth and the effect of
planned expansion of operations on the Company’s future results. In addition, the Company expects to continue incurring significant
operating costs and losses in connection with the development of its products and marketing efforts. A previous discussed, the
Company has not yet generated any revenues from its operations to fund its activities and therefore the Company is dependent on
the receipt of additional funding in order to continue its operations.
TODOS MEDICAL LTD.
NOTES
TO FINANCIAL STATEMENTS (cont.)
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES
The
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(US GAAP).
|
A.
|
Use
of estimates in the preparation of financial statements
|
The
preparation of the financial statements in conformity with US GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of
the financial statements, and the reported amounts of expenses during the reporting periods. Actual results could differ from
those estimates. As applicable to these financial statements, the most significant estimates and assumptions relate to the fair
value measurement of the derivative warrants liability stock-based compensation and the going concern assumptions.
The
currency of the primary economic environment in which the operations of the Company are conducted is the U.S dollar (“$”
or “dollar”). Thus, the functional currency of the Company is the dollar (which is also the reporting currency of the
Company).
|
C.
|
Cash
and cash equivalents
|
Cash
equivalents are short-term highly liquid investments which include short term bank deposits (up to three months from date of deposit),
that are not restricted as to withdrawals or use that are readily convertible to cash with maturities of three months or less
as of the date acquired.
Restricted
cash is invested in certificates of deposit, which are used to secure the Company’s line of credit. For presentation of
statement of cash flows purposes, restrict cash balances are included with cash and cash equivalents, when reconciling the reported
period total amounts.
|
|
December 31
|
|
|
December 31
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
63,550
|
|
|
$
|
683,202
|
|
Restricted cash
|
|
|
9,343
|
|
|
|
10,099
|
|
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows
|
|
$
|
72,893
|
|
|
$
|
693,301
|
|
There
were no restricted cash amounts as of December 31, 2016.
|
E.
|
Property,
plant and equipment
|
Property
and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over
the estimated useful lives of the assets. When an asset is retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the respective accounts and the net difference less any amount realized from disposition is reflected
in the Statements of Comprehensive Loss.
Rate of depreciation
|
|
%
|
|
|
|
|
|
Laboratory equipment
|
|
|
15
|
|
Furniture and equipment
|
|
|
7-15
|
|
Computers
|
|
|
33
|
|
Vehicle
|
|
|
15
|
|
|
F.
|
Impairment
of long-lived assets
|
The
Company’s long-lived assets are reviewed for impairment in accordance with Accounting Standards Codification (“ASC”)
Topic 360, “Property, Plant and Equipment”, whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its
fair value. To date the Company has not incurred any impairment losses.
TODOS MEDICAL LTD.
NOTES
TO FINANCIAL STATEMENTS (cont.)
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
The
Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes”. Accordingly, deferred income taxes
are determined utilizing the asset and liability method based on the estimated future tax effects of differences between the financial
accounting and the tax bases of assets and liabilities under the applicable tax law. Deferred tax balances are computed using
the enacted tax rates expected to be in effect when these differences reverse. Valuation allowance in respect of deferred tax
assets are provided for, if necessary, to reduce deferred tax assets is amounts more likely than not to be realized.
|
H.
|
Convertible
Bridge Loan
|
The
Company has considered the provisions of ASC 815-40, “Derivatives and Hedging - Contracts in Entity’s Own Equity”
and determined that the embedded conversion feature of the convertible bridge loan should be bifurcated from the host instrument,
as the embedded conversion feature is not considered indexed to the company’s own stock (since the “fixed-for-fixed”
concept is not met). accordingly, upon initial recognition, the embedded conversion feature was measured at fair value and the
remaining proceeds were allocated to the loan component (Host). In subsequent periods the derivative liability related to the
conversion feature is remeasured at fair value through profit or loss (with changes presented within financing income or expense,
as applicable) and the remaining bridge loan component is measured at amortized cost. The amount that was allocated to the embedded
conversion feature upon initial recognition, created a discount on the loan component. Such discount is amortized as interest
expense to profit or loss over the term of the loan until its stated maturity.
The
Company accounts for uncertain tax positions in accordance with ASC Topic 740-10, which prescribes detailed guidance for the financial
statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements.
According to ASC Topic 740-10, tax positions must meet a more-likely-than-not recognition threshold. The Company’s accounting
policy is to classify interest and penalties relating to uncertain tax positions under income taxes, however the Company did not
recognize such items in its fiscal 2018, 2017 and 2016 financial statements and did not recognize any liability with respect to
an unrecognized tax position in its balance sheets.
|
J.
|
Liability
for employee rights upon retirement
|
Israeli
employees are entitled to severance pay of one month’s salary for each year of employment, or a portion thereof. The Company satisfies
its full obligation with respect to its Israeli employees by contributing one month of the employees’ salary for each year
of service into a fund managed by a third party. Neither the obligation, nor the amounts deposited on behalf of the employees
for such obligation are recorded on the Balance Sheet, as the Company is legally released from the obligation to the employees
once the amounts have been deposited. All deposits required through December 31, 2018 have been made.
|
K.
|
Research
and development expenses
|
Research
and development expenses are charged to operations as incurred. Grants received by the Company from the Government of Israel through
the Office of the Chief Scientist of the Ministry of Industry, Trade and Labor (the “OCS”) for the development of approved
projects are recognized as a reduction of expenses against the related costs incurred.
|
L.
|
Royalty-bearing
grants
|
Royalty-bearing
grants from the OCS for funding approved research and development projects are recognized at the time the Company is entitled
to such grants (i.e. at the time that there is reasonable assurance that the Company will comply with the conditions attached
to the grant and that there is reasonable assurance that the grant will be received), on the basis of the costs incurred and reduce
research and development costs - see Note 10A. and Note 13. The cumulative research and development grants received by the
Company from inception through December 2018 amounted to $272,237.
As
of December 31, 2018, and 2017, the Company did not accrue for or pay any royalties to the OCS as no revenue has yet been generated.
TODOS MEDICAL LTD.
NOTES
TO FINANCIAL STATEMENTS (cont.)
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
|
M.
|
Basic
and diluted net loss per ordinary share
|
Basic
net loss per ordinary share is computed by dividing the net loss for the period applicable to ordinary shareholders, by the weighted
average number of ordinary shares outstanding during the period. Securities that may participate in dividends with the ordinary
shares (such as the convertible preferred shares that were outstanding until March 16, 2017) are considered in the computation
of basic loss per share under the two-class method. However, in periods of net loss, only the convertible preferred shares were
considered, since such shares had a contractual obligation to share in the losses of the Company, in accordance with the guidance
in ASC Topic 260-10.
Diluted
loss per share gives effect to all potentially dilutive common shares outstanding during the year using the treasury stock method
with respect to stock options and stock warrants and using the if-converted method with respect to convertible loans. In computing
Diluted loss per share, the average stock price for the period is used in determining the number of shares assumed to be purchased
from the exercise of stock options or warrants. Diluted loss per share excludes all potentially dilutive shares if their effect
is anti-dilutive.
|
N.
|
Stock-based
compensation
|
The
Company measures and recognizes the compensation expense for all equity-based payments to employees based on their estimated fair
values in accordance with ASC 718, “Compensation-Stock Compensation”. Share-based payments including grants of stock
options are recognized in the statement of net loss as an operating expense based on the fair value of the award at the date of
grant. The fair value of stock options granted is estimated using the Black-Scholes option-pricing model. The Company has expensed
compensation costs, net of estimated forfeitures, applying the accelerated vesting method, over the requisite service period or
over the implicit service period when a performance condition affects the vesting, and it is considered probable that the performance
condition will be achieved.
Share-based
payments awarded to consultants (non-employees) are accounted for in accordance with ASC Topic 505-50, “Equity-Based Payments
to Non-Employees”.
|
O.
|
Fair
Value Measurements
|
The
Company measures and discloses fair value in accordance with the Financial Accounting Standards Board (“FASB”), Accounting
Standards Codification 820, Fair Value Measurements and Disclosures (“ASC Topic 820”). ASC Topic 820 defines fair value,
establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about
fair value measurements. Fair value is an exit price, representing the amount that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is
a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset
or liability. As a basis for considering such assumptions there exists a three-tier fair-value hierarchy, which prioritizes the
inputs used in measuring fair value as follows:
Level
1 – unadjusted quoted prices are available in active markets for identical assets or liabilities that the Company has the ability
to access as of the measurement date
Level
2 – pricing inputs are other than quoted prices in active markets that are directly observable for the asset or liability
or indirectly observable through corroboration with observable market data.
Level
3 – pricing inputs are unobservable for the non-financial asset or liability and only used when there is little, if any,
market activity for the non-financial asset or liability at the measurement date. The inputs into the determination of fair value
require significant management judgment or estimation. Level 3 inputs are considered as the lowest priority within the fair value
hierarchy. The valuation of the short-term liability relating to the warrants issued to the unit owners (see Note 2N and Note
9) falls under this category.
This
hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when
determining fair value.
The
fair value of cash and cash equivalents is based on its demand value, which is equal to its carrying value. Additionally, the
carrying value of all other short term monetary assets and liabilities are estimated to be equal to their fair value due to the
short-term nature of these instruments.
TODOS MEDICAL LTD.
NOTES
TO FINANCIAL STATEMENTS (cont.)
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
During
2018, 2016 and 2015, the Company issued 600,000, 4,518,406 and 3,106,000 warrants, respectively, to purchase shares of the Company’s
ordinary-stock in connection with a Private Placement Memorandum (“PPM”). The Company accounted for these warrants as
a liability measured at fair value due to a provision included in the warrants agreement that provides the warrants holders with
an option to require the Company to purchase their warrants for cash in an amount equal to their Black-Scholes Option Pricing
Model value (the Black-Scholes Model), in the event that certain fundamental transactions (which some of them are not considered
solely within the control of the Company) as defined in the warrant agreement, occur. The fair value of the warrants liability
is estimated using the Black-Scholes Model which requires inputs such as the expected term of the warrants, share price volatility
and risk-free interest rate. These assumptions are reviewed on a regular basis and changes in the estimated fair value of the
outstanding warrants are recognized each reporting period as part of in the “Financing Expense, net” line in operations
in the accompanying statement of loss.
|
Q.
|
Concentrations
of credit risk
|
Financial
instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents
as well as certain other current assets that do not amount to a significant amount. Cash and cash equivalents, which are primarily
held in Dollars and New Israeli Shekels, are deposited with major banks in Israel. Management believes that such financial institutions
are financially sound and, accordingly, minimal credit risk exists with respect to these financial instruments. The Company does
not have any significant off-balance-sheet concentration of credit risk, such as foreign exchange contracts, option contracts
or other foreign hedging arrangements.
