U.S. Dollars in thousands (except share
and per share data)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share
and per share data)
(UNAUDITED)
NOTE
1 - SIGNIFICANT ACCOUNTING POLICIES:
|
1)
|
Incorporation and operations
|
Oramed
Pharmaceuticals Inc. (collectively with its subsidiary, the “Company”, unless the context indicates otherwise) was
incorporated on April 12, 2002, under the laws of the State of Nevada. From incorporation until March 3, 2006, the Company was
an exploration stage company engaged in the acquisition and exploration of mineral properties. On February 17, 2006, the Company
entered into an agreement with Hadasit Medical Services and Development Ltd. to acquire the provisional patent related to an orally
ingestible insulin capsule to be used for the treatment of individuals with diabetes.
On May 14, 2007, the Company incorporated a wholly-owned
subsidiary in Israel, Oramed Ltd. (the “Subsidiary”), which is engaged in research and development.
On March 11, 2011, the Company was reincorporated
from the State of Nevada to the State of Delaware.
On July 30, 2019, the Subsidiary incorporated a wholly-owned
subsidiary in Hong Kong, Oramed HK Limited. As of November 30, 2019, Oramed HK Limited has no operations.
On November 30, 2015,
the Company entered into a Technology License Agreement with Hefei Tianhui Incubator of Technologies Co. Ltd. (“HTIT”)
and on December 21, 2015, the parties entered into an Amended and Restated Technology License Agreement that was further amended
by the parties on June 3, 2016 and July 24, 2016 (the “License Agreement”). According to the License Agreement, the
Company granted HTIT an exclusive commercialization license in the territory of the People's Republic of China, Macau and Hong
Kong (the “Territory”), related to the Company’s oral insulin capsule, ORMD-0801 (the "Product"). Pursuant
to the License Agreement, HTIT will conduct, at its own expense, certain pre-commercialization and
regulatory activities with respect to the Subsidiary’s technology and ORMD-0801 capsule, and will pay to the Subsidiary (i)
royalties of 10% on net sales of the related commercialized products to be sold by HTIT in the Territory (“Royalties”),
and (ii) an aggregate of $37,500, of which $3,000 was payable immediately, $8,000 will be paid subject to the Company entering
into certain agreements with certain third parties, and $26,500 will be paid upon achievement of certain
milestones and conditions. In the event that the Company does not meet certain conditions, the Royalties rate may be reduced to
a minimum of 8%. Following the final expiration of the Company's patents covering the technology in the Territory in 2033, the
Royalties rate may be reduced, under certain circumstances, to 5%.
The royalty payment obligation shall apply during
the period of time beginning upon the first commercial sale of the Product in the Territory, and ending upon the later of (i) the
expiration of the last-to-expire licensed patents in the Territory; and (ii) 15 years after the first commercial sale of the Product
in the Territory (the "Royalty Term").
The License Agreement shall remain in effect until
the expiration of the Royalty Term. The License Agreement contains customary termination provisions.
ORAMED
PHARMACEUTICALS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share
and per share data)
(UNAUDITED)
NOTE
1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
Among others, the Company's involvement through
the product submission date will include consultancy for the pre-commercialization activities in the Territory, as well as advisory
services to HTIT on an ongoing basis.
As of November 30, 2019, the Company has received
milestone payments in an aggregate amount of $20,500 as follows: the initial payment of $3,000 was received in January 2016. Following
the achievement of certain milestones, the second and third payments of $6,500 and $4,000, respectively, were received in July
2016, the fourth milestone payment of $4,000 was received in October 2016 and the fifth milestone payment of $3,000 was received
in January 2019.
In addition, on November 30, 2015, the Company entered
into a Stock Purchase Agreement with HTIT (the “SPA”). According to the SPA, the Company issued 1,155,367 shares of
common stock to HTIT for $12,000. The transaction closed on December 28, 2015.
In July 2015, according to the letter of intent
signed between the parties or their affiliates, HTIT's affiliate paid the Subsidiary a non-refundable amount of $500 as a no-shop
fee. The no-shop fee was deferred and the related revenue is recognized over the estimated term of the License Agreement.
