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Notes
to Consolidated Financial Statements
Note
1 - Basis of presentation
Galmed
Pharmaceuticals Ltd. (the “Company”) is a clinical-stage biopharmaceutical company primarily focused on the development of
therapeutics for the treatment of liver diseases. The Company was incorporated in Israel on July 31, 2013 and commenced operations on
February 2, 2014. The Company holds a wholly-owned subsidiary, Galmed International Ltd., which was incorporated in Malta. Galmed International
Ltd. previously held a wholly-owned subsidiary, Galmed Medical Research Ltd., which was liquidated during the first quarter of 2019.
The Company also holds two additional wholly-owned subsidiaries, Galmed Research and Development Ltd and Galtopa Therapeutics Ltd., both
of which are incorporated in Israel.
These
unaudited interim consolidated financial statements have been prepared as of June 30, 2021 and for the three and six months period then
ended. Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance
with U.S. GAAP have been omitted. These unaudited interim consolidated financial statements should be read in conjunction with the audited
financial statements and the accompanying notes of the Company for the year ended December 31, 2020 that are included in the Company’s
Annual Report on Form 20-F, filed with the Securities and Exchange Commission on March 18, 2021 (the “Annual Report”). The
results of operations presented are not necessarily indicative of the results to be expected for the year ending December 31, 2021.
Note
2 - Summary of significant accounting policies
The
significant accounting policies that have been applied in the preparation of the unaudited consolidated interim financial statements
are identical to those that were applied in preparation of the Company’s interim most recent annual financial statements in connection
with its Annual Report on Form 20-F.
Note
3 - Stockholders’ Equity
|
1.
|
During
the six months ended June 30, 2021, certain office holders exercised options into 18,736 ordinary shares of the Company, NIS 0.01
par value per share, for a total amount of less than $1 thousand.
|
|
|
|
|
2.
|
During
February 2021, the Company entered into an underwriting agreement with Cantor Fitzgerald
& Co. as underwriter, in connection with an underwritten public offering of 2,197,803
ordinary shares (the “Firm Shares”) of the Company. Pursuant to the underwriting
agreement the underwriter purchased the Firm Shares from the Company at a price of $4.3258
per share. The net proceeds to the Company were approximately $9.3 million.
|
|
|
|
|
3.
|
On
March 16, 2021, the Company granted options to purchase 45,000
ordinary shares of the Company to an employee
and a consultant. The options are exercisable at $4.16
per share, have a 10-year
term and vest over a period of four years. The aggregate grant date fair value of such options was approximately $0.1
million.
|
|
|
|
|
4.
|
On
May 15, 2020, the Company amended and restated the Sales Agreement dated December 22, 2017 between the Company and Stifel, Nicolaus
& Company, Incorporated to include Cantor Fitzgerald & Co. as an additional sales agent for the Company’s “at
the market offering” program (the “A&R Sales Agreement”). During February 2021, the Company sold an additional
1,541,400 ordinary shares under the ATM program for total net proceeds of approximately $8.1 million. On March 25, 2021, the Company
agreed with the sales agents to terminate, with immediate effect, the A&R Sales Agreement.
|
|
|
|
|
5.
|
On
March 26, 2021, the Company entered into a new Sales Agreement with Cantor Fitzgerald & Co. and Canaccord Genuity LLC, as sales
agents, pursuant to which the Company may offer and sell ordinary shares “at the market” having an aggregate offering
price of up to $50.0 million from time to time through the sales agents.
|
|
|
|
|
6.
|
On
July 15, 2021, subsequent to the balance sheet date, the Company granted options to purchase 100,000
ordinary shares of the Company to its non-management
directors. The options are exercisable at $3.10
per share, have a 10-year
term and vest over a period of three years. The grant is subject to the approval at the Company’s general shareholders
meeting.
