TIDMMEDG TIDMMEDU
RNS Number : 2725B
Medgenics Inc
15 February 2011
Medgenics, Inc.
('Medgenics' or the 'Company')
2010 Final Results
Misgav, Israel and London, UK - 15 February 2011 - Medgenics
(AIM: MEDG and MEDU) announces its audited results for the 12
months ended 31 December 2010.
The Annual Report and Accounts of the Company and its subsidiary
(the Group) will be posted to shareholders during the week
commencing February 28, 2010 and will be available on the Company's
website (www.medgenics.com).
Highlights
-- Data demonstrating safety and efficacy of EPODURE Phase I/II
clinical trial presented by Dr. Anatole Besarab, a leading expert
in renal anaemia at major nephrology conference
-- EPODURE Phase I/II clinical trial expanded to an additional
clinical trial site at Tel Aviv Medical Center
-- Additional patients treated in EPODURE Phase I/II clinical
trial at low and medium doses indicated in original trial
protocol
-- Early results from HEMODURE Biopump study indicate active
Factor VIII production in vitro and in SCID mice
-- Signed an exclusive worldwide license of patent rights
relating to certain uses of variants of clotting Factor VIII
-- Preparations made for clinical trial of INFRADURE Biopump for
the treatment of hepatitis C
-- Chairman of Board assumed new executive role and expands US
operations in California
-- Former Johnson & Johnson executive Alastair Clemow joins
Board of Directors
-- Strategic Advisory Board enhanced through addition of Burt
Rosen, Dr. Stephen Ettinger, Isaac Blech, Dr. Raymond Dean
Hautamaki
-- Expanded scientific and clinical staff
-- Equity funding of US$2.3 million received in March and
May
-- Debenture funding of US$4.0 million received in September
-- Warrant and option exercises yielded over US$0.5 million
-- Nomura Code appointed as co-broker in London
-- Filed a registration statement on Form S-1 filed with the US
Securities and Exchange Commission ("SEC") for Medgenics' proposed
initial public offering of common stock in the US
2010 Financial Summary
-- Net loss after tax of US$4.1 million (2009: US$6.9
million).
-- R&D costs for the twelve-month period of US$3.4 million
(2009: US$2.3 million) and general and administrative costs of
US$4.4 million (2009: US$2.5 million).
-- Cash, cash equivalents and short-term investments at 31
December 2010 of US$2.9 million (at 31 December 2009: US$0.5
million).
Dr. Andrew Pearlman, Chief Executive Officer of Medgenics,
said:
"A key milestone for us in 2010 was the presentation in November
at the American Society of Nephrology's (ASN) Renal Week conference
of our Phase I/II safety and efficacy study of EPODURE by leading
renal expert Dr. Anatole Besarab. The ASN meeting is one of the
largest meetings of nephrologists in the world, Dr. Besarab
described how the results to date attested to the safety,
effectiveness and durability of the EPODURE Biopump as a potential
sustained treatment alternative to months of injections of EPO
(erythropoietin) and other ESAs (erythropoiesis-stimulating
agents). During 2011 the study will be completed, with the focus of
attention now on the patients in the high dose group. Today, one
patient who received the low dose treatment has demonstrated more
than two years of continuous therapy from a single implantation
procedure. This result supports our belief that Biopumps may
provide a long term treatment option for patients with chronic
diseases controlled by protein therapeutics.
We have likewise made progress towards our HEMODURE Biopump for
the treatment of haemophilia. Through our collaboration this past
year with Baxter Healthcare and additional work we have performed,
Medgenics has developed Biopumps that produce active Factor VIII
protein, although below the amounts necessary to provide effective
treatment of haemophilia. We have also recently demonstrated
delivery of Factor VIII into the blood circulation by implantation
of HEMODURE Biopumps in severe combined immune deficiency (SCID)
mice, using similar approach to that Medgenics has previously
reported using EPODURE and INFRADURE Biopumps. We continue to work
on improving these results, and believe it is feasible to reach
production rates of Factor VIII to warrant clinical testing.
In April, we unveiled our INFRADURE Biopumps for treating
hepatitis C at the European Association for the Study of the Liver,
a leading European congress on liver disease. We are now in the
planning phase for our first clinical trial of INFRADURE in
hepatitis C patients.
We were able significantly to strengthen Medgenics' financial
position during 2010 through a combination of the non-dilutive
funds received from Baxter, and R&D grants from the US and
Israeli governments; as well as additional equity fund raising, a
US$4 million debenture raise, and the receipt of funds upon the
exercise of warrants and options during the year.
Medgenics' projected clinical plans assume that the Company will
be successful in raising necessary additional funding. During 2010,
we began to pursue an initial public offering of our securities in
the US and the listing of our common shares on a US stock exchange.
I look forward to reporting further clinical results and the status
of our US listing in the coming months."
For further information, contact:
Medgenics, Inc. Phone: +972 4 902 8900
Dr. Andrew L. Pearlman
De Facto Communications Phone: +44 207 861 3838
Michael Wort
Anna Dunphy
Religare Capital Markets (Nomad) Phone: +44 207 444 0800
James Pinner
Derek Crowhurst
SVS Securities plc (Joint Broker) Phone: +44 207 638 5600
Alex Mattey
Ian Callaway
Nomura Code Securities (Joint Broker) Phone: +44 207 776 1219
Jonathan Senior
Grayling (Investment Relations - US) Phone: +1 646 284
Leslie Wolf-Creutzfeldt 9472
------------------------------------- ------------------
Chairman's Review
The Board of Medgenics presents the financial results of the
Company and its subsidiary (the "Group") for the 12 months ended 31
December 2010.
As a representation of my increased commitment to the success of
Medgenics, I have recently taken an executive role in the Company
that will have three important focuses. First, I will assume
significant management responsibilities, relieving the pressure on
the CEO, Dr. Andrew Pearlman, and enabling him to focus on
expanding the clinical programs so important in establishing the
validity of Biopumps as a delivery platform for existing and future
therapeutic proteins.
Secondly, a significant part of my role will be to increase the
presence of the Company in the US in expectation of the Company's
becoming a public company under the US securities laws. A public
presence in the US is crucial for Medgenics to have greater access
to development funding. As part of these US-based efforts, we have
strengthened both the management team and the Strategic Advisory
Board to offer a wider range of skills and expertise.
Thirdly, with increased clinical and preclinical data using
EPODURE and HEMODURE respectively, we are now in a position to
increase outreach to potential collaborative partners among global
pharmaceutical and biotechnology companies that have a significant
existing interest in commercializing therapeutic proteins or are
investigating new products. It will be my responsibility to lead
that process.
Operational Review
Through the Company's Phase I/II clinical trial of the EPODURE
Biopump, we have demonstrated that Medgenics' Biopump platform
technology can produce and deliver EPO for several months without
exceeding the therapeutic window. In the 14 patients treated to
date, the EPODURE Biopump has shown its potential to help stabilize
patients' haemoglobin levels, and, with appropriate dosage, to
maintain hemoglobin within the target range over several months. In
12 out of the 14 patients whose haemoglobin levels varied greatly
over the year prior to treatment, the levels stabilized following
their EPODURE Biopump treatment. Haemoglobin levels were raised in
12 of 14 patients treated to date. With respect to those patients
who have been monitored for at least three months, ten of such
patients experienced sustained hemoglobin elevation for an average
of six months and one patient has experienced haemoglobin elevation
for more than 28 months to date. The most recent patient was
treated on January 20, 2011, and so far has demonstrated increased
haemoglobin levels within the target range. This stabilization has
been achieved despite the limitations imposed by the study
protocol, which assigns patients to a fixed single dose at "low",
"mid" or "high" level rather than the mode of intended clinical
usage in which dose can be adjusted, through the additional of more
EPODURE Biopumps or the reduction through ablation of existing
EPODURE Biopumps, based on patient response.
To date, our phase I/II clinical trial of EPODURE Biopumps for
the treatment of anaemia in patients with chronic kidney disease
has treated 14 patients and produced the following results:
-- 14 patients have now received their implanted EPODURE
Biopumps in our phase I/II clinical trial, with six receiving the
low dose level (20 IU/kg/day), seven patients receiving the
mid-range dose level (40 IU/kg/day), and one receiving the
high-dose level (60 IU/kg/day).
-- One patient has now remained free of anaemia for more than
two years following his single low dose treatment with EPODURE
Biopumps in October 2008. His haemoglobin levels have remained
continuously within the target range of 10-12 g/dl throughout this
period without any related adverse events and without receiving any
EPO injections, whereas he was receiving EPO injections before his
EPODURE treatment.
Recruitment of patients for the EPODURE Phase I/II clinical
trial has not been as straight forward as we had hoped and to
facilitate improved recruitment for the mid- and higher dose
groups, it was necessary to add another clinical site in Tel Aviv
in May 2010. Transfer of the technology was successfully
accomplished, and we believe that the Tel Aviv site is now
proficient in the harvesting and re-insertion of Biopumps.
The Company is developing another clinical program: INFRADURE
Biopumps to produce interferon-alpha for therapeutic use in the
treatment of hepatitis C. Our preclinical studies have established
(1) that INFRADURE Biopumps can be engineered to deliver
interferon-alpha in vitro in quantities sufficient to meet
anticipated needs in hepatitis C patients and (2) that when
INFRADURE Biopumps are implanted in severe combined immune
deficiency (SCID) mice, therapeutically relevant quantities of
interferon-alpha are released into the circulation of these
animals. Medgenics is now actively in the planning process for an
anticipated phase I/II clinical trial.
We are also in the process of developing the HEMODURE Biopump to
produce the blood-clotting protein Factor VIII to treat hemophilia,
in part through our collaboration with Baxter Healthcare. During
2010, we succeeded in producing HEMODURE Biopumps which produce
active Factor VIII protein in vitro, as confirmed by testing using
a standard assay at a major hemophilia center in Israel, and have
demonstrated delivery of Factor VIII into the blood circulation by
implantation of HEMODURE Biopumps in SCID mice. We are continuing
development of our Factor VIII Biopump in an effort to further
increase Factor VIII output in order to reach target levels. Once
target levels are reached, we intend to seek to commence a phase
I/II clinical trial in humans. As part of this effort, we have
signed an exclusive worldwide license with the Regents of the
University of Michigan of patent rights relating to certain uses of
variants of clotting Factor VIII. We will continue our development
work using this Factor VIII variant.
Key Appointments
During the year, Dr. Alastair Clemow joined the Board of
Directors. Dr. Clemow has more than 30 years' experience in the
pharmaceutical and devices industries and complements the expertise
and experience base of the other Board members.
In addition, we broadened the scope of our Scientific Advisory
Board to a Strategic Advisory Board and added four new members. In
June, Burt Rosen, an experienced pharmaceutical executive with
broad experience in government affairs, regulatory and
reimbursement matters, joined the Strategic Advisory Board. In
September, Dr. Stephen Ettinger joined, bringing an understanding
of the global veterinary market, a possible fertile commercial
target for expansion of the Biopump technology. In December 2010,
Isaac Blech, a renowned biotechnology industry investor, and Dr.