For revenue recognition policy see note 1c.
|
2)
|
Development and liquidity risks
|
The
Company is engaged in research and development in the biotechnology field for innovative pharmaceutical solutions, including an
orally ingestible insulin capsule to be used for the treatment of individuals with diabetes, and the use of orally ingestible capsules
for delivery of other polypeptides, and has not generated significant revenues from its operations. Based on the Company’s
current cash resources and commitments, the Company believes it will be able to maintain its current planned development activities
and the corresponding level of expenditures for at least the next 12 months and beyond, although no assurance can be given that
the Company will not need additional funds prior to such time. If there are unexpected increases in its operating expenses, the
Company may need to seek additional financing during the next 12 months. Successful completion of the Company’s development
programs and its transition to normal operations is dependent upon obtaining necessary regulatory approvals from the U.S.
Food and Drug Administration prior to selling its products within the United States, obtaining foreign regulatory approvals to
sell its products internationally, or entering into licensing agreements with third parties. There can be no assurance that the
Company will receive regulatory approval of any of its product candidates, and a substantial amount of time may pass before the
Company achieves a level of revenues adequate to support its operations, if at all. The Company also expects to incur substantial
expenditures in connection with the regulatory approval process for each of its product candidates during their respective developmental
periods. Obtaining marketing approval will be directly dependent on the Company’s ability to implement the necessary regulatory
steps required to obtain marketing approval in the United States and in other countries. The Company cannot predict the outcome
of these activities.
ORAMED
PHARMACEUTICALS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share
and per share data)
(UNAUDITED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
Basic and diluted net loss per common share are computed
by dividing the net loss for the period by the weighted average number of shares of common stock outstanding for each period. Outstanding
stock options, warrants and restricted stock units (“RSUs”) have been excluded from the calculation of the diluted
loss per share because all such securities are anti-dilutive for all periods presented. The weighted average number of common stock
options, warrants and RSUs excluded from the calculation of diluted net loss was 4,366,806 and 4,352,798 for the three month periods
ended November 30, 2019 and 2018, respectively.
The License Agreement and the SPA were considered a
single arrangement with multiple deliverables. The Company allocated the total consideration of $49,500 between the License Agreement
and the SPA according to their fair value, as follows: $10,617 was allocated to the issuance of common stock (less issuance expenses
of $23), based on the quoted price of the Company's shares on the closing date of the SPA on December 28, 2015, and $38,883 was
allocated to the License Agreement.
Under Accounting Standards Codification ("ASC")
605 (which was the authoritative revenue recognition guidance applied for all periods prior to September 1, 2018) given the Company's
continuing involvement through the expected product submission in June 2023, amounts received relating to the License Agreement
were recognized over the period from which the Company was entitled to the respective payment, and the expected product submission
date using a time-based model approach over the periods that the fees were earned.
On September 1, 2018, the Company adopted Accounting
Standards Update ("ASU") 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASC 606”),
using the modified retrospective method of adoption. Under this method, the Company applied ASC 606 to the License Agreement at
the adoption date and was required to make an adjustment to the September 1, 2018 opening accumulated deficit balance and all prior
periods continue to be presented under ASC 605. The most significant impact from adopting ASC 606 was the impact of the timing
of recognition of revenue associated with the milestone payment. Under ASC 605 (which was the authoritative revenue recognition
guidance applied for all periods prior to September 1, 2018) given the Company's continuing involvement through the expected product
submission in June 2023, amounts received relating to the License Agreement were recognized over the period from which the Company
was entitled to the respective payment, and the expected product submission date using a time-based model approach over the periods
that the fees were earned. However, under ASC 606, the Company is required to recognize the total transaction price (which includes
consideration related to milestones once the criteria for recognition have been satisfied) using the input method over the period
the performance obligation is fulfilled. Accordingly, once the consideration associated with a milestone is included in the transaction
price, incremental revenue is recognized immediately based on the period of time that has elapsed towards complete satisfaction
of the performance obligation. This method results in the recognition of revenue earlier than under ASC 605 and the resulting impact
was recorded as a reduction of the opening balance of accumulated deficit at September 1, 2018 as further described below.
