UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
6-K
Report
of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16
Under
the Securities Exchange Act of 1934
For
the Month of August 2023
001-36345
(Commission
File Number)
GALMED
PHARMACEUTICALS LTD.
(Exact
name of Registrant as specified in its charter)
16
Tiomkin St.
Tel
Aviv 6578317, Israel
(Address
of principal executive offices)
Indicate
by check mark whether the registrant files or will file annual reports under cover
Form
20-F or Form 40-F.
Form
20-F ☒ Form 40-F ☐
As
previously disclosed, Galmed Pharmaceuticals Ltd. (the “Company”) entered into a definitive agreement for a $1.5 million
equity investment in OnKai Inc. (“OnKai”) in exchange for series seed preferred shares of OnKai. Previously and in addition
to the foregoing, on January 5, 2023 the Company invested $1.5 million in OnKai through a Simple Agreement for Future Equity which
converted at a 15% discount into series seed preferred shares upon closing of the Investment Round. The Company’s investment in
OnKai was part of an approximately $6 million investment round (the “Investment Round”) with other investors
that was led by the Company. On June 19, 2023, the Investment Round closed. Following the closing of the Investment Round, the
Company holds approximately 19% of the outstanding share capital of OnKai on an as-converted and fully diluted basis and the Company’s
Chief Executive Officer and director, Allen Baharaff serves as a board member of OnKai.
The
Company is furnishing this Form 6-K to provide the (i) audited financial statements as of December 31, 2022 and for the year ended December
31, 2022 of OnKai, and (ii) unaudited interim financial statements as of March 31, 2023 and for the three months ended
March 31, 2023 and 2022 of OnKai.
The
Form 6-K, including the exhibits attached hereto, is incorporated by reference into the Company’s Registration Statements on Form
S-8 (Registration No. 333-206292 and 333-227441) and the Company’s Registration Statement on Form F-3 (Registration No. 333-254766).
EXHIBIT
INDEX
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
| |
Galmed
Pharmaceuticals Ltd. |
| |
|
|
| Date:
August 2, 2023 |
By: |
/s/
Allen Baharaff |
| |
|
Allen
Baharaff |
| |
|
President
and Chief Executive Officer |
Exhibit
15.1
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the incorporation by reference in Registration Statement Nos. 333-206292 and 333-227441 on Form S-8 and Registration Statement
No. 333-254766 on Form F-3 of Galmed Pharmaceutical Ltd., of our report dated August 2, 2023, relating to the financial statements
of Onkai Inc. appearing in this Report on Form 6-K dated August 2, 2023.
/s/
Brightman Almagor Zohar & Co.
Brightman
Almagor Zohar & Co.
Certified
Public Accountants
A
Firm in the Deloitte Global Network
Tel
Aviv, Israel
August
2, 2023
Exhibit
99.1
ONKAI,
INC.
CONSOLIDATED
FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2022
U.S.
DOLLARS IN THOUSANDS
INDEX
INDEPENDENT
AUDITOR’S REPORT
To
the Stockholders of Onkai Inc.
Opinion
We
have audited the consolidated financial statements of Onkai Inc. and subsidiaries (the “Company”), which comprise the consolidated
balance sheet as of December 31, 2022, and the related consolidated statements of operations, changes in stockholders’ deficit
and cash flows for the year then ended, and the related notes to the consolidated financial statements (collectively referred to as the
“financial statements”).
In
our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as
of December 31, 2022, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles
generally accepted in the United States of America.
Basis
for Opinion
We
conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section
of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the
relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.
Responsibilities
of Management for the Financial Statements
Management
is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally
accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In
preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate,
that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the financial
statements are issued.
Auditor’s
Responsibilities for the Audit of the Financial Statements
Our
objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level
of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always
detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than
for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate,
they would influence the judgment made by a reasonable user based on the financial statements.
In
performing an audit in accordance with GAAS, we:
| ● | Exercise
professional judgment and maintain professional skepticism throughout the audit. |
| | |
| ● | Identify
and assess the risks of material misstatement of the financial statements, whether due to
fraud or error, and design and perform audit procedures responsive to those risks. Such procedures
include examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. |
| | |
| ● | Obtain
an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control. Accordingly, no such opinion
is expressed. |
| | |
| ● | Evaluate
the appropriateness of accounting policies used and the reasonableness of significant accounting
estimates made by management, as well as evaluate the overall presentation of the financial
statements. |
| | |
| ● | Conclude
whether, in our judgment, there are conditions or events, considered in the aggregate, that
raise substantial doubt about the Company’s ability to continue as a going concern
for a reasonable period of time. |
We
are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit,
significant audit findings, and certain internal control-related matters that we identified during the audit.
/s/ Brightman Algamor Zohar & Co.
Brightman
Almagor Zohar & Co.
Certified
Public Accountants
A
Firm in the Deloitte Global Network
Tel
Aviv, Israel
August
2, 2023
ONKAI
INC.
Consolidated
Balance Sheet
U.S.
Dollars in thousands, except share data and per share data
| | |
| | |
December 31, | |
| | |
Notes | | |
2022 | |
| Assets | |
| | | |
| | |
| Current assets | |
| | | |
| | |
| Cash and cash equivalents | |
| | | |
$ | 1,526 | |
| Other accounts receivable | |
| | | |
| 50 | |
| Total current assets | |
| | | |
| 1,576 | |
| | |
| | | |
| | |
| Property and equipment, net | |
| | | |
| 1 | |
| Total non-current assets | |
| | | |
| 1 | |
| | |
| | | |
| | |
| Total assets | |
| | | |
$ | 1,577 | |
| | |
| | | |
| | |
| Liabilities and stockholders’ deficit | |
| | | |
| | |
| | |
| | | |
| | |
| Current liabilities | |
| | | |
| | |
| Trade payables | |
| | | |
$ | 33 | |
| Other accounts payable | |
| | | |
| 64 | |
| Total current liabilities | |
| | | |
| 97 | |
| | |
| | | |
| | |
| Non-current liabilities | |
| | | |
| | |
| Related parties | |
| 4 | | |
| 636 | |
| Convertible SAFE notes | |
| 3 | | |
$ | 4,089 | |
| Total non-current liabilities | |
| | | |
| 4,725 | |
| | |
| | | |
| | |
| Commitments and contingencies | |
| 5 | | |
| | |
| | |
| | | |
| | |
| Stockholders’ deficit | |
| | | |
| | |
| Ordinary shares, par value USD 0.001 per share; Authorized 5,000,000 shares; Issued and | |
| | | |
| | |
| outstanding: 2,641,000 shares (**) | |
| 6 | | |
| (*) | |
| Additional paid-in capital | |
| | | |
| 5 | |
| Accumulated deficit | |
| | | |
| (3,250 | ) |
| Total stockholders’ deficit | |
| | | |
| (3,245 | ) |
| | |
| | | |
| | |
| Total liabilities and stockholders’ deficit | |
| | | |
$ | 1,577 | |
(*)
Represents amounts less than $1 thousand
**)
Retroactively adjusted to reflect share split – see Note 6
Accompanying
notes are an integral part of the consolidated financial statements.
ONKAI
INC.
