There is intense competition for businesses suitable for a transaction of the type we are contemplating.
There is currently a very competitive market for business opportunities, which could reduce the likelihood of consummating a successful transaction for acquisition of a business or technology. We anticipate that we will be an insignificant participant in the business of seeking mergers or joint ventures with, or acquisitions of, small private entities. A large number of established and well-financed entities, including small public companies, venture capital firms, and special purpose acquisition companies, or “SPACs”, are active in mergers and acquisitions of companies that may be desirable target candidates for us. We have significantly less financial resources, technical expertise and managerial capabilities than many of these entities, and we may be unable to effectively compete with such entities in identifying possible business opportunities and successfully completing a transaction. These and other competitive factors may reduce the likelihood of our identifying and consummating a successful transaction.
We may not be able to enter into a transaction of the type contemplated and if we complete such a transaction, we may need to raise additional capital.
Even if we identify a successful target for a transaction, there can be no assurance that we (or the entity with which we combine) will be able to complete any such transaction. In the event that we complete such a transaction, we may need to raise substantial additional capital. In such event, we may need to rely on external sources of financing to meet any capital requirements and to obtain such funding through the debt and equity markets. We cannot provide any assurances regarding the availability of any such additional funding and, if available, regarding the terms thereof. If we fail to obtain such necessary funding, any such transaction may not be successful.
Potential acquisitions of or investments in companies or technologies may negatively impact our financial condition and may not yield the returns expected.
Even if we are able to make an acquisition or investment on reasonable terms, we have no prior experience in successfully completing acquisitions, and we could experience difficulties combining the two companies and/or in retaining and motivating key personnel from these businesses. We may also incur unanticipated liabilities. We cannot be certain that our actual cash requirements resulting from an acquisition, business combination or investment will not be greater than anticipated. Furthermore, there can be no assurance that we will be able to realize the anticipated benefits or synergies of any such acquisition, combination or investment. In that regard, we note that should we combine with, or invest in, any entity that is in the developmental stage, such as we were when we first went public, the ultimate success of such business will depend, in large part, on the combined company’s ability to be successful with clinical trials and in obtaining any required regulatory approvals.
Our board of directors has sole discretion to identify and evaluate transaction candidates and complete such transactions without approval of our shareholders.
We are not obligated to follow any particular operating, financial, geographic or other criteria in evaluating candidates for a potential transaction. We will choose a technology or business that we believe will provide an opportunity for our shareholders potentially to receive long-term financial returns if the transaction is successful and our board will determine the purchase price and other terms and conditions of such transaction. Accordingly, there can be no assurance that any such transaction would be subject to shareholder review or approval. As a general matter, under Israeli law, there is no requirement for us to have an acquisition approved by our shareholders. Furthermore, under the NASDAQ Listing Rules, our status as a foreign private issuer makes inapplicable to us the NASDAQ shareholder approval requirement for an acquisition in which we would issue more than 20% of our existing share capital.
Since we have not yet finalized any binding agreement with respect to a transaction, you cannot currently ascertain the merits or risks of a transaction that we may ultimately enter into.
Because we have not yet advanced with any specific target with respect to having in place a contractually binding agreement for a transaction, we do not have a transaction to present to you for your consideration. While we have already looked at a number of potential transactions and are presently looking at another potential transaction, we believe that, in the absence of a definitive agreement, it would be premature to present any potential transaction. There can also be no assurance that a definitive agreement will be reached or approved by our board of directors with respect to any such transaction.
Clinical failure can occur at any stage of clinical development. Because the results of earlier clinical trials do not necessarily predict future results, any product candidate that we (or any company that we may acquire) advance through clinical trials may not have favorable results in later clinical trials or receive regulatory approval.
As we have experienced with CureXcell, clinical failure for any technology or product that we may seek to advance can occur at any stage of clinical development. Clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical or preclinical trials. In addition, data obtained from trials are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent regulatory approval. Success in prior clinical trials does not ensure that later clinical trials will generate the same results or otherwise provide adequate data to demonstrate the efficacy and safety of a product candidate. In addition, the design of a clinical trial can determine whether its results will support approval of a product, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. Clinical trials of potential products often reveal that it is not practical or feasible to continue development efforts. If that were to occur again for us with respect to another product candidate that we acquire, that would have a material adverse effect on our company and financial prospects.
We have a history of operating losses. We expect to incur additional losses in the future and may never be profitable.
Since our inception in 2008, we have been focused on research and development and have not recognized any revenue. Additionally, we have incurred losses since inception, largely reflecting research and development and general and administrative expenses, and experienced net losses of $21.1million, $25.5 million and $18.3 million in the years ended December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, we had an accumulated deficit of approximately $89.3 million. Even if we successfully acquire another company or technology, it is likely we will continue to be focused on research and development and will not recognize revenue for a significant period of time. As a result, we anticipate that we will continue to incur significant additional losses and we may never be profitable or achieve revenue.
Our limited history makes it difficult to evaluate our business and prospects.
We have a limited operating history. In particular, we have no prior experience in integrating acquisitions and we could experience difficulties incorporating an acquired company’s personnel, operations or technology into our own or in retaining and motivating key personnel from any such business. Consequently, any predictions about our future performance may not be accurate.
We may need substantial additional capital in the future, which could cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights, and if additional capital is not available, we may have to delay, reduce or cease operations.
To date, we have funded our operations primarily through private and public offerings of our securities and have not recognized any revenue. In the event that we need to obtain additional funding, for example, in connection with the acquisition of another company, or the development of a product or technology that we may acquire, we may not be able to raise this additional capital on reasonable terms or at all. Any additional funding may come from equity offerings, debt financings, collaborations, licensing arrangements or any other means. Further, securing additional financing may divert our management from our day-to-day activities, which may adversely affect our ability to develop and commercialize any future products or technologies.
If we are unable to raise additional capital when required or on acceptable terms, we may be required to:
• delay, scale back or discontinue the development or commercialization of a product or technology;
• seek corporate partners for a product on terms that are less favorable than might otherwise be available; or
• relinquish or license on unfavorable terms our rights to a product or technology, which we otherwise would seek to develop or commercialize ourselves.
Any such consequence may have a material adverse effect on our business, operating results and prospects and on our ability to develop our products or technologies.
If we raise additional capital through the sale of equity or convertible debt securities, your ownership interest in us will be diluted, and the terms of the new equity securities may include liquidation or other preferences that adversely affect your rights as a shareholder. The incurrence of indebtedness or the issuance of certain equity securities could result in increased fixed payment obligations and could also impose restrictive covenants, such as limitations on our ability to incur additional debt or to issue additional equity, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct any business. In addition, the issuance of additional equity securities by us, or the possibility of such issuance, may cause the market price of our ordinary shares to decline. In the event that we enter into collaborations or licensing arrangements in order to raise capital, we may be required to accept unfavorable terms, including relinquishing or licensing to a third party on unfavorable terms our rights to product candidates or intellectual property that we otherwise would seek to develop or commercialize ourselves or reserve for future potential arrangements when we might be able to achieve more favorable terms.
Development and commercialization of any potential product requires our successful completion of the regulatory approval process as well as ongoing regulatory compliance, and may suffer delays or fail.
In the United States, the European Union and other markets, we will be required to apply for and receive marketing authorization before we can commercialize a potential product. This process can be time-consuming and complicated and may result in unanticipated delays. To secure marketing authorization, an applicant generally is required to submit an application that includes the data supporting preclinical and clinical safety and efficacy as well as detailed information on the manufacturing and control of the product, proposed labeling and additional information.
Before marketing authorization is granted, regulatory authorities generally require the inspection of the facilities and quality systems (including those of third parties) at which the product candidate is manufactured and tested to assess compliance with strictly enforced cGMP, as well as potential audits of the non-clinical and clinical trial sites that generated the data cited in the marketing authorization application. In addition, if a product is approved, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and record-keeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submission of safety and other post-marketing information and reports, registration and continued compliance with cGMP for any clinical trials that we conduct post-approval.
We cannot predict how long the applicable regulatory authority or agency in any given jurisdiction will take to grant marketing authorization or whether any such authorizations will ultimately be granted. Regulatory agencies, including the FDA and the EMA, have substantial discretion in the approval process, and the approval process and the requirements governing clinical trials vary from country to country. The policies of the FDA, EMA or other regulatory authorities may change or may not be explicit, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of any potential product. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States, Europe or elsewhere. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.
Any delays or failures in obtaining or maintaining regulatory and marketing approval for a potential product would adversely affect our business, prospects, financial condition and results of operations.
We have no experience in marketing or distributing products and no internal capability to do so, and are therefore subject to certain risks in relation to the commercialization of any potential product.
We have not yet established a commercial organization for the marketing, sales and distribution of any potential product. Therefore, even if we receive approval to market a potential product in the United States or other markets, in order to successfully commercialize such a product, we will need to build our marketing, sales, distribution, managerial and other non-technical capabilities. This involves many challenges, such as recruiting and retaining talented personnel; training employees; setting the appropriate system of incentives; managing additional headcount; and integrating new business units into an existing corporate infrastructure. The development of our own sales infrastructure will involve substantial expense, much of which we will incur well in advance of any marketing or sales. Moreover, we do not have experience as a company in establishing a significant sales infrastructure, and we cannot be certain that we will successfully develop this capability. We will have to compete with other pharmaceutical, biotechnology and wound care companies to recruit, hire, train and retain personnel for medical affairs, marketing and sales. If we fail to establish an effective sales and marketing infrastructure, we will be unable to successfully commercialize any potential product, which in turn would have a material adverse effect on our business, financial condition and results of operations.
The commercial success of any potential product will depend upon its degree of market acceptance.
Even if it successfully obtains marketing approvals, any potential product may not gain market acceptance by physicians and their teams, healthcare payers and others in the medical community. If a potential product does not achieve an adequate level of acceptance, we may not generate sufficient revenue to achieve or sustain profitability. The degree of market acceptance of any potential product, if we receive marketing approval, will depend on a number of factors, some of which are beyond our control, including:
• the strength of our clinical data;
• the willingness of physicians to administer our product and their acceptance of it as part of the medical department routine, which itself may be influenced by various factors including ease of use and the compensation that doctors receive for administering the product relative to other alternative treatments;
• our success in obtaining third-party coverage or reimbursement for the potential product;
• our ability to offer any potential product for sale at a competitive price;
• the efficacy and potential advantages of any potential product relative to competing products;
• the prevalence and severity of side effects, if any;
• our reputation and the reputation of any potential product;
• the efficacy, potential advantages and timing of introduction to the market of alternative treatments;
• the shelf life of any potential product and our ability to manage the logistics of the end user supply chain; and
• our ability to reliably source sufficient raw materials and produce sufficient amounts of final product.
Failure to achieve market acceptance for any potential product, if it is approved for commercial sale, would have a material adverse effect on our business, financial condition and results of operations.
Future changes in government regulation or in the administration of government healthcare programs could adversely affect our commercialization of products.
The United States and several other jurisdictions are considering, and have already enacted, a number of legislative and regulatory proposals to change the healthcare system in ways that may affect our future clinical trials and commercial sales, if and when any potential product receives marketing approval. The continuing efforts of governments, insurance companies, managed care organizations and other payers of healthcare services to contain or reduce costs of healthcare may adversely affect:
• the market acceptance or demand for any potential product;
• the ability to set a price that we believe is fair for the product;
• our ability to generate revenue and achieve or maintain profitability;
• the level of taxes that we are required to pay; and
• the availability of capital.
We may not be successful in salvaging any remaining value from our proprietary cell activation technology.
We may seek to sell, license or otherwise derive value from our proprietary cell activation technology (such as from the patents related to it), which may have remaining value for the development and commercialization of regenerative medicine products or otherwise. However, we may not be able to identify a purchaser, licensee or other partner for any such transaction. Any such potential counter-party for such a transaction may question whether it can develop product candidates from the technology that are safe and effective. Even if a potential purchaser or licensee believes in the value of the technology and its safety and efficacy, it may determine that potential product candidates may not be suitable for clinical development, due to characteristics that indicate that they are unlikely to receive marketing approval and achieve market acceptance. Research and development to identify new product candidates based on our existing patents requires substantial technical, financial and human resources, and a potential purchaser or licensee may fear expending its resources on product candidates that ultimately prove to be unsuccessful (as was the case with CureXcell). If we do not find a buyer or licensee for the patents or other aspects of our cell activation technology, we will likely be unable to salvage any of its original value.
Exchange rate fluctuations between the U.S. dollar and the Israeli shekel, as well as other non-U.S. currencies, may negatively affect our results of operations.
The dollar is our functional and reporting currency. However, a portion of our operating expenses is incurred in shekels. As a result, we are exposed to the risks that the shekel may appreciate relative to the dollar, or, if the shekel instead devalues relative to the dollar, that the inflation rate in Israel may exceed the rate of devaluation of the shekel, or that the timing of that devaluation may lag behind inflation in Israel. In any such event, the dollar cost of our operations in Israel would increase and our dollar-denominated results of operations would be adversely affected. We cannot predict any future trends in the rate of inflation in Israel or the rate of appreciation (if any) of the shekel against the dollar. For example, the rate of devaluation of the dollar against the shekel was 7.5% and 2.3% in 2013 and 2012, respectively, which was compounded by inflation in Israel at a rate of 1.8% and 1.6%, respectively. This had the effect of increasing the dollar cost of our operations in Israel by 9.3% and 3.9% respectively, in such years. This trend was reversed in 2014 and 2015, during which the dollar appreciated relative to the shekel by 10.7% and 0.3%, respectively, and the rate of deflation in Israel was (0.2%) and (1.0%), respectively. If the trend of 2013 and 2012 returns, however, and the dollar cost of our operations in Israel increases, our dollar-measured results of operations will be adversely affected. Our operations also could be adversely affected if we are unable to effectively hedge against currency fluctuations in the future.