|
Note
4 - Significant events during the reporting period
On
June 28, 2021, the Company entered into a license agreement with Yissum Research Development Company of the Hebrew University of Jerusalem
(“Yissum”) pursuant to which Yissum granted to the Company a worldwide, exclusive and irrevocable license to develop and
commercialize Amilo-5Mer. The grant of the license takes effect upon approval of the Israel Innovation Authority. Under the license agreement,
the Company shall be responsible for carrying out the development and commercialization of Amilo-5Mer and the prosecution and maintenance
of the licensed patents under the license agreement. In consideration for the grant of the license, the Company has agreed to pay to
Yissum an upfront license fee of $100,000, payments of up to $850,000 upon meeting certain regulatory milestones, single digit royalties
on any future net sales and a share of any sublicense fees.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
All
references to “we,” “us,” “our,” “the Company” and “our Company”, in this
Form 6-K are to Galmed Pharmaceuticals Ltd. and its subsidiaries, unless the context otherwise requires. All references to “shares”
or “ordinary shares” are to our ordinary shares, NIS 0.01 nominal par value per share. All references to “Israel”
are to the State of Israel. “U.S. GAAP” means the generally accepted accounting principles of the United States. Unless otherwise
stated, all of our financial information presented in this Form 6-K has been prepared in accordance with U.S. GAAP. Any discrepancies
in any table between totals and sums of the amounts and percentages listed are due to rounding. Unless otherwise indicated, or the context
otherwise requires, references in this Form 6-K to financial and operational data for a particular year refer to the fiscal year of our
company ended December 31 of that year.
Our
reporting currency and financial currency is the U.S. dollar. In this Form 6-K, “NIS” means New Israeli Shekel, and “$,”
“US$” and “U.S. dollars” mean United States dollars.
Cautionary
Note Regarding Forward-Looking Statements
This
Form 6-K contains forward-looking statements about our expectations, beliefs or intentions regarding, among other things, our product
development efforts, business, financial condition, results of operations, strategies or prospects. In addition, from time to time, we
or our representatives have made or may make forward-looking statements, orally or in writing. Forward-looking statements can be identified
by the use of forward-looking words such as “believe,” “expect,” “intend,” “plan,” “may,”
“should,” “anticipate,” “could,” “might,” “seek,” “target,” “will,”
“project,” “forecast,” “continue” or their negatives or variations of these words or other comparable
words or by the fact that these statements do not relate strictly to historical matters. These forward-looking statements may be included
in, among other things, various filings made by us with the SEC, press releases or oral statements made by or with the approval of one
of our authorized executive officers. Forward-looking statements relate to anticipated or expected events, activities, trends or results
as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently
subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied
by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities
and results anticipated in forward-looking statements, including, but not limited to, the factors summarized below:
|
●
|
the
timing and cost of our pivotal Phase 3 ARMOR trial, or the ARMOR Study, for our product candidate, Aramchol, or for any other pre-clinical
or clinical trials;
|
|
|
|
|
●
|
completion
and receiving favorable results of the ARMOR Study for Aramchol or any other pre-clinical or clinical trial;
|
|
|
|
|
●
|
the
impact of the COVID-19 pandemic on our operations;
|
|
|
|
|
●
|
regulatory
action with respect to Aramchol or any other product candidate by the U.S. Food and Drug Administration, or the FDA, or the European
Medicines Authority, or EMA, including but not limited to acceptance of an application for marketing authorization, review and approval
of such application, and, if approved, the scope of the approved indication and labeling;
|
|
|
|
|
●
|
the
commercial launch and future sales of Aramchol and any future product candidates;
|
|
|
|
|
●
|
our
ability to comply with all applicable post-market regulatory requirements for Aramchol or any other product candidate in the countries
in which we seek to market the product;
|
|
|
|
|
●
|
our
ability to achieve favorable pricing for Aramchol or any other product candidate;
|
|
|
|
|
●
|
our
expectations regarding the commercial market for non-alcoholic steato-hepatitis, or NASH, in patients or any other targeted indication;
|
|
|
|
|
●
|
third-party
payor reimbursement for Aramchol or any other product candidate;
|
|
|
|
|
●
|
our
estimates regarding anticipated capital requirements and our needs for additional financing;
|
|
|
|
|
●
|
market
adoption of Aramchol or any other product candidate by physicians and patients;
|
|
|
|
|
●
|
the
timing, cost or other aspects of the commercial launch of Aramchol or any other product candidate;
|
|
|
|
|
●
|
our
ability to obtain and maintain adequate protection of our intellectual property;
|
|
|
|
|
●
|
the
possibility that we may face third-party claims of intellectual property infringement;
|
|
|
|
|
●
|
our
ability to manufacture our product candidates in commercial quantities, at an adequate quality or at an acceptable cost;
|
|
●
|
our
ability to establish adequate sales, marketing and distribution channels;
|
|
|
|
|
●
|
intense
competition in our industry, with competitors having substantially greater financial, technological, research and development, regulatory
and clinical, manufacturing, marketing and sales, distribution and personnel resources than we do;
|
|
|
|
|
●
|
the
development and approval of the use of Aramchol or any other product candidate for additional indications or in combination therapy;
and
|
|
|
|
|
●
|
our
expectations regarding licensing, acquisitions and strategic operations.