Consolidated
Statement of Operations
U.S. Dollars in thousands
| | |
| | |
Year ended December 31, | |
| | |
Notes | | |
2022 | |
| Research and development expenses | |
| 7 | | |
$ | 905 | |
| Marketing expenses | |
| 8 | | |
| 183 | |
| General and administrative expenses | |
| 9 | | |
| 366 | |
| Total operating loss | |
| | | |
| 1,454 | |
| Revaluation of convertible SAFE notes | |
| | | |
| 305 | |
| Other finance expenses, net | |
| | | |
| 18 | |
| Net loss | |
| | | |
| 1,777 | |
Accompanying
notes are an integral part of the consolidated financial statements.
ONKAI
INC.
Consolidated
Statement of Changes in Stockholders’ Deficit
U.S.
Dollars in thousands
| | |
| | |
Additional | | |
| | |
Total | |
| | |
Ordinary
shares (**) | | |
paid-in | | |
Accumulated | | |
stockholders’ | |
| | |
Shares | | |
Amount | | |
capital | | |
deficit | | |
deficit | |
| Balance
- January 1, 2022 | |
| 2,632,000 | | |
| (* | ) | |
| 2 | | |
| (1,473 | ) | |
| (1,471 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance
of ordinary shares from exercise of stock options | |
| 9,000 | | |
| (* | ) | |
| - | | |
| - | | |
| (* | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock-based
compensation | |
| - | | |
| - | | |
| 3 | | |
| - | | |
| 3 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
loss | |
| - | | |
| - | | |
| - | | |
| (1,777 | ) | |
| (1,777 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance
- December 31, 2022 | |
| 2,641,000 | | |
| (*) | | |
| 5 | | |
| (3,250 | ) | |
| (3,245 | ) |
(*)
Represents amounts less than $1 thousand
(**)
Retroactively adjusted to reflect share split – see Note 6
Accompanying
notes are an integral part of the consolidated financial statements.
ONKAI
INC.
Consolidated
Statements of Cash Flows
U.S.
Dollars in thousands
| | |
Year ended
December 31, | |
| | |
2022 | |
| Cash flow from operating activities | |
| | |
| | |
| | |
| Net loss | |
$ | (1,777 | ) |
| Adjustments to reconcile net loss to net cash used in | |
| | |
| operating activities: | |
| | |
| Depreciation and amortization | |
| 1 | |
| Revaluation of convertible SAFE notes | |
| 305 | |
| Stock-based compensation expense | |
| 3 | |
| Changes in operating assets and liabilities: | |
| | |
| | |
| | |
| Increase in other accounts receivable | |
| (29 | ) |
| Increase in related parties | |
| 84 | |
| Increase in trade payables | |
| - | |
| Increase in other accounts payable | |
| 40 | |
| Net cash used in operating activities | |
| (1,373 | ) |
| | |
| | |
| Cash flow from financing activities | |
| | |
| Proceeds from exercise of options | |
| (* | ) |
| Proceeds from issuance of convertible SAFE notes | |
| 2,565 | |
| Net cash provided by financing activities | |
| 2,565 | |
| Increase in cash and cash equivalents | |
| 1,192 | |
| Cash and cash equivalents at the beginning of the year | |
| 334 | |
| Cash and cash equivalents at the end of the year | |
$ | 1,526 | |
(*)
Represents amounts less than $1 thousand
ONKAI
INC.
Notes
to Consolidated Financial Statements
Note
1 – General
Onkai
Inc. (the “Company”) was incorporated in Delaware, USA on July 30, 2019 and commenced operations on July 30, 2019.
The
Company has a wholly-owned subsidiary, Onkai (Israel) Ltd., which was incorporated in Israel on April 4, 2021.
The
Company is developing an AI-based platform to advance health equity for underserved populations across the United States by facilitating
alignment between healthcare stakeholders.
Since
its inception, the Company has devoted all of its effort to developing its AI-based platform and fund-raising activities.
The
Company has incurred operating losses in each year since inception. The Company’s net loss for the year ended on December 31, 2022
was approximately $1.8 million. As of December 31, 2022, the Company had an accumulated deficit of $3.3 million. Substantially all of
its operating losses resulted from costs incurred in connection with the Company’s development program and from general and administrative
costs associated with its operations. The Company anticipates that it will continue to incur significant operating costs in connection
with developing and marketing its AI platform.
The
Company funded its research and development programs and operations to date primarily through issuance of simple agreement for future
equity (“SAFE “) notes. As of December 31, 2022, the Company has issued SAFE notes in the amount of approximately $3.8 million.
Additional
funding will be required to fund the Company’s operations and to complete the development of its digital platform and technology
for its current development stage and any future commercialization, and to achieve a level of revenue adequate to support the Company’s
cost structure.
As
of December 31, 2022, the Company had cash and cash equivalents of approximately 1.5 million.
During
June 2023, the Company raised $1.95 million from issuance of 730,815 preferred shares with a share price of $2.67. Based on the Company’s
current operating plan, the Company’s management currently estimates that its cash position will support its current development
and operations as currently conducted for more than 12 months from the date of issuance of these financial statements.
Note
2 – Significant Accounting Policies
The
consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“U.S.
GAAP”).
| |
B. |
Principles of consolidation |
The
consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Onkai (Israel) Ltd. All intercompany
balances and transactions have been eliminated upon consolidation.
The
preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. The Company’s management believes that the estimates, judgment, and assumptions used
are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements.
Actual results could differ from those estimates.
ONKAI INC.
Notes
to Consolidated Financial Statements
Note
2 – Significant Accounting Policies (Cont.)
| |
D. |
Financial statement in U.S. dollars |
The
functional currency of the Company and its subsidiary is the U.S dollar (the “dollar”), because the dollar is the currency
of the primary economic environment in which the Company and its subsidiary operate and expect to continue operating in the foreseeable
future. Transactions and balances denominated in dollars are presented in their original amounts. Non-dollar denominated transactions
and balances have been re-measured to dollars in accordance with the provisions of ASC 830-10, “Foreign Currency Translation.”
All transaction gains and losses from re-measurement of monetary balance sheet items denominated in non-dollar currencies are reflected
in the statement of operations as financial income or expenses, as appropriate.
| |
E. |
Cash and cash equivalents |
Cash
equivalents are short-term, highly liquid investments that are readily convertible into cash with maturities of three months or less
as of the date acquired.
| |
F. |
Concentrations of credit risk |
Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. Cash
and cash equivalents are deposited in major banks in Israel and the United States.
Management
believes that the banks that hold the Company’s cash and cash equivalent are financially sound and, accordingly, minimal credit
risk exists with respect to these cash and cash equivalents.
| |
G. |
Property and equipment |
Property
and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets. The annual depreciation rates are as follows:
| |
% |
|
| |
|
|
| Computer software and electronic equipment |
15–33 |
The
employees of Onkai (Israel), Ltd. are covered under section 14 of the Severance Compensation Act, 1963 (“Section 14”) in
Israel. According to Section 14, these employees are entitled to monthly deposits at a rate of 8.33% of their monthly salary, made in
their name with insurance companies. Under the Severance Compensation Act, 1963, payments in accordance with Section 14 release the Company
from any future severance payments to those employees. The aforementioned deposits are not recorded as an asset in the Company’s
balance sheet. The monthly deposits to insurance companies made by the Company under Section 14 are charged to the consolidated statement
of operations as and when the services are received from the Company’s employees.
ONKAI
INC.
Notes
to Consolidated Financial Statements
Note
2 – Significant Accounting Policies (Cont.)
| I. | Accounting
for stock-based compensation |
The
Company applies ASC 718, “Compensation – Stock Compensation” (“ASC 718”) which requires the measurement
and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock
options under the Company’s 2020 Incentive Stock Plan, based on estimated grant date fair values. The value of the portion of the
stock options that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s
consolidated statement of operations.