In addition, we may seek to commercialize any potential product in Europe and other geographical markets, such as Japan. Accordingly, we may in the future generate revenue in currencies other than the dollar and the shekel, such as the Euro or the Yen. In that case, our operating results and cash flows may also subject to fluctuations due to changes in the relative values of the dollar and these foreign currencies. These fluctuations could negatively affect our operating results and could cause them to vary from quarter to quarter.
Risks Related to Our Intellectual Property
We may be subject to claims that we infringe, misappropriate or otherwise violate the intellectual property rights of third parties.
There have been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical and biotechnology industries. We may infringe or be accused of infringing one or more claims of an issued patent or may fall within the scope of one or more claims in a published patent application that may be subsequently issued and to which we do not hold a license or other rights. There may also be issued patents held by third parties that may be infringed or otherwise violated by our products, technologies and other activities, and we do not know whether or to what extent we are infringing or otherwise violating third party patents. We may also be subject to claims that we are infringing, misappropriating or otherwise violating other intellectual property rights, such as trademarks, copyrights or trade secrets. Third parties could therefore bring claims against us or our potential strategic partners that would cause us to incur substantial expenses, including litigation costs or costs associated with settlement, and, if successful against us, could cause us to pay substantial damages. Further, if such a claim were brought against us, we could be temporarily or permanently enjoined or otherwise forced to temporarily delay or permanently stop manufacturing or trials and sales of any potential product.
If we are found to be infringing, misappropriating or otherwise violating the patent or other intellectual property rights of a third party, or in order to avoid or settle claims, we may choose or be required to seek a license from a third party and be required to pay license fees or royalties or both, which could be substantial. These licenses may not be available on acceptable terms, or at all. Even if we were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property, or such rights might be restrictive and limit our present and future activities. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened claims, we or our potential strategic partners are unable to enter into licenses on acceptable terms.
In March 2015, Cognate Bioservices, Inc., or Cognate, and other plaintiffs had added our company as a defendant in a case in the U.S. District Court of Maryland that they had brought against our former employee for, among other things, misappropriation of trade secrets. Cognate’s amended complaint had alleged, among other claims, that we had violated the Computer Fraud and Abuse Act and had misappropriated products and trade secrets of Cognate. Cognate had also initiated a related proceeding against us in the Israeli Magistrate Court of Rishon Lezion, in which the U.S. District Court had requested that certain evidence be collected from us. On March 10, 2016, the U.S. District Court dismissed the action against us, and on April 12, 2016, the Israeli Magistrate Court terminated the Israeli proceedings and ruled that we do not need to turn over any evidence to Cognate. Cognate has, however, appealed the U.S. District Court’s decision, and, if successful in that appeal, could also seek to reopen the proceedings against us in Israel.
To the extent that we gain greater visibility and market exposure as a public company in the United States, we face a greater risk of being involved in further litigation concerning infringement and misappropriation. In addition, we may become a party to other patent litigation and other proceedings, including interference, opposition, re-examination and similar proceedings before the USPTO and its foreign counterparts, regarding intellectual property rights. Additionally, recent legislative changes to U.S. patent laws under the Leahy-Smith America Invents Act (signed into law on September 16, 2011) include new procedures for third parties to challenge issued patents in the USPTO, and lower evidentiary standards or other advantages to the challenger may apply in certain USPTO proceedings compared to litigation in courts. Third parties could attempt to use these or other procedures to invalidate our patents or prevent us from enforcing them. Furthermore, the cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. A negative outcome could result in liability for monetary damages, including treble damages and attorneys’ fees if, for example, we are found to have willfully infringed a patent. A finding of infringement could prevent us from developing, marketing or selling a product or force us to cease some or all of our business operations. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace, and patent litigation and other proceedings may also absorb significant management time.
Under applicable employment laws, we may not be able to enforce covenants not to compete.
We generally enter into non-competition agreements with our employees. These agreements prohibit our employees, if they cease working for us, from competing directly with us or working for our competitors or clients for a limited period. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from the expertise our former employees or consultants developed while working for us. For example, Israeli labor courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer, which have been recognized by the courts, such as the protection of a company’s trade secrets or other intellectual property.
Risks Related to an Investment in Our Ordinary Shares
The trading market for our ordinary shares is not always active, liquid and orderly, which may inhibit the ability of our shareholders to sell ordinary shares.
Prior to our IPO in August 2014, there was no public market for our ordinary shares. Since that time, the trading market for our ordinary shares has not always been active, liquid or orderly. The lack of an active market at times may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire other companies by using our shares as consideration.
The market price of our ordinary shares may be subject to fluctuation and you could lose all or part of your investment.
The market price of our ordinary shares has been subject to considerable fluctuation since our IPO in August 2014, with the closing price per share having recently traded at less than $1.00 per share. The stock market in general has been, and the market price of our ordinary shares in particular will likely continue to be, subject to fluctuation, whether due to, or irrespective of, our operating results and financial condition. The market price of our ordinary shares on the NASDAQ Global Market may fluctuate as a result of a number of factors, some of which are beyond our control, including, but not limited to:
• consummation, or failure by us to consummate, a transaction involving another product, technology or company;
• the success or failure of any business or technology with which we may become involved;
• the trading volume of our ordinary shares; and
• general economic and market conditions and other factors, including factors unrelated to our operating performance.
These factors and any corresponding price fluctuations may materially adversely affect the market price of our ordinary shares and result in substantial losses being incurred by our investors. In the past, following periods of market volatility, public company shareholders have often instituted securities class action litigation. If we were involved in securities litigation, it could impose a substantial cost upon us and divert the resources and attention of our management from our business.
We are subject to the continued listing criteria of NASDAQ, and our failure to satisfy these criteria (in particular, the minimum bid price requirement) may result in the delisting of our ordinary shares.
For a period of time since the start of 2016 (which followed, by a few months, our announcements of the failure of our clinical trials for CureXcell), the closing price of our ordinary shares on the NASDAQ Global Market has fallen below $1.00 per share. Under NASDAQ Listing Rule 5550(a)(2), we are required to maintain a minimum bid price of $1.00 per share in order to maintain compliance with the continued listing qualifications criteria. Because our ordinary share price closed below $1.00 for 30 consecutive business days, on April 7, 2016, NASDAQ notified us that we were in violation of its continued listing qualifications criteria. We have been afforded 180 calendar days (until October 4, 2016) to regain compliance with the minimum bid price requirement. In order to regain compliance, our ordinary shares need to achieve a minimum bid closing price of at least $1.00 per share for a minimum of ten consecutive business days. We intend to monitor the bid price for our ordinary shares, and we will consider all available options to resolve the deficiency and regain compliance with the NASDAQ minimum bid price requirement. If we are unable to resolve the deficiency, our ordinary shares could be delisted from NASDAQ, in which case investors may face material adverse consequences, including, but not limited to, the lack of a trading market for our ordinary shares, reduced liquidity and decreased analyst coverage of our shares. We, in turn, would face much greater difficulty in obtaining additional financing to fund our operations.
If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our ordinary shares, the price of our ordinary shares could decline.
The trading market for our ordinary shares relies in part on the research and reports that equity research analysts publish about us and our business. We do not have control over these analysts and we do not have commitments from them to continue to write research reports about us. The price of our ordinary shares could decline if one or more equity research analysts downgrades our ordinary shares or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.
Future sales of our ordinary shares could reduce the market price of our ordinary shares.
If our existing shareholders, particularly our directors, their affiliates, or our executive officers, sell a substantial number of our ordinary shares in the public market, the market price of our ordinary shares could decrease significantly. The perception in the public market that our shareholders might sell our ordinary shares could also depress the market price of our ordinary shares and could impair our ability to obtain capital, especially through an offering of equity securities. Our significant shareholders now all have the ability to sell our ordinary shares into the market (subject to any applicable limitations under Rule 144 under the Securities Act). We have furthermore filed a registration statement on Form S-8 with the SEC covering all of the ordinary shares issuable under our stock option and share incentive plans, and such shares are available for resale currently. In addition, our sale of additional ordinary shares or similar securities in order to raise capital might have a similar negative impact on the share price of our ordinary shares. A decline in the price of our ordinary shares might impede our ability to raise capital through the issuance of additional ordinary shares or other equity securities, and may cause you to lose part or all of your investment in our ordinary shares.
Certain of our pre-IPO shareholders, including some of our directors, continue to own a majority of our ordinary shares and, as a result, are able to exercise significant control over us, and your interests may conflict with their interests, and your ability to influence corporate matters may be limited.
As of February 29, 2016, our most significant shareholders, who have held our ordinary shares since prior to our IPO (which include certain of our executive officers and directors, and/or their affiliates) continued to own nearly 65% of our ordinary shares. Accordingly, if they vote the shares that they own together, they may be able to significantly influence the outcome of matters required to be submitted to our shareholders for approval, including decisions relating to the election of our board of directors and the outcome of any proposed merger or consolidation of our company. These individuals’ interests may not be consistent with those of our other shareholders. In addition, these parties’ significant interest in us may discourage third parties from seeking to acquire control of us, which may adversely affect the market price of our ordinary shares.
We have broad discretion as to the use of the net proceeds from our IPO and may not use them effectively.
Our management has broad discretion in the application of the net proceeds from our IPO. Our shareholders may not agree with the manner in which our management chooses to allocate the net proceeds from our IPO. The failure by our management to apply these funds effectively could have a material adverse effect on our business, financial condition, cash flows and results of operations. Pending their use, we may invest the net proceeds from our IPO in a manner that produces insignificant or no income.
We have been incurring, and will continue to incur, increased costs as a result of operating as a public company, and our management has been, and will continue to be, required to devote substantial time to new compliance initiatives.
As a public company whose ordinary shares are listed in the United States, we incur accounting, legal, regulatory and other expenses that we did not incur as a private company, including costs associated with our reporting requirements under the Exchange Act. We also incur costs associated with corporate governance requirements, including requirements under Section 404 and other provisions of Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, as well as rules implemented by the SEC and the NASDAQ Stock Market. These rules and regulations have increased our legal and financial compliance costs, introduced new costs such as investor relations and stock exchange listing fees, and have made some activities more time-consuming and costly. We are currently evaluating and monitoring developments with respect to these rules, and we cannot predict or estimate the amount of additional costs that we may incur or the timing of such costs.
Changes in the laws and regulations affecting public companies will likely result in increased costs to us as we respond to their requirements. These laws and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. We cannot predict or estimate the amount or timing of additional costs we may incur in order to comply with such requirements.
We have never paid cash dividends on our share capital, and we do not anticipate paying any cash dividends in the foreseeable future.
We have never declared or paid cash dividends on our share capital, nor do we anticipate paying any cash dividends on our share capital in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of our ordinary shares will be investors’ sole source of gain for the foreseeable future. In addition, Israeli law limits our ability to declare and pay dividends, and may subject our dividends to Israeli withholding taxes.
As a foreign private issuer, we follow certain home country corporate governance practices instead of otherwise applicable SEC and NASDAQ requirements.
As a foreign private issuer, we follow certain home country corporate governance practices instead of those otherwise required under the NASDAQ Stock Market rules for domestic U.S. issuers. For instance, we follow home country practice in Israel with regard to the (i) quorum requirement for shareholder meetings, (ii) the required composition of, and authorities delegated to, the compensation committee of our board of directors and (iii) independent director oversight of director nominations requirement. See “Item 6.C. Directors, Senior Management and Employees—Board Practices.” We may in the future elect to follow home country practices in Israel (and consequently avoid the requirements that would otherwise apply to a U.S. company listed on the NASDAQ Global Market) with regard to other matters, as well, such as separate executive sessions of independent directors and non-management directors and the requirement to obtain shareholder approval for certain dilutive events (such as for the establishment or amendment of certain share-based compensation plans, issuances that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company). Following our home country governance practices as opposed to the requirements that otherwise apply to a U.S. company listed on the NASDAQ Global Market may provide less protection to you than what is accorded to investors under the NASDAQ Stock Market rules applicable to domestic U.S. issuers.
As a foreign private issuer, we are not subject to U.S. proxy rules and are exempt from filing certain Exchange Act reports.
As a foreign private issuer, we are exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements, including the requirement for an emerging growth company to disclose the compensation of the chief executive officer and other two highest compensated executive officers on an individual, rather than aggregate, basis. The regulations under the Companies Law require us to disclose the annual compensation of our five most highly compensated officers on an individual, rather than aggregate, basis. However, this disclosure is not as extensive as that required of a U.S. domestic issuer. Besides our executive compensation disclosure leniencies, our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file annual and current reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies whose securities are registered under the Exchange Act, and we are generally be exempt from filing quarterly reports with the SEC under the Exchange Act. Moreover, we are not required to comply with Regulation FD, which restricts the selective disclosure of material information. These exemptions and leniencies reduce the frequency and scope of information and protections to which you may otherwise have been eligible in relation to a U.S. domestic issuer.