|
We
believe these forward-looking statements are reasonable; however, these statements are only current predictions and are subject to known
and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance
or achievements to be materially different from those anticipated by the forward-looking statements. We discuss many of these risks in
our Annual Report on Form 20-F for the year ended December 31, 2020 filed with the SEC on March 18, 2021 in greater detail under the
heading “Risk Factors” and elsewhere in the Annual Report and this Form 6-K. Given these uncertainties, you should not rely
upon forward-looking statements as predictions of future events.
All
forward-looking statements attributable to us or persons acting on our behalf speak only as of the date hereof and are expressly qualified
in their entirety by the cautionary statements included in this report. We undertake no obligations to update or revise forward-looking
statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. In
evaluating forward-looking statements, you should consider these risks and uncertainties.
Overview
We
are a clinical-stage biopharmaceutical company focused on the development of Aramchol, a liver targeted stearoyl-coenzyme A desaturase-1,
or SCD1, modulator, first in class, novel, oral therapy for the treatment of NASH for variable populations. We are also developing Amilo-5MER,
a 5 amino acid synthetic peptide and recently initiated a first in human study.
Financial
Overview
To
date, we have funded our operations primarily through proceeds from private placements and public offerings. At June 30, 2021, we had
current assets of $51.6 million, which includes cash and cash equivalents of $7.9 million, short-term deposits of $1.8 million, marketable
debt securities of $41.3 million, other receivables of $0.5 million and restricted cash of $0.1 million. This compares with current assets
of $51.8 million at December 31, 2020, which includes cash and cash equivalents of $6.9 million, short-term deposits of $3.8 million,
marketable debt securities of $40.1 million, other receivables of $0.8 million and restricted cash of $0.1 million. Although we provide
no assurance, we believe that such existing funds will be sufficient to continue our business and operations as currently conducted for
more than 12 months from the date of issuance of this Form 6-K. However, we will continue to incur operating losses, which may be substantial
over the next several years, and we expect that we will need to obtain additional funds to further develop our research and development
programs.
Costs
and Operating Expenses
Our
current costs and operating expenses consist of two components: (i) research and development expenses; and (ii) general and administrative
expenses.
Research
and Development Expenses
Our
research and development expenses consist primarily of outsourced development expenses, salaries and related personnel expenses and fees
paid to external service providers, patent-related legal fees, costs of pre-clinical studies and clinical trials and drug and laboratory
supplies. We account for all research and development expenses as they are incurred. We expect our research and development expense to
remain our primary expense in the near future as we continue to develop Aramchol. Increases or decreases in research and development
expenditures are primarily attributable to the number and/or duration of the pre-clinical and clinical studies that we conduct.
We
expect that a substantial amount of our research and development expense in the future will be incurred in support of our current and
anticipated pre-clinical and clinical development projects. Due to the inherently unpredictable nature of pre-clinical and clinical development
studies and unpredictability of the coronavirus outbreak, we are unable to estimate with any certainty the costs we will incur in the
continued development of Aramchol for NASH and other indications in our pipeline for potential partnering and/or commercialization. Clinical
development timelines, the probability of success and development costs can differ materially from expectations. We currently expect
to continue testing Aramchol in pre-clinical studies for toxicology, safety and efficacy, and to conduct additional clinical trials for
Aramchol.