Raymond Dean Hautamaki, a Board Certified Internist/Pulmonary -
Critical Care Specialist, both joined our Strategic Advisory
Board.
Operational Facilities
During 2010 Medgenics' scientific team in Israel was increased
to reflect the wider range of therapeutic proteins that we are
exploring. Especially important is the development work that is
being undertaken to finalize the single use cassette for Biopump
manipulation, calibration and distribution. This work has led to an
expanding portfolio of intellectual property whose protection is an
important part of the Company's operations.
Medgenics now employs 21 senior scientists, technicians and
clinical staff in Israel.
Commercialization Strategy
Both preclinical and clinical proof of concept of the
feasibility of the Biopump platform technology have now been
demonstrated and data have been presented at a number of
prestigious conferences. Our ongoing strategy is to demonstrate
feasibility of using the Biopump technology with various protein
therapeutics of high commercial potential and to seek partners for
later-stage development and licensing. Pursuing this strategic
priority for the Company will be one of my major tasks through
2011.
Funding
The Company was able to raise US$6.8 million during the year
which has allowed us to complete the low dose phase of the EPODURE
trial, conclude the in vitro and preclinical work for INFRADURE,
and prepare for clinical trials in the hepatitis C indication. In
addition we received a total of US$3.9 million from Baxter
Healthcare to assess the capability of the Biopump platform
technology to generate Factor VIII Biopumps during the period
October 2009 through February 2011. During 2010 the Company also
received R&D grants of US$0.24 million and US$0.4 million from
the US and Israeli government, respectively. A total of US$0.5
million was also received upon the exercise of options and
warrants.
In order to maximize the potential of the technology, to
continue to expand the intellectual property portfolio, and to
develop commercial partnerships, we require levels of funding which
we believe can only be raised in the US where the market conditions
appear more favorable for development stage companies such as
Medgenics. Accordingly, we are exerting considerable effort to meet
the requirements for Medgenics to be listed on a US stock
exchange.
In this regard, the success of the fund raising through the
issuance of convertible debentures in 2010 confirmed our view that
the majority of the future funding for the Company will come from
the US. Nevertheless, we remain committed to the UK shareholders
who have been essential contributors to Medgenics' successes thus
far.
Financial Review
The Company has incurred significant expenditure in establishing
and carrying out its ongoing clinical trials. As a result, the
Company has generated a loss of US$4.1 million in the year and has,
since inception, incurred losses of US$41.8 million in development
of the Biopump platform technology. The Company successfully raised
US$6.8 million during the year in equity and convertible
debentures. Nevertheless, the Board is fully aware that significant
additional funding will be required to complete our development
program and planned clinical trials. The Board remains vigilant and
continues to explore means to achieve funding through the issuance
of securities, non-dilutive grants and the establishment of
strategic partnerships.
Directors Compensation
Compensation of members of the Company's Board of Directors is
presented in the following tables:
Executive director compensation
Name and All other
Principal Salary Bonus Stock Option Compensation
Position Year (*) (**) Awards Awards (***) Total
----------- ----- ---------- ---------- ---------- ------------ ------------- ------------
Eugene A.
Bauer
Executive
Chairman 2010 $ 34,208 - $ 285,234 $ 52,386 - $ 371,828
Andrew L.
Pearlman 2010 $ 308,845 $ 125,000 - $ 1,426,472 $ 50,443 $ 1,910,760
President
and Chief
Executive
Officer 2009 $ 198,600 $ 62,500 - - $ 34,489 $ 295,589
(*) In 2009, Dr. Pearlman took a voluntary pay cut from March
through September. (**) 2009 bonuses had been accrued as of
December 31, 2009 and were paid in 2010. 2010 bonuses are accrued,
but have not yet been approved nor paid and as a result may differ
from the amounts reported.
(***) Under Israeli law, companies are liable for mandatory
severance payments of 8.33% of each monthly salary paid to Israeli
employees. The subsidiary makes monthly payments of such amount
into severance funds. These payments are included in the managers'
insurance below.
1 Includes $4,208 of fees earned or paid in cash for services as
a director.
2 Represents the fair value of 57,142 shares of restricted
Common shares granted to Dr. Bauer.
3 Represents the fair value of a one-time grant of an option to
purchase 28,571 Common shares to Dr. Bauer in his capacity as a
director. Beginning in November 2010, Dr. Bauer does not receive
any additional compensation for his services as a director.
4 Dr. Pearlman does not receive any additional compensation for
his service as a director.
5 Represents the fair value of the extension of the expiry date
of certain warrants and options from March 31, 2011 to March 31,
2016.
6 Includes $40,219 for managers insurance including pension,
$6,250 for disability insurance and $3,789 for the advanced study
fund.
7 Includes $26,010 for managers insurance including pension,
$4,878 for disability insurance and $3,601 for the advanced study
fund.
Non- executive director compensation
The Company's non-executive directors did not receive
compensation for their service on the Company's Board of Directors
in 2009. The following table provides non-executive director
compensation information as of December 31, 2010.
Fees earned
or paid in
Name cash Option awards Total
------------------------- ------------ -------------- ---------
Gary Allan Brukardt $ 6,000 $ 52,386 $ 58,386
Alastair Clemow, Ph.D. $ 6,667 $ 23,167 $ 29,834
Joel Stephen Kanter $ 10,750 $ 52,386 $ 63,136
Stephen Devon McMurray,
M.D. $ 8,000 $ 52,386 $ 60,386
1 Represents the fair value of options to purchase 28,571 Common
shares under the stock option plan at an exercise price of $8.19
per share. Such options have a 10-year term and vest in equal
installments over three years. All options were outstanding at
fiscal year end.
2 Represents the fair value of the option to purchase 12,857
Common shares under the stock option plan at an exercise price of
$8.19 per share granted to Dr. Alastair Clemow upon joining the
Board of Directors in August 2010. Such options have a 10-year term
and vest in equal installments over three years. All options were
outstanding at fiscal year-end.
Outlook
The completion of the low dose Phase I/II safety and efficacy
trial of the EPODURE Biopump and the initiation of the medium and
high dose phases made 2010 an important year for validating the
Biopump technology platform. The Company's presentations at
important clinical conferences continue to widen the number of
potential partners that are approaching us for information on the
technology and its possible relevance to their products.
Importantly, the EPODURE clinical trial data continue to exceed our
expectations, especially in the durability of the Biopumps. The
Company's challenges for the coming year include (1)
standardization of all aspects of the technology from removal to
processing (i.e., with a single-use cassette) to re-implantation of
the Biopumps, (2) completion of the high-dose cohort of patients in
the EPODURE Phase I/II clinical trial, (3) completion of planning
for a Phase I/II clinical trial using INFRADURE Biopumps for
hepatitis C, and (4) continuation of preclinical work on HEMODURE
as the Company builds the portfolio to support possible clinical
studies in haemophelia.
Subject to the Company's success in raising essential capital, I
look forward to reporting on the enrollment of additional subjects
to the Group's Phase I/II safety and efficacy trial and on further
data from that trial, as well as other key milestones as they are
achieved.
Eugene A. Bauer, MD
Executive Chairman of the Board of Directors
15 February 2011
A registration statement relating to the securities of
Medgenics, Inc. has been filed with the SEC but has not yet become
effective. The securities to be sold in the offering may not be
sold, nor may any offers to buy be accepted, prior to the time the
registration statement becomes effective. This release shall not
constitute an offer to sell or the solicitation of an offer to buy
nor shall there be any sale of these securities in any state or
jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of any such state or jurisdiction. Sales of
securities under the registration statement cannot occur until it
is declared effective by the U.S. Securities and Exchange
Commission, There can be no assurance as to if and when the
Securities and Exchange Commission will declare the Company's
registration statement effective. The registration statement is
available at the U.S. Securities and Exchange Commission's website
at www.sec.gov.
The offering of securities described in the registration
statement will be made only by means of a prospectus.
CONSOLIDATED BALANCE SHEETS
----------------------------
U.S. dollars in thousands
,December 31
----------------
Note 2009 2010
----- ------- -------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 470 $ 2,859
Accounts receivable and prepaid expenses 11 983
------- -------
Total current assets 481 3,842
------- -------
LONG-TERM ASSETS:
Restricted lease deposit and prepaid
expenses 39 46
Severance pay fund 261 318
------- -------
300 364
------- -------
PROPERTY AND EQUIPMENT, NET 303 243
------- -------
DEFERRED ISSUANCE EXPENSES - 672
------- -------
Total assets $ 1,084 $ 5,121
======= =======
December 31
----------------------------------
Note (*)2009 2010
---- ------------------------ --------
LIABILITIES AND STOCKHOLDERS'
DEFICIT
CURRENT LIABILITIES:
Trade payables $ 947 $ 743
Advance payment 1(c) 783 -
Other accounts payable and accrued
expenses 1,690 1,235
Convertible debentures 5 - 5,460
------------------------ --------
Total current liabilities 3,420 7,438
------------------------ --------
LONG-TERM LIABILITIES:
Accrued severance pay 991 1,087
Convertible debentures 5 1,013 -
Liability in respect of warrants 4 3,373 3,670
------------------------ --------
Total long-term liabilities 5,377 4,757
------------------------ --------
Total liabilities 8,797 12,195
------------------------ --------
COMMITMENTS AND CONTINGENCIES 3
STOCKHOLDERS' DEFICIT: 4
Common shares - $0.0001 par
value; 500,000,000 shares
authorized; 3,490,512 and
5,295,531 shares issued and
outstanding at December 31, 2009
and 2010, respectively (**) 1 1
Additional paid-in capital 29,523 34,334
Receipts on account of shares 25 -
Deficit accumulated during the
development stage (37,262) (41,409)
------------------------ --------
Total stockholders' deficit (7,713) (7,074)
------------------------ --------
Total liabilities and stockholders'
deficit $ 1,084 $ 5,121
======================== ========
(*) Restated see Note 2(p).
(**) After giving effect to a reverse stock split - See Note
7(a).
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
----------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)
Period from
January 27, 2000
(inception)
Year ended through December
December 31 31,
--------------------
Note 2009 (*) 2010 2010 (*)
---- --------- --------- -----------------
Research and development
expenses $ 2,267 $ 3,377 $ 24,455
Less - Participation by
the Office of the Chief
Scientist 2(l) (488) (705) (4,433)
U.S. Government Grant 1(e) - (244) (244)
Participation by third party 1(c) (90) (902) (992)
--------- --------- -----------------
Research and development
expenses, net 1,689 1,526 18,786
General and administrative
expenses 2,534 4,405 21,474
Other income:
Excess amount of
participation in research
and development from
third party 1(c) (327) (2,577) (2,904)
--------- --------- -----------------
Operating loss (3,896) (3,354) (37,356)
Financial expenses 6 3,055 846 4,977
Financial income 6 (10) (55) (568)
--------- --------- -----------------
Loss before taxes on income (6,941) (4,145) (41,765)
Taxes on income 1 2 73
--------- --------- -----------------
Loss $ (6,942) $ (4,147) $ (41,838)
========= ========= =================
Dividend in respect of
reduction in exercise
price of certain
Warrants 3 -
--------- ---------
Loss attributable to Common
stockholders $ (6,945) $ (4,147)
========= =========
Basic and diluted loss per
Common share (**) $ (2.06) $ (0.95)
========= =========
Weighted average number of
Common shares used in
computing basic and
diluted loss per share
(**) 3,367,024 4,374,520
========= =========
(*) Restated see Note 2(p).