The
Company records accruals for loss contingencies arising from claims, litigation and other sources when it is probable that a liability
has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or
additional information becomes available. Legal costs incurred in connection with loss contingencies are expensed as incurred.
|
S.
|
Recent
Accounting Pronouncements
|
|
1.
|
Commencing
January 1, 2018, the Company early adopted ASU 2016-18, Statement of Company’s consolidated
financial statements Cash Flows (Topic 230): “Restricted Cash”, which requires
companies to include amounts generally described as restricted cash and restricted cash
equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period
total amounts shown on the statement of cash flows. The amendments in this update are
effective for public business entities for fiscal years beginning after December 15,
2017, and interim periods within those fiscal years.
|
ASU
2016-18 requires application using a retrospective transition method. The Company adopted ASU 2016-18, January 1, 2018 using the
retrospective transition method, as required by its provisions. As a result, the Company has retrospectively applied this guidance
to the accompanying consolidated statement of cash flows for the year ended December 31, 2017. There were no restricted cash balances
during 2016.
|
2.
|
In
May 2017, the FASB issued ASU 2017-09, “Compensation-Stock Compensation”.
The amendment provides guidance about which changes to terms or conditions of a share-based
payment award require an entity to apply modification accounting. The guidance became
effective for the fiscal year beginning on January 1, 2018, including interim periods
within that year.
|
This
guidance had no material impact on the Company’s consolidated financial statements.
TODOS MEDICAL LTD.
NOTES
TO FINANCIAL STATEMENTS (cont.)
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)
|
S.
|
Recent
Accounting Pronouncements (cont.)
|
|
3.
|
In
February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting
Standards Update No. 2016-02 (Topic 842) “Leases”. Topic 842 supersedes the
lease requirements in ASC Topic 840, “Leases”. Under Topic 842, lessees are
required to recognize assets and liabilities on the balance sheet for most leases and
provide enhanced disclosures. ASU No. 2016-02 is effective for interim and annual reporting
periods beginning after December 15, 2018. In July 2018, the FASB issued amendments in
ASU 2018-11, which provide a transition election to not restate comparative periods for
the effects of applying the new standard. This transition election permits entities to
change the date of initial application to the beginning of the earliest comparative period
presented, or retrospectively at the beginning of the period of adoption through a cumulative-effect
adjustment.
|
The
company is not involved in any financing leases as a lessor. Based on the current operating leases of the company as a lessee,
the company believes that the provisions of ASU 2016-02 will not have a material impact on the financial statements.
|
4.
|
In
June 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-07,
“Improvements to Nonemployee Share-Based Payment Accounting”, which simplifies
the accounting for share-based payments granted to nonemployees for goods and services.
Under the ASU, most of the guidance on such payments to nonemployees would be aligned
with the requirements for share-based payments granted to employees. The changes take
effect for public companies for fiscal years starting after December 15, 2018, including
interim periods within that fiscal year. For all other entities, the amendments are effective
for fiscal years beginning after December 15, 2019, and interim periods within fiscal
years beginning after December 15, 2020. Early adoption is permitted, but no earlier
than an entity’s adoption date of Topic 606.
|
The
Company is currently evaluating the impact of adopting this standard on its financial statements and related disclosures, if any.
NOTE
3 – OTHER CURRENT ASSETS
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Prepaid expenses
|
|
$
|
21,000
|
|
|
$
|
-
|
|
Governmental institutions
|
|
|
6,117
|
|
|
|
8,444
|
|
Others
|
|
|
5,873
|
|
|
|
11,310
|
|
|
|
$
|
32,990
|
|
|
$
|
19,754
|
|
NOTE
4 – PROPERTY AND EQUIPMENT, NET
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Laboratory equipment & other
|
|
$
|
151,065
|
|
|
$
|
139,093
|
|
Computers
|
|
|
7,180
|
|
|
|
3,782
|
|
Vehicle
|
|
|
5,204
|
|
|
|
5,204
|
|
Furniture and equipment
|
|
|
13,046
|
|
|
|
13,046
|
|
|
|
|
176,495
|
|
|
|
161,125
|
|
Less - accumulated depreciation
|
|
|
(83,253
|
)
|
|
|
(57,751
|
)
|
Total property and equipment, net
|
|
$
|
93,242
|
|
|
$
|
103,374
|
|
Related
depreciation expense was $25,502 in 2018, $24,083 in 2017, and $20,695 in 2016.
TODOS MEDICAL LTD.
NOTES
TO FINANCIAL STATEMENTS (cont.)
NOTE
5 – SHORT-TERM LOANS FROM THIRD PARTY
On December 30, 2018, the Company signed a bridge
loan agreement with an investor for a total amount of Thirty Thousand U.S. Dollars (US$30,000). The loan principal will bear interest
at a flat rate of ten percent (10%) of the loan principal over the period of 6 months (the initial term of the loan). In addition,
10% of the loan principal was deducted upfront as an original issue discount. The loan principal plus the interest shall be due
six (6) months after the date of the loan (the “Maturity Date”).
The
investor shall have at any time after the Maturity Date the option to convert the loan principal plus the unpaid interest into
Ordinary Shares of the Company, at a conversion price equal to 70% of the lowest closing price of the Company’s Ordinary
Shares in the five (5) days prior to the conversion as quoted by Bloomberg, LP. In the event of default by the Company, the investor
shall have the option to convert the loan principal plus the interest into Ordinary Shares of the Company, at a conversion price
equal to 60% of the lowest closing price of the Company’s Ordinary Shares in the fifteen (15) days prior to the conversion
as quoted by Bloomberg, LP.
Upon
the consummation of the Company’s proposed public offering and upon listing to the NASDAQ Market System, the Company shall
deliver to the investor an Ordinary Share Purchase Warrant (the “Warrant”), providing the investor with a right to
purchase such number of fully-paid and non-assessable restricted Ordinary Shares of the Company that is equal in value to twenty-five
percent (25%) of the investor’s loan principal, at an exercise price that is equal to the price of the Company’s shares
in the public offering (the “Warrant Shares”), or in the event that the investor converts the loan principal into
Ordinary Shares of the Company, then the Company shall issue the Warrant to such investor concurrently with the issuance of the
conversion shares, and the exercise price for the Warrant Shares shall be the closing price of the Company’s Ordinary Shares,
as applicable, on the conversion date of the loan principal. The investor may exercise the Warrant at any time starting six (6)
months following the grant of such Warrant and up to three (3) years thereafter. The table below details the carrying value of
the loan as of December 31, 2018:
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Short-term loan principal (see Note 10)
|
|
$
|
30,012
|
|
|
$
|
-
|
|
Less: original issue discount
|
|
|
(3,000
|
)
|
|
|
-
|
|
Less: Fair value of derivative instrument
|
|
|
(9,000
|
)
|
|
|
-
|
|
|
|
$
|
18,012
|
|
|
$
|
-
|
|
NOTE
6 – LIABILITY FOR MINIMUM ROYALTIES
At
inception of the Company, the Company entered into a license agreement with B.G. Negev Technologies and Applications Ltd. (a wholly
owned subsidiary of Ben Gurion University – Israel) and Mor Research Applications Ltd. (a wholly owned subsidiary of Clalit
Medical Services – Israel). According to the license agreement, the Company is committed to pay minimum royalties to the
licensors some of which are payable without any connection to the Company’s sales (see also Note 10B).
NOTE
7 – OTHER CURRENT LIABILITIES
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Accrued payroll and related taxes
|
|
$
|
111,076
|
|
|
$
|
16,424
|
|
Provision for vacation
|
|
|
12,807
|
|
|
|
5,392
|
|
Accrued expenses
|
|
|
87,540
|
|
|
|
87,975
|
|
|
|
$
|
211,423
|
|
|
$
|
109,791
|
|
TODOS MEDICAL LTD.
NOTES
TO FINANCIAL STATEMENTS (cont.)
NOTE
8 – SHORT-TERM LOANS FROM SHAREHOLDERS
During
the years 2011-2014, the Company received loans from two separate shareholders. The loans mature on December 31, 2019 and bear
no interest. The loans are denominated in New Israel Shekels (NIS) and are linked to the Israeli consumer price index as of January
1, 2015. The loans may be prepaid by the Company from time to time according to the Company’s cash availability.
During
2016, the Company repaid one of the shareholders an aggregate amount of $23,529 on account of the loan.
In
November 2018, the company entered into agreement with one of the shareholders to assign his loan in the amount of US$350,000
to S.B. Nihul Mekarkein Ltd. and Sorry Doll Ltd collectively (the beneficiary). According to the agreement, the Company and the
beneficiary agreed to convert the loan into Ordinary Shares of the Company at a conversion price of US$0.10 per share, (3,500,000
Shares). The conversion of the loan into Ordinary Shares will be completed within 3 business days of shareholder approval of the
conversion transaction. In addition, the Company agreed to grant the beneficiary an option to purchase twice the amount of the
conversion shares, (7,000,000 ordinary shares) at a price-per-share of US$0.20 for a period of 5 years from the signing of the
conversion agreement.
As the agreement is subject
to the shareholder approval which has not yet been obtained, the loan as of the date of approval of these financial statements
is presented according to the original terms and conditions, as a short-term loan.
NOTE
9 – DERIVATIVE WARRANTS LIABILITY
The Company allocated approximately $19,655,
$244,000 and $168,000, for the years ended December 31, 2018, 2016 and 2015, respectively, of proceeds from its units under the
Private Placement Memorandum (“PPM”) (See also Note 10F. and 2M.) to the fair value of 600,000, 4,518,406 and 3,106,000
warrants issued during 2018, 2016 and 2015, respectively, in connection with the PPM that are classified as a liability. The warrants
are classified as a liability because of provisions in such warrants that allow for the net cash settlement of such warrants in
the event of certain fundamental transactions, as defined in the warrant agreement (some of which are not considered solely within
the control of the Company).
The
remaining outstanding warrants and terms as of December 31, 2018 and 2017 is as follows:
Issuance date
|
|
Outstanding as of December 31, 2017
|
|
|
Outstanding as of December 31, 2018
|
|
|
Exercise
Price
|
|
|
Exercisable as of
December 31, 2018
|
|
|
Exercisable Through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series (2015)
|
|
|
3,106,000
|
|
|
|
1,502,500
|
|
|
$
|
0.5
|
|
|
|
1,502,500
|
|
|
April 2021
|
Series (2016)
|
|
|
2,853,406
|
|
|
|
2,628,406
|
|
|
$
|
0.5
|
|
|
|
2,628,406
|
|
|
May 2019
|
Series (2018)
|
|
|
-
|
|
|
|
600,000
|
|
|
$
|
0.125
|
|
|
|
600,000
|
|
|
November 2021
|
|
|
|
5,959,406
|
|
|
|
4,730,906
|
|
|
|
|
|
|
|
|
|
|
|
Since
certain conditions in the warrant agreements do 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 warrant liability at December 31, 2018 and December 31,
2017, was $28,525 and $1,063,745, respectively.