We will lose our foreign private issuer status if a majority of our directors or executive officers are U.S. citizens or residents and we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. We will also lose our foreign private issuer status if, as a result of a transaction (such as a merger or acquisition) into which we enter, we cease to be a foreign (non-U.S.) company. Although we have elected to comply with certain U.S. regulatory provisions, our loss of foreign private issuer status would make such provisions mandatory. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. We may also be required to modify certain of our policies to comply with accepted governance practices associated with U.S. domestic issuers. Such conversion and modifications will involve additional costs. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers.
If we fail to develop a substitute business, we could eventually be deemed a “shell company” under the rules of the SEC, which would have adverse consequences for your investment in our ordinary shares.
Following the failure of our clinical trials with CureXcell, we have set the goal of locating a new technology or new business that we may acquire, with which we may combine or in which we may invest, which will enable us to transition our operations. We may be unable to identify suitable acquisition, combination or investment candidates, or, if we do identify suitable candidates, we may still be unable to consummate a transaction with any of them. If we do not complete any such transaction, and we are unable to utilize our existing assets to develop a substitute opportunity, our operations could become dormant and we may be deemed a “shell company” under the SEC’s rules. If our company were to be deemed a “shell company,” that would subject us to certain restrictions under the SEC’s rules and regulations that could adversely impact your investment in our ordinary shares and your ability to sell ordinary shares. For example, you would be unable to rely upon Rule 144 under the Securities Act if you wished to sell ordinary shares deemed “restricted securities” under the Securities Act.
We are an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may make our ordinary shares less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various requirements that are applicable to other public companies that are not “emerging growth companies.” Most of such requirements relate to disclosures that we would only be required to make if we cease to be a foreign private issuer in the future. Nevertheless, as a foreign private issuer that is an emerging growth company, we are not required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act for up to five fiscal years after the date of our IPO. We will remain an emerging growth company until the earliest of: (a) the last day of our fiscal year during which the fifth anniversary of the completion of our IPO occurs; (b) the last day of our fiscal year in which we have annual gross revenue of $1.0 billion or more; (c) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (d) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act. When we are no longer deemed to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act. Some investors may find our ordinary shares less attractive as a result of our reliance on -exemptions under the JOBS Act, which may cause there to be a less active trading market for our ordinary shares and a more volatile price for our shares.
We cannot assure you that our internal control over financial reporting systems will continue to be compliant with Section 404 of the Sarbanes-Oxley Act.
Pursuant to Section 404 of the Sarbanes-Oxley Act and the related rules adopted by the SEC and the Public Company Accounting Oversight Board, starting with this annual report, our management will be required to report on the effectiveness of our internal control over financial reporting. In addition, once we no longer qualify as an “emerging growth company” under the JOBS Act and lose the ability to rely on the exemptions applicable to emerging growth companies discussed above, our independent registered public accounting firm will also need to attest to management’s assessment of the effectiveness of our internal control over financial reporting under Section 404 if we are an “accelerated filer” or “large accelerated filer” under the Exchange Act. We believe that our existing internal controls over financial reporting systems are compliant with Section 404 and there are no material weaknesses or significant deficiencies in our existing internal controls. However, this determination has required, and will continue to require in future periods, the investment of substantial time and resources, including by our chief financial officer and other members of our senior management. As a result, the process related to this determination may divert internal resources and take a significant amount of time and effort to complete. In addition, we cannot predict the outcome of this determination in the future and whether we will need to implement remedial actions in order to implement effective controls over financial reporting. The determination and any remedial actions required could result in us incurring additional costs that we did not anticipate, including the hiring of outside consultants. Irrespective of compliance with Section 404, any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation. As a result, we may experience higher than anticipated operating expenses, as well as higher independent auditor fees during and after the implementation of these changes. If we are unable to implement any of the required changes to our internal control over financial reporting effectively or efficiently or are required to do so earlier than anticipated, it could adversely affect our operations, financial reporting or results of operations and could result in an adverse opinion on internal controls from our independent auditors.
Our U.S. shareholders may suffer adverse tax consequences if we are characterized as a passive foreign investment company.
Generally, if for any taxable year 75% or more of our gross income is passive income, or at least 50% of the average quarterly value of our assets (which may be determined in part by the market value of our ordinary shares, which is subject to change) are held for the production of, or produce, passive income, we would be characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. Our status as a PFIC may also depend on how quickly we use the cash proceeds from our IPO in our business. Based on estimates of our gross income and gross assets (including tangible assets and intangible assets based on the anticipated market value of our ordinary shares), our use of proceeds of our IPO, and the nature of our business, we do not believe that we were classified as a PFIC for the taxable year ending December 31, 2015. Based on our gross assets as of the end of the fourth quarter of 2015, however, we believe that we may be characterized as a PFIC for the 2016 taxable year. However, PFIC status is based on our income, assets, and activities for the entire taxable year, including the value of our intangible assets based on the market value of our ordinary shares, and it is therefore not possible to finally determine whether we will be characterized as a PFIC for the 2016 taxable year until after the close of such year. If we are characterized as a PFIC, our U.S. shareholders may suffer adverse tax consequences, including having gains realized on the sale of our ordinary shares treated as ordinary income, rather than as capital gain, the loss of the preferential rate applicable to dividends received on our ordinary shares by individuals who are U.S. Holders (as defined in “Item 10.E. Taxation—U.S. Federal Income Tax Consequences” of this annual report), and having interest charges apply to distributions by us and the proceeds of share sales. Certain elections exist that may alleviate some of the adverse consequences of PFIC status and would result in an alternative treatment (such as mark-to-market treatment) of our ordinary shares; however, we do not intend to provide the information necessary for U.S. Holders to make qualified electing fund elections if we are classified as a PFIC.
Risks Primarily Related to Our Operations in Israel
Our operations are centered in Israel and, therefore, our results may be adversely affected by political, economic and military instability in Israel.
Our finance offices are located in Petach Tikva, Israel. In addition, certain of our key employees and officers, as well as the majority of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel may directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries.
In recent years, these have included hostilities between Israel and Hezbollah in Lebanon and Hamas in the Gaza strip, both of which resulted in rockets being fired into Israel causing casualties and disruption of economic activities. Most recently, in July 2014, an armed conflict took place between Israel and Hamas. In addition, Israel faces threats from more distant neighbors, in particular, Iran.
Our commercial insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East. Although the Israeli government is currently committed to covering the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained, or if maintained, will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflict involving Israel could adversely affect our operations and results of operations.
Further, our operations could be disrupted by the obligations of personnel to perform military service. As of March 31, 2016, we had four employees based in Israel, certain of whom may be called upon to perform up to 54 days in each three year period (and in the case of non-officer commanders or officers, up to 70 or 84 days, respectively, in each three year period) of military reserve duty until they reach the age of 40 (and in some cases, depending on their specific military profession up to 45 or even 49 years of age) and, in certain emergency circumstances, may be called to immediate and unlimited active duty. Our operations could be disrupted by the absence of a significant number of employees related to military service, which could materially adversely affect our business and results of operations.
Several countries, principally in the Middle East, restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies whether as a result of hostilities in the region or otherwise. In addition, there have been increased efforts by activists to cause companies and consumers to boycott Israeli goods based on Israeli government policies. Such actions, particularly if they become more widespread, may adversely impact our ability to sell our products.
We received an Israeli government grant for certain research and development activities. The terms of the grant require us to satisfy specified conditions and to pay penalties in addition to repayment of the grant upon certain events.
Our research and development efforts were financed in part through a grant from the Israeli Office of the Chief Scientist, or OCS. The total gross amount of the grant actually received by us from the OCS, including accrued LIBOR interest as of December 31, 2015, totaled approximately $0.8 million. As of December 31, 2015, we had not paid any royalties to the OCS.
Even following full repayment of any OCS grants, we must nevertheless continue to comply with the requirements of the Israeli Law for the Encouragement of Industrial Research and Development, 5744-1984, and related regulations, or collectively, the R&D Law. When a company develops know-how, technology or products using OCS grants, the terms of these grants and the R&D Law restrict the transfer outside of Israel of such know-how, and the manufacturing or manufacturing rights of such products, technologies or know-how, without the prior approval of the OCS. Therefore, if aspects of our technologies are deemed to have been developed with OCS funding, the discretionary approval of an OCS committee would be required for any transfer to third parties outside of Israel of know-how or manufacturing or manufacturing rights related to those aspects of such technologies. We may not receive those approvals. Furthermore, the OCS may impose certain conditions on any arrangement under which it permits us to transfer technology or development out of Israel.
The transfer of OCS-supported technology or know-how or manufacturing or manufacturing rights related to aspects of such technologies outside of Israel may involve the payment of significant penalties and other amounts, depending upon the value of the transferred technology or know-how, the amount of OCS support, the time of completion of the OCS-supported research project and other factors. These restrictions and requirements for payment may impair our ability to sell our technology assets outside of Israel or to outsource or transfer development or manufacturing activities with respect to any product or technology outside of Israel. Furthermore, the consideration available to our shareholders in a transaction involving the transfer outside of Israel of technology or know-how developed with OCS funding (such as a merger or similar transaction) may be reduced by any amounts that we are required to pay to the OCS.
Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, us, even when the terms of such a transaction are favorable to us and our shareholders.
Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to such types of transactions. For example, a tender offer for all of a company’s issued and outstanding shares can only be completed if the acquirer receives positive responses from the holders of at least 95% of the issued share capital. Completion of the tender offer also requires approval of a majority of the offerees that do not have a personal interest in the tender offer, unless, following consummation of the tender offer, the acquirer would hold at least 98% of the company’s outstanding shares. Furthermore, the shareholders, including those who indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition an Israeli court to alter the consideration for the acquisition, unless the acquirer stipulated in its tender offer that a shareholder that accepts the offer may not seek such appraisal rights.
Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of a number of conditions, including, in some cases, a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are subject to certain restrictions. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares has occurred.
It may be difficult to enforce a judgment of a U.S. court against us or our officers and directors in Israel or the United States, to assert U.S. securities laws claims in Israel or to serve process on our officers and directors.
We are incorporated in Israel. Some of our executive officers and almost all of our directors reside outside of the United States, and most of our assets and most of the assets of these persons are located outside of the United States. Therefore, a judgment obtained against us, or any of these persons, including a judgment based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not be enforced by an Israeli court. It also may be difficult for you to effect service of process on these persons in the United States or to assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoning that Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proven as a fact by expert witnesses, which can be a time consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters described above. As a result of the difficulty associated with enforcing a judgment against us in Israel, you may not be able to collect any damages awarded by either a U.S. or foreign court.
Your rights and responsibilities as a shareholder will be governed by Israeli law, which differs in some material respects from the rights and responsibilities of shareholders of U.S. companies.
The rights and responsibilities of the holders of our ordinary shares are governed by our amended articles of association and by Israeli law. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders in U.S.-based companies. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders, and to refrain from abusing its power in the company, including, among other things, in voting at a general meeting of shareholders on matters such as amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and acquisitions and related party transactions requiring shareholder approval. In addition, a shareholder who is aware that it possesses the power to determine the outcome of a vote at a meeting of the shareholders or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company with regard to such vote or appointment. There is limited case law available to assist us in understanding the nature of this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our ordinary shares that are not typically imposed on shareholders of U.S. companies.
Item 4
. INFORMATION ON THE COMPANY
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A.
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History and Development of the Company
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Our History
Our legal and commercial name is Macrocure Ltd. We were formed as a company in Israel on January 14, 2008. We are a biotechnology company focused on developing, manufacturing and commercializing novel cell therapy products to address unmet needs.
In August 2014, we completed our IPO, pursuant to which we sold 5.35 million ordinary shares for aggregate gross proceeds (before underwriting discounts, commissions and expenses) of $53.5 million. Upon the consummation of our IPO, our ordinary shares began trading on the NASDAQ Global Market, under the symbol “MCUR”.
We are subject to the provisions of the Israeli Companies Law, 5759-1999. Our corporate headquarters are located at
25 Hasivim Street, Petach Tikva 4959383, Israel. Our telephone number is +972-3-923-5556 and our web site is located at www.macrocure.com (the information contained therein or linked thereto shall not be considered incorporated by reference in this annual report). Our U.S. agent is Puglisi & Associates, located at 850 Library Avenue, Suite 204, Newark, Delaware 19711.
Principal Capital Expenditures
Our capital expenditures for fiscal years 2015, 2014 and 2013 amounted to $12,000, $0.2 million and $0.1 million, respectively. Capital expenditures consist primarily of leasehold improvements. At the current time, we do not anticipate having any capital expenditures in fiscal year 2016.
We are a clinical stage biotechnology company. Until recently, we had focused exclusively on developing novel cell therapy products to address unmet needs in the realm of chronic and hard-to-heal wounds, such as diabetic foot ulcers, or DFUs, and venous leg ulcers, or VLUs. Our approach was to treat and close chronic and other hard-to-heal wounds by injecting the human body's own wound healing and regenerative components directly into the wound itself.
On August 19, 2015, we announced that a pre-specified, futility analysis conducted by the Data Safety Monitoring Board for CureXcell— our lead product candidate— in our Phase 3 pivotal clinical study (MC-105) for VLUs determined that the study did not meet its primary endpoint. On October 27, 2015, we furthermore announced that our pivotal Phase 3 multicenter, randomized, double-blind, parallel-group, sham-controlled study (MC-102) of CureXcell in the treatment of DFUs did not meet its primary endpoint. In the study, CureXcell did not show a statistically significant proportion of subjects with complete closure at 16 weeks and sustained complete closure for four additional weeks. In addition, CureXcell did not meet the secondary endpoints of the study.