(**) After giving effect to a reverse stock split - See Note
7(a).
The accompanying notes are an integral part of the consolidated
financial statements.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------
U.S. dollars in thousands (except share data)
Receipts Deficit
on accumulated Total
Additional account during the stockholders'
paid-in of development equity
Common stock capital shares stage (deficit)
------------------- ----------- --------- ------------ --------------
Shares
(**) Amount
---------- -------
Balance as of
December 31,
2008 3,049,204 $ 1 $ 29,118 $ 150 $ (30,317) $ (1,048)
Exercise of
warrants in
January and
February 2009 315,023 (*) 389 (150) - 239
Stock based
compensation
related to
options granted
to consultants
and employees - - 520 - - 520
Issuance of
Common stock in
October 2009,
net at $3.50 per
Share 126,285 (*) 364 - - 364
Receipts on
account of
shares related
to exercise of
warrants in
January 2010 - - - 25 - 25
Dividend in
respect of
reduction in
exercise price
of certain
Warrants - - 3 - (3) -
Cumulative effect
of
reclassification
of warrants from
equity to
iability due to
application of
ASC 815-40
(***) - - (871) - - (871)
Loss (***) - - - - (6,942) (6,942)
---------- ------- ----------- --------- ------------ --------------
Balance as of
December 31,
2009 (***) 3,490,512 $ 1 $ 29,523 $ 25 $ (37,262) $ (7,713)
========== ======= =========== ========= ============ ==============
(*) Represents an amount lower than $1.
(**) After giving effect to a reverse stock split - See Note
7(a).
(***) Restated See Note 2(p).
The accompanying notes are an integral part of the consolidated
financial statements.
Receipts Deficit
on accumulated
Additional account during the Total
paid-in of development stockholders'
Common stock capital shares stage deficit
------------------- ----------- --------- ------------ --------------
Shares
(**) Amount
---------- -------
Balance as of
December 31,
2009 (***) 3,490,512 $ 1 $ 29,523 $ 25 $ (37,262) $ (7,713)
Exercise of
options and
warrants in
January,
May,
September
and December
2010 785,419 (*) 559 (25) - 534
Stock based
compensation
related to
options and
warrants
granted to
consultants
and
employees - - 1,834 - - 1,834
Issuance of
Common stock
in February
2010 at
$4.38 per
share to
consultants 32,142 (*) 141 - - 141
Issuance of
Common stock
in March
2010, net at
$2.63 (GBP
1.75) per
share 407,800 (*) 943 - - 943
Issuance of
Common stock
in May 2010,
net at $2.52
(GBP 1.75)
per share 477,934 (*) 1,115 - - 1,115
Issuance of
Common stock
in May 2010
at $3.43
(GBP 2.28)
per share 5,502 (*) 19 - - 19
Issuance of
Common stock
in August
and
September
2010 to
consultants 39,080 (*) 164 - - 164
Issuance of
warrants in
September
2010 to a
consultant - - 36 - - 36
Issuance of
restricted
Common stock
in December
2010 to a
director 57,142 (*) (*) - - -
Loss - - - - (4,147) (4,147)
---------- ------- ----------- --------- ------------ --------------
Balance as of
December 31,
2010 5,295,531 $ 1 $ 34,334 $ - $ (41,409) $ (7,074)
========== ======= =========== ========= ============ ==============
(*) Represents an amount lower than $1.
(**) After giving effect to a reverse stock split - See Note
7(a).
(***) Restated see Note 2(p).
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------
U.S. dollars in thousands
Period from
January 27,
2000 (inception)
Year ended through December
December 31 31,
--------------------
2009 (*) 2010 2010 (*)
--------- --------- -----------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Loss $ (6,942) $ (4,147) $ (41,838)
--------- --------- -----------------
Adjustments to reconcile loss to
net cash used in operating
activities:
Depreciation 119 120 983
Loss from disposal of property and
equipment 3 1 330
Issuance of shares as
consideration for providing
security for letter of credit - - 16
Stock based compensation related
to options and warrants granted
to employees and consultants 520 1,834 6,767
Interest and amortization of
beneficial conversion feature of
Convertible note - - 759
Change in fair value of
convertible debentures and
warrants 2,945 633 3,578
Accrued severance pay, net 83 39 769
Exchange differences on a
restricted lease deposit (2) 1 (1)
Exchange differences on a long
term loan - - 3
Increase (decrease) in trade
payables 66 (204) 743
Decrease (increase) in accounts
receivable, prepaid expenses and
deferred issuance expenses 111 (1,644) (1,655)
Increase (decrease) in other
accounts payable, accrued
expenses and advance payment 1,405 (787) 1,782
--------- --------- -----------------
Net cash used in operating
activities (1,692) (4,154) (27,764)
--------- --------- -----------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from disposal of property
and equipment - - 173
Decrease (increase) in restricted
lease deposit and prepaid lease
payments 8 (8) (45)
Purchase of property and equipment (34) (61) (1,730)
--------- --------- -----------------
Net cash used in investing
activities $ (26) $ (69) $ (1,602)
========= ========= =================
(*) Restated see Note 2(p).
The accompanying notes are an integral part of the consolidated
financial statements.
Period from
January 27,
2000 (inception)
Year ended through
December 31 December 31
--------------
2009 2010 2010
----- ------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of shares, net $ 364 $ 2,077 $ 24,112
Proceeds from exercise of options and
warrants, net 264 534 948
Repayment of a long-term loan - - (73)
Proceeds from long term loan - - 70
Issuance of a convertible debenture
and warrants 570 4,001 7,168
Increase (decrease) in short-term bank
credit (53) - -
----- ------- -----------------
Net cash provided by financing
activities 1,145 6,612 32,225
----- ------- -----------------
Increase (decrease) in cash and cash
equivalents (573) 2,389 2,859
Balance of cash and cash equivalents
at the beginning of the period 1,043 470 -
----- ------- -----------------
Balance of cash and cash equivalents
at the end of the period $ 470 $ 2,859 $ 2,859
===== ======= =================
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $ 36 $ 117 $ 193
===== ======= =================
Taxes $ 13 $ 14 $ 97
===== ======= =================
Supplemental disclosure of non-cash
flow information:
Issuance expenses paid with shares $ - $ - $ 310
===== ======= =================
Issuance of Common stock upon
conversion of a convertible Note $ - $ - $ 2,845
===== ======= =================
Issuance of Common stock and warrants
to consultants as settlement of debt $ - $ 451 $ 547
===== ======= =================
The accompanying notes are an integral part of the consolidated
financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------
U.S. dollars in thousands
NOTE 1:- GENERAL
a. Medgenics, Inc. (the "Company") was incorporated in January
2000 in Delaware. The Company has a wholly-owned subsidiary,
Medgenics Medical Israel Ltd. (formerly Biogenics Ltd.) (the
"Subsidiary"), which was incorporated in Israel in March 2000. The
Company and the Subsidiary are engaged in the research and
development of products in the field of biotechnology and
associated medical equipment and are thus considered development
stage companies as defined in Accounting Standards Codification
("ASC") topic number 915, "Development Stage Entities" ("ASC 915")
(originally issued as "FAS 7").
On December 4, 2007 the Company's Common shares were admitted
for trading on the AIM market of the London Stock Exchange.
On November 8, 2010, the Company filed a registration statement
on Form S-1 with the U.S. Securities and Exchange Commission
("SEC") for the proposed initial public offering of its Common
stock in the U.S. The number of shares of Common stock to be
offered and the price range for the offering have not yet been
determined. This registration statement has not yet become
effective.
b. The Company and the Subsidiary are in the development stage.
As reflected in the accompanying financial statements, the Company
incurred a loss during the year ended December 31, 2010 of $4,147
and had a stockholders' deficit of $7,074 and working capital
deficit of $3,596 as of December 31, 2010. The Company and the
Subsidiary have not yet generated revenues from product sale. The
Company has begun generating income from partnering on development
programs and expects to continue to expand its partnering activity.
Management's plans also include seeking additional investments and
commercial agreements to continue the operations of the Company and
the Subsidiary. However, there is no assurance that the Company
will be successful in its efforts to raise the necessary capital
and/or reach such commercial agreements to continue its planned
research and development activities. These conditions raise
substantial doubt about the Company's ability to continue as a
going concern. The consolidated financial statements do not include
any adjustments with respect to the carrying amounts of assets and
liabilities and their classification that might result from the
outcome of this uncertainty.
c. On October 22, 2009 ("Effective Date") the Company signed a
preclinical development and option agreement which was amended in
December 2009 (the "Agreement"), with a major international
healthcare company (the "Healthcare company") that is a market
leader in the field of hemophilia. The Agreement included funding
for preclinical development of the Company's Biopump protein
technology to produce and deliver the clotting protein Factor VIII
("FVIII") for the sustained treatment of hemophilia.
Under the terms of the Agreement, the Company was entitled to
receive up to $4,100 to work exclusively with the Healthcare
company for one year ended October 22, 2010 ("Standstill period")
to develop a Biopump to test the feasibility of continuous
production and delivery of this clotting protein.
The Company recognized income in its Statements of Operations
based on hours incurred assigned to the project. The excess of the
recognized amount received from the Healthcare company over the
amount of research and development expenses incurred during the
period for the Agreement is recognized as other income within
operating income.
Funding for the Company's operations related to the development
is based on an agreed amount for each Full Time Equivalent ("FTE").
FTE was agreed to be measured, by the parties, as 162 development
hours. The amount to be paid for each FTE is not subject to actual
costs incurred by the Company.
An additional payment of $2,500 was payable in the event of the
Healthcare company's exercise of an option to extend the
exclusivity through an additional period to negotiate terms to
commercialize the Biopump technology for FVIII.
If the two parties choose not to proceed to a full commercial
agreement, the Company will receive all rights to the jointly
developed intellectual property and will pay royalties to the
Healthcare company at the rates between 5% and 10% of any future
income arising from such intellectual property up to a maximum of
ten times the total funds paid by the Healthcare company to the
Company.
The Company estimated the value of the option to negotiate a
future definitive agreement for the continuation of the development
or for a sale, license or other transfer of the FVIII Biopump
technology, at December 31, 2009 and 2010 as immaterial.
Through December 31, 2010, payments totaling $3,590 were
received from the Healthcare company. As of December 31, 2010, an
additional $306 was recorded as a receivable which was received in
February 2011.