As
quoted prices in active markets for identical or similar warrants are not available, the Company uses directly observable inputs
in the valuation of its derivative warrant liabilities (level 3 measurement).
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. The expected term of the warrants is based on the time to expiration of the warrants
from the date of measurement.
TODOS MEDICAL LTD.
NOTES
TO FINANCIAL STATEMENTS (cont.)
NOTE
9 – DERIVATIVE WARRANTS LIABILITY (cont.)
During
April 2017, the Company offered to the holders of the warrants to lower the exercise price of the warrants from $0.5 per share
to $0.4 per share for a limited period of time of 8 weeks.
As
a result of such offer, during May 2017, certain holders exercised 1,665,000 warrants into the same number of Ordinary Shares
for cash consideration of $666,000.
The
fair value of the inducement was measured in an amount of $166,500. Such amount was recognized as an additional financing expense
in the Company’s Statement of Loss for the year ended December 31, 2017.
As
of the date of exercise, the fair value of the warrants exercised which amounted to $297,200 (after consideration of the effect
of the inducement), was reclassified to equity rather than derivative warrant liabilities.
During
May 2018, the Company offered to the holders of the warrants the option to convert 25% of the warrants into shares in exchange
for extending the exercise the period of their warrants for an additional 3 years.
As
a result of such offer, during May 2018, certain holders exercised 722,500 warrants into the same number of Ordinary Shares for
cash consideration of $361,250.
As
of December 2018, a total of 1,106,000 warrants from series (2015) expired in a total amount of $178,498.
The
following table summarizes the observable inputs used in the valuation of the derivative warrant liabilities as of December 31,
2018 and December 31, 2017:
|
|
As of
December 31, 2018
|
|
|
As of
December 31, 2017
|
|
|
|
Series (2015)
|
|
|
Series (2016)
|
|
|
Series (2018)
|
|
|
Series (2015)
|
|
|
Series (2016)
|
|
Share price (U.S. dollars)
|
|
$
|
0.094
|
|
|
$
|
0.094
|
|
|
$
|
0.094
|
|
|
$
|
0.59
|
|
|
$
|
0.59
|
|
Exercise price (U.S. dollars)
|
|
$
|
0.5
|
|
|
$
|
0.5
|
|
|
$
|
0.125
|
|
|
$
|
0.5
|
|
|
$
|
0.5
|
|
Expected volatility
|
|
|
63
|
%
|
|
|
63
|
%
|
|
|
63
|
%
|
|
|
67
|
%
|
|
|
67
|
%
|
Risk-free interest rate
|
|
|
2.92
|
%
|
|
|
2.92
|
%
|
|
|
2.92
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
Dividend yield
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expected term (years)
|
|
|
2.4
|
|
|
|
0.47
|
|
|
|
2.88
|
|
|
|
0.37
|
|
|
|
0.77
|
|
|
|
Series (2015)
|
|
|
Series (2016)
|
|
|
Series (2018)
|
|
|
Total
|
|
Balances at December 31, 2016
|
|
$
|
76,768
|
|
|
$
|
182,948
|
|
|
|
-
|
|
|
$
|
259,716
|
|
Exercised
|
|
|
-
|
|
|
|
(297,200
|
)
|
|
|
-
|
|
|
|
(297,200
|
)
|
Changes in fair value
|
|
|
477,648
|
|
|
|
623,581
|
|
|
|
-
|
|
|
|
1,101,229
|
|
Balances at December 31, 2017
|
|
$
|
554,416
|
|
|
$
|
509,329
|
|
|
|
-
|
|
|
$
|
1,063,745
|
|
Amount classified to equity upon exercise
|
|
|
(88,803
|
)
|
|
|
(40,162
|
)
|
|
|
-
|
|
|
|
(128,965
|
)
|
expired
|
|
|
(178,498
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(178,498
|
)
|
Issued
|
|
|
-
|
|
|
|
-
|
|
|
|
19,655
|
|
|
|
19,655
|
|
Changes in fair value
|
|
|
(281,119
|
)
|
|
|
(466,293
|
)
|
|
|
-
|
|
|
|
(747,412
|
)
|
Balances at December 31, 2018
|
|
$
|
5,996
|
|
|
$
|
2,874
|
|
|
|
19,655
|
|
|
$
|
28,525
|
|
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 overtime, namely, the volatility and the risk-free
rate. A 5.0% decrease or increase in volatility would not have materially changed 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. The Company estimates the share price of $0.125 as share value representative
of the last price the Company raised capital from private issuers in November 2018.As of December 31 2018 the Company recorded
$925,910 in the finance expenses witch $178k relating to warrants expiration.
TODOS MEDICAL LTD.
NOTES
TO FINANCIAL STATEMENTS (cont.)
NOTE
10 – COMMITMENTS AND CONTINGENT LIABILITIES
|
A.
|
From
2012 through 2013, the Company received grants from the OCS (Office of the Chief Scientist)
in the total amount of $162,017, for its plans to develop a series of patient-friendly
blood tests that enable the early detection of a variety of cancers (the “Development
Plan”). Such contingent obligation has no expiration date. During 2016, the OCS
approved further grants (under the same terms) up to a maximum amount of approximately
$185,000, of which the Company received $110,220 during 2016. The receipt of such amounts
is dependent on numerous conditions being met. No amounts were received during 2017 and
2018. The Company is required to pay royalties to the OCS at a rate of 3% in the first
three years and 3.5% starting from the fourth year, of the proceeds from the sale of
the Company’s products arising from the Development Plan up to an amount equal to $272,237,
plus annual interest equal to 12-month LIBOR applicable to dollar deposit.
|
|
B.
|
At
inception of the Company, the Company entered into a license agreement with B.G. Negev
Technologies and Applications Ltd (a wholly owned subsidiary of Ben Gurion University
– Israel) and Mor Research Applications Ltd. (a wholly owned subsidiary of Clalit
Medical Services – Israel) (the “Licensors”) in which the Company obtained
an exclusive world-wide license to develop, research, commercialize, produce, market
and sub-license, products based on the Licensors’ technology. The Company’s
technology is built on this license which is therefore material to the Company. According
to the license agreement, future royalties would be paid to the licensors based on the
following royalty rates:
|
|
|
%
|
|
On net sales of:
|
|
|
|
● leukemia related products
|
|
|
3.0
|
|
● other products
|
|
|
2.5
|
|
● in certain limited circumstances, rates may be reduced to
|
|
|
2.0
|
|
|
|
%
|
|
On fixed sublicense income (with no sublicense income on sales by sub licensee):
|
|
|
|
● leukemia related products
|
|
|
20.0
|
|
● other products
|
|
|
15.0
|
|
|
|
%
|
|
On fixed sublicense income (with sublicense income on sales by sub licensee):
|
|
|
|
● leukemia related products
|
|
|
10.0
|
|
● other products
|
|
|
7.5
|
|
Without
any connection to the Company’s sales, the Company is required to pay minimum royalties to the Licensors according to the
following schedule (subject to the termination clause described below):
1. Year
2015 - $10,000
2. Year
2016 - $25,000
3. Year
2017 and on - $50,000 per year.
In
any specific year, the total royalties payable to the Licensors shall be the higher of:
● the
regular royalties based on the royalty rates as described above and
● the
minimum royalties.
The
minimum royalties will be paid to the Licensors regardless of whether the Company succeeds in generating revenues from sales of
the products arising from the usage of the Licensors’ technology.
The
license agreement is for an unlimited term, unless terminated earlier by either of the parties. Each party is entitled to terminate
the agreement as a result of a material breach or a failure to comply with a material term by the other party, as a result of
liquidation or insolvency of the other party (“Termination for Cause”). In addition, the Company was entitled to terminate
the agreement if at any time, during the period of 7 years following the effective date of the transaction, the Company, at its
sole discretion, determined that commercialization of the leukemia licensed products is not commercially viable. After such period,
the Company is not entitled to terminate this license agreement other than in accordance with the Termination for Cause provisions.
As of December 31, 2018, the Company did not reach a determination regarding the viability of the commercialization of the leukemia
licensed products.
TODOS MEDICAL LTD.
NOTES
TO FINANCIAL STATEMENTS (cont.)
NOTE
10 – COMMITMENT AND CONTINGENT LIABILITIES (cont.)
However,
since the 7-year period ended prior to December 31, 2018, the Company may not terminate the agreement other than Termination for
Cause. The Company has accrued the amount of the non-cancellable minimum royalties and the future liability with respect to the
commitment to pay minimum royalties to the Licensors for any future periods in a total amount of $373,000 of which $185,000 is
considered a current liability and $188,000 is considered non-current. This balance was measured based on the future cash payments
discounted using an interest rate of 21% which represents, according to management estimate, the applicable rate of risk for the
Company.
During
2017, the Company and the Licensors agreed on an amendment to the agreement in respect of the years 2015, 2016 and 2017 (in an
aggregate amount of $85,000), according to which the minimum royalties payable to the Licensors shall be paid on the earlier of
(i) August 1, 2017; and (ii) within 3 days following the date on which the Company shall have received an equity investment with
net proceeds of not less than $10,000,000. As of December 31, 2018, the Company had not paid any of the minimum royalties to the
Licensors with respect to any of the years 2015 through 2018. The Company and the Licensor are negotiating to further amend the
agreement in respect of the amounts of the minimum royalties.
|
C.
|
In
January 2015, the Company signed a one-year lease agreement for the lease of 108 sq.
m. of office space in Rehovot, Israel for a monthly consideration of NIS 6,780 (approximately
$1,830). The lease was renewed by the Company on February 1, 2018 for an additional term
of one year at NIS 7,200 (approximately $1,892) per month, with automatic renewal for
a second one-year period at NIS 7,400 per month, unless one party provides the other
with written notice of non-renewal. Lease payments are linked to the Israeli CPI based
on the CPI published on February 15, 2015, which until December 31, 2018, has not changed
significantly. The total expected future lease commitments from January 2019 and onwards
(until December 2019) are approximately NIS 84,000 ($22,000).
|
|
D.
|
In
October 2015, the Company signed an agreement with a non-Israeli company to procure governmental
and quasi-governmental grants to support the research and development of the Company.
The agreed upon fee for such service is totally dependent on the success of obtaining
such grants, so that the Company will never incur a net cost in this regard. After paying
approximately $56,000, the Company will thereafter pay 10% of the grants received. During
2016, the Company received approximately $56,000, which was paid out as per the above-mentioned
agreement. As of December 31, 2018, the Company did not receive and does not expect to
receive any amounts regarding this agreement.
|
On December 20, 2018, the Company signed an exclusive
reseller agreement with Care G.B. Plus Ltd (the Reseller) to market, distribute, and resell the Company’s breast cancer screening
products to customers located in and taking delivery in the State of Israel (the Territory). The agreement is subject to approval
by the shareholders of the Company.