As a result of these disappointing clinical announcements, we are unable to submit our Biologics License Application, or BLA, with respect to CureXcell to the FDA in late 2016, as we had planned. We are also unable to pursue marketing authorization for CureXcell in Europe with the EMA. We hold product approval for CureXcell as a medical device in Israel for the treatment of chronic and other hard-to-heal wounds, and have effectively and safely treated more than 5,000 patients in commercial or clinical study settings in Israel. Nevertheless, given the disappointing results of our Phase 3 trials, we do not anticipate proceeding with further clinical or regulatory steps towards the eventual commercialization of CureXcell. Due to these results, we halted our development and manufacturing initiatives for CureXcell, both by terminating our newly-commenced operations in Philadelphia, Pennsylvania in the United States, and by ceasing research and development, and clinical activities, for CureXcell, at our Petach Tikva, Israel location.
After our disappointing results for CureXcell, we commenced a review of all strategic alternatives for our company, while continuing to focus on managing and conserving our existing cash through cost reduction and restructuring initiatives. We concluded that it is in the best interests of our company to focus at the present time on seeking to identify a potential business opportunity, possibly involving an acquisition of, or combination with, or investment in, another company or technology, as a means to utilize our cash reserves in a manner that, if the potential business opportunity is successful, may enable us to generate revenues in the future. Our cash and cash equivalents and short term investments amounted to $27.6 million and $26.6 million as of December 31, 2015 and March 1, 2016, respectively. We may be unable to identify suitable acquisition, combination or investment candidates, or, if we do identify suitable candidates, we may be unable to make, or finance, an acquisition or investment on reasonable terms or at all. See Item 3.D “Risk Factors—Risks Relating to our Business and Industry” above for further information.
CureXcell and its Clinical History
As pursued by our company until late 2015, CureXcell was a unique combination of living human white blood cells that have been activated to facilitate the healing process and stimulate wound closure. CureXcell addressed each phase of healing in the impaired wound, including the production of growth factors and other biochemical factors involved in fibroblast activation, cell migration and extracellular matrix production, stimulating the body’s natural healing process. Our delivery method of direct superficial injection into the chronic wound allows for precise delivery of the cells into the defective wound tissue where they can be most effective. This was in contrast to other AWC products that are applied to the surface of the chronic wound and thus do not come into direct contact with the impaired wound cells below the surface layer. We believed that the clinically differentiated profile of CureXcell would be attractive to patients and healthcare providers to treat hard-to-heal DFUs and VLUs without the drawbacks of currently available AWC products.
In order to produce CureXcell, we sourced white blood cells from fully-screened, healthy volunteer blood donors through established relationships with blood banks. We then activated the white blood cells through our proprietary hypo-osmotic shock cell activation technology, a process in which we changed the concentration and pH of the suspension surrounding the cells. Once activated, these cells underwent an increase in gene expression that resulted in an increase in the cells’ secretion of numerous growth factors and other biochemical factors. The activated suspension was then placed into sterile packaging, akin to a blood bag. At the wound care clinic or other treatment site, a physician drew CureXcell from its package using a standard syringe for superficial injection into a patient’s wound. The biochemical factors found in CureXcell stimulated the normal wound healing process to begin and recruit other necessary cells already found in the wound bed, to facilitate the healing process. Based on our experience in Israel and clinical trials, a typical course of CureXcell treatment involved injection applications administered once per month for three months to achieve complete wound closure.
Prior to our disappointing Phase 3 trials with it, CureXcell was approved as a medical device in Israel and was included in the Israeli health basket of reimbursable medications since 2011. In a 131-patient post-marketing trial we conducted in Israel and completed in 2011, CureXcell achieved complete wound closure in approximately 71% of hard-to-heal wounds. Patient inclusion criteria in this study were very broad, and permitted patients with large ulcers, poor circulation and co-morbidities, such as infection and amputation, to be included, while similar patients were excluded from many of the trials of other AWC products.
We had believed that CureXcell bore the advantages of being a once per month injection application that required limited product preparation. That was in contrast to other AWC therapies that require daily or weekly applications and often significant product preparation. Accordingly, CureXcell would have been easier for physicians to deliver and would have supported patient compliance. In addition, the CureXcell dosage size could be customized to different wound sizes, which avoided the significant product waste that can be associated with other AWC products, especially skin substitutes. We had believed that those features would position CureXcell to become a frontline AWC treatment for hard-to-heal DFUs and VLUs while also enjoying favorable reimbursement policies from payers. Accordingly, we had believed the product would bring advantages to all primary stakeholders in the wound care space, namely patients, physicians and payers.
Since its initial development, CureXcell was tested in a total of 11 clinical studies designed to investigate its safety and efficacy, enabling use of CureXcell for treatment of various types of chronic wounds throughout the country. Since 2000, more than 5,000 patients suffering from chronic and other hard-to-heal wounds were treated with CureXcell either in commercial or clinical study settings in Israel.
Our company was founded in 2008 with the goal of further developing and commercializing CureXcell and its underlying technology. After in-licensing the intellectual property underlying the development and manufacturing of CureXcell, in 2011, we submitted an investigational new drug application, or IND, to the FDA based on the conducted clinical studies of CureXcell’s safety and efficacy. Additionally, the FDA considered the results from our completed clinical trials and as these studies showed a good safety and efficacy profile for CureXcell when considered together, the FDA allowed us to proceed directly to Phase 3 trials without completing Phase 1 and 2 trials. We did not seek a Special Protocol Assessment from the FDA.
Prior to our disappointing Phase 3 trials, we had expected to submit our BLA to the FDA in late 2016. We had also intended to pursue marketing authorization in Europe with the EMA. In August 2013, we retained a CRO to carry out our clinical trials and implement the trial process planned by our clinical trials team.
Research and Development
A significant portion of our historical research and development efforts have focused on the CureXcell production process. Specifically, we had invested significantly in order to enable production in closed systems of kits containing transfusion bags. Similarly, our research and development strategy was centered on further developing the CureXcell production process so as to extend the shelf life of the product and to enable its packaging in containers other than transfusion bags, to enable us to produce a greater range of dosages so as to further maximize product utilization. We were also researching the mode of action of our cell activation technology in order to leverage the technology for the development of a regenerative medicine product platform for non-wound indications. Our research and development team consisted of six employees as of December 31, 2015.
In the past, we received government grants that were subject to the payment of royalties as part of our research and development programs approved by the OCS. The total gross amount of grants actually received by us from the OCS, including accrued LIBOR interest, totaled approximately $0.8 million as of December 31, 2015. According to the terms of the grants, the OCS is entitled to royalties equal to 3.0% to 4.5% of our sales, up until the amount of the grants is repaid in full. As of December 31, 2015, we had not paid any royalties to the OCS.
We incurred approximately $15.4 million, $15.5 million and $9.3 million in research and development expenses, net in the years ended December 31, 2015, 2014 and 2013, respectively.
Supply and Production
We had pursued clinical trials towards regulatory approval for, and commercialization of, CureXcell both in the United States and Israel. In the United States, the American Red Cross had supplied our raw material and manufactured CureXcell under agreements that we entered in March 2013 and July 2010. These agreements were amended in April 2014 and were to extend through April 25, 2017. After our disappointing results for our clinical trials for CureXcell, we terminated these agreements and were required to pay $0.1 million. In Israel, the source of our raw material was the whole blood inventory of Magen David Adom, or MDA. In addition, the manufacturing of CureXcell was carried out by MDA technicians supervised by our employees at the MDA’s central blood bank facility where we had our own clean room. Pursuant to the MDA Agreement, we were obligated to pay MDA fixed per unit prices (subject to adjustment for the Israeli consumer price index and for significant changes in the costs of production). The MDA Agreement terminated upon the expiration of a certain patent (which we refer to as the Danon patent) in June 2015. As CureXcell is a biologic product with living cells, it must be processed and packaged in kits consisting of sterile plastic transfusion and infusion bags that are designed to maintain the proper environment for CureXcell. We had procured those bags from a supplier located in France, which manufactured the bags on the basis of technological specifications that we provided.
Intellectual Property
Our intellectual property and proprietary technology are important to the development and production of any potential products that we may in the future develop on the basis of our regenerative medicine technology and in developing and maintaining our competitive position. We seek to protect our intellectual property, core technologies and other know-how, through a combination of trade secrets, know how, confidential information, non-disclosure and confidentiality agreements, licenses, assignments of invention and other contractual arrangements with our employees, consultants, partners, suppliers, customers and others, as well as patents and trademarks. Additionally, we may rely on our research and development program, clinical trials and know-how to advance any potential product. We also rely on protection available under trademark laws, and we currently hold a registered trademark for the mark “CureXcell” in the United States and Israel.
We have five patent families on file covering processes and resulting activated white blood cell compositions that we developed, and their use. From one of those families we have been granted five patents. One patent in each of the United States and the European Union has claims covering our process for producing activated white blood cell compositions, and one patent in each of Australia, China and South Africa has claims covering our process of producing activated white blood cell compositions, the compositions themselves, and their use in treating wounds. From another of those families we have been granted one patent in Australia, which has claims covering producing activated white blood cell conditioned supernatant, the supernatants themselves, and their use in treating wounds. We also have three recently allowed applications and 41 additional pending applications in various jurisdictions, the most important of which separately cover the (i) method for activating white blood cells through hypo-osmotic shock and (ii) the composition of CureXcell. We submit applications under the Patent Cooperation Treaty, or PCT, which is an international patent law treaty that provides a unified procedure for filing a single initial patent application to seek patent protection for an invention simultaneously in each of the member states. Although a PCT application is not itself examined and cannot issue as a patent, it allows the applicant to seek protection in any of the member states through national-phase applications.
Because our issued patents cover the process of manufacturing CureXcell, they offer protection against competition that is, to some extent, more limited than the protection provided by patents which claim products or chemical structures which were previously unknown. To the extent our issued patents remain limited to process claims, it may be difficult for us to detect infringing products and enforce our patents against them. Absent patent-term extensions, our key patents are nominally due to expire in 2030.
While our policy is to obtain patents by application, license or otherwise, to maintain trade secrets and to seek to operate without infringing on the intellectual property rights of third parties, technologies related to our business have been rapidly developing in recent years. Additionally, patent applications that we may file or license from third parties may not result in the issuance of patents, the claims that issue may have limited or no coverage of our products and technologies, and our issued patents and any issued patents that we may receive in the future may be challenged, invalidated or circumvented. For example, we cannot predict the extent of claims that may be allowed or enforced in our patents nor be certain of the priority of inventions covered by pending third-party patent applications. If third parties prepare and file patent applications that also claim technology or therapeutics to which we have rights, we may have to partake in proceedings to determine priority of invention, which could result in substantial costs to us, even if the eventual outcome is favorable to us. Moreover, because of the extensive time required for clinical development and regulatory review of a new product we may develop, it is possible that, before any potential product of ours can be commercialized, related patents will have expired or will expire a short period following commercialization, thereby reducing the advantage of such patent. Further, the exclusivity of our ownership of our issued United States patent may be subject to our receipt of additional assignments from certain inventors. These inventors have previously executed assignments to us in connection with certain of the provisional applications related to the issued United States patent. Loss or invalidation of certain of our patents, or a finding of unenforceability or limited scope of certain of our intellectual property, could have a material adverse effect on us. See “Item 3.D. Risk Factors—Risks Related to Our Intellectual Property—Our success depends in part on our ability to obtain and maintain protection for the intellectual property relating to or incorporated into our technology and products.”
In addition to patent protection, we also rely on trade secrets, including unpatented know-how, technology innovation, drawings, technical specifications and other proprietary information in attempting to develop and maintain our competitive position.
Competition
The medical, biotechnology and pharmaceutical industries are intensely competitive and subject to significant technological and practice changes. While we believe that our innovative technology, knowledge, experience and scientific resources may provide us with certain competitive advantages, we may face competition from many different sources. Possible competitors include medical practitioners and pharmaceutical companies, academic and medical institutions, governmental agencies and public and private research institutions, among others. Any product that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future.
Government Regulation
Our business was, with respect to CureXcell, and may be, with respect to future products or technologies, subject to extensive government regulation. Regulation by governmental authorities in the United States (primarily the FDA), the European Union (primarily the EMA) and other jurisdictions is a significant factor in the development, manufacture and marketing of any potential products and in our ongoing research and development activities. The approval process varies from country to country and the time may be longer or shorter than that required for FDA or EMA approval. In addition, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country. In all cases, clinical trials have been, and will be (if applicable), conducted by us in accordance with good clinical practice, or GCP, and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. To the extent that we acquire and/or develop a product that requires regulatory approvals, we will describe such approvals and the related requirements in greater detail in future filings with the SEC.
Pharmaceutical Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we obtain regulatory approval. In the United States and other markets, sales of any products for which we receive regulatory approval for commercial sale will depend in part on the availability of reimbursement from third-party payers. Third-party payers include government health administrative authorities, managed care providers, private health insurers and other organizations. The process for determining whether a payer will provide coverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payer will pay for the drug product. Third-party payers may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA-approved drug products for a particular indication. Third-party payers are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of any potential product, in addition to the costs required to obtain the FDA approvals. Additionally, the potential product may not be considered medically necessary or cost-effective. A payer’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.
In March 2010, the President of the United States signed one of the most significant healthcare reform measures in decades. The healthcare reform law substantially changes the way healthcare will be financed by both governmental and private insurers, and significantly impacts the pharmaceutical industry. The comprehensive $940 billion dollar overhaul is expected to extend coverage to approximately 32 million previously uninsured Americans. The healthcare reform law contains a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement changes and fraud and abuse, which will impact existing government healthcare programs and will result in the development of new programs, including Medicare payment for performance initiatives and improvements to the physician quality reporting system and feedback program.