ORAMED
PHARMACEUTICALS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share
and per share data)
(UNAUDITED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
Under ASC 606, the Company identified a single performance
obligation in the agreement and determined that the license and services are not distinct as the license and services are highly
dependent on each other. In other words, HTIT cannot benefit from the license without the related services, and vice versa.
Since the customer benefits from the services as the
entity performs, revenue is recognized over time through the expected product submission date in June 2023, using the input method.
The Company used the input method to measure the process for the purpose of recognizing revenue, which approximates the straight
line attribution. The Company used significant judgment when it determined the product submission date.
Under ASC 606, the consideration that the Company would
be entitled to upon the achievement of contractual milestones, which are contingent upon the occurrence of future events, are a
form of variable consideration. When assessing the portion, if any, of such milestones-related consideration to be included in
the transaction price, the Company first assesses the most likely outcome for each milestone and excludes the consideration related
to milestones of which the occurrence is not considered the most likely outcome.
The Company then evaluates if any of the variable consideration
determined in the first step is constrained by including in the transaction price variable consideration to the extent that it
is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated
with the variable consideration is subsequently resolved. The Company used significant judgment when it determined the first
step of variable consideration.
The potential future royalty consideration is also considered
a form of variable consideration under ASC 606 as it is based on a percentage of potential future sales of the Company's products.
However, the Company applies the sales-based royalty exception and accordingly will recognize the sales-based royalty amounts when
the related sale has occurred. To date, the Company has not recognized any royalty-related revenue.
As of the adoption date, the Company adjusted its accumulated
deficit by $1,773 against contract liabilities due to the effect of variable consideration.
Amounts that were allocated to the License Agreement
as of November 30, 2019 aggregated $22,382, all of which were received through the balance sheet date. Through November 30, 2019,
the Company has recognized revenue associated with this agreement in the aggregate amount of $10,696 (of which $674 was recognized
in the quarter ended November 30, 2019, and deferred the remaining amount of $11,686 which is presented as deferred revenues on
the condensed consolidated balance sheet.
ORAMED
PHARMACEUTICALS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share
and per share data)
(UNAUDITED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
In January 2016, the Financial
Accounting Standards Board (“FASB”) issued guidance which updates certain aspects of recognition, measurement, presentation
and disclosure of financial assets and financial liabilities (“ASU 2016-01”). The guidance requires entities to recognize
changes in fair value in net income rather than in accumulated other comprehensive income. The Company adopted the provisions of
this update in the first quarter of fiscal year 2019. Following the adoption, as of September 1, 2018, the Company classified the
available for sale securities to financial assets measured in fair value through profit or loss. The impact of this adoption on
the Company's accumulated losses as of the adoption date was $702.
|
e.
|
Condensed Consolidated Financial Statements Preparation
|
The condensed consolidated financial statements included
herein have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and,
except as described in note 1f, on the same basis as the audited consolidated financial statements included in the Company’s
Annual Report on Form 10-K for the fiscal year ended August 31, 2019 (the “2019 Form 10-K”). These condensed consolidated
financial statements reflect all adjustments that are of a normal recurring nature and that are considered necessary for a fair
statement of the results of the periods presented. Certain information and disclosures normally included in annual consolidated
financial statements have been omitted in this interim period report pursuant to the rules and regulations of the Securities and
Exchange Commission. Because the condensed consolidated interim financial statements do not include all of the information and
disclosures required by U.S. GAAP for annual financial statements, they should be read in conjunction with the audited consolidated
financial statements and notes included in the 2019 Form 10-K. The results for interim periods are not necessarily indicative of
a full fiscal year’s results.
|
f.
|
Recently adopted standards
|
In February 2016, the FASB issued ASU No. 2016-02, “Leases
(Topic 842)”, which supersedes the existing guidance for lease accounting, Leases (Topic 840). The new standard requires
a lessee to record assets and liabilities on its balance sheet for all leases with terms longer than 12 months. Leases will be
classified as either finance or operating, with classification affecting the pattern of expense recognition in the lessee’s
income statement. The Company adopted this standard as of September 1, 2019 on a modified retrospective basis and will not
restate comparative periods. The Company elected the package of practical expedients permitted under the transition guidance within
the new standard which, among other things, allows the Company to carryforward the historical lease classification. The Company
made an accounting policy election to keep leases with an initial term of 12 months or less off of its balance sheet. The Company
recognized those lease payments in its statements of operations on a straight-line basis over the lease period.