The Reseller’s exclusive right to market and
sell the Products in the Territory is subject to the Reseller achieving milestones set by both parties. As of December 31, 2018,
the Company has not yet generated any sales.
|
F.
|
Ostrovitsky
loan conversion
|
In
November 2018, the Company entered into agreement with one of its shareholders to assign his loan to S.B. Nihul Mekarkein Ltd.
and Sorry Doll Ltd. (the beneficiary). According to the agreement, the Company and the beneficiary agreed to convert the loan
into ordinary shares of the Company at price of US$0.10 per share- (3,500,000 Shares). The conversion of the loan into ordinary
shares shall be completed subject to the approval of the shareholders of the Company. In addition, the Company agreed to grant
the beneficiary an option to purchase twice the amount of the converted stocks, (7,000,000 ordinary shares), to be available to
purchase at a stock price of US$0.20 per share, for a period of 5 years from the signing of this contract. (See Note 8).
G.
|
On
November 24, 2018, the Company entered into a binding letter of intent with Amarantus
Bioscience Holdings, Inc. (“Amarantus”), a biotechnology holding company, for
the establishment of a joint venture to develop LymPro Test®, an immune-based neurodiagnostic
blood test originally developed at the University of Leipzig, as a diagnostic blood test
for detection of Alzheimer’s disease (the “Joint Venture Transaction”).
Pursuant to the letter of intent, the Company undertook to issue to Amarantus 19.99%
of the Company’s outstanding ordinary shares, in exchange for 19.99% of Breakthrough
Diagnostics, Inc., a wholly-owned subsidiary of Amarantus. As part of the joint venture
transaction, all rights to the LymPro Test and certain other diagnostic assets will be
assigned by Amarantus to Breakthrough Diagnostics. In addition, Amarantus undertook to
grant the Company an exclusive option, in effect for sixty (60) days, to acquire the
remaining 80.01% of Breakthrough Diagnostics in exchange for an additional 30.01% of
the Company’s outstanding shares. The exclusive option will be exercisable upon
Amarantus entering into an amended and restated license agreement with the University
of Leipzig. The closing of the joint venture transaction is subject to the Company raising
$1,000,000 in equity or debt financing.
|
TODOS MEDICAL LTD.
NOTES
TO FINANCIAL STATEMENTS (cont.)
NOTE
10 – COMMITMENT AND CONTINGENT LIABILITIES (cont.)
H.
|
On
July 30, 2018, the Board of Directors of Todos Medical Ltd. resolved that Dr. Herman
Weiss, will cease to serve as the Company’s current Chairman of the Board of Directors,
and appointed him as Chief Executive Officer of the Company effective immediately. Additionally,
in conjunction with the appointment of Dr. Weiss as Chief Executive Officer, Rami Zigdon,
the Company’s then-current Chief Executive Officer, left his current position but
was appointed as the Company’s Chief Business Officer and will continue serving
as a member of the Company’s Board of Directors.
|
The
Company’s Compensation Committee and Board of Directors have approved the following compensation package for Dr. Weiss,
to be retroactive to August 1, 2018, which will be presented to the shareholders of the Company for approval at the annual meeting
of shareholders:
|
●
|
Salary: NIS
47,840 per month
|
|
●
|
Bonus: Annual
performance bonus of up to 35% of annual salary + 1% additional options, linked to the
achievement of performance goals to be established by the Board of Directors each year.
|
|
●
|
Equity: The
Company will grant the CEO options to purchase 5% of the Company’s issued and outstanding
shares as of March 25, 2019, at an exercise price equal to the fair market value of the
Company’s shares on the date of grant, in accordance with the following vesting
schedule:
|
|
○
|
25%
will vest on the consummation of the Company’s planned public offering (the “Public
Offering Date”)
|
|
○
|
25%
will vest quarterly in the first year following the Public Offering Date
|
|
○
|
25%
will vest quarterly in the second year following the Public Offering Date
|
|
●
|
Notice
Period: 3 months
|
|
●
|
Severance
Payments: 6 months’ salary following effective date of termination
|
|
●
|
Change
in Control Payment: In the event the CEO is terminated due to a change of control,
the Company will pay the CEO 12 months’ salary (instead of the 6 months’
salary) following the effective date of termination.
|
|
|
|
|
●
|
Change
in Control Acceleration: In the event of a change of control transaction following
the Public Offering Date vesting will be accelerated, and all of the options will become
fully vested.
|
The
company made a provision in the financial statements of $83,000 to reflect the compensation liability to Dr. Herman Weiss for
services provided as the chief executive officer, as part of other current liabilities (see Note 7).
NOTE
11 – SHAREHOLDERS’ DEFICIT
Convertible
Preferred Shares:
According
to the Company’s prior Articles of Association, which were revised on August 9, 2015, each preferred share entitled its
holder to the following rights, until such preferred share is converted into an ordinary share: (a) the right to receive notices
and participate in general meetings, vote there at, receive dividends whenever they are paid on the ordinary shares and to receive
liquidation dividends from the assets of the Company upon liquidation; (b) anti-dilution right that is not transferrable; and
(c) the right to appoint one (1) director, provided that the holder holds 5% or more of the issued share capital of the Company.
During the reported periods all the issued and outstanding preferred shares were held by Mr. Zigdon, the CEO of the Company.
On
March 16, 2017, and following the effective date of the registration of the securities of the Company for quotation on OTCQB,
the Company’s shareholders at a General Meeting adopted Amended and Restated Articles of Association of the Company and approved
the conversion of all preferred shares into the same number of ordinary shares (total of 3,333,471 shares). Accordingly, as of
December 31, 2017, there are no preferred shares issued and outstanding and the Company is no longer required to issue any additional
preferred shares to Mr. Zigdon. Following the registration of securities and the conversion of the preferred shares, the Company
issued to Mr. Zigdon 18,379 ordinary shares related to ordinary shares issued during 2017 prior to the March 2017 conversion date.
TODOS MEDICAL LTD.
NOTES
TO FINANCIAL STATEMENTS (cont.)
NOTE
11 – SHAREHOLDERS’ DEFICIT (cont.)
Ordinary
Shares:
|
A.
|
Upon
inception, the Company issued 3,000,000 Ordinary Shares of NIS 0.01 par value, which
were held by the Company’s previous CEO. Such Ordinary Shares were converted to Convertible
Preferred Shares.
|
On
January 29, 2012 the Company issued to an investor 27,000,000 Ordinary Shares of NIS 0.01 par value, upon the conversion of a
$160,987 (NIS 600,000) loan.
As
of that date, it was agreed between the investors who gained control over the Company and the then existing shareholder of the
Company (“the former controlling shareholder”) that the respective shares of the former controlling shareholder would
be converted into preferred shares. For the preferred share rights and privileges refer to the beginning of Note 10 above.
|
B.
|
Effective
as of March 31, 2014, an investor was to be issued 123,900 ordinary shares in exchange
for $57,356 (200,000 NIS) received by the Company in February, 2014. Although these shares
had not yet formally been issued by December 31, 2014, they have been included in the
shareholders’ deficit (as receipt on account of shares) and loss per ordinary share
relating to 2014. These shares were issued during 2015.
|
|
C.
|
On
October 7, 2014, the Company signed a share purchase agreement with certain investors
for $350,593 in exchange for 9,000,000 ordinary shares of NIS 0.01 par value.
|
As
the investment was to be executed in installments, the 9,000,000 shares were issued to a trustee that would hold the shares in
trust until fully paid by the investors. The trustee released the shares to the investors following the completion of each significant
transfer. As of December 31, 2014, the investor was entitled to 5,746,200 ordinary shares corresponding to an investment of $223,840.
During 2015 all these shares were released to the investors and the remaining purchase amount was paid to the Company.
|
D.
|
In
March 2015, the general meeting of the shareholders resolved to increase the registered
share capital and performed a share split so after the increase and share split, the
registered share capital of the Company was increased from NIS 100,000 to NIS 10,000,000,
divided into 990,000,000 ordinary shares par value NIS 0.01 each, and 10,000,000 preferred
shares par value NIS 0.01 each of the Company. On this date the amended and restated
articles of association were adopted. In March 2015, the board of directors approved
the grant of 29 bonus shares for each 1 share of the Company held by the shareholders.
Unless otherwise noted, all shares and per share amounts for all periods presented have
been retroactively restated to reflect the split and the issuance of bonus shares.
|
|
E.
|
In
March 2015, the Company approved a private placement memorandum for a funding round of
up to $ 2,000,000 and issuance of units for a price of $ 0.20 for each unit consisting
of: (A) 1 ordinary share par value NIS 0.01 and (B) 1 three-year warrant to purchase
1 ordinary share par value NIS 0.01 of the Company at a price of $ 0.50.
|
During
2016 and 2015 the Company has raised the gross sum of $903,681 and $621,200, respectively, and issued 4,518,406 and 3,106,000,
respectively, ordinary shares par value NIS 0.01 each and warrants to purchase an equal number of ordinary shares par value NIS
0.01 each. The proceeds of such units, net of related expenses (which amounted to $155,321), and net amounts allocated to the
warrants recorded as a liability (see Notes 2N. and 8), were reflected in the shareholders’ deficit, allocated between ordinary
share capital and additional paid in capital, as applicable. The proportional amount of related expenses associated with the warrants’
portion of the units, has been recorded under finance expenses.
During
April 2017, the Company offered to the holders of the warrants to lower the exercise price of the warrants from $0.5 per share
to $0.4 per share for a limited period of time of 8 weeks.
As
a result of such offer, during May 2017, certain holders exercised 1,665,000 warrants to the same number of Ordinary Shares for
a cash consideration of $666,000 (net amount of $599,400)
The
fair value of the inducement was measured in an amount of $166,500. Such amount was recognized as an additional financing expense
in the Company’s Statement of Comprehensive Loss.
As
of the date of exercise, the fair value of the warrants exercised which amounted to $297,200 (after consideration of the effect
of the inducement), was reclassified to equity rather than derivative warrant liabilities.
TODOS MEDICAL LTD.
NOTES
TO FINANCIAL STATEMENTS (cont.)
NOTE
11 – SHAREHOLDERS’ DEFICIT (cont.)