As of October 22, 2010, the Company and the Healthcare company
agreed on a 6-month extension of the Agreement. During the
extension period, the Company will assume the funding
responsibilities and the Healthcare company will continue to have
the exclusive option to negotiate a definitive agreement regarding
a transaction related to the FVIII Biopump technology taking into
account the relative contributions of the parties. Such option is
exercisable, at the sole discretion of the Healthcare company, any
time prior to the end of such 6-month period (April 22, 2011) upon
payment to the Company of a $2,500 option fee.
d. During 2010 the Subsidiary received approval for an
additional Research and Development program from the Office of the
Chief Scientist in Israel ("OCS") for the period April 2009 through
December 2010.
The approval allows for a grant of up to approximately $1,400
based on research and development expenses, not funded by others,
of up to $2 300.
e. In December 2010, the Company received a cash grant of $244
under the U.S. government's Qualifying Therapeutic Discovery
Project (QTDP) to fund its Biopump research and development costs
incurred in 2009. The QTDP program was created by Congress as part
of the Patient Protection and Affordable Care Act. The Company
recorded the grant in 2010 as a reduction of research and
development expenses.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are prepared in accordance
with United States Generally Accepted Accounting Principles ("U.S.
GAAP").
a. Use of estimates
The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions. The
Company's management believes that the estimates and assumptions
used are reasonable based upon information available at the time
they are made. These estimates and assumptions can affect the
amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
b. Financial statements in U.S. dollars
The majority of the Company and the Subsidiary's operations are
currently conducted in Israel; however, it is anticipated that the
majority of the Company's revenues will be generated outside Israel
and will be denominated in U.S. dollars ("dollars"), and financing
activities including loans, equity transactions and cash
investments, are made mainly in dollars. The Company's management
believes that the dollar is the primary currency of the economic
environment in which the Company and its subsidiary operate. Thus,
the functional and reporting currency of the Company and the
Subsidiary is the dollar.
Accordingly, transactions and balances denominated in dollars
are presented at their original amounts. Non-dollar transactions
and balances have been re-measured to dollars, in accordance with
ASC 830, "Foreign Currency Matters" of the Financial Accounting
Standards Board ("FASB") (originally issued as FAS 52). All
exchange gains and losses from re-measurement of monetary balance
sheet items denominated in non-dollar currencies are reflected in
the statements of operations as financial income or expenses, as
appropriate.
c. Principles of consolidation
The consolidated financial statements include the accounts of
the Company and the Subsidiary. Intercompany transactions and
balances have been eliminated upon consolidation.
f. Impairment of long-lived assets
Long-lived assets are reviewed for impairment in accordance with
ASC 360 "Property, Plant, and Equipment" ("ASC 360") (originally
issued as FAS 144), whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. Recoverability of an asset to be held and used is
measured by a comparison of the carrying amount of the asset to the
future undiscounted cash flows expected to be generated by the
asset. If such an asset is considered to be impaired, the
impairment to be recognized is measured by the amount by which the
carrying amount of the asset exceeds the fair value of the asset.
During the years ended December 31, 2009 and 2010 and for the
period from January 27, 2000 (inception) through December 31, 2010,
no impairment losses have been identified.
g. Severance pay
The Subsidiary's liability for severance pay is calculated
pursuant to the Israeli severance pay law based on the most recent
salary for the employees multiplied by the number of years of
employment, as of the balance sheet date. Employees are entitled to
one month salary for each year of employment or a portion thereof.
In addition, several employees are entitled to additional severance
compensation as per their employment agreements. The Subsidiary's
liability for all of its employees is fully provided by an accrual
and is mainly funded by monthly deposits with insurance policies.
The value of these policies is recorded as an asset in the
Company's balance sheet.
The deposited funds may be withdrawn only upon the fulfillment
of the obligation pursuant to Israeli severance pay law or labor
agreements. The value of the deposited funds is based on the cash
surrender value of these policies and includes profits or losses as
appropriate.
As part of employment agreements, the Company and certain of its
employees agreed to the terms set forth in Section 14 of the
Israeli Severance Pay Law, according to which amounts deposited in
severance pay funds by the Company's subsidiary shall be the only
severance payments released to the employee upon termination of
employment, voluntarily or involuntarily. Accordingly, no
additional severance pay accrual is provided in the Company's
financial statements in connection with the severance liability of
these employees.
Severance expenses for the years ended December 31, 2009 and
2010 and for the period from January 27, 2000 (inception) through
December 31, 2010, amounted to $172, $96 and $1,498,
respectively.
h. Income taxes
The Company accounts for income taxes in accordance with ASC
740, "Income Taxes" ("ASC 740") (originally issued as FAS 109). ASC
740 prescribes the use of the liability method whereby deferred tax
assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. The Company
provides a valuation allowance, if necessary, to reduce deferred
tax assets to their estimated realizable value. As of December 31,
2010, a full valuation allowance was provided by the Company.
The Company also accounts for income taxes in accordance with
ASC 740-10 "Accounting for Uncertainty in Income Taxes" ("ASC
740-10") (originally issued as FIN 48). ASC 740-10 contains a
two-step approach for recognizing and measuring uncertain tax
positions accounted for in accordance with ASC 740-10. 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% likely to be realized upon
ultimate settlement. No liability has been recorded as a result of
the adoption of ASC 740-10 in 2007.
i. Accounting for stock based compensation
On January 1, 2006, the Company adopted ASC 718,
"Compensation-Stock Compensation" ("ASC 718") (originally issued as
FAS 123(R)) which requires the measurement and recognition of
compensation expense based on estimated fair values for all
share-based payment awards made to employees and directors.
ASC 718 requires companies to estimate the fair value of
equity-based payment awards on the date of grant using an
option-pricing model. The value of the portion of the award that is
ultimately expected to vest is recognized as an expense over the
requisite service periods in the Company's consolidated statement
of operations. Prior to the adoption of ASC 718, the Company
accounted for equity-based awards to employees and directors using
the intrinsic value method in accordance with APB 25.
The Company adopted ASC 718 using the modified prospective
transition method, which requires the application of the accounting
standard starting from January 1, 2006, the first day of the
Company's fiscal year 2006. Under that transition method,
compensation cost recognized in the years ended December 31, 2009
and 2010 includes compensation cost for all share-based payments
granted subsequent to January 1, 2006, based on the grant-date fair
value estimated in accordance with the provisions of ASC 718.
Results for prior periods have not been restated.
The Company recognized compensation expenses for awards granted
subsequent to January 1, 2006 based on the straight line method
over the requisite service period of each of the grants, net of
estimated forfeitures. The Company estimated the fair value of
stock options granted to employees and directors using the Binomial
option pricing model.
During 2009, no options were granted to employees or directors
of the Company. In 2010, the Company estimated the fair value of
stock options granted to employees and directors using the
Binominal options pricing model with the following assumptions:
2010
------
Dividend yield 0%
Expected volatility 66%
Risk-free interest
rate 2.9%
Suboptimal exercise
factor 1.5-2
The Company uses historical data of traded companies to estimate
pre and post vesting exit rate within the valuation model; separate
groups of employees that have similar historical exercise behavior
are considered separately for valuation purposes.
The suboptimal exercise factor represents the value of the
underlying stock as a multiple of the exercise price of the option
which, if achieved, results in exercise of the option.
The risk-free interest rate assumption is based on observed
interest rates appropriate for the term of the Company's employee
stock options.
The Company has historically not paid dividends and has no
foreseeable plans to pay dividends.
The Company applies ASC 718 and ASC 505-50, "Equity-Based
Payments to Non-Employees" ("ASC 505-50") (originally issued as
EITF 96-18), with respect to options issued to non-employees. ASC
718 requires the use of option valuation models to measure the fair
value of the options. The fair value of these options was estimated
at grant date and at the end of each reporting period, using the
Binomial option pricing model with the following assumptions:
2009 2010
-------- ---------
Dividend yield 0% 0%
Expected volatility 98% 85%
Risk-free interest
rate 1.5% 1.2%
Contractual life 1.3-4.9 2.1-10.0
(years)
j. Loss per share
Basic loss per share is computed based on the weighted average
number of Common shares outstanding during each year. Diluted loss
per share is computed based on the weighted average number of
Common shares outstanding during each year, plus the dilutive
effect of options considered to be outstanding during each year, in
accordance with ASC 260, "Earnings Per Share" ("ASC 260")
(originally issued as FAS 128).
In 2009 and 2010, all outstanding stock options and warrants
have been excluded from the calculation of the diluted loss per
Common share because all such securities were anti-dilutive for the
periods presented.
k. Research and development expenses
All research and development expenses are charged to the
Statements of Operations as incurred. Grants from the OCS and the
U.S. Government and participation from third-parties related to
such Research and development expenses are offset against the
expense at the later of when receipt is assured or the expenses are
incurred.
Royalty-bearing grants from the OCS for funding approved
research and development projects are recognized at the time the
Subsidiary is entitled to such grants, on the basis of the costs
incurred and are presented as a deduction from research and
development expenses.
Participation from third parties in the Company's research and
development operations relating to the FVIII Biopump is recognized
at the time the Company is entitled to such participation from the
third parties, and is presented as a deduction from the Company's
research and development expenses.
The Company recognizes income in its statements of operation as
follows:
-- Standstill Payment and Development - in accordance with ASC
605-35 based on hours incurred assigned to the project. The excess
of the recognized amount received from the Healthcare company over
the amount of research and development expenses incurred during the
period is recognized as other income within operating income.
-- Milestones - upon the achievement of the specific
milestone.
-- Grants from the U.S. government's QTDP for funding approved
research and development projects are recognized at the time the
Company is entitled to such grants, on the basis of the costs
incurred and are presented as a deduction from research and
development expenses.
n. Fair value of financial instruments
The carrying amount of cash and cash equivalents, accounts
receivable, short term bank credit, accounts payable and accrued
liabilities are generally considered to be representative of their
respective fair values because of the short-term nature of those
instruments. The convertible debentures are presented at fair
value.
Effective January 1, 2008, the Company adopted ASC 820, "Fair
Value Measurements and disclosures" ("ASC 820") (originally issued
as FAS 157) and effective October 10, 2008, adopted FSP 157-3,
"Determining the Fair Value of a Financial Asset When the Market
for That Asset Is Not Active". ASC 820 clarifies that fair value is
an exit price, representing the amount that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants.
As such, fair value is a market-based measurement that should be
determined based on assumptions that market participants would use
in pricing an asset or a liability. As a basis for considering such
assumptions, ASC 820 establishes a three-tier value hierarchy,
which prioritizes the inputs used in the valuation methodologies in
measuring fair value:
Level 1 Inputs - Quoted prices for identical instruments in
active markets.
Level 2 Inputs - Quoted prices for similar instruments in active
markets; quoted prices for identical or similar
instruments in markets that are not active; and
model-derived valuations in which all
significant inputs and significant value
drivers are observable.
Level 3 Inputs - Valuation derived from valuation techniques in
which one or more significant inputs or
significant value drivers are unobservable.
The financial instruments carried at fair value on the Company's
balance sheet as of December 31, 2009 and 2010 are convertible
debentures, warrants and cash equivalents. Currently, the
convertible debentures issued at 2009 and 2010 and certain warrants
with down-round protection are valued using level 3 inputs.