All
issuances of stock options or other equity instruments to non-employees as consideration for goods or services received by the Company
are accounted for based on the fair value of the stock options or restricted stock units granted.
The
Company estimates the fair value of stock options granted using the Black-Scholes option pricing model. The option-pricing model requires
a number of assumptions, of which the most significant are the expected stock price, volatility, and the expected option term. Expected
stock price volatility was estimated based on volatility of the stock price of similar companies in the technology sector. The expected
option term represents the period that the Company’s stock options are expected to be outstanding and is determined based on the
simplified method until sufficient historical exercise data will support using expected option term assumptions. The risk-free interest
rate is based on the yield from U.S. treasury bonds with an equivalent term. The Company has historically not paid dividends and has
no foreseeable plans to pay dividends. Changes in the determination of each of the inputs can affect the fair value of the stock options
granted and the results of operations of the Company.
The
fair value of ordinary shares underlying the stock options has been estimated by management with the assistance of a third-party valuation
firm and approved by the Company’s board of directors. The fair value of the underlying ordinary shares will be determined by the
board of directors for as long as the Company is not listed on an established stock exchange.
ONKAI
INC.
Notes
to Consolidated Financial Statements
Note 2 – Significant Accounting Policies
(Cont.)
| |
J. |
Research and development expenses |
Research
and development expenses are charged to the consolidated statement of operations as incurred.
The
Company accounts for income taxes utilizing the asset and liability method in accordance with ASC 740, “Income Taxes.” Current
tax liabilities are recognized for the estimated taxes payable on tax returns for the current year. Deferred tax liabilities or assets
are recognized for the estimated future tax effects attributable to temporary differences between the income-tax bases of assets and
liabilities and their reported amounts in the financial statements and for tax loss carry forwards. Measurement of current and deferred
tax liabilities and assets is based on provisions of enacted tax laws, and deferred tax assets are reduced, if necessary, by the amount
of tax benefits, the realization of which is not considered more likely than not based on available evidence. As of December 31, 2022
the Company had a full valuation allowance against deferred tax assets.
The
Company uses a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position taken
or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not
that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals
or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% (cumulative basis)
likely to be realized upon ultimate settlement. As of December 31, 2022, no liability for unrecognized tax positions has been recognized.
ONKAI
INC.
Notes
to Consolidated Financial Statements
Note
2 – Significant Accounting Policies (Cont.)
| |
L. |
Fair value of financial instruments |
Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction
between market participants at the measurement date. Assets and liabilities recorded at fair value in the financial statements are categorized
based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels are directly related
to the amount of subjectivity with the inputs to the valuation of these assets or liabilities as follows:
Level
1 - Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
Level
2 - Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable inputs for similar assets or liabilities.
These include quoted prices for identical or similar assets or liabilities in active markets and quoted prices for identical or similar
assets of liabilities in markets that are not active.
Level
3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or
liabilities.
The
Company’s convertible SAFE notes are measured at fair value at each reporting date and is classified within Level 2 of the fair
value hierarchy.
The
carrying values of Company’s financial assets and liabilities, including cash and cash equivalents, trade payables and other accounts
payables approximate their fair value due to the short-term maturity of these instruments.
| |
M. |
Convertible SAFE notes: |
The
Company has raised capital through the issuance of convertible SAFE notes that have characteristics of both liabilities and equity (refer
to Note 3). The Company classifies such SAFE notes as either liability or equity based on the characteristics of their monetary value.
The convertible SAFE notes classified as a liability are measured at fair value, in accordance with ASC 480-10, “Accounting for
Certain Financial instruments with Characteristics of both Liabilities and Equity”.
| |
N. |
Accounting pronouncement recently adopted |
In
February 2016, the FASB issued ASU 2016-02 “Leases” to increase transparency and comparability among organizations by recognizing
lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. For operating leases,
the ASU requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease
payments, on its balance sheet. The ASU retains the current accounting for lessors and does not make significant changes to the recognition,
measurement, and presentation of expenses and cash flows by a lessee.
Effective
January 1, 2022, the Company adopted the new lease accounting standard. The Company elected to apply the practical expedients permitted
under the transition guidance within the new standard. As such, there was no impact on the Company’s financial statements as a
result of adopting ASU 2016-02.
In
October 2021, the FASB issued ASU 2021-07, Compensation—Stock Compensation (Topic 718): Determining the Current Price of an Underlying
Share for Equity-Classified Share-Based Awards (“ASU 2021-07”). The practical expedient is effective prospectively for private
companies for all qualifying awards granted or modified during fiscal years beginning on January 1, 2022. The adoption had no material
impact on the consolidated financial statements for the year ended December 31, 2022.
| |
O. |
Accounting pronouncement
not yet adopted |
In
June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments, which replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial
asset measured at amortized cost to be presented at the net amount expected to be collected. The ASU will be effective for the Company
beginning January 1, 2023, and interim periods therein. Early adoption is permitted. The Company is currently evaluating the effect that
ASU 2016-13 will have on its financial statements and related disclosures.
ONKAI
INC.
Notes
to Consolidated Financial Statements
Note
3: Convertible SAFE Notes
During
2020, 2021 and 2022, the Company issued convertible SAFE notes for total proceeds of $3.8 million. On June 19, 2023, the SAFE notes were
converted into 1,744,400 preferred shares in accordance with the terms of the SAFE agreements.
The
terms of the convertible SAFE notes provide that in the event of an equity financing before the termination of the SAFE, the SAFE notes
will automatically convert into the most senior class of shares in the equity financing at a conversion price equal to between 15%-25%,
as detailed in each SAFE agreement, on the price of the senior share class issued in the aforementioned equity financing. If the Company
experiences a liquidity or dissolution event, as defined, the SAFE Agreement requires repayment in cash legally available for distribution
based on the original investment.
The
SAFE notes were classified as a liability and are measured at fair value, pursuant to ASC 480-10, “Accounting for Certain Financial
instruments with Characteristics of both Liabilities and Equity”. The fair value was determined based on the fixed monetary amount
of the variable number of shares to be issued upon automatic conversion of the SAFE notes, as represented by a fixed discount on the
Company’s share value in an equity financing event that triggers automatic conversion. The significant input used in the fair value
measurement was the SAFE notes’ par value, as it represents the fixed monetary value of the variable number of shares to be issued
upon automatic conversion of the SAFE notes in an equity financing. As the SAFE notes’ par value is an observable input, the notes’
fair value is classified as a level 2.
The
following table presents changes in the fair value of the convertible SAFE notes:
| Balance as of January 1, 2022 | |
$ | 1,219 | |
| | |
| | |
| Issuance of convertible SAFE notes | |
| 2,565 | |
| Revaluation of convertible SAFE notes | |
| 305 | |
| | |
| | |
| Balance as of December 31, 2022 | |
$ | 4,089 | |
ONKAI
INC.