As of the adoption date, the Company recognized an operating
lease asset and liability of $113 and $113, respectively, as of September 1, 2019 on its balance sheet.
ORAMED
PHARMACEUTICALS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share
and per share data)
(UNAUDITED)
NOTE 2 - COMMITMENTS:
|
a.
|
In March 2011, the Subsidiary sold shares of its investee
company, Entera, to D.N.A, retaining 117,000 ordinary shares (after giving effect to a stock split by Entera in July 2018). In
consideration for the shares sold to D.N.A, the Company received, among other payments, ordinary shares of D.N.A (see also note
4).
|
As part of this agreement, the Subsidiary entered
into a patent transfer agreement (the “Patent Transfer Agreement”) according to which the Subsidiary assigned to Entera
all of its right, title and interest in and to a certain patent application related to the oral administration of proteins that
it has licensed to Entera since August 2010. Under this agreement, the Subsidiary is entitled to receive from Entera royalties
of 3% of Entera’s net revenues (as defined in the agreement) and a license back of that patent application for use in respect
of diabetes and influenza. As of November 30, 2019, Entera had not yet realized any revenues and had not paid any royalties to
the Subsidiary. On December 11, 2018, Entera announced that it had entered into a research collaboration and license agreement
(the “Amgen License”) with Amgen related to research of inflammatory disease and other serious illnesses. As reported
by Entera, under the terms of the Amgen License, Entera will receive a modest initial technology access fee from Amgen and will
be responsible for preclinical development at Amgen’s expense. Entera will be eligible to receive up to $270,000 in aggregate
payments, as well as tiered royalties up to mid-single digits, upon achievement of various clinical and commercial milestones if
Amgen decides to move all of these programs forward. Amgen is responsible for clinical development, manufacturing and commercialization
of any of the resulting programs. To the extent the Amgen License results in net revenues as defined in the Patent Transfer Agreement,
the Subsidiary will be entitled to the aforementioned royalties.
In addition, as part of a consulting agreement with
a third party, dated February 15, 2011, the Subsidiary is obliged to pay this third party royalties of 8% of the net royalties
received in respect of the patent that was sold to Entera in March 2011.
|
b.
|
On January 3, 2017, the Subsidiary entered into a lease agreement for its office facilities in Israel. The lease agreement is for a period of 60 months commencing October 1, 2016.
|
The annual lease payment was
New Israeli Shekel (“NIS”) 119,000 ($32) from October 2016 through September 2018 and NIS 132,000 ($38) from October
2018 through September 2021, and is linked to the increase in the Israeli consumer price index (“CPI”) (as of November
30, 2019, the aggregate future lease payments will be $70 until the expiration of the lease agreement, based on the exchange rate
as of November 30, 2019).
As security for its obligation under this lease
agreement, the Company provided a bank guarantee in an amount equal to three monthly lease payments.
ORAMED
PHARMACEUTICALS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share
and per share data)
(UNAUDITED)
NOTE 2 - COMMITMENTS (continued):
|
c.
|
On December 18, 2017, the Subsidiary entered into an agreement with a vendor for the process development and production of one of its oral capsule ingredients in the amount of $2,905 that will be paid over the term of the engagement and based on the achievement of certain development milestones, $1,542 of which was recognized in research and development expenses through November 30, 2019.
|
|
d.
|
On February 14, 2018, the Subsidiary entered into a Clinical Research Organization Services Agreement with a third party, effective as of November 1, 2017, to retain it as a clinical research organization ("CRO") for the Subsidiary’s three month dose-ranging clinical trial for its oral insulin capsule for type 2 diabetes patients and, on May 20, 2019, the Subsidiary entered into amendments to such agreement. As consideration for its services, the Subsidiary will pay the CRO a total amount of $10,206 during the term of the engagement and based on achievement of certain milestones, of which $8,003 was recognized in research and development expenses through November 30, 2019.
|
|
e.