The fair value of certain these warrants (see Note 2(p) and
5(b)) was estimated at the measurement dates January 1, 2009,
December 31, 2009 and 2010 using the Binomial pricing model with
the following assumptions:
January 1, December 31, December 31,
2009 2009 2010
----------- ------------- -------------
Dividend yield 0% 0% 0%
Expected volatility 75.2% 100.2% 52.2% - 77%
Risk-free interest
rate 1.2% 1.2% 1.6% - 2.1%
Contractual life
(in years) 3.1 2.1 1.1 - 4.73
The fair value of the convertible debentures issued at 2009 was
estimated at the measurement dates December 31, 2009 and 2010 using
the Binomial pricing model with the following assumptions:
December 31, December 31,
2009 2010
------------- -------------
Dividend yield 0% 0%
Expected volatility 115% 76%
Risk-free interest
rate 0.78% 0.18%
Contractual life
(in years) 1.46 0.46
The fair value of the convertible debentures issued at 2010 was
estimated at the measurement date December 31, 2010 using the
Binomial pricing model with the following assumptions:
December 31,
2010
-------------
Dividend yield 0%
Expected volatility 51%
Risk-free interest
rate 0.56%
Contractual life
(in years) 0.73
o. Impact of recently issued Accounting Standards
1. In October 2009, the FASB issued ASU 2009-13, "Revenue
Recognition (ASC Topic 605)-Multiple-Deliverable Revenue
Arrangements" ("ASU 2009-13"). ASU 2009-13 amends the criteria in
ASC Subtopic 605-25, "Revenue Recognition-Multiple-Element
Arrangements", for separating consideration in multiple-deliverable
arrangements. This update addresses the accounting for
multiple-deliverable arrangements to enable vendors to account for
products or services (deliverables) separately rather than as a
combined unit. ASU 2009-13 modifies the requirements for
determining whether a deliverable can be treated as a separate unit
of accounting by removing the criteria that verifiable and
objective evidence of fair value exists for the undelivered
elements. This guidance eliminates the residual method of
allocation and requires that arrangement consideration be allocated
at the inception of the arrangement to all deliverables using the
relative selling price method. This guidance establishes a selling
price hierarchy for determining the selling price of a deliverable,
which is based on: a) vendor-specific objective evidence; b)
third-party evidence; or c) estimates. In addition, this guidance
significantly expands required disclosures related to a vendor's
multiple-deliverable revenue arrangements. ASU 2009-13 is effective
prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010, with
early adoption permitted. The Company has chosen not to early adopt
ASU 2009-13.
The adoption of this standard did not have material impact on
the consolidated results of operations or financial position of the
Company.
2. In March 2010, the FASB issued an update to ASC 605 (ASU No.
2010-17, "Revenue Recognition - Milestone Method", originally
issued as EITF 08-9). The update provides that the milestone method
is a valid application of the proportional performance model for
revenue recognition for research and development transactions if
the milestones are substantive and there is substantive uncertainty
about whether the milestones will be achieved. Determining whether
a milestone is substantive requires judgment that should be made at
the inception of the arrangement. To meet the definition of a
substantive milestone, the consideration earned by achieving the
milestone (1) would have to be commensurate with either the level
of effort required to achieve the milestone or the enhancement in
the value of the item delivered, (2) would have to relate solely to
past performance, and (3) should be reasonable relative to all
deliverables and payment terms in the arrangement. No bifurcation
of an individual milestone is allowed and there can be more than
one milestone in an arrangement. The new guidance is effective
prospectively for interim and annual periods beginning on or after
June 15, 2010.
The adoption of this standard did not have material impact on
the consolidated results of operations or financial position of the
Company.
3. In January 2010, the FASB issued ASU No. 2010-06, "Improving
Disclosures about Fair Value Measurements". ASU 2010-06 amends ASC
820, "Fair Value Measurements" to require a number of additional
disclosures regarding fair value measurements. This guidance
requires reporting entities to make new disclosures about recurring
or nonrecurring fair value measurements including significant
transfers into and out of Level 1 and Level 2 fair value
measurements and information on purchases, sales, issuances, and
settlements on a gross basis in the reconciliation of Level 3 fair
value measurements. The guidance became effective for the Company
with the reporting period beginning April 1, 2010, except for the
Level 3 reconciliation disclosures that are effective for interim
and annual periods beginning after December 15, 2010. The adoption
of this standard did not have material impact on the consolidated
results of operations or financial position of the Company. In
addition, the adoption of Level 3 reconciliation disclosures is not
expected to have a material impact on the Company's
consolidated
financial statements.
p. Restatement
In 2010, the Company noted that in connection with certain
warrants (the "Warrants") issued to investors through the years
2006 and 2007 in the event of equity issuance below exercise price
of the Warrants the investors shall be extended full-ratchet
anti-dilution protection on the exercise price of the Warrants.
According to ASC 815-40-15 "Derivatives and Hedging", such warrants
should be classified as liability and measured at fair value, with
changes in fair value recognized in earnings. ASC 815-40-15 became
effective on January 1, 2009. Therefore, the cumulative effect of
the change in accounting principle should have been recognized as
an adjustment to the opening balance of the appropriate component
of equity. The cumulative-effect adjustment is the difference
between the amounts recognized in the statement of financial
position before initial application of this guidance and the
amounts recognized in the statement of financial position at
initial application of this guidance. The fair value of the
Warrants at January 1, 2009 and December 31, 2009 amounted to $871
and $3,373, respectively.
Based on these facts, the Company has restated the December 31,
2009 consolidated balance sheet and the related statement of
operations, changes in stockholders' deficit and cash flows for the
year then ended within these financial statements, as follows:
December 31, December 31,
2009 2009
as reported Adjustment restated
------------ ---------- ------------
Consolidated Balance Sheet:
Liability in respect of warrants $ - $ 3,373 $ 3,373
Total long-term liabilities $ 2,004 $ 3,373 $ 5,377
Total liabilities $ 5,424 $ 3,373 $ 8,797
Additional paid-in capital $ 30,394 $ (871) $ 29,523
Deficit Accumulated $ (34,760) $ (2,502) $ (37,262)
Total stockholders' deficit $ ( 4,340) $ (3,373) $ ( 7,713)
Year ended Year ended
December 31, December 31,
2009 2009
as reported Adjustment restated
------------- ---------- -------------
Consolidated Statement of
Operations:
Financial expenses $ 553 $ 2,502 $ 3,055
Loss before taxes on income $ (4,439) $ (2,502) $ (6,941)
Loss $ (4,440) $ ( 2,502) $ (6,942)
Loss attributable to Common
stockholders $ (4,443) $ ( 2,502) $ (6,945)
Basic and diluted loss per
Common share $ ( 1.31) $ ( 0.75) $ ( 2.06)
NOTE 3:- COMMITMENTS AND CONTINGENCIES
a. License agreements
1. On November 23, 2005, the Company signed a new agreement with
Yissum Research and Development Company of the Hebrew University of
Jerusalem ("Yissum"). According to the agreement, Yissum granted
the Company a license of certain patents for commercial
development, production, sub-license and marketing of products to
be based on its know-how and research results. In consideration,
the Company agreed to pay Yissum the following amounts:
(a) Three fixed installments measured by reference to investment
made in the Company, as follows:
I. 1st installment - $50 shall be paid when the cumulative
investments in the Company by any third party or parties, from May
23, 2005, amount to at least $3,000.
II. 2nd installment - Additional $150 shall be paid when the
cumulative investments in the Company by any third party or
parties, from May 23, 2005, amount to at least $12,000.
III. 3rd installment - Additional $200 shall be paid when the
cumulative investments in the Company by any third party or
parties, from May 23, 2005, amount to at least $18,000.
The 1st installment of $50 to Yissum was paid on June 5, 2007.
The 2nd installment of $150 to Yissum was paid on the second
quarter of 2010. Payments to Yissum are recorded as research and
development expenses.
(b) Royalties at a rate of 5% of net sales of the product.
(c) Sub-license fees at a rate of 9% of sublicense
considerations.
The total aggregate payment of royalties and Sub-license fees by
the Company to Yissum shall not exceed $10,000.
2. Pursuant to an agreement dated January 25, 2007 between
Baylor College of Medicine ("BCM") and the Company, BCM granted the
Company a non-exclusive worldwide license of a certain technology
(the "Subject Technology").
The license gives the Company a non-exclusive right to use,
market, sell, lease and import the Subject Technology by way of any
product process or service that incorporates, utilizes or is made
with the use of the Subject Technology.
In consideration the Company agreed to pay the following
amounts:
I. a one time, non-refundable license fee of $25 which was paid
in 2007;
II. an annual non-refundable maintenance fee of $20;
III. a one-time milestone payment of $75 upon FDA clearance or
equivalent of clearance for therapeutic use. As of the balance
sheet date, the Company did not achieve FDA clearance; and
IV. an installment of $25 upon executing any sub-licenses that
the Company executes in respect of the Subject Technology.
All payments to BCM are recorded as research and development
expenses. The license agreement shall expire (unless terminated
earlier for default or by the Company at its discretion) on the
first day following the tenth anniversary of the first commercial
sale of licensed products by the Company, following which the
Company shall have a perpetual, royalty free license to the Subject
Technology.
b. Letter of credit
Under the terms of an irrevocable Letter of Credit issued on
November 26 2007 an amount of up to $500 was available (subject to
certain conditions) for drawdown at any time during an 18- month
period which expired on May 28, 2009. The Letter of Credit facility
was provided by the Canadian Imperial Bank of Commerce and was
procured by CIBC Trust Company (Bahamas) Limited (the "Trust"), one
of the Company's shareholders, for the benefit of the Company. One
of the beneficiaries of the Trust is a director of the Company.
In consideration of the Trust arranging the issue of the Letter
of Credit, the Company paid as follows: (i) $12.5 in cash in 2007
and (ii) issuance of 2,182 Common shares with a market value of
$16. At the 12 month anniversary of the date of issue, the Company
should have paid to the Trust an additional fee of $6. This amount
was paid in July 2010.
c. Chief Scientist
Under agreements with the OCS in Israel regarding research and
development projects, the Subsidiary is committed to pay royalties
to the OCS at rates between 3.5% and 5% of the income resulting
from this research and development, at an amount not to exceed the
amount of the grants received by the Subsidiary as participation in
the research and development program, plus interest at LIBOR. The
obligation to pay these royalties is contingent on actual income
and in the absence of such income no payment is required. As of
December 31, 2010, the aggregate contingent liability amounted to
approximately $4.4 million.
d. Clinical trials
On July 30, 2008, approval was received from the Israel Ministry
of Health to conduct a Phase I/II safety and efficacy trial of the
EPODURE Biopump for providing sustained treatment of anemia in
patients with chronic kidney disease. The Subsidiary had agreements
with physicians, consultants and Hadasit Medical Research and
Development Ltd. ("Hadasit") to operate the trial. The major
agreements were entered into in April 2008, with Hadasit to conduct
the clinical trial at Hadassah Medical Center ("Hadassah"). The
Subsidiary paid Hadasit approximately $8.4 per month through
September 2009 to conduct the trial in addition to an estimated
cost of $9 per patient in the trial. The Subsidiary also used the
lab facilities at a cost of approximately $33 per month through
March 2009.