While
we are currently focused on advancing Aramchol’s and Amilo-5Mer’s development, our future research and development expenses
will depend largely on the duration of the ARMOR Study, the number of enrolled patients, the clinical success of Aramchol, as
well as ongoing assessments of the Aramchol’s commercial potential. As we obtain results from clinical trials, we may elect to
discontinue or delay clinical trials for our product candidate in certain indications in order to focus our resources on more promising
indications for such product candidate. Completion of clinical trials may take several years or more, but the length of time generally
varies according to the type, complexity, novelty and intended use of a product candidate.
We
expect our research and development expenses to increase in the future from current levels and continue to advance of our clinical product
development and, potentially, the in-licensing of additional product candidates.
The
lengthy process of completing clinical trials and seeking regulatory approval for Aramchol requires the expenditure of substantial resources.
Any failure or delay in completing clinical trials, or in obtaining regulatory approvals, could cause a delay in generating product revenue
and cause our research and development expenses to increase and, in turn, have a material adverse effect on our operations. Because of
the factors set forth above, we are not able to estimate with any certainty when we would recognize any net cash inflows from our projects.
General
and Administrative Expenses
General
and administrative expenses consist primarily of compensation for employees in executive and operational roles, including finance/accounting,
legal and other operating positions in connection with our activities. Our other significant general and administrative expenses include
non-cash stock-based compensation costs and facilities costs (including the rental expense for our offices in Tel Aviv, Israel), professional
fees for outside accounting and legal services, travel costs, investors relations, insurance premiums and depreciation. At this time,
we do not anticipate that the effects of the COVID-19 pandemic will materially affect our general and administrative expense.
Financial
Income, Net
Our
financial income consists mainly of interest income from marketable debt securities and short-term deposits, as well as gains from realization
of marketable debt securities and foreign currency gains. Our financial expense consists of fees associated with banking activities and
losses from realization of marketable debt securities.
Results
of Operations
The
table below provides our results of operations for the three and six months ended June 30, 2021 as compared to the three and six months
ended June 30, 2020.
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
(In thousands, except per share data)
|
|
Research and development expenses
|
|
|
7,036
|
|
|
|
4,971
|
|
|
|
14,416
|
|
|
|
10,521
|
|
General and administrative expenses
|
|
|
1,376
|
|
|
|
845
|
|
|
|
3,128
|
|
|
|
1,757
|
|
Total operating expenses
|
|
|
8,412
|
|
|
|
5,816
|
|
|
|
17,544
|
|
|
|
12,278
|
|
Financial income, net
|
|
|
(16
|
)
|
|
|
(290
|
)
|
|
|
(243
|
)
|
|
|
(689
|
)
|
Net loss
|
|
|
8,396
|
|
|
|
5,526
|
|
|
|
17,301
|
|
|
|
11,589
|
|
Other comprehensive income:
|
|
|
34
|
|
|
|
(725
|
)
|
|
|
164
|
|
|
|
(463
|
)
|
Comprehensive loss
|
|
|
8,430
|
|
|
|
4,801
|
|
|
|
17,465
|
|
|
|
11,126
|
|
Basic and diluted net loss per share
|
|
$
|
0.33
|
|
|
$
|
0.26
|
|
|
$
|
0.72
|
|
|
$
|
0.55
|
|
Research
and Development Expenses
Our
research and development expenses amounted to approximately $7.0 million and approximately $14.4 million during the three and six months
ended June 30, 2021, respectively, representing an increase of approximately $2.0 million, or 40%, and approximately $3.9 million, or
37%, respectively, compared to approximately $5.0 million and approximately $10.5 million, respectively, for the comparable period in
2020.