Additionally, the healthcare reform law, as limited by the U.S. Supreme Court’s decision in June 2012:
• increases the minimum level of Medicaid rebates payable by manufacturers of brand-name drugs from 15.1% to 23.1%;
• requires collection of rebates for drugs paid by Medicaid managed care organizations; and
• imposes a non-deductible annual fee on pharmaceutical manufacturers or importers who sell “branded prescription drugs” to specified federal government programs.
There have been proposed in Congress a number of legislative initiatives regarding healthcare, including possible repeal of the healthcare reform law. At this time, it remains unclear whether there will be any changes made to the healthcare reform law, whether to certain provisions or its entirety.
In the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular drug candidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states may approve a specific price for a drug product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug product on the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure on health care costs in general, particularly prescription drugs, has become intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert competitive pressure that may reduce pricing within a country. Any country that has price controls or reimbursement limitations for drug products may not allow favorable reimbursement and pricing arrangements.
Other U.S. Federal Healthcare Laws and Regulations
Healthcare providers, physicians and third-party payers play a primary role in the recommendation and prescription of drug products and biologics that are granted marketing approval. Arrangements with healthcare providers, third-party payers and other customers are subject to broadly applicable fraud and abuse and other healthcare laws and regulations. Such restrictions under applicable federal and state healthcare laws and regulations, include the following:
• the federal healthcare Anti-Kickback Law prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid;
• the U.S. False Claims Act imposes civil penalties, and provides for civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;
• the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
• HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
• the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services;
• the federal transparency requirements under the Health Care Reform Law require manufacturers of drugs, devices and medical supplies to report to the U.S. Department of Health and Human Services information related to payments and other transfers of value to physicians and teaching hospitals and physician ownership and investment interests; and
• analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payers, including private insurers.
Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Environmental, Health and Safety Matters
We are subject to extensive environmental, health and safety laws and regulations in a number of jurisdictions, primarily Israel, governing, among other things: the use, storage, registration, handling, emission and disposal of chemicals, waste materials and sewage; chemicals, air, water and ground contamination; air emissions and the cleanup of contaminated sites, including any contamination that results from spills due to our failure to properly dispose of chemicals, waste materials and sewage. Our operations have used, with respect to CureXcell, and may use, in the future, with respect to other product candidates, chemicals and produce waste materials and sewage and require permits from various governmental authorities including, local municipal authorities, the Ministry of Environmental Protection and the Ministry of Health. The Ministry of Environmental Protection and the Ministry of Health, local authorities and the municipal water and sewage company conduct periodic inspections in order to review and ensure our compliance with the various regulations.
These laws, regulations and permits could potentially require the expenditure by us of significant amounts for compliance or remediation. If we fail to comply with such laws, regulations or permits, we may be subject to fines and other civil, administrative or criminal sanctions, including the revocation of permits and licenses necessary to continue our business activities. In addition, we may be required to pay damages or civil judgments in respect of third-party claims, including those relating to personal injury (including exposure to hazardous substances we use, store, handle, transport, manufacture or dispose of), property damage or contribution claims. Some environmental, health and safety laws allow for strict, joint and several liability for remediation costs, regardless of comparative fault. We may be identified as a responsible party under such laws. Such developments could have a material adverse effect on our business, financial condition and results of operations.
In addition, laws and regulations relating to environmental, health and safety matters are often subject to change. In the event of any changes or new laws or regulations, we could be subject to new compliance measures or to penalties for activities, which were previously permitted. For instance, new Israeli regulations were promulgated in 2012 relating to the discharge of industrial sewage into the sewer system. These regulations establish new and potentially significant fines for discharging forbidden or irregular sewage into the sewage system.
Legal Proceedings
See “Item 8. Financial Information—Consolidated Financial Statements and Other Financial Information—Legal Proceedings.”
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C.
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Organizational Structure
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Our corporate structure consists of Macrocure Ltd., our Israeli parent company, and Macrocure, Inc., its wholly-owned subsidiary, which was incorporated on November 15, 2012 under the laws of the State of Delaware.
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D.
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Property, Plants and Equipment
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Our principal executive offices are located at 25 Hasivim Street, Petach Tikva 4959383, Israel. Until April 2016, we had leased approximately 1,460 square feet of space at that location, at a rate of approximately $10,000 per month, from Amot Investments Ltd. and Clal Insurance Company Ltd., pursuant to a lease agreement that was to expire on January 31, 2019. The facilities had housed our administrative functions and, while we were developing CureXcell, also housed our research and development laboratories. Following the failure of CureXcell to achieve its clinical endpoints, we sought and obtained a release from that lease, effective as of April 1, 2016, for a one-time expense of NIS 35,000. As part of the arrangement involving the termination of that lease, the new lessee has permitted us to utilize two rooms for our finance and administrative functions at that same location through the end of May 2016, at which time we will consider our future office space requirements.
Item 4
A. UNRESOLVED STAFF COMMENTS
Not applicable.
Item
5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report, particularly those in “Item 3.D. Risk Factors.”
Overview
We are a clinical stage biotechnology company. Until very recently, we were focused on developing, manufacturing and commercializing novel cell therapy products to address unmet needs in the treatment of chronic and other hard-to-heal wounds. In August 2015, we concluded that our sole product candidate, CureXcell, failed to meet its primary endpoint in its Phase 3 pivotal clinical study (MC-105) for the treatment of VLUs. In October 2015, we furthermore determined that CureXcell failed to meet its primary and secondary endpoints in its pivotal Phase 3 multicenter, randomized, double-blind, parallel-group, sham-controlled study (MC-102) in the treatment of DFUs.
As a result of these disappointing clinical announcements, we are unable to submit our BLA with respect to CureXcell to the FDA in late 2016, as we had planned. We are also unable to pursue marketing authorization for CureXcell in Europe with the EMA. We do not anticipate proceeding with further clinical or regulatory steps towards the eventual commercialization of CureXcell. We have therefore halted our development and manufacturing initiatives for CureXcell, both by terminating our newly-commenced operations in Philadelphia, Pennsylvania in the United States, and by ceasing research and development, and clinical activities, for CureXcell, at our Petach Tikva, Israel location.
After our disappointing results for our clinical trials for CureXcell, we commenced a review of all strategic alternatives for our company, while continuing to focus on managing and conserving our existing cash through cost reduction and restructuring initiatives. We concluded that it is in the best interests of our company to focus at the present time on seeking to identify a potential business opportunity, possibly involving an acquisition of another company or technology, as a means to utilize our cash reserves in a manner that will enable us to generate revenues in the short-term or long-term future.
To date, we have financed our operations primarily with the net proceeds from the IPO and private placements of our ordinary and preferred shares and warrants, and to a significantly lesser extent, through a government grant. Since our inception, we have incurred significant operating losses. Our net losses were $21.1 million, $25.5 million and $18.3 million for the years ended December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, we had an accumulated deficit of $89.3 million. We have not recognized any revenue to date.
Unless we acquire a product or technology that is profitable right away, we are likely to continue to incur significant expenses and operating losses for the foreseeable future. The net losses we incur may fluctuate significantly from quarter to quarter. Our expenses are likely to decrease for the foreseeable future due to our restructuring and cost reduction initiatives. We anticipate that our expenses may only begin to increase once again if and as we:
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make any acquisitions of companies or technologies;
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maintain, expand and protect any parts of our existing or future intellectual property portfolio that we deem to have value;
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add operational, financial and management information systems and personnel, including personnel to support any future product development and future commercialization efforts; and
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invest in research and development and regulatory approval efforts in order to further develop and utilize any new technology that we acquire.
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Financial Operations Overview
Revenue
To date, we have not recognized any revenue, and we do not expect to recognize any revenue for the near (or possibly foreseeable) future, if ever. We viewed the sale of CureXcell in Israel to be part of our research and development activities, rather than commercial in nature; for example, the price of the CureXcell products sold in Israel was below their cost with no marketing efforts. Moreover, we have viewed our operations in Israel as a beta site for testing and evaluating our products as part of our research and development activities aimed at obtaining product approval in the United States and the European Union, our primary future commercial markets. Our business strategy has not included the Israeli market as a targeted commercial market. Accordingly, we recognized the amounts that we received from sales of CureXcell to health care professionals in Israel as an offset to our research and development expense. Our ability to generate recognizable revenue in the future will depend on the successful commercialization of any potential product.
Operating expenses
Research and development expenses, net
Research and development activities are central to our business model. We do not believe that it is possible at this time to accurately project total program-specific expenses to reach regulatory approval and commercialization of any particular product. There are numerous factors associated with the successful regulatory approval and commercialization of any potential product (as was the case with CureXcell), including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time. Additionally, future regulatory and commercial factors beyond our control will affect our clinical development programs and plans.
Research and development expenses may be reduced by amounts that we receive from sales of any potential product to health care professionals in Israel (as was the case with CureXcell). We may view these sales and use of any potential product to be part of our research and development activities (as was the case with CureXcell), rather than commercial in nature. Accordingly, we may view and characterize these sales as an extension of our research and development activities, rather than as stand-alone revenues.
From 2013 through 2015, our cumulative research and development expenses for CureXcell were $40.2 million, which is net of $1.0 million that we received from sales of CureXcell to health care professionals in Israel. Our net research and development expenses in the years ended December 31, 2015 and 2014 were $15.4 million and $15.5 million, respectively, which primarily related to the development of CureXcell. We charge all research and development expenses to operations as they are incurred. We expect research and development expenses to decrease in the near term due to cost-cutting and restructuring initiatives, only to increase once again if and when we acquire a new product or technology that we can develop.
Research and development expenses consist, or have consisted, as appropriate, primarily of costs incurred for our research activities, including:
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employee-related expenses for research and development staff, including salaries, benefits and related expenses, including share-based compensation and travel expenses;
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expenses incurred under agreements with third parties, including the American Red Cross, MDA, contract research organizations and consultants that conduct quality assurance and regulatory activities and clinical trials;
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expenses incurred to design, develop and assess clinical trials;
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facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other operating costs;
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costs associated with development, clinical and preclinical activities and regulatory operations;
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costs associated with obtaining and maintaining patents and other intellectual property; and
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depreciation of tangible and intangible fixed assets used to develop CureXcell.
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The successful development of future product candidates, if any, is highly uncertain. At this time we cannot reasonably estimate the nature, timing and estimated costs of the efforts that will be necessary to complete the development of, or the period, if any, in which material net cash inflows may commence from, future product candidates. This uncertainty is due to numerous risks and uncertainties associated with developing products, including the uncertainty of:
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the scope, rate of progress and expense of our research and development activities;
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preclinical and clinical trial results and the duration of the trials;
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the terms and timing of regulatory approvals and the ability to obtain reimbursement for our product candidates;
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our ability to build the manufacturing capacity and have the raw materials necessary to meet the future market demands;
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the expense of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights; and
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the ability to commercialize, market and achieve market acceptance.
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A change in the outcome of any of these variables with respect to the development of products that we may develop could result in a significant change in the costs and timing associated with their development. For example, if the FDA, EMA or other regulatory authority were to require us to conduct additional preclinical or clinical studies beyond those which we may anticipate for the completion of clinical development of a potential product or if we experience significant delays in enrollment in any clinical trials, we could be required to expend significant additional financial resources and time on the completion of the clinical development.
General and administrative expenses
Our general and administrative expenses consist, or have consisted, as appropriate, principally of:
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employee-related expenses for employees other than research and development staff, including salaries, benefits and related expenses, including share-based compensation and travel expenses;
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legal and professional fees for auditors and other consulting expenses not related to research and development activities;
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costs of office leases, communication and office expenses;
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information technology expenses; and
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depreciation of tangible fixed assets related to our general and administrative activities.
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Our general and administrative expenses include additional general and administrative costs associated with being a public company in the United States, including compliance with the Sarbanes-Oxley Act and rules promulgated by the SEC. These public company-related costs include, among other things, costs of personnel, legal fees, accounting and audit fees, directors’ liability insurance premiums and costs related to investor relations.
Financing income (expenses), net
Financing income (expenses), net is obtained by subtracting our financing expense from our financing income and adding or subtracting the gain or loss, as applicable, that we have realized due to the revaluation of warrants at fair value, reclassification of outstanding warrants from a liability into equity on our balance sheet and recognizing expenses for warrants granted to the lender of a convertible credit line. Financing income includes interest income and exchange rate differences. Financing expense consists primarily of bank charges, change in fair value of warrants held by shareholders and a convertible loan credit line from a significant shareholder.
Taxes on income
The standard corporate tax rate in Israel is 25.0% effective as of January 1, 2016 (it was 26.5% for the years 2014 and 2015). We do not generate taxable income in Israel, as we have historically incurred operating losses resulting in carry-forward losses for tax purposes totaling $52.7 million as of December 31, 2015. We anticipate that we will be able to carry forward these tax losses indefinitely to future tax years. Accordingly, we do not expect to pay taxes in Israel until we have taxable income after the full utilization of our carry forward tax losses. In 2014 and 2015, taxes on income included taxes on income of our U.S. subsidiary, which operates on a cost-plus basis.
Comparison of the years ended December 31, 2015 and 2014
The following table summarizes our results of operations for the years ended December 31, 2015 and 2014.