On April 15, 2010, approval was received from the Israel
Ministry of Health to continue the clinical trial at Tel Aviv
Medical Center where the Subsidiary pays a total of $14.4 per
patient. The Subsidiary resumed the use of the lab facilities at
Hadassah on May 1, 2010 at the same cost.
e. Lease Agreement
1. The facilities of the Subsidiary were rented under an
operating lease agreement for a three year period ending December
2010 and the option to renew the lease for an additional 12 month
period through December 2011 has been exercised. Future minimum
lease commitment under the existing non-cancelable operating lease
agreement for 2011 is approximately $59.
As of December 31, 2010 the Subsidiary pledged a bank deposit
which is used as a bank guarantee at an amount of $23 to secure its
payments under the lease agreement.
2. The Subsidiary leases vehicles under standard commercial
operating leases. Future minimum lease commitments under various
non-cancelable operating lease agreements in respect of motor
vehicles are as follows:
Year
2011 $ 86
2012 58
2013 41
------
$ 185
======
As of December 31, 2010, the Subsidiary paid three months lease
installments in advance which amounted to $23.
NOTE 4:- STOCKHOLDERS' EQUITY
a. Composition:
December 31, December 31,
-------------------------- -------------------------
2009 2010 2009 2010
------------ ------------ ------------ -----------
Authorized Issued and Outstanding
-------------------------- -------------------------
Number of shares
-----------------------------------------------------
Shares of $0.0001
par value:
Common stock (Note
4(a)) 500,000,000 500,000,000 3,490,512 5,295,531
============ ============ ============ ===========
b. Common stock
The Common shares confer upon the holders the right to receive
notice to participate and vote in general and special meetings of
the stockholders of the Company and the right to receive dividends,
if declared.
c. Issuance of shares, options and warrants to investors
1. In January 2008, a total of 101,723 warrants were exercised
in a cashless conversion to 68,980 Common shares by consultants of
the Company. In addition 1,363 warrants were exercised and resulted
in the issuance of 1,363 Common shares. The cash consideration
received was immaterial.
2. In April 2008, the Company issued a total of 4,074 Common
shares to an advisor in consideration of assistance with the
Company's fund raising in relation to the placing of the Common
shares on December 4, 2007.
3. In December 2008, 860 warrants were exercised and resulted in
the issuance of 860 Common shares. The cash consideration received
upon exercise of the warrants was immaterial.
4. On December 17, 2008, the Company announced that it was
implementing a warrant repricing program ("program") to encourage
the exercise of existing warrants provided that such exercise was
completed by February 13, 2009. To encourage existing warrant
holders to exercise their warrants before the closing date as
aforesaid, the following terms were offered:
a) Reduced Exercise Price: $1.313/share (GBP 0.875/share) or the
then current exercise price, whichever was lower;
b) Bonus Warrants: for every one dollar ($1.00) or GBP 0.667
paid for exercise of warrants during this program, a new bonus
warrant would be issued to purchase 0.1 Common share ( three Common
shares before the reverse stock split), which would be immediately
exercisable for three years at an exercise price of $8.75 per
share.
The exercise price of any warrants that were not exercised
before the expiration of the program reverted to the original price
as stated in the warrant prior to the program.
5. Pursuant to the warrant repricing program mentioned above,
during January and February 2009, 315,023 warrants were exercised
and resulted in the issuance of 315,023 Common shares in
consideration of a reduced price of $406 and the issuance of 34,804
new warrants as a bonus. The issuance costs were $17. The bonus
warrants were exercisable immediately for a period of three years
from the issuance date at an exercise price of $8.75 per share. The
consideration was paid partly in the year ended December 31, 2008
($150) and the balance was paid in 2009. According to ASC 815 the
benefit provided to the warrant holders from the reduction of the
exercise price and the bonus warrants in the amount of $7 and $3 as
of December 31, 2008 and December 31, 2009, respectively, was
recorded as a dividend to the warrant holders.
6. On October 6, 2009, the Company issued a total of 126,285
Common shares in consideration of GBP 265,200 ($423). The issuance
costs were $59.
7. In January 2010, an investor exercised warrants to purchase
6,105 Common shares at an exercise price of $4.10 per share, or an
aggregate exercise price of $25. An additional investor exercised
warrants to purchase 525 Common shares at an aggregate price of
less than $1.
8. In a series of closings from March through June 2010, the
Company issued a total of 413,302 Common shares consisting of
407,800 Common shares issued in March 2010 in consideration of GBP
713,650 ($1,078) with issuance costs of $135 and 5,502 Common
shares issued to directors of the Company in May 2010 in
consideration of GBP 12,518 ($19).
9. In May 2010, the Company issued 477,934 Common shares in
consideration of $1,202. The issuance costs amounted to $87.
10. In August and September 2010, the Company issued 39,080
Common shares in settlement of advisers' fees in relation to the
Company's ongoing fundraising endeavors and consultancy advice to
the Company's Board's Compensation Committee. Total compensation,
measured as the grant date fair market value of the stock, amounted
to $164.
11. In September 2010, several investors exercised warrants to
purchase 402,307 Common shares at an exercise price of $0.0175 per
share, or an aggregate exercise price of $7, exercised warrants to
purchase 30,559 shares at an exercise price of $4.10 per share, or
an aggregate exercise price of $125, exercised warrants to purchase
0.1 Common share (three Common shares before the reverse stock
split) at an exercise price of $8.75 per share, or an aggregate
exercise price less than $1, and exercised warrants to purchase
87,405 Common shares at an exercise price of $2.49 per share, or an
aggregate exercise price of $218.
12. In October 2010, an investor exercised options to purchase
16,298 Common shares at an exercise price of $1.61 per share using
the cashless exercise mechanism. Using this cashless exercise
method, the investor was issued 12,320 shares.
d. Issuance of stock options, warrants and restricted shares to
employees and directors
1. On June 12, 2008, the Company granted to the Company's
employees 91 096 options exercisable at a price of $5.11 per share.
The options have a five-year term and vest in four equal annual
tranches of 22,774 each. The options were granted under the stock
option plan terms. The fair value of these options at the grant
date was $0.036 per option.
2. On December 1, 2008, the Company granted to a Company's
director 48 895 options exercisable at a price of $1.47 per share.
The options have a five-year term and vest in three equal annual
tranches of 16,298 each. The options were granted under the stock
option plan terms. The fair value of these options at the grant
date was $0.91 per option.
3. No options or warrants were granted to employees or directors
during the year ended December 31, 2009.
4. In September 2010, the expiry date of certain warrants and
options held by the Company's Chief Executive Officer was extended
from March 31 2011 to March 31, 2016, consisting of (i) warrants to
purchase 905,190 Common shares at an exercise price of $2.49 per
share, (ii) warrants to purchase 35,922 Common shares at an
exercise price of $0.04 per share, and (iii) options to purchase
182,806 Common shares at an exercise price of $2.49 per share. All
of the other terms of these warrants and options remain the
same.
The Company accounted for the exchange of warrants and options
under the provisions of ASC 718 (Formerly SFAS 123(R)) as a
modification. A modification to the terms of an award should be
treated as an exchange of the original award for a new award with
total compensation cost equal to the grant-date fair value of the
original award plus the incremental value measured at the same
date. Under ASC 718, the calculation of the incremental value is
based on the excess of the fair value of the (modified) award based
on current circumstances over the fair value of the original option
measured immediately before its terms are modified based on current
circumstances. That is, the original (pre-modification) award will
be valued based on current assumptions, without regard to the
assumptions made on the grant date. As a result of the
modification, the Company recorded incremental compensation cost of
$1,426 on the modification date. The fair value was estimated using
Binomial model with the following weighted-average assumptions:
expected stock price volatility range of 54%-77%, risk-free
interest rate of 0.3%-1.7%, expected dividend yield of 0%,
suboptimal exercise factor of 2 and a contractual life of the
warrants and the options as defined prior the modification and
subsequently.
As the modified options and warrants were already vested, the
Company recorded the incremental value measured fair value of the
modified award at the modification date as operating expenses. No
future compensation will be recorded.
5. In September 2010, the Company granted options to purchase
28,571 Common shares under the stock option plan at an exercise
price of $ 8.19 per share to each of four of the Company's
non-executive directors. Such options have a 10-year term and vest
in equal installments over three years. The Company also granted
options to purchase 12,857 Common shares at an exercise price of
$8.19 per share to a director who joined the Board in August 2010.
Such options have a 10-year term and vest in equal installments
over three years.
The fair value of these options at the grant date was $2.03 per
option.
6. In September 2010, a Director of the Company exercised
warrants to purchase 28,571 Common shares at an exercise price of
$2.49 per share ($71 aggregate exercise price) and used the
cashless exercise mechanism to exercise warrants to purchase an
additional 57,147 shares. Using this cashless exercise method, the
Director was issued 39,786 shares and, together with the warrants
exercised for cash, he was issued a total of 68,357 Common
shares.
7. In September 2010, a Director of the Company exercised
options to purchase 45,701 Common shares at an exercise price of
$2.49 per share, or an aggregate exercise price of $114.
8. In September 2010, the Company granted to the Company's
employees 91 571 options exercisable at a price of $8.19 per share.
The options have a 10 year term and vest in four equal annual
tranches of 22,892 each. The options were granted under the stock
option plan terms. The fair value of these options at the grant
date was $2.07 per option.
9. In September 2010, a Director of the Company exercised
warrants to purchase 30,559 Common shares and options to purchase
45,701 Common shares, each having an exercise price of $2.49 per
share, using the cashless exercise mechanism. The Director was
issued 21,275 shares as a result of the warrant exercise and 31,817
shares as a result of the option exercise, or 53,092 Common shares
in total.
10. In December 2010, a Director of the Company exercised
options to purchase 91,402 Common shares at an exercise price of
$2.49 per share using the cashless exercise mechanism. The Director
was issued 56,859 shares as a result of the option exercise.
11. In December 2010, two employees of the Company exercised
warrants. One employee exercised warrants to purchase 11,429 Common
shares at an exercise price of $0.01645, or an aggregate exercise
price of less than $1. The other employee exercised warrants to
purchase 17,143 Common shares at an exercise price of $2.49 per
share using the cashless exercise mechanism. The employee was
issued 10,664 shares as a result of the warrant exercise.
12. In December 2010, the Company granted the Executive Chairman
of the Company 57,142 restricted Common shares in compensation for
his services in his new role as the Executive Chairman of the Board
of the Company. These Common shares are restricted in that they may
not be disposed of and are not entitled to dividends. These
restrictions will be removed in relation to 14,285 Common shares on
each of October 18, 2012 and October 18, 2013 and the final 28,572
Common shares on October 18, 2014. No expense was recorded in 2010.
The value of these restricted Common shares, $285, was based on the
fair value at the grant date and will be recognized as an expense
using the straight line method as the restrictions are removed.