Ordinary
Shares (cont.):
|
F.
|
In
October 2017, the Company signed a share purchase agreement with certain investors for
$625,000 in exchange for 1,061,125 ordinary shares of NIS 0.01 par value. As of December
31, 2017, all of these ordinary shares were sold and the Company received net proceeds
of $562,553.
|
|
G.
|
In
June 2015, the Company approved the issuance of 1,000,000 fully vested ordinary shares
to Maxim Partners LLC (“Maxim”) pursuant to an agreement entered with Maxim
in April 2015 engaging Maxim to provide financial advisory and investment banking services
to the Company. The fair value (based on recent share issuances - see Note 11F. above)
of the issued shares of $200,000 was recorded as a stock-based expense, with a corresponding
amount reflected in shareholders’ deficit, allocated between ordinary share capital and
additional paid in capital, as applicable. Maxim is entitled to certain registration
rights. Under the agreement, in addition to the issuance of shares as mentioned above,
the Company undertook to pay Maxim for such services, a fee of $10,000 per month, for
the term of the agreement, accruing and payable only upon consummation of a financing
transaction between the Company and a third party introduced by Maxim, in addition to
a fee for a transaction consummated with such third party as detailed in the agreement
and reimbursement of expenses in connection with such services provided. As of December
31, 2017, the Company has recorded a provision in the amount of $30,000. In addition,
Maxim shall have a right of first offer for acting as lead book runner in the event that
the Company shall seek to raise additional capital by way of an offering – private
or public. The agreement is terminable by either party by a 30 days prior written notice.
|
In
December 2018, the Company entered into a new engagement agreement with Maxim which superseded the April 2015 agreement. Pursuant
to the new agreement, the Company appointed Maxim as its exclusive financial and sole management underwriter in connection with
a proposed public offering to raise up to $7 million. Maxim will be provided with an underwriting discount or spread of up to
eight percent (8.0%) of the public offering price. Upon the Company’s receipt of bridge financing, the Company shall transfer
to Maxim, an amount of $15,000 as an advance to be applied towards such underwriting discount.
|
H.
|
On
May 8, 2016, Company’s previous CEO exercised 103,428 options granted under the 2015
Israeli Option plan (see note 12 below) into 103,428 ordinary shares of the Company for
total exercise price of $273.
|
|
I.
|
On
April 4, 2017, Company’s employee exercised 81,432 options granted under the 2015 Israeli
Option plan (see note 12 below) into 81,432 ordinary shares of the Company for total
exercise price of $226. The remaining non-vested options of 228,858 were forfeited upon
termination in accordance with the original terms of the options.
|
|
J.
|
On
August 15, 2018, a certain consultant converted 620,521 options to 620,521 ordinary share
at an exercise price of NIS0.01.
|
|
K.
|
On
November 18, 2018, the Company signed a share purchase agreement with an investor for
$100,000 in exchange for 800,000 ordinary shares of NIS 0.01 par value and 600,000 warrants
for 3 years in exercise price of the lowest of $0.125 or the lowest price during the
5 trading days before the exercise notice.
|
Warrants
and restricted stock:
|
A.
|
On
October 18, 2016, the Company entered into a Consulting agreement with a consultant (the
“Consultant”), pursuant to which the Consultant undertook to provide strategic
cooperation and technology consulting for a period of two years from the date of the
agreement. Unless terminated, the agreement will be automatically renewed for consecutive
one-year periods. Based on the agreement, the Company issued the Consultant 620,521 warrants
to purchase ordinary shares of the Company at an exercise price of NIS 0.01 (approximately
$0.0026) per share. The warrants expire 18 months following the commencement date. Out
of the warrants, 232,696 warrants were immediately vested and the remaining are vested
in 15 parts of 25,855 warrants starting October 31, 2016. The Company evaluated the fair
value of the warrants using the Black-Scholes option pricing model assuming a 1% risk
free interest rate, 0% dividend yield, and 67% volatility, and estimated the fair value
of such warrants to be $91,490. As a result, the Company recognized compensation expenses
in 2017 and 2016 in the amount of $41,360 and $45,746, respectively included in research
and development expenses.
|
TODOS MEDICAL LTD.
NOTES
TO FINANCIAL STATEMENTS (cont.)
NOTE
11 – SHAREHOLDERS’ DEFICIT (cont.)
Warrants
and restricted stock (cont.):
|
B.
|
On
June 20, 2016, the Company entered into a Consulting Service Agreement with PCG Advisory
Group (“PCG”), pursuant to which PCG undertook to provide the Company with
markets advisory, investor relations and media strategies for a period of 7 months commencing
the date of the agreement. As consideration for the above services the Company agreed
to pay PCG a monthly cash compensation in the amount of $2,500. In addition, the Company
undertook to issue to PCG 50,000 ordinary shares for each calendar month. As of December
31, 2016, the Company recorded a related stock-based compensation expense of $48,750
based on the fair value of the 325,000 shares (and a price per share of $0.15). During
2017, the Company recorded related stock-based compensation expense of $3,750 based on
the fair value of the 25,000 shares (and a price per share of $0.15).
|
|
C.
|
During
May 2018, the Company offered to the holders of the warrants to exercise their warrants
in exchange for extending their expiration date for an additional 3 years. As a result
of such offer, during May 2018, certain holders exercised 722,500 warrants into the same
number of Ordinary Shares for a cash consideration of $361,250. (See Note 9). The total
costs paid regarding this transaction were approximately $36,000.
|
NOTE
12 – STOCK OPTIONS
On
January 11, 2016, the Company’s Board of Directors approved and adopted the Todos Medical Ltd. 2015 Israeli Share Option
Plan (the “2015 Plan”), pursuant to which the Board may award options to purchase its ordinary shares to designated
participants. Subject to the terms and conditions of the 2015 Plan, the Board of Directors has full authority in its discretion,
from time to time and at any time, to determine (i) the designate participants; (ii) the terms and provisions of the respective
Option Agreements, including, but not limited to, the number of Options to be granted to each Optionee, the number of Shares to
be covered by each Option, provisions concerning the time and the extent to which the Options may be exercised and the nature
and duration of restrictions as to the transferability or restrictions constituting substantial risk of forfeiture and to cancel
or suspend awards, as necessary; (iii) determine the Fair Market Value of the Shares covered by each Option; (iv) make an election
as to the type of Approved 102 Option under Israeli IRS law; (v) designate the type of Options; (vi) take any measures, and to
take actions, as deemed necessary or advisable for the administration and implementation of the 2015 Plan; (vii) interpret the
provisions of the 2015 Plan and to amend from time to time the terms of the 2015 Plan.
The
2015 Plan permits the grant of up to 6,000,000 options to purchase ordinary shares subject to adjustments set in the 2015 Plan.
As of December 31, 2018, there were 4,241,685 ordinary shares available for future issuance under the 2015 Plan.
The
following table presents the Company’s stock option activity for employees and directors of the Company for the years ended
December 31, 2018 and December 31, 2017:
|
|
Number of Options
|
|
|
Weighted Average Exercise Price
|
|
Outstanding at December 31, 2017
|
|
|
1,758,315
|
|
|
|
0.0026
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited or expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2018
|
|
|
1,758,315
|
|
|
|
0.0026
|
|
Number of options exercisable at December 31, 2018
|
|
|
1,137,731
|
|
|
|
0.0026
|
|
|
|
Number of Options
|
|
|
Weighted Average Exercise Price
|
|
Outstanding at December 31, 2016
|
|
|
2,068,605
|
|
|
|
0.0026
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(81,432
|
)
|
|
|
0.0026
|
|
Forfeited or expired
|
|
|
(228,858
|
)
|
|
|
-
|
|
Outstanding at December 31, 2017
|
|
|
1,758,315
|
|
|
|
0.0026
|
|
Number of options exercisable at December 31, 2017
|
|
|
827,443
|
|
|
|
0.0026
|
|
TODOS MEDICAL LTD.
NOTES
TO FINANCIAL STATEMENTS (cont.)
NOTE
12 – STOCK OPTIONS (cont.)
The
fair value of options granted was estimated at the dates of grant using the Black-Scholes option pricing model. The following
are the data and assumptions used:
|
|
Years ended December 31,
|
|
|
|
2016
|
|
Dividend yield
|
|
|
0
|
|
Expected volatility (%) (*)
|
|
|
100
|
%
|
Risk-free interest rate (%)
|
|
|
1
|
%
|
Expected term (years) (**)
|
|
|
2.5
|
|
Exercise price (US dollars)
|
|
|
0.0026
|
|
Stock price (US dollars) (***)
|
|
|
0.15
|
|
|
(*)
|
Due
to the low trading volume of the Company’s Common Stock, the expected volatility
was based on the historical volatility of the share price of other public companies that
operate in the same industry sector as the Company.
|
|
(**)
|
Due
to the fact that the Company does not have sufficient historical exercise data, the expected
term was determined based on the “simplified method” in accordance with SEC
Staff Accounting Bulletin No. 110.
|
|
(***)
|
The
Common Stock price, per share reflects the Company’s management’s estimation
of the fair value per share of Common Stock. In reaching its estimation for 2016 grants,
management considered, among other things, the valuation of the issuance of the shares
under the private placement (see Note 11F above)
|
Costs
incurred in respect of stock-based compensation for employees and directors, for the years ended December 31, 2018, 2017 and 2016
amounted to $47,672, $113,758 and 210,180, respectively.
The
following table summarizes information about options to employees, officers and directors outstanding at December 31, 2018
under the plan:
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Exercise Price
|
|
Number of Options
|
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
|
Number of Options
|
|
|
Weighted Average Exercise Price
|
|
0.0026
|
|
|
1,758,315
|
|
|
|
2.03
|
|
|
|
1,137,731
|
|
|
|
0.0026
|
|
As
of December 31, 2018, the aggregate intrinsic value for the options exercisable according to $0.094 price per share was $103,989
with a weighted average remaining contractual life of 2.03 years.
TODOS MEDICAL LTD.
NOTES
TO FINANCIAL STATEMENTS (cont.)
NOTE
13 – RESEARCH AND DEVELOPMENT EXPENSES, NET
|
|
Year ended December 31
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and related expenses
|
|
$
|
178,486
|
|
|
$
|
144,250
|
|
|
$
|
145,997
|
|
Stock-based compensation
|
|
|
12,077
|
|
|
|
22,883
|
|
|
|
48,056
|
|
Professional fees
|
|
|
22,271
|
|
|
|
18,888
|
|
|
|
37,426
|
|
Laboratory and materials
|
|
|
70,779
|
|
|
|
143,644
|
|
|
|
109,299
|
|
Patent expenses
|
|
|
82,367
|
|
|
|
65,654
|
|
|
|
24,956
|
|
Rent and maintenance
|
|
|
40,146
|
|
|
|
41,673
|
|
|
|
41,289
|
|
Liability for minimum royalty expenses (*)
|
|
|
--
|
|
|
|
238,000
|
|
|
|
50,000
|
|
Depreciation
|
|
|
25,650
|
|
|
|
24,083
|
|
|
|
20,695
|
|
Travel expenses
|
|
|
3,804
|
|
|
|
2,152
|
|
|
|
2,942
|
|
Insurance and other expenses
|
|
|
23,604
|
|
|
|
19,300
|
|
|
|
3,293
|
|
|
|
|
459,184
|
|
|
|
720,527
|
|
|
|
483,953
|
|
Less: Grants from the OCS and others (**)
|
|
|
-
|
|
|
|
-
|
|
|
|
(166,046
|
)
|
|
|
$
|
459,184
|
|
|
$
|
720,527
|
|
|
$
|
317,907
|
|
(**)
|
See Note 10A and 10D.