The
increase during the three months ended June 30, 2021 primarily resulted from an increase in clinical trial expenses in connection with
our ARMOR Study of approximately $2.7 million. The increase during the six months ended June 30, 2021 primarily resulted from
an increase in clinical trial expenses in connection with our ARMOR Study of approximately $2.7 million as well an increase in
drug development expenses in connection with the manufacturing of Aramchol API to support the ARMOR Study and the development of Aramchol
meglumine of approximately $0.7 million.
General
and Administrative Expenses
Our
general and administrative expenses amounted to approximately $1.4 million and approximately $3.1 million during the three and six months
ended June 30, 2021, respectively, representing an increase of approximately $0.6 million, or 75%, and approximately $1.3 million, or
72%, respectively, to approximately $0.8 million and approximately $1.8 million, respectively, for the comparable period in 2020.
The
increase in general and administrative expenses for the three months ended June 30, 2021 resulted primarily from an increase in the
cost of our D&O insurance policy premium. The increase in general and administrative expenses for the six months ended June 30, 2021
resulted primarily from an increase in salaries and benefits as well as an increase in the cost of our D&O insurance policy premium.
Operating
Loss
As
a result of the foregoing, for the three and six months ended June 30, 2021, our operating loss was approximately $8.4 million and approximately
$17.5 million, respectively, representing an increase of $2.6 million, or 45%, and an increase of $5.2 million, or 43%, respectively,
as compared to approximately $5.8 million and approximately $12.3 million, respectively, for the comparable period in 2020.
Financial
Income, Net
Our
financial income amounted to approximately $0.01 million and approximately $0.2 million during the three and six months ended June 30,
2021, respectively, representing a decrease of approximately $0.3 million, or 94%, and approximately $0.5 million, or 71%, respectively,
compared to $0.3 million and $0.7 million, respectively, for the comparable period in 2020.
The
decrease during the three and six months ended June 30, 2021 primarily relates to a decrease in the interest income from short-term deposits
and marketable debt securities.
Net
Loss
As
a result of the foregoing, for the three and six months ended June 30, 2021, our net loss was approximately $8.4 million and approximately
$17.3 million, respectively, representing an increase of $2.9 million, or 52%, and an increase of $5.7 million, or 49%, respectively,
as compared to approximately $5.5 million and approximately $11.6 million, respectively, for the comparable period in 2020.
Liquidity
and Capital Resources
To
date, we have funded our operations primarily through proceeds from private placements and public offerings and we have incurred substantial
losses since our inception. As of June 30, 2021, we had an accumulated deficit of approximately $153.0 million and positive working capital
(current assets less current liabilities) of approximately $44.7 million. We expect that operating losses will continue for the foreseeable
future.
As
of June 30, 2021, we had cash and cash equivalents of approximately $7.9 million, restricted cash of approximately $0.1 million, short-term
deposits of approximately $1.8 million, and marketable debt securities of approximately $41.3 million invested in accordance with our
investment policy, totaling approximately $51.2 million, as compared to approximately $6.9 million, $0.1 million, $3.8 million
and $40.1 million as of December 31, 2020, respectively, totaling approximately $50.9 million. The increase is mainly attributable to
the $17.4 million raised from our ATM offering program and underwritten public offering, partially offset by the $16.9 million
negative cash flow from operating expenses during the six months ended June 30, 2021.
We
had negative cash flow from operating activities of approximately $16.9 million for the six months ended June 30, 2021, as compared to
negative cash flow from operating activities of approximately $12.8 million for the six months ended June 30, 2020. The negative cash
flow from operating activities for the six months ended June 30, 2021 is mainly attributable to our net loss of approximately $17.4 million.
We
had positive cash flow from investing activities of approximately $0.5 million for the six months ended June 30, 2021, as compared to
a positive cash flow from investing activities of approximately $2.4 million for the six months ended June 30, 2020. The positive cash
flow from investing activities for the six months ended June 30, 2021 was primarily due to the maturity of short term deposits partially
offset by the net purchase of marketable debt securities.