A summary of the Company's activity for restricted shares
granted to employees and directors is as follows:
As of December 31,
2010
----------------------------
Restricted shares Outstanding Exercisable
---------------------------- ------------ ------------
Number of restricted shares - -
as of December 31, 2009
Granted 57,142 -
------------ ------------
Number of restricted shares 57,142 -
as of December 31, 2010
============ ============
13. A summary of the Company's activity for options and warrants
granted to employees and directors is as follows:
Weighted
Number Weighted average
of average remaining Aggregate
options exercise contractual intrinsic
and warrants price terms (years) value price
-------------- ---------- --------------- -------------
Outstanding at
January 1, 2009 2,452,954 $ 2.84
Forfeited (74,158) 3.82
-------------- ----------
Outstanding at
December 31,
2009 2,378,796 $ 2.84 1.56 $ 4,343
============== ========== =============== =============
Vested and
expected to vest
at December 31,
2009 2,355,905 $ 2.80 1.55 $ 4,333
============== ========== =============== =============
Exercisable at
December 31,
2009 2,114,968 $ 2.49 1.45 $ 4,224
============== ========== =============== =============
Outstanding at
January 1, 2010 2,378,796
Granted 218,712 $ 8.19
Exercised (*) (715,700) $ 1.05
Forfeited (3,667) $ 7.35
--------------
Outstanding at
December 31,
2010 1,878,141 $ 4.13 4.64 $ 2,890
============== ========== =============== =============
Vested and
expected to vest
at December 31,
2010 1,863,827 $ 4.10 4.62 $ 2,890
============== ========== =============== =============
Exercisable at
December 31,
2010 1,591,831 $ 3.50 4.06 $ 2,883
============== ========== =============== =============
(*) Includes warrants to purchase 402,307 Common shares issued
to a director and sold to an investor and exercised in 2010 (see
Note 4(d)11). Also includes options to purchase 16,298 Common
shares issued to a former director and exercised in 2010 (see Note
4(d)12).
As of December 31, 2010, there was $662 of total unrecognized
compensation cost related to non-vested share-based compensation
arrangements granted to employees. That cost is expected to be
recognized over a weighted-average period of 2.03 years.
The aggregate intrinsic value represents the total intrinsic
value (the difference between the Company's Common share fair value
as of December 31, 2009 and 2010 and the exercise price, multiplied
by the number of in-the-money options) that would have been
received by the option holders had all option holders exercised
their options on December 31, 2009 and 2010.
Calculation of aggregate intrinsic value is based on the share
price of the Company's Common shares as of December 31, 2009 ($4.32
/ GBP 2.63, per share) and December 31, 2010 ($4.81 / GBP 3.10, per
share).
e. Issuance of stock options and warrants to consultants
1. On October 16, 2008, the Company granted to a consultant
19,354 warrants exercisable at a price of $5.11 per share and has
contractual life of 5 years. 33.3% of the warrants vested
immediately at the grant date and the remaining portion of the
warrants vest in two equal annual tranches of 6,451 starting from
the grant date. The warrants were granted under the stock option
plan terms. The fair value of these warrants at the grant date was
$0.179 per warrant. The fair value was estimated using Binomial
model with the following weighted-average assumptions: expected
stock price volatility range of 62%, risk-free interest rate of
4.2%, expected dividend yield of 0% and a contractual life of the
options of five years.
2. On December 1, 2008, the Company granted to a consultant
67,230 warrants exercisable at a price of $6.79 per share and has
contractual life of 5 years. The warrants vest immediately at the
grant date. The warrants were granted under the stock option plan
terms. The fair value of these warrants at the grant date was
$0.327 per warrant.
3. On December 7, 2009, the Company granted to a consultant
19,354 options exercisable at a price of $4.20 per share and has
contractual life of 5 years. The options vest in three equal annual
tranches of 6 451. The options were granted under the stock option
plan terms. The fair value of these options at the grant date was
$3.07 per warrant. The fair value was estimated using Binomial
model with the following weighted-average assumptions: expected
stock price volatility range of 74.9%, risk-free interest rate of
2.4%, expected dividend yield of 0% and a contractual life of the
options of five years.
4. In February 2010, the Company issued 32,142 Common shares as
settlement of debt for services rendered to the Company by a
consultant in 2009. Total compensation, measured as the grant date
fair market value of the stock, amounted to $141 and was recorded
as an operating expense in the statement of operations in 2009.
5. In September 2010, the Company granted a warrant to purchase
11,369 Common shares at an exercise price of $3.185 per share to a
consultant. Such warrant has a 5-year term and is immediately
exercisable.
The fair value of the warrant at the grant date was $3.185 per
warrant.
6. In September 2010, the Company granted options to purchase
19,069 Common shares under the stock option plan at an exercise
price of $8.19 per share to each of two new members of the
Company's Strategic Advisory Board. Such options have a 10 year
term and vest in equal installments over three years.
The fair value of these options at the grant date was $3.01 per
option.
7. In September 2010, the Company issued warrants to purchase
46,071 Common shares in settlement of fees in relation to the
Convertible Debentures issued in September 2010 (see Note
5(b)).
8. A summary of the Company's activity for warrants and options
granted to consultants under the stock option plan is as
follows:
Weighted
average
Number Weighted remaining Aggregate
of average contractual intrinsic
Warrants exercise terms value
and options price ( years) price
------------- ---------- ------------- -----------
Outstanding at January
1, 2009 565,596 $ 4.03
Granted 19,354 4.20
------------- ----------
Outstanding at
December 31, 2009 584,950 $ 4.06 2.21 $ 607
============= ========== ============= ===========
Exercisable at
December 31, 2009 525,422 $ 3.99 2.09 $ 580
============= ========== ============= ===========
Outstanding at January
1, 2010 584,950
Granted 95,578 $ 7.91
Forfeited (122,236) $ 2.49
------------- ----------
Outstanding at
December 31, 2010 558,292 $ 5.04 2.36 $ 564
============= ========== ============= ===========
Exercisable at
December 31, 2010 499,304 $ 4.80 1.77 $ 557
============= ========== ============= ===========
The weighted-average grant-date fair value of warrants and
options granted to consultants during the year ended December 31,
2009 and 2010 was $3.15 and $2.80, respectively. As of December 31,
2010, there was $167 of total unrecognized compensation cost
related to non-vested share-based compensation arrangements granted
to consultants under the Company's stock option plan. That cost is
expected to be recognized over a weighted-average period of 2.4
years.
Calculation of aggregate intrinsic value is based on the share
price of the Company's Common shares as of December 31, 2009 ($4.32
/ GBP 2.63, per share) and December 31, 2010 ($4.81 / GBP 3.10, per
share).
f. Compensation expenses
Compensation expense related to warrants and options granted to
employees, directors and consultants was recorded in the Statement
of Operations in the following line items:
Year ended December
31,
----------------------
2009 2010
--------- -----------
Research and development expenses $ 192 $ 181
General and administrative expenses 328 1,653
--------- -----------
$ 520 $ 1,834
========= ===========
g. Summary of options and warrants:
A summary of all the options and warrants outstanding as of
December 31 2009 and 2010 is presented in the following tables:
As of December 31, 2009
------------------------------------------------------------
Weighted
Average
Exercise Remaining
Price Options Options Contractual
Options / per Share and Warrants and Warrants Terms (in
Warrants ($) Outstanding Exercisable years)
---------------- ----------- -------------- -------------- ---------------
Options:
Granted to
Employees and
Directors 1.63 16,298 16,298 0.92
2.49 509,011 438,885 1.32
4.10 42,783 21,391 2.65
5.67 49,536 12,384 3.45
7.35 339,381 204,221 2.87
-------------- --------------
957,009 693,179
-------------- --------------
Granted to
Consultants 2.49 100,663 84,664 1.41
4.2 19,354 - 4.92
5.67 19,354 12,903 3.79
7.35 53,176 35,450 2.87
-------------- --------------
192,547 133,017
-------------- --------------
Total Options 1,149,556 826,196
-------------- --------------
Warrants:
Granted to
Employees and
Directors 0.02 413,736 413,736 1.25
2.49 1,008,053 1,008,053 1.25
-------------- --------------
1,421,789 1,421,789
-------------- --------------
Granted to
Consultants 0.02 34,288 34,288 1.25
2.49 171,758 171,758 1.25
4.10 29,725 29,725 1.81
5.67 16,976 16,976 2.93
5.74 37,508 37,508 2.69
6.79 102,149 102,149 3.58
-------------- --------------
392,404 392,404
-------------- --------------
Granted to
Investors 0.0002 40,326 40,326 0.5
2.49 772,093 772,093 0.53
4.10 571,420 571,420 1.06
5.74 166,132 166,132 1.96
6.79 50,721 50,721 2.18
8.75 34,804 34,804 1.34
-------------- --------------
1,635,496 1,635,496
-------------- --------------
Total Warrants 3,449,689 3,449,689
-------------- --------------
Total Options
and Warrants 4,599,245 4,275,885
============== ==============
As of December 31, 2010
------------------------------------------------------------
Weighted
Average
Exercise Remaining
Price Options Options Contractual
Options / per Share and Warrants and Warrants Terms (in
Warrants ($) Outstanding Exercisable years)
---------------- ----------- -------------- -------------- ---------------
Options:
Granted to
Employees and
Directors
2.49 326,206 326,206 3.15
4.10 42,783 32,087 1.65
5.43 49,536 24,768 2.45
7.35 335,713 303,580 1.87
8.19 218,713 - 9.70
-------------- --------------
972,951 686,641
-------------- --------------
Granted to
Consultants 2.49 100,663 100,663 0.41
4.20 19,354 6,451 3.92
5.43 19,354 19,354 2.79
7.35 53,176 45,227 1.87
8.19 38,136 - 9.70
-------------- --------------
230,683 171,695
-------------- --------------
Total Options 1,203,634 858,336
-------------- --------------
Warrants:
Granted to
Employees and
Directors
2.49 905,190 905,190 5.25
-------------- --------------
Granted to
Consultants 0.02 34,288 34,288 0.25
2.49 49,522 49,522 0.25
3.19 11,370 11,370 4.70
4.10 29,725 29,725 0.81
5.43 16,976 16,976 1.93
5.74 37,508 37,508 1.69
6.79 102,149 102,149 2.58
8.68 46,071 46,071 4.73
-------------- --------------
327,609 327,609
-------------- --------------
Granted to
Investors 0.0002 39,711 39,711 4.77
2.49 654,127 654,127 0.27
4.10 534,755 534,755 0.81
5.74 166,132 166,132 1.71
6.79 50,721 50,721 1.93
8.75 34,804 34,804 1.09
8.68 428,571 428,571 4.73
-------------- --------------
1,908,821 1,908,821
-------------- --------------
Total Warrants 3,141,620 3,141,620
-------------- --------------
Total Options
and Warrants 4,345,254 3,999,956
============== ==============
NOTE 5:- CONVERTIBLE DEBENTURES
a. Convertible Debentures Offered in 2009
In May 2009, the Company offered to accredited investors only,
through a private placement, convertible debentures (the "2009
Debentures"), together with warrants (the "Warrants") to purchase a
number of Common shares equal to 35% of the number of Common shares
issued upon conversion of the 2009 Debentures. Warrants shall not
be issued unless and until the conversion of the 2009 Debentures.