|
NOTE
14 – GENERAL AND ADMINISTRATIVE EXPENSES
|
|
Year ended December 31
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and related expenses
|
|
$
|
190,207
|
|
|
$
|
67,541
|
|
|
$
|
29,254
|
|
Stock-based compensation
|
|
|
35,595
|
|
|
|
90,875
|
|
|
|
162,124
|
|
Communication and investor relations
|
|
|
230,194
|
|
|
|
83,836
|
|
|
|
5,121
|
|
Professional fees (*)
|
|
|
269,980
|
|
|
|
224,407
|
|
|
|
150,341
|
|
Insurance and other expenses
|
|
|
193,718
|
|
|
|
150,428
|
|
|
|
64,142
|
|
|
|
$
|
919,694
|
|
|
$
|
617,087
|
|
|
$
|
410,982
|
|
(*)
includes listing expenses
NOTE
15 – FINANCING INCOME (EXPENSES), NET
|
|
Year ended December 31
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
US Dollars
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrants liability and fair value of warrants expired (see Note 9)
|
|
$
|
925,910
|
|
|
$
|
(1,101,229
|
)
|
|
$
|
117,577
|
|
Inducement related to warrants exercised
|
|
|
-
|
|
|
|
(166,500
|
)
|
|
|
-
|
|
Expenses related to issuing warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
(34,272
|
)
|
Exchange rate differences and other finance income (expenses)
|
|
|
45,427
|
|
|
|
(70,029
|
)
|
|
|
(7,877
|
)
|
Liability for minimum royalty expenses
|
|
|
(50,000
|
)
|
|
|
--
|
|
|
|
--
|
|
Financing income (expenses), net
|
|
$
|
921,337
|
|
|
$
|
(1,337,758
|
)
|
|
$
|
75,428
|
|
TODOS MEDICAL LTD.
NOTES
TO FINANCIAL STATEMENTS (cont.)
NOTE
16 – INCOME TAX
The
Company files its income tax report in the state of Israel and is subject to taxation laws applicable in Israel.
|
A.
|
On
January 4, 2016, the Israeli parliament passed the Law for Amendment of the Income Tax
Ordinance No. 216, which, among other things reduced the standard Israeli corporate income
tax rate from 26.5% to 25% effective as of January 2016.
|
In
December 2016, the Israeli parliament passed the Economic Efficiency Law (Legislative Amendments to Achieve Budget Targets for
the 2017 and 2018 Budget), which set a further reduction of corporate tax from 25% to 23%. The provisions of the law included
a Temporary Order stipulate that the corporate tax rate in 2017 will be 24%. As a result, the corporate tax rate that will apply
in 2017 will be 24% and the corporate tax rate that will take effect from 2018 onwards will be 23%
|
B.
|
The
Company has final (considered final) tax assessments through the 2013 tax year.
|
|
C.
|
As
of December 31, 2018, the Company has carried forward losses for Israeli income tax purposes
of approximately $3.7 million which can be offset against future taxable income for an
indefinite period of time.
|
|
D.
|
The
Company is still in its development stage and has not yet generated revenues, therefore,
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 December, 31
|
|
Composition of deferred tax assets:
|
|
2018
|
|
|
2017
|
|
Net loss carry-forward
|
|
$
|
1,121,229
|
|
|
$
|
814,000
|
|
Valuation allowance
|
|
|
(1,121,229
|
)
|
|
|
(814,000
|
)
|
|
|
|
-
|
|
|
|
-
|
|
|
E.
|
For
the years ended December 31, 2018, 2017 and 2016, the following table reconciles the
statutory income tax rate to the effective income tax rate:
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Tax rate
|
|
|
23
|
%
|
|
|
24
|
%
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense (benefit) at statutory rate
|
|
$
|
(105,234
|
)
|
|
$
|
(642,090
|
)
|
|
$
|
(163,365
|
)
|
Tax rate differential
|
|
|
-
|
|
|
|
28,057
|
|
|
|
(55,376
|
)
|
Decrease in taxes from permanent differences in stock-based compensation
|
|
|
10,964
|
|
|
|
27,301
|
|
|
|
52,545
|
|
Decrease in taxes from permanent difference in warrants liabilities
|
|
|
(212,959
|
)
|
|
|
304,254
|
|
|
|
29,394
|
|
Loss carryforwards-change in valuation allowance
|
|
|
307,229
|
|
|
|
282,478
|
|
|
|
136,802
|
|
Income tax expense (benefit)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
TODOS MEDICAL LTD.
NOTES
TO FINANCIAL STATEMENTS (cont.)
NOTE
17 – LOSS PER ORDINARY SHARE
The
loss and the weighted average number of ordinary shares used in computing basic and diluted loss per ordinary share for the years
ended December 31, 2018, 2017 and 2016, are as follows:
|
|
Year ended December 31
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Loss for the year
|
|
$
|
(457,541
|
)
|
|
$
|
(2,675,372
|
)
|
|
$
|
(653,461
|
)
|
Less: Loss attributed to preferred shares
|
|
|
-
|
|
|
|
31,950
|
|
|
|
32,483
|
|
Loss for the year attributable to ordinary shareholders
|
|
$
|
(457,541
|
)
|
|
$
|
(2,643,422
|
)
|
|
$
|
(620,978
|
)
|
Weighted average number of ordinary shares outstanding attributable to ordinary shareholders
|
|
|
70,869,924
|
|
|
|
68,587,261
|
|
|
|
62,467,556
|
|
During the years ended December 31, 2018, 2016
and 2015, 600,00, 4,518,406 and 3,106,000, three-year warrants, respectively, were issued - as described in Note 9. These warrants
were not taken into account in calculating either the basic or diluted loss per ordinary share, as their effect was anti-dilutive.
During the years ended December 31, 2018 and 2017 and 2016 there were no other potentially dilutive instruments (except for the
convertible preferred shares).
During
the years ended December 31, 2018, and 2017 and 2016 the total weighted average number of ordinary shares related to outstanding
options and warrants excluded from the calculation of the diluted loss per share was 6,489,221 and 7,717,721 and 1,182,066 respectively.
NOTE
18 – RELATED PARTIES
|
A.
|
Effective
as of May 1, 2015, the Company entered into an employment agreement with Mr. Rami Zigdon,
the previous chief executive officer of the Company, who owned all the Company’s
preferred shares. From the Company’s inception to the effective date of the agreement,
Mr. Zigdon provided the Company with management services as an independent contractor.
As of the effective date of the agreement, Mr. Zigdon was employed as chief executive
officer on a full-time basis. The agreement may be terminated by either party by ninety
days written notice or by the Company under exceptional circumstances as detailed in
the agreement. Pursuant to the agreement, Mr. Zigdon is entitled to a gross monthly salary
of NIS 15,000 (approximately $3,900) linked to the Israeli CPI known at the effective
date of the agreement as well as reimbursement of vehicle expenses up to an annual amount
of NIS 16,000 (approximately $4,200). The gross monthly salary shall be increased to
NIS 25,000 (approximately $6,600) from the date on which the Company shall have cash
in its bank account of least NIS 3,500,000 (approximately $920,000) (the “Triggering
Date”) that is sourced from capital injections/non-repayable amounts only, as confirmed
by the Company’s CFO. In the event that during the term of the agreement, on a
certain date the Company shall have at least NIS 4,000,000 (approximately $1,050,000)
cash in its bank account that is sourced from capital injection/non-repayable amounts
only, as confirmed by the Company’s CFO, Mr. Zigdon shall be entitled to a payment
in the sum of NIS 12,333 (approximately $ 3,200) multiplied by the number of calendar
months that had passed from the effective date of the agreement and until the month ending
prior to the Triggering Date. In addition, Mr. Zigdon is entitled to participate in the
Company’s incentive program that will be adopted by the Company. Furthermore, Mr. Zigdon
will be entitled to options to purchase Company shares all subject to an option plan
to be adopted by the appropriate organs of the Company. The number of options, vesting
and such other terms of grant of the options are detailed in Note 18B. below. Mr. Zigdon
is entitled to customary fringe benefits under Israeli laws. If the agreement is terminated
by the Company, other than for “cause” as defined in the agreement, Mr. Zigdon
shall be entitled to an adjustment bonus equal to 3 times the last gross monthly salary
or in the event that the Company will have more than $3 Million cash in hand, the adjustment
bonus shall be equal to 6 times his last gross monthly salary. The agreement contains
provisions regarding non-competition, confidentiality of information and assignment of
inventions.
|
On
July 30, 2018, the Board of Directors of the Company resolved that Dr. Herman Weiss will cease to serve as the Company’s
current Chairman of the Board of Directors, and appointed him as Chief Executive Officer of the Company, effective immediately.
Additionally, in conjunction with the appointment of Dr. Weiss as Chief Executive Officer, Rami Zigdon, the Company’s previous
Chief Executive Officer, left his position but was appointed as the Company’s Chief Business Officer and will continue serving
as a member of the Company’s Board of Directors.
The
Company intends to enter into an employment agreement with Dr. Weiss at a later date. (see Note 10)
TODOS MEDICAL LTD.
NOTES
TO FINANCIAL STATEMENTS (cont.)
NOTE
18 – RELATED PARTIES (cont.)
|
B.
|
As
part of the 2015 Plan described in Note 12 above, in November 2015, the Board of Directors
of the Company approved the issuance of share options to three employees, including our
previous CEO and CTO, at an exercise price of NIS 0.01 per share. Mr. Zigdon received
1,241,163 options of which, half vest over a period of twenty-four months, subject only
to a service condition, and half of the options vest upon the achievement of 8 milestones
which includes, among others, closing of equity financing of at least $2,000,000, obtaining
FDA approval for the performance of clinical trials and other clinical measurements.
Milestones which are not met within 48 months from the date of the grant (November 2019)
shall expire. The fair value of the stock options granted to Mr. Zigdon was estimated
at $183,049 (see Note 11 above). On May 8, 2016, Mr. Zigdon exercised 103,428 vested
options into ordinary shares for total exercise price of $273. All of the options not
exercised of exercisable shall expire on January 11, 2021. Compensation expenses recognized
for the awards subject to performance conditions commence when the Company determines
that achievement of the performance conditions is probable.
|
|
C.
|
Moshe
Schlisser (a director as of February 27, 2016) and Ephraim Schlisser (Moshe’s father)
hold managerial positions with a company named A.S. Ivor Israel Ltd. (“Ivor”).