We
had positive cash flow from financing activities of approximately $17.4 million for the six months ended June 30, 2021, as compared to
a positive cash flow from financing activities of approximately $0.1 million for the six months ended June 30, 2020. The positive cash
flow from financing activities for the six months ended June 30, 2021 was due to proceeds from our ATM offering program and underwritten
public offering.
On
May 15, 2020, we amended and restated the Sales Agreement dated December 22, 2017 between us and Stifel, Nicolaus & Company, Incorporated
to include Cantor Fitzgerald & Co. as an additional sales agent for our “at the market offering” program, or the A&R
Sales Agreement. During February 2021, we sold an additional 1,541,400 ordinary shares under the ATM offering program for total net proceeds
of approximately $8.1 million. On March 25, 2021, we agreed with the sales agents to terminate, with immediate effect, the A&R Sales
Agreement. On March 26, 2021, we entered into a new Sales Agreement with Cantor Fitzgerald & Co. and Canaccord Genuity LLC, as sales
agents, pursuant to which we may offer and sell ordinary shares “at the market” having an aggregate offering price of up
to $50.0 million from time to time through the sales agents.
Although
we provide no assurance, we believe that our existing funds will be sufficient to continue our business and operations as currently conducted
for more than 12 months from the date of issuance of this Report on Form 6-K. However, additional funding will be necessary to fund our
ARMOR Study, our Amilo-5MER program and ongoing research and development work and to advance our product candidates through regulatory
approval and into commercialization, if approved. We intend to obtain additional funding through debt or equity financings, governmental
grants or through entering into collaborations, strategic alliances or license agreements to increase the funds available to support
our operating and capital needs. Although we have been successful in raising capital in the past, there is no assurance that we will
be successful in obtaining additional financing on terms acceptable to us. Specifically, the COVID-19 pandemic has significantly disrupted
global financial markets, and may limit our ability to access capital, which could in the future negatively affect our liquidity. If
funds are not available, we may be required to delay, reduce the scope of or eliminate research or development plans for, or commercialization
efforts with respect to Aramchol, Amilo-5MER and/or our other pre-clinical and clinical programs. This may raise substantial doubts about
our ability to continue as a going concern.
The
extent of our future capital requirements will depend on many other factors, including:
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the
progress and costs of our pre-clinical studies, clinical trials and other research and development activities;
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the
impact of coronavirus on our operations;
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the
scope, prioritization and number of our clinical trials and other research and development programs;
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the
amount of revenues and contributions we receive under future licensing, development and commercialization arrangements with respect
to Aramchol or any other product candidtate;
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the
costs of the development and expansion of our operational infrastructure;
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the
costs and timing of obtaining regulatory approval for Aramchol, Amilo-5MER or any other product candidate;
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the
ability of us, or our collaborators, to achieve development milestones, marketing approval and other events or developments under
our potential future licensing agreements;
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the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;
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the
costs and timing of securing manufacturing arrangements for clinical or commercial production;
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the
costs of contracting with third parties to provide sales and marketing capabilities for us;
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the
costs of acquiring or undertaking development and commercialization efforts for any future products, product candidates or platforms;
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the
magnitude of our general and administrative expenses;
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any
cost that we may incur under future in- and out-licensing arrangements relating to Aramchol, Amilo-5MER or any other product candidate;
and
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market
conditions.
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Trend
Information
We
are a development stage company, and it is not possible for us to predict with any degree of accuracy the outcome of our research, development
or commercialization efforts. As such, it is not possible for us to predict with any degree of accuracy any significant trends, uncertainties,
demands, commitments or events that are reasonably likely to have a material effect on our net loss, liquidity or capital resources,
or that would cause financial information to not necessarily be indicative of future operating results or financial condition. However,
to the extent possible, certain trends, uncertainties, demands, commitments and events are in this “Management’s Discussion
and Analysis of Financial Condition and Results of Operations”.
Controls
and Procedures
As
a “foreign private issuer”, we are only required to conduct the evaluations required by Rules 13a-15(b) and 13a-15(d) of
the Exchange Act as of the end of each fiscal year and therefore have elected not to provide disclosure regarding such evaluations at
this time.
EXHIBIT INDEX