Notes
to Consolidated Financial Statements
Note
4 – Related Parties
| 1. | As
of December 31, 2022, the Company had a related party payable in the amount of approximately
$0.3 million pursuant to a service agreement with its officers and directors. In connection
with the service agreement, the Company recorded salary expenses and directors’ fee
to its related parties in the amount of $0.2 million for the year ended December 31, 2022. |
| | | |
| | | In
May 2023, the Company entered into a share purchase and service agreement with Galmed Pharmaceuticals Ltd.. In connection with the aforementioned
agreement, the amounts due with respect to the share purchase and service agreement with the Company’s officers and directors will
be paid only upon the occurrence of: (1) generating revenues of at least $5 million; (2) an equity financing of at least $10 million,
or (3) a deemed liquidation event, as defined in the agreement. |
| 2. | In
August 2019, an asset purchase agreement was signed between the Company and Kecana Artificial
Intelligence Ltd. (“Kecana”), a company controlled by the Onkai’s officers.
In connection with the asset purchase agreement, Onkai assumed certain debts owed by Kecana
to officers of Onkai. a related party payable in the amount of approximately $0.3 million
is outstanding as of December 31, 2022 with respect to the debts assumed by the Company. |
Note
5 – Commitments and Contingencies
Please
refer to Note 4 with respect to the Company’s commitments and contingencies.
ONKAI
INC.
Notes
to Consolidated Financial Statements
Note
6 – Shareholders’ Deficit
Ordinary
shares confer upon the holders the right to receive notice to participate and vote in general meetings of the Company and the right to
receive dividends, if declared.
Dividends
The
holders of shares of Preferred Stock shall be entitled to receive, only when, as and if declared by the Board of Directors, out of any
funds and assets legally available therefor, dividends at the rate of 5.00% of the Original Issue Price (as defined in the Company’s
Amended and Restated Certificate of Incorporation (“COI”)) for each share of Preferred Stock, prior and in preference to
any declaration or payment of any other dividend (other than dividends on shares of Ordinary Shares payable in shares of Ordinary Shares).
Liquidation,
Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales.
In
the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares of each series
of Preferred Stock then outstanding shall be entitled to be paid, on a pari passu basis, before any payment shall be made to the holders
of Ordinary Shares by reason of their ownership thereof, an amount per share equal to the greater of (i) one time the applicable Original
Issue Price for such series of Preferred Stock, plus any dividends declared but unpaid thereon, or (ii) such amount per share as would
have been paid had all shares of such series of Preferred Stock been converted into Ordinary Shares immediately prior to such liquidation,
dissolution, winding up or Deemed Liquidation Event.
Voting
Each
holder of outstanding shares of Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of
Ordinary Shares into which the shares of Preferred Stock held by such holder are convertible as of the record date for determining stockholders
entitled to vote on such matter.
Election
of Directors
The
holders of record of a majority of the shares of Preferred Stock then outstanding, shall be entitled to elect one (1) director of the
Company and the holders of record of the shares of Ordinary shares, exclusively and as a separate class, shall be entitled to elect four
(4) directors of the Company.
Preferred
Stock Protective Provisions
The
COI contains protective provisions which require the written consent or affirmative vote of the Requisite Holders (as defined in the
COI).
Optional
Conversion
Each
share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the
payment of additional consideration by the holder thereof, into such number of fully paid and non-assessable shares of Ordinary Shares
as is determined by dividing the applicable Original Issue Price for such series of Preferred Stock by the applicable Conversion Price
(as defined in the COI) for such series of Preferred Stock in effect at the time of conversion.
Adjustment
of Conversion Price Upon Issuance of Additional Shares of Ordinary shares
In
the event the Company shall at any time after the Original Issue Date (as defined in the COI) issue Additional Shares of Ordinary shares
(as defined in the COI), without consideration or for a consideration per share less than the Conversion Price of a series of Preferred
Stock in effect immediately prior to such issuance or deemed issuance, then the Conversion Price for such series of Preferred Stock shall
be reduced, concurrently with such issue, to a price determined in accordance with the formula provided in the COI.
ONKAI
INC.
Notes
to Consolidated Financial Statements
Note
6 – Shareholders’ Deficit (Cont.)
On
April 25, 2023 the Company completed a stock split of all its ordinary and preferred shares. As a result of the stock split, the following
changes have occurred (i) every one shares of ordinary and preferred shares have been split into one thousand shares of ordinary and
preferred shares respectively; (ii) the number of shares of ordinary shares underlying each ordinary shares option or ordinary shares
warrant have been proportionately increased on a 1-for-1000 basis, and the exercise price of each such outstanding shares option and
warrant has been proportionately decreased on a 1-for-1000 basis. Accordingly, all option numbers, share numbers, share prices, and exercise
prices have been adjusted within these consolidated financial statements, on a retroactive basis, to reflect this 1-for-1000 stock split.
All the share numbers and share prices have been adjusted retroactively within these financial statements to reflect the stock split.
During
June 2023, the Company raised $1.95 million in exchange for 730,815 preferred shares at a share price of $2.67 per share.
In
connection with the equity financing round, the Company issued 1,744,400 preferred shares upon the conversion of SAFE notes (see Note
3) in the amount of $3.8 million.
ONKAI
INC.
Notes
to Consolidated Financial Statements
Note
6 – Shareholders’ Deficit (Cont.)
C.
Stock-based compensation
| 1. | The
Company has an equity-based incentive plan, the 2020 Incentive Stock Incentive Plan (the
“2020 Plan”). The 2020 Plan, which was adopted by the Board on July 30, 2020,
provides for the grant of restricted stocks, options to purchase ordinary shares and the
issuance of restricted stock units (“RSUs”) to the Company’s officers,
directors, employees, service providers and consultants. The 2020 Plan provides for such
equity-based compensation under various and different tax regimes. As of December 31, 2022,
a total of 36,000 stock options are reserved for issuance under the 2020 Plan. |
A
summary of the status of the Company’s 2020 Plan as of December 31, 2022 and changes during the year then ended are presented below:
| | |
2022 | |
| | |
| | |
Weighted | |
| | |
Number of | | |
average | |
| | |
share | | |
exercise | |
| | |
Options | | |
price | |
| Options outstanding as of January 1, 2022 (*) | |
$ | 551,000 | | |
| 0.33 | |
| Granted | |
| 72,000 | | |
| 0.83 | |
| Forfeited | |
| (65,000 | ) | |
| 0.81 | |
| Exercised | |
| (9,000 | ) | |
| 0.83 | |
| Outstanding as of December 31, 2022 | |
| 549,000 | | |
| 0.35 | |
| Options exercisable as of December 31, 2022 | |
$ | 334,000 | | |
| 0.25 | |
(**)
Retroactively adjusted to reflect share split – see Note 6
The
fair value of the Company’s stock options granted for the year ended December 31, 2022 was estimated using the Black-Scholes option
pricing model using the following assumptions:
| - | fair
value of ordinary share- $0.041-0.097 |
| | | |
| - | dividend
yield of 0.00%. |
| | | |
| - | risk-free
interest rate of 0.23%-4.01%. |
| | | |
| - | an
expected life of 4 years. |
| | | |
| - | and
a volatility rate of 46.6%-51.9%. |
As
of December 31, 2022, the weighted-average remaining contractual term of the outstanding stock options is 8.3.
The
weighted average grant date fair value of the options granted during the year ended December 31, 2022 was $0.05 thousand per option.
The
unrecognized share-based compensation expense on stock options expected to vest as of December 31, 2022, is approximately $3 thousand,
and is expected to be recognized over a weighted-average period of approximately 2 years.
For
the year ended December 31, 2022, the Company recorded share-based compensation expenses of $3 thousand.