Ivor was assigned its rights and obligations from Iberica Investments LLC (“Iberica”),
which was a party to a 2015 consulting agreement pursuant to which Iberica agreed to
provide assistance with the Company’s fundraising. During the years ended December
31, 2018 and 2017, the Company paid Ivor and Iberica approximately $36,150 and $128,000,
respectively, pursuant to this consulting agreement. The Company terminated the Iberica
consulting agreement, effective December 28, 2018.
|
|
D.
|
Crow
Technologies 1977 Ltd., a company engaged in the manufacturing of plastics and electronic
components, has an exclusive right to manufacture products for the Company (and any component
of the products) for a price that is higher by 50% to that of the market prices of manufacturing
such products or components in Israel. As of the date hereof, Crow Technologies has not
exercised its exclusive right. The products of the Company do not have any electronic
parts. While the Company’s products developed through the current date, do have
plastic parts, the cost of these parts approximate $0.10 per unit. The Company believes
that the exclusive right held by Crow Technologies is immaterial to the ultimate price
for which the Company will sell its products or even the overall estimated cost of production
of its products.
|
NOTE
19 – SUBSEQUENT EVENTS
Convertible
bridge loan transaction
On
February 27, 2019, we entered into a convertible bridge loan agreement, and issued notes and warrants relating thereto, to obtain
an aggregate loan of $1,350,500 from several private lenders, including DPH Investment Ltd., a holder of 11.5% of our shares (as
of such date), to finance the Company’s activities through the consummation of a proposed public offering and our planned
up listing to the NASDAQ Capital Market. The convertible bridge loan agreement signed on February 27, 2019 superseded and replaced
the convertible bridge loan agreement for $30,000, signed on December 30, 2018, that is described in Note 5 above. The loan, which
has an original issue discount of ten percent (10%), bears interest at a flat rate of ten percent (10%) and has a maturity date
six months after receipt of the loan funds. The loan is convertible into ordinary shares of the Company after the maturity date
at a conversion price equal to 70% of the average closing bid price of the Company’s Ordinary Shares in the five days prior
to the conversion. In the event the Company defaults under the loan agreement, the conversion price will be reduced to
60% of the average closing bid price of the Company’s Ordinary Shares in the 15 days prior to the conversion. In addition,
the lenders received 25% warrant coverage, with the warrant exercise price to be equal to the offering price in the proposed public
offering, or, in the event the loan is converted into shares, the warrant exercise price will be equal to the applicable closing
bid price of the Company’s shares at the time of the conversion of the loan.
On
March 10, 2019, we entered into an amendment to the bridge loan agreement. The amendment provides for a 10% penalty if we repay
the loan prior to the maturity date. In addition, we agreed to grant the lenders an additional 25% warrant coverage, under the
same terms as the original warrant, but with a warrant exercise price equal to 150% of the closing bid price of our shares on
the day prior to the closing of the bridge loan transaction.
TODOS MEDICAL LTD.
NOTES
TO FINANCIAL STATEMENTS (cont.)
NOTE
19 – SUBSEQUENT EVENTS (cont.)
Amarantus
Transaction
On
February 27, 2019, the Company entered into a joint venture agreement with Amarantus Bioscience Holdings, Inc, pursuant to which
the Company issued Ordinary Share representing 19.99% of the Company to Amarantus, in exchange for Amarantus transferring to the
Company 19.99% of Breakthrough Diagnostics, Inc. (“Breakthrough”), a wholly-owned subsidiary of Amarantus, and for
Amarantus assigning its amended and restated license agreement with the University of Leipzig for an exclusive license to develop
and commercialize the LymPro Test®, an immune-based neurodiagnostic blood test for the detection of Alzheimer’s disease
(the “License”), to Breakthrough. In addition, as part of the transaction, the Company provided Amarantus with an
interest-free loan in the amount of $45,000 to be used to pay certain financial obligations of Amarantus owed to the University
of Leipzig prior to the assignment of the License to Breakthrough, in connection with the license agreement and a related sponsored
research agreement. The maturity date of the loan is May 1, 2019. In addition, the Company provided Breakthrough with an interest-free
loan in the amount of $135,000 to be used to pay certain financial obligations of Breakthrough owed to the University of Leipzig
after the assignment of the License to Breakthrough, in connection with the license agreement and the related sponsored research
agreement. The maturity date of this loan is September 30, 2019. The Company expects to loan up to an additional $180,000 to cover
additional fees that will be owed by Breakthrough to the University of Leipzig in connection with the license agreement and the
sponsored research agreement.
As
part of the joint venture with Amarantus, the Company was granted an option, in effect for sixty (60) days, to acquire the remaining
80.01% of Breakthrough held by Amarantus in exchange for the issuance to Amarantus of Ordinary Shares of the Company representing
an additional thirty percent (30%) of the Company, such that upon consummation of the transaction the Company will own 100% of
Breakthrough and Amarantus will own 49.99% of the Company.
24,000,000
Units
Consisting
of Ordinary Shares
and
Warrants to Purchase Ordinary Shares
TODOS
MEDICAL LTD.
PROSPECTUS
Dawson James Securities
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ViewTrade Securities
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,
2019
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Indemnification
of Directors, Officers, Employees and Agents
Under
the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. A company
may exculpate an office holder in advance from liability to the company, in whole or in part, for damages caused to the company
as a result of a breach of the duty of care but only if a provision authorizing such exculpation is included in its articles of
association. Our amended and restated articles of association include such a provision. An Israeli company may not exculpate a
director from liability arising out of a breach of the duty of care with respect to a dividend or distribution to shareholders.
Under
the Companies Law and the Securities Law, 5738—1968, or the Securities Law, a company may indemnify an office holder in
respect of the following liabilities, payments and expenses incurred for acts performed as an office holder, either pursuant to
an undertaking made in advance of an event or following an event, provided a provision authorizing such indemnification is contained
in its articles of association:
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●
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a
monetary liability incurred by or imposed on him or her in favor of another person pursuant
to a judgment, including a settlement or arbitrator’s award approved by a court.
However, if an undertaking to indemnify an office holder with respect to such liability
is provided in advance, then such undertaking must be limited to certain events which,
in the opinion of the board of directors, can be foreseen based on the company’s
activities when the undertaking to indemnify is given, and to an amount or according
to criteria determined by the board of directors as reasonable under the circumstances,
and such undertaking shall detail the foreseen events and described above amount or criteria;
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●
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reasonable
litigation expenses, including reasonable attorneys’ fees, incurred by the office
holder as (1) a result of an investigation or proceeding instituted against him or her
by an authority authorized to conduct such investigation or proceeding, provided that
(i) no indictment was filed against such office holder as a result of such investigation
or proceeding; and (ii) no financial liability was imposed upon him or her as a substitute
for the criminal proceeding as a result of such investigation or proceeding or, if such
financial liability was imposed, it was imposed with respect to an offense that does
not require proof of criminal intent; or (2) in connection with a monetary sanction;
a monetary liability imposed on him or her in favor of an injured party at an Administrative
Procedure (as defined below) pursuant to Section 52(54)(a)(1)(a) of the Securities Law;
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●
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expenses
incurred by an office holder in connection with an Administrative Procedure under the
Securities Law, including reasonable litigation expenses and reasonable attorneys’
fees; and
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●
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reasonable
litigation expenses, including attorneys’ fees, incurred by the office holder or
imposed by a court in proceedings instituted against him or her by the company, on its
behalf or by a third party or in connection with criminal proceedings in which the office
holder was acquitted or as a result of a conviction for an offense that does not require
proof of criminal intent.
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“Administrative
Procedure” is defined as a procedure pursuant to chapters H3 (Monetary Sanction by the Israeli Securities Authority), H4
(Administrative Enforcement Procedures of the Administrative Enforcement Committee) or I1 (Arrangement to prevent Procedures or
Interruption of procedures subject to conditions) to the Securities Law.
Under
the Companies Law and the Securities Law, a company may insure an office holder against the following liabilities incurred for
acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:
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●
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a
breach of duty of care to the company or to a third party, to the extent such a breach
arises out of the negligent conduct of the office holder;
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●
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a
breach of duty of loyalty to the company, provided that the office holder acted in good
faith and had a reasonable basis to believe that the act would not harm the company;
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●
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a
monetary liability imposed on the office holder in favor of a third party;
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●
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a
monetary liability imposed on the office holder in favor of an injured party at an Administrative
Procedure pursuant to Section 52(54)(a)(1)(a) of the Securities Law; and
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●
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expenses
incurred by an office holder in connection with an Administrative Procedure, including
reasonable litigation expenses and reasonable attorneys’ fees.
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Under
the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:
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●
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a
breach of duty of loyalty, except for indemnification and insurance for a breach of the
duty of loyalty to the company to the extent that the office holder acted in good faith
and had a reasonable basis to believe that the act would not harm the company;
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●
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a
breach of the duty of care committed intentionally or recklessly, excluding a breach
arising out of the negligent conduct of the office holder;
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●
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an
act or omission committed with intent to derive illegal personal benefit; or
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●
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a
fine or forfeit levied against the office holder.
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Under
the Companies Law, exculpation, indemnification and insurance of office holders must be approved by the compensation committee
and the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders.
Our
amended and restated articles of association permit us to, exculpate, indemnify and insure our office holders as permitted under
the Companies Law. Our office holders are currently covered by a directors and officers’ liability insurance policy. As
of the date of this registration statement, no claims for directors’ and officers’ liability insurance have been filed
under this policy, we are not aware of any pending or threatened litigation or proceeding involving any of our directors or officers
in which indemnification is sought, nor are we aware of any pending or threatened litigation that may result in claims for indemnification
by any director or officer.
In
the opinion of the SEC, however, indemnification of directors and office holders for liabilities arising under the Securities
Act is against public policy and therefore unenforceable.
Recent
Sales of Unregistered Securities
Set
forth below are the sales of all securities of the registrant sold by the registrant within the past three years which were not
registered under the Securities Act:
On
June 20, 2016, the Company entered into a Consulting Service Agreement with PCG Advisory Group (“PCG”), pursuant to
which PCG undertook to provide the Company with markets advisory, investor relations and media strategies for a period of 7 months
commencing the date of the agreement. As partial consideration for the above services, the Company agreed to issue to PCG 50,000
ordinary shares for each calendar month of the term. The Company issued 350,000 ordinary shares to PCG.
On
October 18, 2016, the Company entered into a Consulting Agreement with a consultant (the “Consultant”), pursuant to
which the Consultant undertook to provide strategic cooperation and technology consulting for a period of two years from the date
of the agreement. Unless terminated, the agreement will be automatically renewed for consecutive one-year periods. Based on the
agreement, the Company issued to the Consultant 620,521 warrants to purchase ordinary shares of the Company at an exercise price
of NIS 0.01 (approximately $0.0026) per share. The Consultant has exercised all of the warrants.
In
October 2017, the Company signed a share purchase agreement with certain investors for an investment of $625,000 in exchange for
the issuance of 1,061,125 ordinary shares.
On
November 18, 2018, the Company signed a share purchase agreement with an investor for an investment of $100,000 in exchange for
the issuance of 800,000 ordinary shares and 600,000 warrants with a three year exercise period at an exercise price of the lower
of $0.125 or the lowest price during the 5 trading days before the exercise notice.