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Year ended
December 31,
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2015
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2014
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(in thousands)
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Operating expenses:
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Research and development expenses, net
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$
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15,369
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$
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15,542
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General and administrative expenses
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5,720
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5,374
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Operating loss
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(21,089
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)
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(20,916
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)
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Financing income (expense), net
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138
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(4,504
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)
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Taxes on income
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(152
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)
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(31
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)
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Loss for the year
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$
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(21,103
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)
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$
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(25,451
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)
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Other comprehensive loss
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26
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(26
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)
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Total comprehensive loss
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(21,077
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)
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(25,477
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)
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Operating expenses
Research and development expenses, net
Research and development expenses, net decreased by $0.1 million, or 0.6%, to $15.4 million in the year ended December 31, 2015 from $15.5 million in the year ended December 31, 2014. The decrease was primarily due to our expenses connected with the varying stages of our development of CureXcell in which we were involved during the respective years.
General and administrative expenses
General and administrative expenses increased by $0.3 million, or 5.6%, to $5.7 million in the year ended December 31, 2015 from $5.4 million in the year ended December 31, 2014. The increase primarily related to public company costs and share-based compensation.
Financing expense (income), net
Financing expense, net decreased by $4.6 million to $0.1 million of income in the year ended December 31, 2015 from $4.5 million of expense in the year ended December 31, 2014. This decrease was primarily due to the absence, in 2015, of the one-time non-cash expenses that we recorded in 2014 that were associated with a convertible credit line made available to our company.
Loss for the year
Due to the cumulative effect of the factors described above, the most significant of which was the decrease in our financing expenses, particularly due to one-time non-cash expenses that we recorded in 2014 but not in 2015, our net loss decreased by $4.4 million, or 17.3%, to $21.1 million in the year ended December 31, 2015 from $25.5 million in the year ended December 31, 2014.
Taxes on income
In the year ended December 31, 2015, we incurred less than $0.2 million of income tax expenses due to the implementation of transfer pricing guidelines related to our U.S. subsidiary.
Comparison of the years ended December 31, 2014 and 2013
The following table summarizes our results of operations for the years ended December 31, 2014 and 2013.
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Year ended
December 31,
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2014
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2013
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(in thousands)
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Operating expenses:
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Research and development expenses, net
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$
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15,542
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$
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9,303
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General and administrative expenses
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5,374
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4,567
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Operating loss
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(20,916
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)
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(13,870
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)
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Financing expense, net
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(4,504
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)
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(4,305
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)
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Taxes on income
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(31
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)
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(149
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)
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Loss for the year
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$
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(25,451
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)
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$
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(18,324
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)
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Other comprehensive loss
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(26
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)
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-
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Total comprehensive loss
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(25,477
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)
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(18,324
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)
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Operating expenses
Research and development expenses, net
Research and development expenses, net increased by $6.2 million, or 67%, to $15.5 million in the year ended December 31, 2014 from $9.3 million in the year ended December 31, 2013. The increase was primarily due to progress in the development of CureXcell, including increased expenditures due to clinical trial costs associated with the increased recruitment for the DFU trial and the opening and operating new clinical sites in support of the VLU.
General and administrative expenses
General and administrative expenses increased by $0.8 million, or 17%, to $5.4 million in the year ended December 31, 2014 from $4.6 million in the year ended December 31, 2013. The increase primarily related to expenses incurred during the IPO process and other public company costs.
Financing expense, net
Financing expenses, net increased by $0.2 million to $4.5 of expenses in the year ended December 31, 2014 from $4.3 million of expense in the year ended December 31, 2013, primarily due to one-time non-cash expenses associated with a convertible credit line, made available to the Company in 2014, and for the year ended December 31, 2013, revaluation of warrants held by shareholders as part of the 2013 financing round.
Loss for the year
Due to the cumulative effect of the factors described above, the most significant of which were the increase in our operating expenses, particularly due to increased research and development expenses, our net loss increased by $7.2 million, or 39%, to $25.5 million in the year ended December 31, 2014 from $18.3 million in the year ended December 31, 2013.
Taxes on income
In the year ended December 31, 2014, we incurred less than $0.1 million of income tax expenses due to the implementation of transfer pricing guidelines related to our U.S. subsidiary.
Effective Corporate Tax Rate
We are subject to corporate taxes in various countries in which we operate. Generally, Israeli companies are subject to corporate tax at a rate of 26.5% of a company’s taxable income for 2014 and 2015, which was reduced to 25% as of 2016 and thereafter. However, our effective corporate tax rate in Israel could be significantly lower, due to tax benefits for which we may become eligible, as described below.
Israeli Tax Structure and Tax Programs That May Become Applicable to Our Company
Law for the Encouragement of Industry (Taxes), 5729-1969
The Law for the Encouragement of Industry (Taxes), 5729-1969, generally referred to as the Industry Encouragement Law, provides several tax benefits for “Industrial Companies.” We may in the future qualify as an Industrial Company within the meaning of the Industry Encouragement Law.
The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, which was incorporated in Israel and of which 90% or more of its income in any tax year, other than income from certain government loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principal activity in a given tax year is industrial production.
The following tax benefits, among others, are available to Industrial Companies:
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Deduction of the cost of purchased know-how and patents and rights to use a patent and know-how which are used for the development or promotion of the Industrial Enterprise, over an eight-year period commencing on the year in which such rights were first exercised;
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under limited conditions, an election to file consolidated tax returns with Israeli Industrial Companies controlled by it; and
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expenses related to a public offering are deductible in equal amounts over three years.
Eligibility for benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any governmental authority
Law for the Encouragement of Capital Investments, 5719-1959
The Law for the Encouragement of Capital Investments, 5719-1959, generally referred to as the Investment Law, provides certain incentives for capital investments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).
Tax Benefits
The Investment Law provides certain benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in the Investment Law) provided certain conditions are met. The definition of a Preferred Company includes a company incorporated in Israel that is not wholly-owned by a governmental entity, and that has, among other things, Preferred Enterprise status and is controlled and managed from Israel. As of January 1, 2014, a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to its income derived by its Preferred Enterprise, unless the Preferred Enterprise is located in a specified development zone, in which case the rate will be 9%.
Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at source at the rate of 20% or such lower rate as may be provided in an applicable tax treaty (subject to the receipt in advance of a valid certificate from the Israel Tax Authority allowing for a reduced tax rate). However, if such dividends are paid to an Israeli company, no tax is required to be withheld. Although, if subsequently distributed to individuals or a non-Israeli company, such dividends would be subject to withholding tax at source at a rate of 20% or such lower rate as may be provided in an applicable tax treaty.
We have examined the possible effect, if any, of the applicable provisions of the Investment Law on our financial statements and have decided, at this time, not to opt to apply the benefits under the Investment Law.
From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantial reduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.
Liquidity and Capital Resources
To date, we have financed our operations primarily with the IPO and the net proceeds from private placements of our ordinary and preferred shares and warrants, and to a significantly lesser extent, through a government grant.
We believe that based on our current business, unless we succeed in completing an acquisition transaction that requires substantial funding, our existing cash, cash equivalents and the net proceeds from our IPO will be sufficient to meet our currently anticipated cash requirements through at least the next 12 months.
Cash flows
The following table summarizes our consolidated statement of cash flows for the years ended December 31, 2015, 2014 and 2013.
|
|
|
Year ended
December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
(in thousands)
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(19,583
|
)
|
|
$
|
(18,017
|
)
|
|
$
|
(9,939
|
)
|
|
Investing activities
|
|
|
29,692
|
|
|
|
(36,804
|
)
|
|
|
(114
|
)
|
|
Financing activities
|
|
|
16
|
|
|
|
46,887
|
|
|
|
13,750
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
10,125
|
|
|
$
|
(7,934
|
)
|
|
$
|
3,697
|
|
Net cash used in operating activities
The use of cash in all periods reflected primarily our net losses from operations, as adjusted for non-cash charges and measurements and changes in components of working capital. Adjustments to net income for non-cash items include depreciation and amortization, gain or loss due to revaluation of our outstanding warrants, non- cash expenses due to convertible credit line, income tax expenses, non-cash interest expenses and share-based compensation.
Net cash used in operating activities was $19.6 million in the year ended December 31, 2015 compared to $18.0 million in the year ended December 31, 2014 and $9.9 million in the year ended December 31, 2013. The year-over-year changes in such cash use were attributable primarily to our net loss, which decreased to $ 21.1 million in the year ended December 31, 2015 from $25.5 million in the year ended December 31, 2014, after having increased from $18.3 million in 2013. Our net loss in the year ended December 31, 2014 was greater than in the year ended December 31, 2015 due to a one-time non-cash expense of $4.4 million that we incurred in 2014 related to the credit line extended to us by our major shareholder. That non-cash expense was excluded from our cash used in operating activities in 2014, and, accordingly, our cash used in operating activities in 2014 was less than in 2015. The increase in net loss from 2013 to 2014 was offset, in part, in the case of the year ended December 31, 2013, by an adjustment due to the non-cash loss that we recorded in 2013 for the revaluation of our outstanding warrants and due to changes in our receivables and payables.
Net cash provided by (used in) investing activities
Our use of cash in investing activities primarily relates to investments in short and long term bank deposits or proceeds from the deposits released. Net cash provided by investing activities was $29.7 million during the year ended December 31, 2015, compared to $36.8 million of net cash used in investing activities during the year ended December 31, 2014 and $0.1 million of net cash used in investing activities during the year ended December 31, 2013. During 2014, we had deposited our cash in certain deposits and debt securities, resulting in cash used in investing activities, while in 2015, many of those investments expired and/or funds were released to us, which resulted in cash provided by investing activities.
Net cash provided by financing activities
Net cash provided by financing activities was approximately $16,000 during the year ended December 31, 2015, reflecting cash received upon exercise of our employees’ options. That compares to $46.9 million of cash provided by financing activities during the year ended December 31, 2014, which primarily reflects cash proceeds that we raised pursuant to our IPO in that year. Financing activities provided $13.8 million of cash during the year ended December 31, 2013, which was attributable to the preferred shares and warrant private placement financing that we consummated during that year, mainly with our existing shareholders. Only a minimal amount of cash (from warrant exercises) has been provided by financing activities since the IPO. See “—Cash and funding sources.”
Cash and funding sources
Our primary source of financing in the year ended December 31, 2015 was the $46.7 million of proceeds that we raised from our IPO in 2014. Our primary source of financing in the year ended December 31, 2014 was also the $46.7 million of proceeds that we raised in our IPO and $0.2 million in proceeds from the exercise of warrants. Our primary source of financing in the year ended December 31, 2013 primarily consisted of $14.1 million in proceeds that we raised from the issuance of preferred A shares to certain existing investors. We have no ongoing material financial commitments, such as lines of credit, that we expect will affect our liquidity over the next five years. We expect that our sole remaining significant financial commitment—the guarantees for our former office and research facilities in Israel, in amounts of approximately NIS 230,000, in the aggregate—will terminate in the coming months (as we have been released from the related lease effective as of April 1, 2016). Please see part F of this Item 5 below, “Tabular Disclosure of Contractual Obligations” for further information.
Funding requirements
We believe that our existing cash, cash equivalents and the net proceeds from our IPO will be sufficient to meet our currently anticipated cash requirements through at least the next 12 months. We have based this estimate on the assumption that we continue with our restructuring and cost-cutting initiatives. If we complete an acquisition transaction and begin development of a related product or technology, which would require increased investments of funds, we could exhaust our capital resources sooner than we currently expect.
Our present and future funding requirements will depend on many factors, including, among other things:
|
|
•
|
any future acquisition of another company or technology which we may make;
|
|
|
•
|
the amounts we invest in research and development and regulatory approval efforts in order to further the commercialization of any technology or product candidate that we acquire; and
|
|
|
•
|
the costs involved in filing patent applications and maintaining and enforcing patents or defending against claims or infringements raised by third parties.
|
For more information as to the risks associated with our future funding needs, see “Item 3.D. Risk Factors—Risks Relating to Our Business and Industry—We may need substantial additional capital in the future, which could cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights, and if additional capital is not available, we may have to delay, reduce or cease operations.”
Royalties
Office of the Chief Scientist
We have received a grant as part of our research and development programs approved by the OCS. The requirements and restrictions for such grant are found in the R&D Law. Under the R&D Law, royalties of 3% to 4.5% of the revenues derived from sales of products or services developed in whole or in part using this OCS grant are payable to the Israeli government. The maximum aggregate royalties paid generally cannot exceed 100% of the grant made to us, plus annual interest generally equal to the 12-month LIBOR applicable to dollar deposits, as published on the first business day of each calendar year. The total gross amount of the grant actually received by us from the OCS, including accrued LIBOR interest as of December 31, 2015, totaled $0.8 million. As of December 31, 2015, we had not paid any royalties to the OCS.
In addition to paying any royalty due, we must abide by other restrictions associated with receiving such grant under the R&D Law that continue to apply following repayment to the OCS. These restrictions may impair our ability to outsource manufacturing, engage in change of control transactions or otherwise transfer our know-how outside of Israel by requiring us to obtain the approval of the OCS for certain actions and transactions and pay additional royalties and other amounts to the OCS. In addition, any change of control and any change of ownership of our ordinary shares that would make a non-Israeli citizen or resident an “interested party,” as defined in the R&D Law, requires prior written notice to the OCS. If we fail to comply with the R&D Law, we may be subject to criminal charges.