During
2020 and 2021, the Company issued a total of 72,000 RSUs. Upon vesting, each RSU will be settled by issuance of one ordinary share. The
RSUs vest over four years. As of December 31, 2022, all issued RSU’s are outstanding. For the year ended December 31, 2022, with
respect to the above-mentioned RSUs, the Company recorded stock-based compensation expenses in the amount of $11 thousand. All of the
above-mentioned stock-based compensation expenses are recorded under general and administrative expenses for the year ended December
31, 2022. The unrecognized compensation expense is approximately $0.05 thousand which is expected to be recognized over a weighted-average
period of approximately 2 years.
ONKAI
INC.
Notes
to Consolidated Financial Statements
Note
7 – Research and Development Expenses
| | |
Year ended
December 31,
2022 | |
| | |
(in thousands) | |
| Salaries | |
| 340 | |
| Share based compensation | |
| (* | ) |
| Software development | |
| 247 | |
| Professional services | |
| 318 | |
| | |
| 905 | |
(*)
Represents amounts less than $1 thousand
Note 8 – Marketing Expenses
| | |
Year ended
December 31,
2022 | |
| | |
(in thousands) | |
| Salaries | |
| 19 | |
| Share based compensation | |
| 3 | |
| Professional services | |
| 42 | |
| Consulting expenses | |
| 119 | |
| | |
| 183 | |
Note
9 – General and Administrative Expenses
| | |
Year ended
December 31,
2022 | |
| | |
(in thousands) | |
| Depreciation | |
| 1 | |
| Share based compensation | |
| (* | ) |
| Professional services | |
| 329 | |
| Other | |
| 36 | |
| | |
| 366 | |
(*)
Represents amounts less than $1 thousand
ONKAI
INC.
Notes
to Consolidated Financial Statements
Note
10 – Income Taxes
The
Company is subject to income taxes under the Israeli and U.S. tax laws:
Corporate
tax rates
The
Company is subject to U.S. federal tax rate of 21% for the year ended December 31, 2022.
The
Company has not been audited by the Internal Revenue Service since its incorporation.
As
of December 31, 2022, the Company has generated accumulated net operating losses in the U.S. of approximately $2.6 million. Net operating
losses in the United States are available through 2035. Utilization of U.S. net operating losses may be subject to substantial annual
limitation due to the “change in ownership” provisions of the Internal Revenue Code of. The annual limitation may result
in the expiration of net operating losses before utilization.
Onkai
(Israel) Ltd. is subject to Israeli corporate tax rate of 23% for the year ended December 31, 2022. Onkai (Israel) Ltd. has not received
a final tax assessment since its incorporation.
As
of December 31, 2022, Onkai (Israel) Ltd. has generated accumulated net operating losses in Israel of approximately $0.6 million which
may be carried forward and offset against taxable income in the future for an indefinite period.
Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. As of December 31, 2022, the significant components of the Company’s
deferred tax assets are net operating loss carryforward in the amount of $3.2 million. 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.
The
components of loss before income taxes consisted of the following (in thousands):
| | |
Year Ended
December
31,
2022 | |
| | |
| |
| U.S.A | |
$ | 1,682 | |
| Israel | |
| 95 | |
| | |
$ | 1,777 | |
ONKAI
INC.
Notes
to Consolidated Financial Statements
Note
10 – Income Taxes (Cont.)
A
reconciliation of the Company’s actual tax expense to the Company’s theoretical statutory tax benefit is as follows:
| | |
Year ended
December 31, | |
| | |
2022 | |
| | |
(in thousands) | |
| Loss before taxes on income | |
| | |
| | |
$ | 1,777 | |
| | |
| | |
| Statutory tax rate | |
| 21 | % |
| | |
| | |
| Theoretical tax benefit | |
| 373 | |
| | |
| | |
| Losses and other items for which a valuation allowance was provided or benefit | |
| | |
| from loss carry forwards | |
| (373 | ) |
| | |
| | |
| Actual tax expense | |
$ | 0 | |
Note
11 - Subsequent events:
The
Company evaluated subsequent events through the issuance date of the financial statements on August 2, 2023.
| 1. | For
information regarding the share split effected on April 26, 2023, see Note 6. |
| | | |
| 2. | For
information regarding the conversion of convertible SAFE notes and issuance of preferred
shares during June 2023, see Note 6. |
Exhibit
99.2
ONKAI,
INC.
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
AS
OF MARCH 31, 2023
U.S.
DOLLARS IN THOUSANDS
INDEX
-
- - - - - - - - - -
ONKAI,
INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS (unaudited)
U.S.
dollars in thousands (except share data and per share data)
| | |
Notes | | |
March
31, 2023 | | |
December
31, 2022 | |
| | |
| | |
| | |
| |
| ASSETS | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | |
| CURRENT
ASSETS: | |
| | | |
| | | |
| | |
| Cash and cash
equivalents | |
| | | |
$ | 1,134 | | |
$ | 1,526 | |
| Other accounts receivables | |
| | | |
| 55 | | |
| 50 | |
| Total current
assets | |
| | | |
| 1,189 | | |
| 1,576 | |
| | |
| | | |
| | | |
| | |
| Property and equipment, net | |
| | | |
| 5 | | |
| 1 | |
| | |
| | | |
| 5 | | |
| 1 | |
| | |
| | | |
| | | |
| | |
| TOTAL ASSETS | |
| | | |
$ | 1,194 | | |
$ | 1,577 | |
| | |
| | | |
| | | |
| | |
| LIABILITIES
AND STOCKHOLDERS’ DEFICIT | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | |
| CURRENT
LIABILITIES: | |
| | | |
| | | |
| | |
| Trade payables | |
| | | |
| 106 | | |
| 33 | |
| Other account payables | |
| | | |
| 78 | | |
| 64 | |
| Total current
liabilities | |
| | | |
| 184 | | |
| 97 | |
| | |
| | | |
| | | |
| | |
| NON-CURRENT
LIABILITIES: | |
| | | |
| | | |
| | |
| Related parties | |
| 5 | | |
| 611 | | |
| 636 | |
| Convertible SAFE notes | |
| 4 | | |
| 4,450 | | |
| 4,089 | |
| Total non-current
liabilities | |
| | | |
| 5,061 | | |
| 4,725 | |
| | |
| | | |
| | | |
| | |
| Commitments
and Contingencies | |
| 6 | | |
| | | |
| | |
| | |
| | | |
| | | |
| | |
| STOCKHOLDERS’
DEFICIT | |
| | | |
| | | |
| | |
| Ordinary
shares, par value $0.001 per share; 5,000,000 shares authorized; 2,641,000 shares issued and outstanding (**) | |
| 7 | | |
| (*) | | |
| (*) | |
| Additional paid in capital | |
| | | |
| 5 | | |
| 5 | |
| Accumulated deficit | |
| | | |
| (4,056 | ) | |
| (3,250 | ) |
| Total stockholders’
deficit | |
| | | |
| (4,051 | ) | |
| (3,245 | ) |
| | |
| | | |
| | | |
| | |
| TOTAL LIABILITIES
AND STOCKHOLDERS’ DEFICIT | |
| | | |
$ | 1,194 | | |
$ | 1,577 | |
(*)
Less than 1 thousand.
(**)
Retroactively adjusted to reflect share split –
see Note 7
The
accompanying notes are an integral part of these financial statements.