|
On May 21, 2018, the Subsidiary entered into a CRO Services Agreement with a third party to retain it as a CRO for the Subsidiary’s food effect clinical trial for its oral insulin capsule. As consideration for its services, the Subsidiary will pay the CRO a total amount of $1,166 during the term of the engagement and based on achievement of certain milestones, $1,141 of which was recognized in research and development expenses through November 30, 2019.
|
|
f.
|
On July 29, 2019, the Subsidiary entered into a CRO Services Agreement with a third party to retain it as a CRO for the Subsidiary’s dose-ranging clinical trial for its oral insulin. As consideration for its services, the Subsidiary will pay the CRO a total amount of $658 during the term of the engagement and based on achievement of certain milestones, $313 of which was recognized in research and development expenses through November 30, 2019.
|
|
g.
|
Grants from the Israel Innovation Authority ("IIA")
|
Under the terms of the Company’s funding from
the IIA, royalties of 3% are payable on sales of products developed from a project so funded, up to a maximum amount equaling 100%-150%
of the grants received (dollar linked) with the addition of interest at an annual rate based on LIBOR.
At the time the grants were received, successful development
of the related projects was not assured. The total amount that was received through November 30, 2019 was $2,207.
The royalty expenses which are related to the funded
project were recognized in cost of revenues in the quarter ended November 30, 2019 and in prior periods.
|
h.
|
Grants
from the European Commission (“EC”)
|
On November 26, 2019 the Company received an initial
payment of €17.50 from the EC under the SME Instrument of the European Innovation Programme Horizon 2020.
As part of the grant terms, the Company is required
to use the proceeds from the grant in Europe. The Company intends on using the grant to explore the possibility of running clinical
trials in Europe.
ORAMED
PHARMACEUTICALS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share
and per share data)
(UNAUDITED)
NOTE 3 - FAIR VALUE:
The Company measures fair value and discloses fair
value measurements for financial assets. Fair value is based on the price that would be received to sell an asset in an orderly
transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value
measurements, the guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure
fair value into three broad levels, which are described as follows:
Level 1:
|
Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
|
|
|
Level 2:
|
Observable prices that are based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
|
|
|
Level 3:
|
Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
|
As of November 30, 2019, the assets measured at
fair value are comprised of equity securities (Level 1). The fair value of held to maturity bonds as presented in note 4 was based
on a Level 2 measurement.
As of November 30, 2019, the carrying amounts of
cash equivalents, short-term deposits and accounts payable approximate their fair values due to the short-term maturities of these
instruments.
As of November 30, 2019, the carrying amounts of
long-term deposits approximate their fair values due to the stated interest rates which approximate market rates.
The amounts funded in respect of employee rights
are stated at cash surrender value which approximates its fair value.
There were no Level 3 items for the three month
periods ended November 30, 2019 and 2018.
ORAMED
PHARMACEUTICALS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share
and per share data)
(UNAUDITED)
NOTE 4 - MARKETABLE SECURITIES:
The Company's marketable securities include investments
in equity securities of D.N.A and Entera, and in held to maturity bonds.
|
|
November 30,
2019
|
|
|
August 31, 2019
|
|
Short-term:
|
|
|
|
|
|
|
D.N.A (see b below)
|
|
$
|
296
|
|
|
$
|
557
|
|
Entera (see c below)
|
|
|
263
|
|
|
|
304
|
|
Held to maturity bonds (see d below)
|
|
|
2,648
|
|
|
|
2,840
|
|
|
|
$
|
3,207
|
|
|
$
|
3,701
|
|
Long-term:
|
|
|
|
|
|
|
|
|
Held to maturity bonds (see d below)
|
|
$
|
250
|
|
|
$
|
1,295
|
|
The D.N.A ordinary shares are traded on the Tel Aviv
Stock Exchange. The fair value of those securities is measured at the quoted prices of the securities on the measurement date.
As of November 30, 2019, the Company owns approximately
6.9% of D.N.A’s outstanding ordinary shares.
The cost of the securities as of November 30, 2019
and August 31, 2019 is $595.
Entera ordinary shares have been traded on The Nasdaq
Capital Market since June 28, 2018. The Company measures the investment at fair value from such date, since it has a readily determinable
fair value (prior to such date the investment was accounted for as a cost method investment (amounting to $1)).