Application of Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses during the reporting periods. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in the notes to our consolidated financial statements appearing elsewhere in this annual report, we believe that the accounting policies discussed below are critical to our financial results and to the understanding of our past and future performance, as these policies relate to the more significant areas involving management’s estimates and assumptions. We consider an accounting estimate to be critical if: (a) it requires us to make assumptions because information was not available at the time or it included matters that were highly uncertain at the time we were making our estimate; and (b) changes in the estimate could have a material impact on our financial condition or results of operations.
Research and development expenses
Research expenses are recognized as expenses when incurred. Costs incurred on development projects are recognized as intangible assets as of the date as of which it can be established that it is probable that future economic benefits attributable to the asset will flow to us considering its commercial feasibility. This is generally the case when regulatory approval for commercialization is achieved and costs can be measured reliably. No development expenditures have yet been capitalized. Intellectual property-related costs for patents are part of the expenditure for the research and development projects. Therefore, registration costs for patents are expensed when incurred as long as the research and development project concerned does not meet the criteria for capitalization.
Share-based compensation
We account for our share-based compensation for employees in accordance with the provisions of IFRS 2 “Share-based Payment,” which requires us to measure the cost of share-based compensation based on the fair value of the award on the grant date.
We selected the Black-Scholes model as the most appropriate method for determining the estimated fair value of our share-based awards. The resulting cost of an equity incentive award is recognized as an expense over the requisite service period of the award, which is usually the vesting period. We recognize compensation expense over the vesting period using the accelerated method pursuant to which each vesting tranche is treated as a separate amortization period from grant date to vest date, and classify these amounts in the consolidated financial statements based on the department to which the related employee reports.
Option Valuations
The determination of the grant date fair value of options using an option pricing model is affected by estimates and assumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of the options, share option exercise and cancellation behaviors, risk-free interest rates and expected dividends, which are estimated as follows:
|
|
•
|
Fair Value of our Ordinary Shares
. Because our ordinary shares are publicly traded, we derive the fair value of the shares from the sales price (generally, the closing sales price) of the shares on the trading market on which our shares are listed, as discussed below in “—
Ordinary Share Valuations.”
|
|
|
•
|
Volatility.
The expected share price volatility was based on the historical average equity volatility of the ordinary shares of comparable drug companies that are publicly traded.
|
|
|
•
|
Expected Term.
The expected term of options granted represents the period of time that options granted are expected to be outstanding. Since adequate historical experience is not available to provide a reasonable estimate, the expected term is determined based on the midpoint between the available exercise dates (the end of the vesting periods) and the last available exercise date (the contracted expiry date).
|
|
|
•
|
Risk-Free Rate.
The risk-free interest rate is based on the yield from U.S. Treasury zero-coupon bonds with a term equivalent to the expected life of the options.
|
|
|
•
|
Expected Dividend Yield.
We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero.
|
If any of the assumptions used in the Black-Scholes model change significantly, share-based compensation for future awards may differ materially compared with the awards granted previously.
The following table presents the weighted-average assumptions used to estimate the fair value of options granted to employees on the dates indicated.
|
|
|
August 2013
|
|
|
October 2013
|
|
|
December 2013
|
|
|
April 2014
|
|
|
December and August 2014
|
|
|
February, March and May 2015
|
|
|
Expected volatility
|
|
|
129% – 131
|
%
|
|
|
128% – 131
|
%
|
|
|
126% – 128
|
%
|
|
|
126% - 127
|
%
|
|
|
104
|
%
|
|
|
81%-82
|
%
|
|
Expected term (in years)
|
|
|
5.2 – 6.7
|
|
|
|
4.9 – 6.8
|
|
|
|
5.5 – 7.0
|
|
|
|
5.5 - 7.0
|
|
|
|
5.5 - 7.0
|
|
|
|
5.0 - 7.0
|
|
|
Risk-free rate
|
|
|
1.83 – 2.36
|
%
|
|
|
1.71 – 2.37
|
%
|
|
|
1.88 – 2.41
|
%
|
|
|
1.85% - 2.28
|
%
|
|
|
1.97% - 2.14
|
%
|
|
|
1.94%- 2.35
|
%
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
The following table presents the grant dates, number of underlying shares and related exercise prices of awards granted to employees and non-employees since January 1, 2012 as well as the estimated fair value of the underlying ordinary shares on the grant date.
|
|
|
|
|
|
|
|
|
|
|
|
Month of grant
|
|
Number of shares
subject to
awards granted
|
|
|
Average
exercise
price per share
|
|
|
Estimated fair value
per ordinary share
at grant date
|
|
|
June 2012
|
|
|
8,740
|
|
|
$
|
9.59
|
|
|
$
|
3.78
|
|
|
August 2013
|
|
|
573,068
|
|
|
$
|
3.26
|
|
|
$
|
4.80
|
|
|
August 2013
|
|
|
286,534
|
|
|
$
|
16.04
|
|
|
$
|
4.80
|
|
|
October 2013
|
|
|
25,760
|
|
|
$
|
3.26
|
|
|
$
|
3.63
|
|
|
December 2013
|
|
|
55,982
|
|
|
$
|
3.26
|
|
|
$
|
5.37
|
|
|
April 2014
|
|
|
370,116
|
|
|
$
|
10.20
|
|
|
$
|
9.80
|
|
|
August 2014
|
|
|
219,972
|
|
|
$
|
10.00
|
|
|
$
|
7.25
|
|
|
December 2014
|
|
|
50,000
|
|
|
$
|
7.32
|
|
|
$
|
7.37
|
|
|
February 2015
|
|
|
235,000
|
|
|
$
|
9.68
|
|
|
$
|
6.95
|
|
|
March 2015
|
|
|
170,000
|
|
|
$
|
9.38
|
|
|
$
|
6.78
|
|
|
May 2015
|
|
|
35,000
|
|
|
$
|
9.65
|
|
|
$
|
6.87
|
|
|
June 2015
|
|
|
158,640
|
|
|
$
|
13.62
|
|
|
|
-
|
*
|
|
August 2015
|
|
|
10,000
|
|
|
$
|
13.84
|
|
|
|
-
|
*
|
*We did not obtain a valuation for the fair value of the options that we granted in June 2015 and August 2015, due to the forfeiture of those grants by the grantees soon after the grants were made.
Ordinary Share Valuations
Please see the discussion regarding the fair value of our ordinary shares in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Share-based compensation—Ordinary Share Valuations”
in our IPO Prospectus, which discussion is incorporated by reference herein.
Recent Accounting Pronouncements
New Standards and Interpretations Not Yet Adopted by Us
|
|
·
|
IFRS 9,
Financial Instruments
|
A final version of this accounting standard, which includes revised guidance on the classification and measurement of financial instruments, and a new model for measuring impairment of financial assets, has been adopted by the IASB. This guidance has been added to the International IFRS chapter dealing with general hedge accounting requirements issued in 2013. IFRS 9 (2014) is effective for annual periods beginning on or after January 1, 2018 with early adoption being permitted. We have not yet commenced examining the effects of adopting IFRS 9 (2014) on our consolidated financial statements.
IFRS 16 sets out the principles of the recognition, measurement, presentation, and disclosure of leases. IFRS 16 is effective for annual periods beginning on or after January 1, 2019 with early adoption being permitted for entities that apply IFRS 15, Revenue from Contracts with Customers at or before the date of initial application of IFRS 16.
JOBS Act Exemptions
The JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards. We have not elected to avail ourselves of an exemption. This election is irrevocable.
|
|
C.
|
Research and development, patents and licenses, etc.
|
For a description of our research and development programs and the amounts that we have incurred over the last three years pursuant to those programs, please see Item 4 “Information on the Company—Business Overview—Research and Development.”
Our results of operations and financial condition may be affected by various trends and factors discussed in “Item 3 - Key Information - Risk Factors”, including pricing regulations, third-party coverage and reimbursement policies, healthcare reform initiatives, the degree of market acceptance of our products in the healthcare field due, in part, to trends in that field, changes in political, military or economic conditions in Israel and in the Middle East, general slowing of local or global economies and decreased economic activity in one or more of our target markets.
|
|
E.
|
Off-Balance Sheet Arrangements
|
We do not currently engage in off-balance sheet financing arrangements. In addition, we do not have any interest in entities referred to as variable interest entities, which includes special purposes entities and other structured finance entities.
Item 6
. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
|
A.
|
Directors and Senior Management
|
The following table sets forth information relating to our executive officers and directors as of the date of this annual report. Unless otherwise stated, the address for our directors and executive officers is c/o Macrocure Ltd., 25 Hasivim Street, Petach Tikva 4959383, Israel.
|
Name
|
|
Age
|
|
Position
|
|
Executive Officers
|
|
|
|
|
|
Nissim Mashiach
|
|
55
|
|
President and Chief Executive Officer
|
|
Shai Lankry
|
|
39
|
|
Chief Financial Officer
|
|
Directors
|
|
|
|
|
|
Tomer Kariv
(1)
|
|
54
|
|
Chairman of the Board of Directors
|
|
David Ben Ami
|
|
55
|
|
Director
|
|
Ze’ev Bronfeld
(1)
|
|
65
|
|
Director
|
|
Ranan Grobman
(1)(2)(3)
|
|
39
|
|
Director
|
|
Katherine Wolf
(1)(2)(3)
|
|
49
|
|
External director
|
|
Yuval Yanai
(1)(2)(3)
|
|
63
|
|
External director
|
(1) Independent director under the rules of the NASDAQ Stock Market.
(2) Member of our audit committee.
(3) Member of our compensation committee.
Executive Officers
Nissim Mashiach
has served as our President and Chief Executive Officer since June 2012. Before joining our company, he served as General Manager at Ethicon, a Johnson & Johnson company, from 2009 to 2012. Prior to then, he served as President and Chief Operating Officer at Omrix Biopharmaceuticals, Inc., a company acquired by Johnson & Johnson in 2008. Prior to Omrix, Mr. Mashiach held leadership positions at several pharmaceutical companies. He holds an MBA from the University of Manchester, England, an MPharmSc from the Hebrew University, Jerusalem, Israel, and a BSc, Chemical Engineering from the Technion-Israel Institute of Technology, Haifa, Israel.
Shai Lankry
has served as our Chief Financial Officer and Israel Site Manager since February 2016. He had previously served in those positions from December 2013 until January 2015. From February 2015 until January 2016, Mr. Lankry served as our Vice President, Finance and Israel Site Manager. From 2006 to 2013, Mr. Lankry worked at Omrix Biopharmaceuticals, Inc., a division of Ethicon Biosurgery, a Johnson & Johnson company, where he most recently held the position of the Biologics Cluster Finance Director, where he managed the finance biologics organization at multiple sites worldwide. Before that, from 2004 to 2006, Mr. Lankry was a senior associate in the audit practice, specializing in high-tech industry, for Kesselman & Kesselman, a member of PriceWaterhouseCoopers International Limited. Mr. Lankry is a Certified Public Accountant (Israeli) and earned an MBA in Finance from Tel-Aviv University in Israel
Directors
Tomer Kariv
joined our Board of Directors in March 2008 and has served as our Chairman of the Board since November 2015. He is the co-founder and Chief Executive Officer of Pontifax, a group of Israeli-based life sciences venture funds focusing on investments in development stage bio-pharmaceutical and med-tech technologies and a shareholder of our company. Mr. Kariv serves as an active board member of many of the fund’s portfolio companies. Among other companies, Mr. Kariv serves as the Chairman of Check-Cap Ltd. and is a board member of Arno Therapeutics Inc. During the 10 years prior to establishing Pontifax, Mr. Kariv played a key role in investing, managing and nurturing technology driven companies and startups and has held senior management positions at top Israeli financial institutions. Mr. Kariv practiced law with Sullivan & Cromwell in New York, and holds a BA in Economics from Harvard University and a JD from Harvard Law School.
David Ben-Ami
, a co-founder of our company, has served on our Board of Directors since our founding in early 2008. He served as our Chairman of the Board until November 2015. Mr. Ben-Ami has more than 20 years of experience with activities in management, business development and corporate strategy in the life sciences industry. He served as Chief Executive Officer of NVR Labs from June 2005 to April 2010, Country Director of Boston Scientific Israel from June 2003 to May 2005, and Director of Business Development of Teva Israel from January 1999 to June 2003. Mr. Ben-Ami serves as a board member in Degania Silicone Ltd. and Entera Bio Ltd., among other Life Science companies. He received his MBA and BA in Economics & Management from Tel-Aviv University.
Ze’ev Bronfeld
has served on our Board since January 2008. Mr. Bronfeld has significant experience in the management and building of biotechnology companies. Mr. Bronfeld serves as the chairman of the board of D.N.A. Biomedical Solutions Ltd., a company that is publicly traded on the Tel Aviv Stock Exchange. Mr. Bronfeld serves as a director of Protalix, Inc., which is publicly traded on the American Stock Exchange, and a director of Trendlines Group Ltd., which is publicly traded on the SGX in Singapore. Mr. Bronfeld is also a director of a number of private companies. Mr. Bronfeld holds a BA in Economics from the Hebrew University of Jerusalem.
Ranan Grobman
has served on our Board of Directors since May 2012. Mr. Grobman has been an active investor in Israeli high-tech companies for the last 14 years. Mr. Grobman has served as a general partner of Jerusalem Global Ventures, or JGV, since 2008 and has served in different capacities since 1998. Mr. Grobman, through JGV, serves as an advisor to Vaizra Ventures, a shareholder of our company since 2010. Mr. Grobman served as Vice President of Business Development at Certagon from 2006 to 2008 and Vice President Investment Banking at Yazam from 1999 to 2001.