ONKAI
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
U.S.
dollars in thousands (except share data)
| | |
| | |
For
the three months ended |
| | |
Notes | | |
March
31, |
| | |
| | |
2023 | | |
2022 | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| |
| Operating expenses | |
| | | |
| | | |
| | |
| Research and development
expenses | |
| 8 | | |
$ | (291 | ) | |
$ | (170 | ) |
| Marketing expenses | |
| 9 | | |
| (200 | ) | |
| (50 | ) |
| General and administrative
expenses | |
| 10 | | |
| (97 | ) | |
| (30 | ) |
| Total operating loss
| |
| | | |
| (588 | ) | |
| (250 | ) |
| | |
| | | |
| | | |
| | |
| Revaluation of convertible
SAFE notes | |
| | | |
| (231 | ) | |
| (46 | ) |
| Other finance income (expenses),
net | |
| | | |
| 13 | | |
| (2 | ) |
| | |
| | | |
| | | |
| | |
| Net loss | |
| | | |
$ | (806 | ) | |
$ | (298 | ) |
The
accompanying notes are an integral part of these financial statements.
ONKAI,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (unaudited)
U.S.
dollars in thousands (except share data)
| | |
Ordinary
shares | | |
Additional Paid in | | |
Accumulated | | |
Total
Stockholders’ | |
| | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | |
| | |
| | |
| | |
| | |
| | |
| |
| Balance –
January 1, 2023 | |
| 2,641,000 | | |
| $
*) | | |
$ | 5 | | |
$ | (3,250 | ) | |
$ | (3,245 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock-based compensation | |
| | | |
| | | |
| (*) | | |
| | | |
| (*) | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
loss | |
| - | | |
| - | | |
| - | | |
| (806 | ) | |
| (806 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance
– March 31, 2023 | |
| 2,641,000 | | |
| $
*) | | |
$ | 5 | | |
$ | (4,056 | ) | |
$ | (4,051 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
Ordinary
shares | | |
Additional
Paid in | | |
Accumulated | | |
Total
Stockholders’ | |
| | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | |
| | |
| | |
| | |
| | |
| | |
| |
| Balance
– January 1, 2022 | |
| 2,632,000 | | |
$ | (*)
| | |
$ | 2 | | |
$ | (1,473 | ) | |
$ | (1,471 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock-based compensation | |
| | | |
| | | |
| (*) | | |
| | | |
| (*) | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
loss | |
| - | | |
| - | | |
| - | | |
| (298 | ) | |
| (298 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance
– March 31, 2022 | |
| 2,632,000 | | |
$ | (*)
| | |
$ | 2 | | |
$ | (1,771 | ) | |
$ | (1,769 | ) |
(*)
Less than 1 thousand.
(**) Retroactively adjusted to reflect share split
– see Note 7
The
accompanying notes are an integral part of these financial statements.
ONKAI,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
U.S.
dollars in thousands
| | |
For
the three months ended
March 31, | |
| | |
2023 | | |
2022 | |
| | |
| | |
| |
| | |
| | |
| |
| CASH FLOWS FROM OPERATING
ACTIVITIES: | |
| | | |
| | |
| Net
loss | |
$ | (806 | ) | |
$ | (298 | ) |
| Adjustments
to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
| Depreciation | |
| (*) | | |
| (*) | |
| Revaluation
of convertible SAFE notes | |
| 231 | | |
| 47 | |
| Stock
based compensation | |
| (*) | | |
| (*) | |
| Changes
in assets and liabilities | |
| | | |
| | |
| Increase
in other accounts receivable | |
| (5 | ) | |
| (6 | ) |
| Increase
(decrease) in related parties | |
| (25 | ) | |
| - | |
| Increase
in trade payables | |
| 73 | | |
| 20 | |
| Increase
(decrease) in other accounts payable | |
| 14 | | |
| (19 | ) |
| Net cash
provided by (used in) operating activities | |
| (518 | ) | |
| (256 | ) |
| | |
| | | |
| | |
| CASH FLOWS FROM INVESTING
ACTIVITIES: | |
| | | |
| | |
| Purchase
of property and equipment | |
| (4 | ) | |
| - | |
| Net
cash used in investing activities | |
| (4 | ) | |
| - | |
| | |
| | | |
| | |
| CASH FLOWS FROM FINANCING
ACTIVITIES: | |
| | | |
| | |
| Proceeds
from issuance of convertible SAFE notes | |
| 130 | | |
| 175 | |
| Net cash
provided by (used in) financing activities | |
| 130 | | |
| 175 | |
| | |
| | | |
| | |
| Decrease
in cash and cash equivalents | |
| (392 | ) | |
| (81 | ) |
| Cash and
cash equivalents at the beginning of the period | |
| 1,526 | | |
| 333 | |
| Cash and
cash equivalents at the end of the period | |
$ | 1,134 | | |
$ | 251 | |
(*)
Less than 1 thousand.
The
accompanying notes are an integral part of these financial statements.
ONKAI,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S.
dollars in thousands, except share data
NOTE
1 – GENERAL
Onkai
Inc. (the “Company”) was incorporated in Delaware, USA on July 30, 2019 and commenced operations on July 30, 2019. The Company
has a wholly-owned subsidiary, OnKai (Israel) Ltd., which was incorporated in Israel on April 4, 2021. The Company is developing an AI-based
platform to advance health equity for underserved populations across the United States by facilitating alignment between healthcare stakeholders.
Since
its inception, the Company has devoted all of its effort to developing its AI-based platform and fund-raising activities.
The
Company has incurred operating losses in each year since inception. The Company’s net loss for the period ended on March 31, 2023
was approximately $0.8 million. As of March 31, 2023, the Company had an accumulated deficit of $4.1 million. Substantially all of its
operating losses resulted from costs incurred in connection with the Company’s development program and from general and administrative
costs associated with its operations. The Company anticipates that it will continue to incur significant operating costs in connection
with developing and marketing its AI platform.
The
Company funded its research and development programs and operations to date primarily through issuance of simple agreement for future
equity (“SAFE “) notes. As of March 31, 2023, the Company completed a bridge financing by means of issuance of SAFE notes
in the amount of approximately $4.4 million.
Additional
funding will be required to fund the Company’s operations and to complete the development of its digital platform and technology
for its current development stage and any future commercialization, and to achieve a level of revenue adequate to support the Company’s
cost structure.
During
June 2023, the Company raised $1.95 million from issuance of 730,815 preferred shares with a share price of $2.67. Based on the Company’s
current operating plan, the Company’s management currently estimates that its cash position will support its current development
and operations as currently conducted for more than 12 months from the date of issuance of these financial statements.
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES
These
unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying
notes for the year ended December 31, 2022. The significant accounting policies applied in the annual financial statements of the Company
as of December 31, 2022, are applied consistently in these interim consolidated financial statements.
NOTE
3 – UNAUDITED INTERIM FINANCIAL STATEMENTS
These
unaudited consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the United
States (“U.S. GAAP”). In management’s opinion, the unaudited condensed consolidated financial statements include all
adjustments of a normal recurring nature necessary for the fair presentation of the Company’s financial position as of March 31,
2023, as well as its results of operations for the three months ended March 31, 2023, and 2022. The results of operations for the three
months ended March 31, 2023, are not necessarily indicative of the results to be expected for the year ending December 31, 2023.
ONKAI,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S.
dollars in thousands, except share data
Note
4: Convertible SAFE Notes
During
2020, 2021, 2022 and 2023, the Company issued convertible SAFE notes for total proceeds of $4.5 million. On June 19, 2023, the SAFE notes
were converted into 1,744,400 preferred shares in accordance with the terms of the SAFE agreements.