On
February 27, 2019, the Company entered into a joint venture agreement with Amarantus, pursuant to which the Company issued 17,986,999 Ordinary
Shares, representing 19.99% of the Company, to Amarantus, in exchange for Amarantus transferring to the Company 19.99% of the
outstanding equity securities of Breakthrough, a wholly owned subsidiary of Amarantus, and for Amarantus assigning the University
of Leipzig License Agreement to Breakthrough.
The Company recently raised $1,215,450
from the sale of convertible notes, which have an outstanding principal balance of $1,350,500. On February 27, 2019, we entered
into a convertible bridge loan agreement, and have issued notes and warrants relating thereto, to obtain loans from several private
lenders, including DPH Investment Ltd., a holder of 11.5% of our shares (as of such date), to finance the Company’s activities
through the consummation of a proposed public offering and our planned uplisting to the NASDAQ Capital Market. As of April 15,
2019, we have obtained $1,010,500 in bridge loan financing, and have commitments for an additional $340,000 subject to certain
milestones. The loans, which have an original issue discount of ten percent (10%), bear interest at a flat rate of ten percent
(10%) and have a maturity date six months after receipt of the loan funds. The loans are convertible into ordinary shares of the
Company after the maturity date at a conversion price equal to 70% of the average closing bid price of the Company’s Ordinary
Shares in the five days prior to the conversion. In the event the Company defaults under the loan agreement, the conversion price
will be reduced to 60% of the average closing bid price of the Company’s Ordinary Shares in the 15 days prior to the conversion.
In addition, each lender received a warrant to purchase an amount of ordinary shares equal to 25% of the amount loaned by such
lender, with the warrant exercise price to be equal to the offering price in the proposed public offering, or, in the event its
loan is converted into shares, the warrant exercise price will be equal to the applicable closing bid price of the Company’s
shares at the time of the conversion of the loan. The warrants may be exercised only during the period beginning on the date that
is six months after the date that the warrant exercise price and the number of warrant shares are determined and ending on the
date that is three years thereafter.
On
March 10, 2019, we entered into an amendment to the bridge loan agreement. The amendment provides for a 10% penalty if we repay
the loan prior to the maturity date. In addition, we agreed to grant each lender a warrant to purchase an additional amount of
ordinary shares equal to 25% of the amount loaned by such lender, under the same terms as the original warrant, but with a warrant
exercise price equal to 150% of the closing bid price of our shares on the day prior to the closing of the bridge loan transaction.
We
claimed exemption from registration under the Securities Act for these issuances described above under Section 4(a)(2) or Regulation
S promulgated under the Securities Act, as well as, with respect to grants of share options, under Rule 701 of the Securities
Act as transactions pursuant to written compensatory plans or pursuant to a written contract relating to compensation. No form
of general solicitation or general advertising was conducted in connection with any of these sales, and no underwriters were employed.
Exhibits
and Financial Statement Schedules
(a) Exhibits: The following exhibits are included herein or
incorporated herein by reference
Exhibit
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Description
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1.1
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Form
of Underwriting Agreement (filed as Exhibit 1.1 to the Company’s Amendment No. 1 to Form F-1 (File No. 333-230981) filed
on July 3, 2019 and incorporated herein by reference).
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3.1
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Amended and Restated Articles of Association of Todos Medical Ltd. (filed as Exhibit 99.1 to the Company’s current report on Form 6-K (File No. 333-209744) filed on March 30, 2017 and incorporated herein by reference).
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4.1
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Form
of Underwriter’s Warrant (filed as Exhibit 4.1 to the Company’s Amendment No. 1 to Form F-1 (File No. 333-230981)
filed on July 3, 2019 and incorporated herein by reference).
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4.2
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Form
of Public Warrant (filed as Exhibit 4.2 to the Company’s Amendment No. 2 to Form F-1 (File No. 333-230981) filed on
August 9, 2019 and incorporated herein by reference).
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5.1
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Opinion
of SRK Kronengold Law Offices regarding the legality of the securities being registered (filed as Exhibit 5.1 to the Company’s
Amendment No. 1 to Form F-1 (File No. 333-230981) filed on July 3, 2019 and incorporated herein by reference).
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10.1
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Research and License Agreement with B.G. Negev Technologies and Applications Ltd. and Mor Research Applications Ltd., dated April 26, 2010, as amended June 25, 2012 (filed as Exhibit 10.1 to the Company’s registration statement on Form F-1 (File No. 333-209744) filed on February 26, 2016, and incorporated herein by reference).
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10.2
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Addendum No. 2 to Research and License Agreement Dated March 19, 2017, as amended on June 25, 2012 with B.G. Negev Technologies and Applications Ltd. and Mor Research Applications Ltd. (filed as Exhibit 4.2 to Form 20-F (File No. 333-209744) filed on May 1, 2017 and incorporated herein by reference).
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10.3
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Summary English Translation of Lease Agreement for Corporate Offices in Rehovot, Israel (filed as Exhibit 10.4 to the Company’s registration statement on Form F-1 (File No. 333-209744) filed on February 26, 2016 and incorporated herein by reference).
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10.4
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Todos Medical Ltd. 2015 Israeli Share Option Plan (filed as Exhibit 10.7 to the Company’s registration statement on Form F-1 (File No. 333-209744) filed on February 26, 2016 and incorporated herein by reference).
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10.5
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Employment Agreement, dated March 16, 2017, between Todos Medical Singapore Pte Ltd. and Dr. Wee Yue Chew and warrant agreement, dated March 16, 2017, between Todos Medical Ltd. and Dr. Wee Yue Chew (filed as Exhibit 4.12 to Form 20-F (File No. 333-209744) filed on May 1, 2017, and incorporated herein by reference).
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10.6
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Convertible Bridge Loan Agreement, dated February 27, 2019, (filed as Exhibit 4.1 to the Company’s Form 6-K filed on February 28, 2019, and incorporated herein by reference).
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10.7
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Amendment to Convertible Bridge Loan Agreement, dated February 27, 2019, (filed as Exhibit 4.1 to the Company’s Form 6-K filed on March 12, 2019, and incorporated herein by reference).
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10.8
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Share Purchase and Assignment of License Agreement among Todos Medical Ltd., Amarantus Bioscience Holdings, Inc., and Breakthrough Diagnostics, Inc., dated February 27, 2019, (filed as Exhibit 4.4 to the Company’s Form 6-K filed on February 28, 2019, and incorporated herein by reference).
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10.9
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Assignment and Loan Conversion Agreement among the Company, Adeline Holdings Ltd., Yitzhak Ostrovitsky, and Sorry Doll Ltd. and S.B. Nihul Merkakein Ltd., dated November 28, 2018, (filed as Exhibit 4.9 to the Company’s Form 20-F filed on March 28, 2019, and incorporated herein by reference).
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10.10
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Marketing and Reseller Agreement, between the Company and Care G.B. Plus Ltd., dated December 20, 2018, (filed as Exhibit 4.10 to the Company’s Form 20-F filed on March 28, 2019, and incorporated herein by reference).
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10.11
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Employment Agreement between the Company and Dr. Herman Weiss, dated March 25, 2019 (filed as Exhibit 10.11 to the Company’s Amendment No. 1 to Form F-1 (File No. 333-230981) filed on July 3, 2019, and incorporated herein by reference).
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23.1
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Consent of Fahn Kanne, Grant Thornton (filed as Exhibit 23.1 to the Company’s Amendment No. 4 to Form F-1 (File No. 333-230981) filed on September 4, 2019, and incorporated herein by reference).
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23.2
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Consent of Legal Counsel (incorporated in Exhibit 5.1).
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24.1
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Power of Attorney (contained on the signature page of the registration statement).
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Undertakings
The
undersigned Registrant hereby undertakes to:
(a) file,
during any period in which offers or sales are being made, a post-effective amendment to this registration statement to:
(i) include
any prospectus required by section 10(a)(3) of the Securities Act;
(ii) reflect
in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or together, represent a fundamental change in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation
of Registration Fee” table in the effective registration statement; and
(iii) include
any material information with respect to the plan of distribution not previously disclosed in this registration statement or any
material change to such information in the registration statement.
(b) that,
for the purpose of determining any liability under the Securities Act, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) to
file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.
(d) that
insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant, the Registrant has been advised that in the opinion of the SEC, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities
(other than the payment by the Registration of expenses incurred or paid by a director, officer or controlling person to the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(e) that,
for the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b)
as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other
than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as
of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus
that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration
statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior
to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of
the registration statement or made in any such document immediately prior to such date of first use.
(f) that,
for the purpose of determining liability of the Registrant under the Securities Act to any purchaser in the initial distribution
of the securities, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered
or sold to such purchaser by means of any of the following communications, the Registrant will be a seller to the purchaser and
will be considered to offer or sell such securities to such purchaser:
(i) any
preliminary prospectus or prospectus of the Registrant relating to the offering filed pursuant to Rule 424;
(ii) any
free writing prospectus relating to the offering prepared by or on behalf of the Registrant or used or referred to by the Registrant;
(iii) the
portion of any other free writing prospectus relating to the offering containing material information about the Registrant or
its securities provided by or on behalf of the Registrant; and
(iv) any
other communication that is an offer in the offering made by the Registrant to the purchaser.
Signatures
In
accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing this Form F-1 and has authorized this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Rehovot, Israel on September 23, 2019.
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TODOS
MEDICAL LTD.
(Registrant)
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By:
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/s/ Herman Weiss
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Dr. Herman Weiss
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Chief Executive Officer and Director
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(Principal Executive Officer)
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By:
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/s/
David Ben Naim
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David
Ben Naim
Chief
Financial Officer
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(Principal Financial and Accounting Officer)
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In
accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following persons
in the capacities and on the dates stated:
SIGNATURE
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TITLE
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DATE
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/s/
Dr. Herman Weiss
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Chief
Executive Officer (Principal
|
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September
23, 2019
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Dr. Herman Weiss
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Executive Officer)
and Director
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*
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Chief
Financial Officer (Principal
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September
23, 2019
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David Ben Naim
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Financial and
Accounting Officer)
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*
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Director
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September 23,
2019
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Rami Zigdon
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*
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Director
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September 23,
2019
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Alon Ostrovitzky
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*
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Director
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September 23,
2019
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Moshe Schlisser
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*
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Director
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September 23,
2019
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Moshe Abramovitz
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*
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Director
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September 23,
2019
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Colin Bier
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*
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Director
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September 23,
2019
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Alon Shalev
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* By:
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/s/ Dr. Herman Weiss
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Dr. Herman
Weiss
Attorney-in-fact
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SIGNATURE OF AUTHORIZED REPRESENTATIVE
IN THE UNITED STATES
Pursuant to the Securities
Act of 1933, as amended, the undersigned, the duly authorized representative in the United States of Todos Medical Ltd., has signed
this registration statement on September 23, 2019.
Authorized U.S. Representative
/s/ Donald J. Puglisi
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Managing Director
Puglisi & Associates
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II-7
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