The 2009 Debentures mature two years after the date of issuance and
bear interest at an annual rate of 10%, paid on a quarterly basis.
The 2009 Debentures will automatically be converted into Common
shares upon the closing of a Qualified Transaction, as defined
henceforth.
Qualified Transaction shall mean any of: (i) an underwritten
public offering of the Company's Common stock on a U.S. Stock
Market resulting in gross proceeds to the Company of not less than
$5,000, (ii) a merger or reverse merger between the Company and a
public company which is traded on a U.S. Stock Market or on the OTC
Bulletin Board, the survivor of which is a public company having
available cash of not less than $5 000 after giving effect to such
merger and any capital-raising transaction completed prior to or at
the time of such merger, or (iii) the acquisition of all of the
issued and outstanding Common stock of the Company by a public
company the Common stock of which is traded on a U.S. Stock Market
or on the OTC Bulletin Board in a transaction where the holders of
the Common stock of the Company receive, in exchange for such
Common stock, Common stock of such public company and, after giving
effect to such transaction and any capital-raising transaction
completed prior to or at the time of such transaction, such public
company has available cash of not less than $5,000.
In a series of closings from June 16 through September 15, 2009,
the Company raised $570 in gross proceeds through the issuance of
the 2009 Debentures.
In the event of default, the interest rate shall increase 2% per
month for every month the 2009 Debentures are in default to a
maximum of 18% per annum paid on a quarterly basis. The Company
shall repay the principal and any accrued interest at the two-year
anniversary of the date the Debentures were issued.
The 2009 Debentures are unsecured and the Company has no right
to redeem the 2009 Debentures. If the Company is liquidated, the
holders of the 2009 Debentures will participate pari passu with all
general creditors of the Company with no seniority or
preference.
Until such time the 2009 Debentures are repaid, the 2009
Debentures (including any accrued interest) shall automatically
convert into Common shares at the closing of a Qualified
Transaction at the following valuation:
-- In the event that the per share price paid in the Qualified
Transaction (or per share value of merger consideration in a Merger
Transaction (as defined in the 2009 Debenture)) (the "Qualified
Transaction Price") is $4.20 per share or greater, the conversion
price shall be the lesser of $4.20 per share or a 40% discount from
the Qualified Transaction Price.
-- In the event that the Qualified Transaction Price is at least
$2.45 but less than $4.20 per share, the conversion price shall be
$2.45 per share.
-- In the event that the Qualified Transaction Price is less
than $2.45 per share, the conversion price shall be the Qualified
Transaction Price; provided, however, that the holder of the 2009
Debenture shall receive 100% more Warrants than such holder would
have otherwise been entitled to receive upon conversion.
The share prices referenced above shall be adjusted to reflect
any stock splits, stock combinations, stock dividends,
reorganizations and the like.
The Warrants are exercisable for a number of Common shares equal
to 35% of the number of Common shares issued upon the conversion of
the 2009 Debentures. The Warrants shall be immediately exercisable
upon issuance and shall expire five years from the date of
issuance. The exercise price shall be 110% of the Qualified
Transaction Price.
The Company irrevocably elected to initially and subsequently
measure the 2009 Debentures entirely at fair value (with changes in
fair value recognized in earnings) in accordance with ASC 825-10
thus the Company will not separate the embedded derivative
instrument from the host contract and account for it as a
derivative instrument pursuant to ASC 825.
This election was made only in respect to the 2009 Debentures,
as permitted by ASC 825-10, which states that this election may be
made on an instrument-by-instrument basis.
As of December 31, 2009, the fair value of the 2009 Debentures
amounted to $1,013. In 2009, the Company recorded financial
expenses in the amount of $443 as a result of the change in fair
value of the 2009 Debentures.
As of December 31, 2010, the fair value of the 2009 Debentures
amounted to $1,140. In 2010, the Company recorded financial expense
in the amount of $127 as a result of the change in fair value of
the 2009 Debentures.
The interest payable on the 2009 Debentures at December 31, 2010
in the amount of $55 has been paid in full subsequent to the
balance sheet date.
b. Convertible Debentures Offered in 2010
In September 2010, the Company offered, in a private placement,
$4 million of convertible debentures (the "2010 Debentures"). The
2010 Debentures are unsecured obligations of the Company, accrue
interest at 4% per annum and mature and become repayable 12 months
from the date of issuance. Holders of such debentures may convert
them anytime into Common shares, at an initial conversion price of
GBP 4.55 ($7.00) per Common share. The 2010 Debentures will be
automatically converted upon an underwritten public offering of
Common shares raising of at least $6 million and resulting in the
Common shares being listed on a U.S. national securities exchange
or automated quotation system (a "US Listing"), at a conversion
price equal to the lesser of GBP 4.55 ($7.00) per Common share and
75% of the public offering price of the Common shares in such
underwritten public offering. Purchasers of the 2010 Debentures
also received warrants to purchase 428,571 Common shares equal to
75% of the number of Common shares into which the 2010 debentures
could convert on the date of issuance. Such warrants are
immediately exercisable, have a 5 year term and have an initial
exercise price of GBP 5.60 ($8.40). If a further issuance of
securities is made by the Company at a lower price, both the
conversion price of the 2010 Debentures and the exercise price of
the warrants will be subject to downward adjustment to such lower
issue price and, if such issuance takes place prior to a US Listing
occurring, the number of warrant shares that may be purchased upon
exercise of these warrants will be increased to maintain the
aggregate exercise price of the original warrants. Any Common
shares issued upon automatic conversion of the 2010 Debentures and
exercise of the warrants occurring subsequent to a US Listing will
be deemed restricted stock under U.S. securities laws and cannot be
sold or transferred unless subsequently registered under such laws
or an exemption from the registration requirements is
available.
According to ASC 815-40-15-7I, the Company classified the
warrants as a liability at their fair value. The warrants liability
will be remeasured at each reporting period until exercised or
expired. Changes in the fair value of the warrants are reported in
the statements of operations as financial income or expense.
The Company irrevocably elected to initially and subsequently
measure the 2010 Debentures entirely at fair value with changes in
fair value recognized in earnings in accordance with ASC
815-15.
The Company allocated the gross amount received of $4,001 to the
liability in respect of the warrants issued ($1,027) and the
remaining portion was allocated to the 2010 Debentures. The fair
value of the 2010 Debentures at issuance date was $4,143. As such,
the Company recorded financial expenses of $1,169.
As of December 31, 2010, the fair value of the 2010 Debentures
amounted to $4,320 and the fair value of the warrants amounted to
$1,155. As such the Company recorded additional financial expenses
in the amount of $177 as a result of the change in fair value of
the 2010 Debentures.
In addition, the Company paid $325 in cash and issued 46,071
warrants to finders in connection with the issuance of the 2010
Debentures, exercisable into 46,071 Common shares at a price of GBP
5.60 ($8.40) per Common share. The warrants are immediately
exercisable upon issuance and will expire five years from the date
of issuance. According to ASC 815-40-15-7I the Company classified
these warrants as a liability at their fair value. The liability
will be remeasured at each reporting period until exercised or
expired. Changes in the fair value of the warrants are reported in
the statements of operations as financial income or expense. The
fair value of the warrants issued in the amounts of $110 and the
cash paid as finder's fee were recorded immediately as issuance
costs. As of December 31, 2010, the fair value of the warrants
amounted to $112.
Interest on the 2010 Debentures at December 31, 2010 in the
amount of $44 has been accrued.
NOTE 6:- FINANCIAL EXPENSE (INCOME)
Period from
January 27, 2000
Year ended December (inception)
31, through December
--------------------
31, 2010
2009 (*) 2010 (*)
------------------- ------ -----------------
Financial expense
(income), net:
Financial
income:
Foreign currency
remeasurement
adjustments $ (7) $ (52) $ (307)
Interest on cash
equivalents,
short-term bank
deposits and
others (3) (3) (212)
Others - - (49)
------------------- ------ -----------------
(10) (55) (568)
------------------- ------ -----------------
Financial
expenses:
Bank charges 16 15 72
Interest expenses 42 174 309
Interest and
amortization of
beneficial
conversion
feature of
convertible
note - - 759
Convertible debentures
valuation 443 1,473 1,916
Warrant valuation 2,502 (840) 1,662
Foreign currency
remeasurement
adjustments 52 22 248
Others - 2 11
------------------- ------ -----------------
3,055 846 4,977
------------------- ------ -----------------
$ 3,045 $ 791 $ 4,409
=================== ====== =================
(*) Restated see note 2(p).
NOTE 7:- SUBSEQUENT EVENTS
a. Subsequent to the Balance Sheet date, in February 2011, the
Company's Board of Directors approved a one (1) for thirty five
(35) reverse split of the Company's Common shares and the number of
authorized shares of the Company's Common shares was reduced from
500,000,000 to 100,000,000, effective February 14, 2011. Upon the
effectiveness of the reverse stock split, thirty five Common shares
of $0.0001 par value were converted and reclassified as one common
stock of $0.0001 par value. Accordingly, all references to number
of shares, Common shares and per share data in the accompanying
financial statements have been adjusted to reflect the stock split
on a retroactive basis. Fractional shares created as a result of
the stock split were rounded down to the whole share. As a result
of the rounding down effect, 166 Common shares have been
eliminated.
b. In January 2011, an investor exercised warrants to purchase
19,558 Common shares at an exercise price of $2.49 per share using
the cashless exercise mechanism. Using this cashless exercise
method, the investor was issued 12,298 shares. In addition, an
investor exercised warrants to purchase 3,026 Common shares at an
exercise price of $2.49 per share, or an aggregate exercise price
of $8. In February 2011, three investors each exercised warrants to
purchase 40,338 Common shares at an exercise price of $2.49 per
share using the cashless exercise mechanism. Using this cashless
exercise method, the investors were each issued 25,534 shares.
c. Pursuant to an agreement entered into on February 11, 2011
(effective as of January 31, 2011), the Regents of the University
of Michigan (Michigan) have granted an exclusive worldwide license
for patent rights relating to certain uses of variants of clotting
Factor VIII. The License Agreement covers a portfolio of 2 issued
and 3 pending patents. In consideration the Company agreed to pay
Michigan the following amounts:
I. an initial license fee of $25;
II. an annual license fee in arrears of $10 rising to $50
following the grant by the Company of a sublicense or (if sooner)
from the 6th anniversary of the effective date of the licence
agreement;
III. staged milestone payments of $750 (in aggregate), of which
$400 will be recoupable against royalties;
IV. royalties at an initial rate of 5% of net sales, reducing by
a percentage point at predetermined thresholds to 2% upon
cumulative net sales exceeding $50,000;
V. sublicense fees at an initial rate of 6% of sublicensing
revenues, reducing by a percentage point at predetermined
thresholds to 4%. upon cumulative sublicensing revenues exceeding
$50,000; and
VI. patent maintenance costs.
The exclusive worldwide license is expected to expire in 2026
upon the expiration of the last to expire of the patent rights
licensed.
*******************
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR BXGDDDSBBGBU
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