The
terms of the convertible SAFE notes provide that in the event of an equity financing before the termination of the SAFE, the SAFE notes
will automatically convert into the most senior class of shares in the equity financing at a conversion price equal to between 15%-25%,
as detailed in each SAFE agreement, on the price of the senior share class issued in the aforementioned equity financing. If the Company
experiences a liquidity or dissolution event, as defined, the SAFE Agreement requires repayment in cash legally available for distribution
based on the original investment.
The
SAFE notes were classified as a liability and are measured at fair value, pursuant to ASC 480-10, “Accounting for Certain Financial
instruments with Characteristics of both Liabilities and Equity”. The fair value was determined based on the fixed monetary amount
of the variable number of shares to be issued upon automatic conversion of the SAFE notes, as represented by a fixed discount on the
Company’s share value in an equity financing event that triggers automatic conversion. The significant input used in the fair value
measurement was the SAFE notes’ par value, as it represents the fixed monetary value of the variable number of shares to be issued
upon automatic conversion of the SAFE notes in an equity financing. As the SAFE notes’ par value is an observable input, the notes’
fair value is classified as a level 2.
| The following table presents changes in
the fair value of the convertible SAFE notes: |
| |
| Balance as of January 1, 2023 | |
$ | 4,089 | |
| | |
| | |
| Issuance of convertible SAFE
Notes | |
| 130 | |
| Revaluation
of convertible SAFE notes | |
| 231 | |
| | |
| | |
| Balance as of March 31,
2023 | |
$ | 4,450 | |
| | |
| | |
| Balance as of January 1, 2022 | |
$ | 1,219 | |
| | |
| | |
| Issuance of convertible SAFE
Notes | |
| 175 | |
| Revaluation
of convertible SAFE notes | |
| 47 | |
| | |
| | |
| Balance as of March 31,
2022 | |
$ | 1,441 | |
ONKAI,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S.
dollars in thousands, except share data
Note
5 – Related Parties
| 1. | As
of March 31, 2023, the Company had a related party payable in the amount of approximately
$0.3 million pursuant to a service agreement with its officers and directors. In connection
with the service agreement, the Company recorded salary expenses and directors’ fee
to its related parties in the amount of approximately $90 thousand and $60
thousand for the three months ended March 31, 2023, and March 31, 2022, respectively. |
In
May 2023, the Company entered into a share purchase and service agreement with Galmed Pharmaceuticals Ltd.In connection with the aforementioned
agreement, the amounts due with respect to the share purchase and service agreement with the Company’s officers and directors will
be paid only upon the occurrence of: (1) generating revenues of at least $5 million; (2) an equity financing of at least $10 million,
or (3) a deemed liquidation event, as defined in the agreement.
| 2. | In
August 2019, an asset purchase agreement was signed between the Company and Kecana Artificial
Intelligence Ltd. (“Kecana”), a company controlled by the Onkai’s officers.
In connection with the asset purchase agreement, Onkai assumed certain debts owed by Kecana
to officers of Onkai. A related party payable in the amount of approximately $0.3 million
is outstanding as of March 31, 2023 with respect to the debts assumed by the Company. |
Note
6 – Commitments and Contingencies
Please
refer to Note 5 for the Company’s commitments and contingencies.
Note
7 – Shareholders’ Deficit
Ordinary
shares confer upon the holders the right to receive notice to participate and vote in general meetings of the Company and the right to
receive dividends, if declared.
Dividends
The
holders of shares of Preferred Stock shall be entitled to receive, only when, as and if declared by the Board of Directors, out of any
funds and assets legally available therefor, dividends at the rate of 5.00% of the Original Issue Price (as defined in the Company’s
Amended and Restated Certificate of Incorporation (“COI”)) for each share of Preferred Stock, prior and in preference to
any declaration or payment of any other dividend (other than dividends on shares of Ordinary Shares payable in shares of Ordinary shares).
ONKAI,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S.
dollars in thousands, except share data
Note 7 – Shareholders’ Deficit
(Cont.)
Liquidation,
Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales.
In
the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares of each series
of Preferred Stock then outstanding shall be entitled to be paid, on a pari passu basis, before any payment shall be made to the holders
of Ordinary Sharesby reason of their ownership thereof, an amount per share equal to the greater of (i) one time the applicable Original
Issue Price for such series of Preferred Stock, plus any dividends declared but unpaid thereon, or (ii) such amount per share as would
have been paid had all shares of such series of Preferred Stock been converted into Ordinary Sharesimmediately prior to such liquidation,
dissolution, winding up or Deemed Liquidation Event.
Voting
Each
holder of outstanding shares of Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of
Ordinary Sharesinto which the shares of Preferred Stock held by such holder are convertible as of the record date for determining stockholders
entitled to vote on such matter.
Election
of Directors
The
holders of record of a majority of the shares of Preferred Stock then outstanding, shall be entitled to elect one (1) director of the
Company and the holders of record of the shares of Ordinary shares, exclusively and as a separate class, shall be entitled to elect four
(4) directors of the Company.
Preferred
Stock Protective Provisions
The
COI contains protective provisions which require the written consent or affirmative vote of the Requisite Holders (as defined in the
COI).
Optional
Conversion
Each
share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the
payment of additional consideration by the holder thereof, into such number of fully paid and non-assessable shares of Ordinary Sharesas
is determined by dividing the applicable Original Issue Price for such series of Preferred Stock by the applicable Conversion Price (as
defined in the COI) for such series of Preferred Stock in effect at the time of conversion.
Adjustment
of Conversion Price Upon Issuance of Additional Shares of Ordinary shares
In
the event the Company shall at any time after the Original Issue Date (as defined in the COI) issue Additional Shares of Ordinary Shares(as
defined in the COI), without consideration or for a consideration per share less than the Conversion Price of a series of Preferred Stock
in effect immediately prior to such issuance or deemed issuance, then the Conversion Price for such series of Preferred Stock shall be
reduced, concurrently with such issue, to a price determined in accordance with the formula provided in the COI.
On
April 25, 2023 the Company completed a stock split of all its ordinary and preferred shares. As a result of the stock split, the following
changes have occurred (i) every one shares of ordinary and preferred shares have been split into one thousand shares of ordinary and
preferred shares respectively; (ii) the number of shares of ordinary shares underlying each ordinary shares option or ordinary shares
warrant have been proportionately increased on a 1-for-1000 basis, and the exercise price of each such outstanding shares option and
warrant has been proportionately decreased on a 1-for-1000 basis. Accordingly, all option numbers, share numbers, share prices, and exercise
prices have been adjusted within these consolidated financial statements, on a retroactive basis,
to reflect this 1-for-1000 stock split. All the share numbers and share prices have been adjusted retroactively within these financial
statements to reflect the stock split.
ONKAI,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S.
dollars in thousands, except share data
Note
7 – Shareholders’ Deficit (Cont.)
| 3. | During
June 2023, the Company raised $1.95 million in exchange for 730,815 preferred shares at a
share price of$2.67. per share. In connection with the equity financing round, the Company
issued 1,744,400 preferred shares upon the conversion of SAFE notes (see Note 4) in the amount
of $3.8 million. |
C.