ORAMED
PHARMACEUTICALS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share
and per share data)
(UNAUDITED)
NOTE 4 - MARKETABLE SECURITIES (continued):
|
d.
|
Held to maturity securities
|
The amortized cost and estimated fair value of held-to-maturity
securities as of November 30, 2019, are as follows:
|
|
November 30, 2019
|
|
|
|
Amortized cost
|
|
|
Gross unrealized losses
|
|
|
Estimated fair value
|
|
Short-term:
|
|
|
|
|
|
|
|
|
|
Commercial bonds
|
|
$
|
2,624
|
|
|
$
|
(16
|
)
|
|
$
|
2,608
|
|
Accrued interest
|
|
|
24
|
|
|
|
-
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
|
|
|
250
|
|
|
|
-
|
|
|
|
250
|
|
|
|
$
|
2,898
|
|
|
$
|
(16
|
)
|
|
$
|
2,882
|
|
As of November 30, 2019, the contractual maturities
of debt securities classified as held-to-maturity are as follows: after one year through two years, $250, and the yield to maturity
rate is 2.77%.
The amortized cost and estimated fair value of held-to-maturity
securities as of August 31, 2019, are as follows:
|
|
August 31, 2019
|
|
|
|
Amortized cost
|
|
|
Gross unrealized losses
|
|
|
Estimated fair value
|
|
Short-term:
|
|
|
|
|
|
|
|
|
|
Commercial bonds
|
|
$
|
2,808
|
|
|
$
|
6
|
|
|
$
|
2,814
|
|
Accrued interest
|
|
|
32
|
|
|
|
-
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
|
|
|
1,295
|
|
|
|
4
|
|
|
|
1,299
|
|
|
|
$
|
4,135
|
|
|
$
|
10
|
|
|
$
|
4,145
|
|
As of August 31, 2019, the contractual maturities
of debt securities classified as held-to-maturity are as follows: after one year through two years, $1,295 and the yield to maturity
rates vary between 2.55% to 3.20%.
Held to maturity securities which will mature during
the 12 months from the balance sheet date are included in short-term marketable securities. Held to maturity securities with maturity
dates of more than one year are considered long-term marketable securities.
ORAMED
PHARMACEUTICALS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share
and per share data)
(UNAUDITED)
NOTE 5 - STOCKHOLDERS’ EQUITY:
On
September 5, 2019, the Company entered into an Equity Distribution Agreement (the “Sales Agreement”), pursuant to
which the Company may, from time to time and at the Company's option, issue and sell shares of Company common stock having an
aggregate offering price of up to $15,000, through a sales agent, subject to certain terms and conditions. Any shares sold will
be sold pursuant to the Company's effective shelf registration statement on Form S-3 including a prospectus dated February 2,
2017, as supplemented by a prospectus supplement dated September 5, 2019. The Company will pay the sales agent a cash commission
of 3.0% of the gross proceeds of the sale of any shares sold through the sales agent under the Sales Agreement. As of November
30, 2019, no shares were sold under the Sales Agreement. As of January 9, 2020, 335,163 shares were issued under the Sales Agreement
for aggregate net proceeds of $1,785.
NOTE 6 - RELATED PARTIES - TRANSACTIONS:
On July 1, 2008, the Subsidiary entered into two
consulting agreements with KNRY Ltd. (“KNRY”), an Israeli company owned by the Chief Scientific Officer (the "CSO"),
whereby the Chief Executive Officer (the "CEO") and the CSO, through KNRY, provide services to the Company (the “Consulting
Agreements”). The Consulting Agreements are both terminable by either party upon 140 days prior written notice. The Consulting
Agreements, as amended, provide that KNRY will be reimbursed for reasonable expenses incurred in connection with performance of
the Consulting Agreements and that the monthly consulting fee paid to the CEO and the CSO is NIS 127,570 ($37) and NIS 80,454 ($23),
respectively.
In addition to the Consulting Agreements, based
on a relocation cost analysis prepared by consulting company ORI - Organizational Resources International Ltd., the Company pays
for certain direct costs, related taxes and expenses incurred in connection with the relocation of the CEO to New York. During
the three months ended November 30, 2019, such relocation expenses totaled $86 compared to $131 for the three months ended November
30, 2018.