Stock-based compensation
| 1. | The
Company has an equity-based incentive plan, the 2020 Stock Incentive Plan (the “2020
Plan”). The 2020 Plan, which was adopted by the Board on July 30, 2020, provides for
the grant of issuance of restricted stocks, options to purchase the ordinary shares and the
issuance of restricted stock units (“RSUs”) to the Company’s officers,
directors, employees, service providers and consultants. The 2020 Plan provides for such
equity-based compensation under various and different tax regimes. As of March 31, 2023 a
total of 119,000 stock options are reserved for issuance under the 2020 plan. |
A
summary of the status of the Company’s 2020 Plan as of March 31, 2023 and March 31, 2022 and changes during the three months then
ended are presented below:
| | |
Three
months ended March 31 (*) | |
| | |
2023 | | |
2022 | |
| | |
| | |
Weighted | | |
| | |
Weighted | |
| | |
Number
of | | |
average | | |
Number
of | | |
average | |
| | |
share | | |
exercise | | |
share | | |
exercise | |
| | |
options | | |
price | | |
options | | |
price | |
| Options
outstanding as of January 1 | |
| 549,000 | | |
$ | 0.35 | | |
| 551,000 | | |
$ | 0.33 | |
| Granted | |
| | | |
$ | - | | |
| 40,000 | | |
$ | 0.83 | |
| Forfeited | |
| (28,000 | ) | |
$ | 0.83 | | |
| - | | |
| - | |
| Exercised | |
| - | | |
$ | - | | |
| - | | |
| - | |
| Outstanding
as of March 31 | |
| 521,000 | | |
$ | 0.32 | | |
| 591,000 | | |
$ | 0.36 | |
| | |
| | | |
| | | |
| | | |
| | |
| Options
exercisable as of March 31 | |
$ | 371,000 | | |
$ | 0.18 | | |
| 32,000 | | |
$ | 0.11 | |
(*)
Retroactively adjusted to reflect share split – see Note 5
ONKAI,
INC.
NOTES
TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S.
dollars in thousands, except share data
Note
7– Shareholders’ Deficit (Cont.)
The
fair value of the Company’s stock options granted for the three months ended March 31, 2022 was estimated using the Black-Scholes
option pricing model using the following range assumptions:
| - | fair
value of ordinary share of $0.049-$0.055 |
| - | dividend
yield of 0.00%. |
| - | risk-free
interest rate of 0.92%-1.4%. |
| - | an
expected life of 4 years. |
| - | and
a volatility rate of 46.6% |
| - | As
of March 31, 2023 and March 31, 2022, the weighted-average remaining contractual term of
the outstanding stock options, is 8.0 years and 7.2 years, respectively, |
| - | The
weighted average grant date fair value of the options granted during the three months ended
March 31, 2022 was $0.06 thousand. |
| - | The
unrecognized share-based compensation expense on stock options expected to vest as of March
31, 2023 and March 31, 2022, is approximately $2 thousand and $5 thousands, respectively,
and is expected to be recognized over a weighted-average period of approximately 1.75 years
and 2.75 years, respectively. |
| - | For
the three months ended March 31, 2023 and March 31, 2022, the Company recorded share-based
compensation expenses of $0.3 thousand and $0.5 thousand, respectively. |
During
2020 and 2021, the Company issued a total of 72,000 RSUs. Upon vesting, each RSU will be settled by the issuance of one ordinary share.
The RSUs vest over four years. As of March 31, 2023 and March 31, 2022, all issued RSU’s are outstanding and are expected
to be recognized over a weighted-average period of approximately 1.5 years and 0.5 years, respectively.
ONKAI,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S.
dollars in thousands, except share data
Note
8 – Research and Development Expenses
| | |
Three
months ended March 31, | |
| | |
2023 | | |
2022 | |
| | |
| | |
| |
| Salaries | |
$ | 101 | | |
$ | 77 | |
| Share based compensation | |
| (*) | | |
| (*) | |
| Software development | |
| 110 | | |
| 72 | |
| Professional services | |
| 80 | | |
| 21 | |
| | |
$ | 291 | | |
$ | 170 | |
(*)
Less than 1 thousand.
Note
9 –Marketing expenses
| | |
Three
months ended March 31, | |
| | |
2023 | | |
2022 | |
| | |
| | |
| |
| Salaries | |
$ | 87 | | |
$ | 13 | |
| Share based compensation | |
| (*)
| | |
| (*)
| |
| Professional services | |
| 105 | | |
| 28 | |
| Consulting expenses | |
| 8 | | |
| 9 | |
| | |
$ | 200 | | |
$ | 50 | |
(*)
Less than 1 thousand.
Note
10 – General and Administrative Expenses
| | |
Three
months ended March 31, | |
| | |
2023 | | |
2022 | |
| | |
| | |
| |
| Professional
services | |
| 52 | | |
| 21 | |
| Share based compensation | |
| (*)
| | |
| (*) | |
| Other | |
| 45 | | |
| 9 | |
| | |
$ | 97 | | |
$ | 30 | |
(*)
Less than 1 thousand.
Note
11 – Income Taxes
The
Company is subject to income taxes under the Israeli and U.S. tax laws:
Corporate
tax rates
The
Company is subject to U.S. federal tax rate of 21% for the three months ended March 31, 2023 and March 31, 2022.
ONKAI,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S.
dollars in thousands, except share data
The
Company has not been audited by the U.S. Internal Revenue Service since its incorporation.
As
of March 31, 2023 and March 31, 2022, the Company has generated accumulated net operating losses in the U.S. of approximately $3.4 million
and $1.6 million, respectively. U.S. net operating losses are available through 2035. Utilization of U.S. net operating losses may be
subject to substantial annual limitation due to the “change in ownership” provisions of the U.S. Internal Revenue Code of
1986.The annual limitation may result in the expiration of U.S. net operating losses before utilization.
Onkai
(Israel) Ltd. is subject to Israeli corporate tax rate of 23% for the three months ended March 31, 2023 and 2022, respectively. Onkai
(Israel) Ltd. has not received a final tax assessment since its incorporation.
As
of March 31, 2023 and 2022, Onkai (Israel) Ltd. has generated accumulated net operating losses in Israel of approximately $0.5 million
and $0.2 million which may be carried forward and offset against taxable income in the future for an indefinite period.
Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. As of March 31, 2023, the significant components of the Company’s
deferred tax assets are net operating loss carryforward in the amount of $4.1 million. 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.
The
components of loss before income taxes consisted of the following (in thousands):
| |
|
Three
Months ended March 31, |
| | |
2023 | | |
2022 | |
| | |
| | |
| |
| U.S.A | |
$ | 595 | | |
$ | 235 | |
| Israel | |
| 211 | | |
| 63 | |
| | |
$ | 806 | | |
$ | 298 | |
A
reconciliation of the Company’s actual tax expense to the Company’s theoretical statutory tax benefit is as follows:
| | |
Three
months ended March, 31 | |
| | |
2023 | | |
2022 | |
| | |
| | |
| |
| Loss before taxes on income | |
$ | 806 | | |
$ | 298 | |
| | |
| | | |
| | |
| Statutory tax rate | |
| 21 | % | |
| 21 | % |
| | |
| | | |
| | |
| Theoretical tax benefit | |
| 170 | | |
| 63 | |
| | |
| | | |
| | |
| Losses and other items for
which a valuation allowance was provided or benefit from loss carry forwards | |
| (170 | ) | |
| (63 | ) |
| | |
| | | |
| | |
| Actual tax expense | |
$ | — | | |
$ | — | |
Note
12 - Subsequent events:
The
Company evaluated subsequent events through the issuance date of the financial statements on August 2, 2023.
| 1. | For
information regarding the share split effected on April 26, 2023, see Note 7. |
| 2. | For
information regarding the conversation of convertible SAFE notes and issuance of preferred
shares during June 2023, see Note 7. |
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