Katherine Wolf
joined our Board effective upon the listing of our ordinary shares on NASDAQ. Since April 2015, Ms. Wolf has served as a partner at Ondra Partners, a financial advisory firm providing capital structuring, M&A and strategic advisory services. Prior thereto, Ms. Wolf was the Chief Executive Officer, Co-Founder and Partner of Rocket Science Healthcare LLC from January 2014 to March 2015 and from September 2012 to January 2014 she provided independent consulting services. From 2008 to August 2012, Ms. Wolf was the Chief Financial Officer and Executive Vice President, Corporate Development at Vision-Sciences, Inc., a NASDAQ-listed medical device company in the flexible endoscopy space. From 2005 to 2008, Ms. Wolf was a Managing Director at HSBC Securities (USA) Inc. in its investment banking division, where she was a member of the firm’s Health Care Group and ran the investment banking MedTech effort. Prior to HSBC, she worked at Bear, Stearns & Co. from 2000 to 2005 in the Health Care Group, most recently as a
Managing Director. Ms. Wolf holds an M.B.A. from Harvard Business School and a B.A. from Williams College.
Yuval Yanai
joined our Board effective upon the listing of our ordinary shares on NASDAQ. Mr. Yanai served, from September 2005 through March 2014, as Senior Vice President and Chief Financial Officer of Given Imaging Ltd. From October 2000 through August 2005, he served as Senior Vice President and Chief Financial Officer of Koor Industries Ltd., one of Israel’s largest holding companies. Prior to that, from April 1998 to September 2000, he served as Vice President and Chief Financial Officer of NICE Systems Ltd., an Israeli global provider of Insight from Interactions, and, from 1991 to April 1998, he was the Vice President, Finance and Chief Financial Officer of Elscint Ltd., a former Israeli company engaged in the development and manufacturing of medical imaging devices that was acquired by larger companies in this field. He joined Elscint in 1985 and served as Corporate Controller and Corporate Treasurer through 1991. Mr. Yanai serves as a director in Check-Cap Ltd., Medical Compression Systems Ltd., Clal Biotechnology Industries Ltd., Compulab Ltd., Efranat Ltd. and Haddasah Medical Organization. Mr. Yanai is also the Chairman of The Israeli Fund for UNICEF. Previously, Mr. Yanai served as a director of Citycon Oj, Starplast Industries Ltd., Adama Ltd. (formerly Makteshim-Agan Industries Ltd.), ECI Telecom Ltd., Equity One, Inc., BVR Systems Ltd., Tadiran Communication Ltd., The Elisra Group and Telrad Networks Ltd. Mr. Yanai holds a B.Sc. in Accounting and Economics from Tel-Aviv University.
Arrangements Concerning Election of Directors; Family Relationships
Pursuant to our articles of association in effect prior to our IPO, certain of our shareholders had rights to appoint members of our board of directors. All rights to appoint directors terminated upon the closing of our IPO. Currently-serving directors who were elected prior to the IPO (other than external directors, who serve a three-year term under the Companies Law, and other than Mr. Jonathan Kolber, who had resigned from the board in December 2015) were re-elected at our annual general meeting of shareholders in January 2016. Each of these directors will continue to serve pursuant to such re-election until our next annual general meeting of shareholders, at which their current term will expire. We are not a party to, and are not aware of, any voting agreements among our shareholders pursuant to which any of our directors was elected or re-elected. There are no family relationships among our executive officers and directors.
Compensation of Directors and Executive Officers
The aggregate compensation expensed and share-based compensation and other payments expensed by us and our subsidiaries to our directors and executive officers with respect to the year ended December 31, 2015 was $3.2 million. This amount includes approximately $0.1 million set aside or accrued to provide pension, severance, retirement or similar benefits or expenses.
Compensation of Executive Officers
The table below outlines the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law and described under “Board Practices—External Directors” below) with respect to the year ended December 31, 2015, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970. We refer to the five individuals for whom disclosure is provided herein as our Covered Executives.
For purposes of the table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes base salary, bonuses, equity-based compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking to provide such compensation.
Summary Compensation Table
|
Information Regarding the Covered Executive
(1)
|
|
Name and Principal Position
(2)
|
|
Base
Salary
($)
|
|
|
Benefits
and
Perquisites
($)
(3)
|
|
|
Variable compensation
($)
(4)
|
|
|
Equity-Based
Compensation
($)
(5
|
|
|
Total
($)
|
|
|
Nissim Mashiach, CEO
|
|
|
390,000
|
|
|
|
98,992
|
|
|
|
-
|
|
|
|
-
|
|
|
|
488,992
|
|
|
Michael Molyneaux, CMO
|
|
|
320,000
|
|
|
|
105,850
|
|
|
|
-
|
|
|
|
119,083
|
|
|
|
544,933
|
|
|
Mark Page,
CFO
|
|
|
330,000
|
|
|
|
59,626
|
|
|
|
-
|
|
|
|
408,313
|
|
|
|
797,939
|
|
|
David Ben Ami, Chairman of the Board
|
|
|
192,000
|
|
|
|
57,539
|
|
|
|
-
|
|
|
|
-
|
|
|
|
249,539
|
|
|
Each Other Director of the Company
(6)
|
|
|
30,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,659
|
|
|
|
130,659
|
|
|
(1)
|
All amounts reported in the table are in terms of cost to our company, as recorded in our financial statements.
|
|
(2)
|
All executive officers listed in the table served as full-time employees or consultants of our company during all or part of 2015. Dr. Michael Molyneaux served as our Chief Medical Officer until December 2015, at which time he resigned from that position. Mark Page served as our Chief Financial Officer throughout 2015 but resigned from that position effective as of February 2016. David Ben Ami, who served as our executive Chairman of the Board during 2015, resigned from that position effective as of November 2015 and now serves as a director of our company. Cash compensation amounts denominated in currencies other than the U.S. dollar were converted into U.S. dollars at the average conversion rate for 2015.
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|
(3)
|
Amounts reported in this column include benefits and perquisites, including those mandated by applicable law. Such benefits and perquisites may include, to the extent applicable to the Covered Executive, payments, contributions and/or allocations for savings funds, pension, severance, vacation, car or car allowance, medical insurances and benefits, risk insurances (e.g., life, disability, accident), convalescence pay, payments for social security, tax gross-up payments and other benefits and perquisites consistent with our guidelines.
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(4)
|
Amounts reported in this column refer to bonus payments that were paid with respect to 2015.
|
|
(5)
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Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2015 with respect to equity-based compensation. Assumptions and key variables used in the calculation of such amounts are described in paragraph C of Note 11 to our audited consolidated financial statements, which are included in this annual report.
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|
(6)
|
Excludes Jonathan Kolber, who resigned from our board of directors on December 8, 2015 and with respect to whom we recorded only $17,153 of compensation expense in our financial statements for the year ended December 31, 2015 (all of which related to equity-based compensation).
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Agreements with Executive Officers; Consulting and Directorship Services Provided by Directors
We have entered into written confidentiality, non-competition/solicitation and inventions assignment agreements with all of our executive officers. These agreements contain standard provisions for a company in our industry regarding non-competition, confidentiality of information and assignment of inventions. See “Item 3.D. Risk Factors—Risks Relating to Our Intellectual Property—Under applicable employment laws, we may not be able to enforce covenants not to compete” for a further description of the enforceability of non-competition clauses. Our executive officers will not receive benefits upon the termination of their respective employment with us, other than payment of salary and benefits (and limited accrual of vacation days) during the required notice period for termination of their employment, which varies for each individual. See “Item 7.B. Related Party Transactions—Agreements and Arrangements with, and Compensation of, Directors and Executive Officers” for additional information.
We receive consulting and directorship services from one of our directors. The amount payable pursuant to this arrangement has been approved by our board of directors and shareholders. Other than with respect to our directors that are also executive officers, there are no arrangements or understandings between us, on the one hand, and any of our directors, on the other hand, providing for benefits upon termination of their service as directors of our company.
Board of Directors
Under the Companies Law, the management of our business is vested in our board of directors. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executive officers are responsible for our day-to-day management and have individual responsibilities established by our board of directors. Our Chief Executive Officer is appointed by, and serves at the discretion of, our board of directors, subject to the employment agreement that we have entered into with him. All other executive officers are also appointed by our board of directors, and are subject to the terms of any applicable employment agreements that we may enter into with them.
Under our articles, our board of directors must consist of at least four and not more than eleven directors, including at least two external directors required to be appointed under the Companies Law. We elected two external directors prior to the consummation of our IPO, and our shareholders ratified such election at a special general meeting of shareholders held in November 2014. Our external directors are serving a three-year term pursuant to the requirements of the Companies Law. Under our articles, all of our other directors are elected on an annual basis, to serve until the next annual meeting of shareholders and until their successors are elected and duly qualified. External directors must be elected by a special majority of shareholders, while other directors may be elected by an ordinary majority of the voting power present and voting, in person or by proxy, at each annual meeting.
All directors (other than external directors) may be removed by a vote of 65% of the voting power of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordance with the Companies Law and our articles. External directors may be removed from office only under the limited circumstances set forth in the Companies Law. See “—External Directors” in this Item 6.C. below.
In addition to election by our shareholders, our articles allow our board of directors to appoint directors to fill vacancies on our board, for a term of office equal to the remaining term of office of the director(s) whose office(s) was vacated.
Our board of directors has determined that a majority of our directors (five, including our two external directors) qualify as “independent directors” under the NASDAQ Listing Rules. The definitions of “independent director” under the NASDAQ Listing Rules and “external director” under the Companies Law overlap to a certain extent such that we would generally expect the two directors who will serve as external directors to satisfy the independence requirements under the NASDAQ Listing Rules. The definition of external director under the Companies Law includes a set of statutory criteria that must be satisfied, including criteria whose aim is to ensure that there is no factor that would impair the ability of the external director to exercise independent judgment, which is similar to the corresponding standard for an independent director under the NASDAQ Listing Rules.
In accordance with the exemption available to foreign private issuers under the NASDAQ Listing Rules, we do not follow the requirements of the NASDAQ Listing Rules with regard to the process of nominating directors, and instead follow Israeli law and practice, in accordance with which our board of directors (or a committee thereof) is authorized to recommend to our shareholders director nominees for election.
Under the Companies Law and our articles, nominees for directors may also be proposed by any shareholder holding at least 1% of our outstanding voting power. However, any such shareholder may make such a nomination only if a written notice of such shareholder’s intent to make such nomination has been delivered to our registered Israeli office within seven days after we publish notice of our upcoming annual general meeting (or within 14 days after we publish a preliminary notification of an upcoming annual general meeting). Any such notice must include certain information, including, among other things, a description of all arrangements between the nominating shareholder and the proposed director nominee(s) and any other person pursuant to which the nomination(s) are to be made by the nominating shareholder, the consent of the proposed director nominee(s) to serve as our director(s) if elected and a declaration signed by the nominee(s) declaring that there is no limitation under the Companies Law preventing their election, and that all of the information that is required under the Companies Law to be provided to us in connection with such election has been provided.
Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise. See “—External Directors” below. In determining the number of directors required to have such expertise, our board of directors must consider, among other things, the type and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of our company who are required to have accounting and financial expertise is one. Mr. Yuval Yanai has been determined by our board of directors to possess such expertise.
External Directors
Under the Companies Law, our board of directors must include at least two members who qualify as external directors. We elected two external directors—Katherine Wolf and Yuval Yanai—prior to the consummation of our IPO, whose election was ratified at a special general meeting of shareholders held in November 2014. Both of our external directors serve on our audit committee and compensation committee.
The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by a majority vote of the shares present and voting at a meeting of shareholders, provided that either:
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•
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such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in the election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting, excluding abstentions, to which we refer as a disinterested majority; or
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•
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the total number of shares voted by non-controlling shareholders and by shareholders who do not have a personal interest in the election of the external director against the election of the external director does not exceed 2% of the aggregate voting rights in the company.
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The term “controlling shareholder” is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, other than by virtue of being an office holder. A shareholder is presumed to be a controlling shareholder if the shareholder holds (within the meaning of the Companies Law) 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or its general manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a public company if no other shareholder holds more than 50% of the voting rights in the company, but excludes a shareholder whose power derives solely from his or her position as a director of the company or from any other position with the company.
The initial term of an external director is three years. Thereafter, an external director may be re-elected by shareholders to serve in that capacity for additional three-year terms, provided that certain conditions are satisfied and that either:
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|
(i)
|
his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and is approved at a shareholders meeting by a disinterested majority, where the total number of shares held by non-controlling, disinterested shareholders voting for such reelection exceeds 2% of the aggregate voting rights in the company; or
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|
|
(ii)
|
his or her service for each such additional term is recommended by the board of directors and is approved at a meeting of shareholders by the same majority required for the initial election of an external director (as described above).
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The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including the NASDAQ Global Market, may be extended indefinitely in increments of additional three-year terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of the external director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficial to the company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as described above). Prior to the reelection of the external director at a general meeting of shareholders, the company’s shareholders must be informed of the term previously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.
External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal by the same shareholder vote percentage required for their election or by a court, in each case, only under limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company.
If an external directorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under the Companies Law to call a shareholders’ meeting as soon as practicable to appoint a replacement external director.
Each committee of the board of directors that exercises powers of the board of directors must include at least one external director, except that the audit committee and the compensation committee must include all external directors then serving on the board of directors. Under the Companies Law, external directors of a company are prohibited from receiving, directly or indirectly, any compensation from the company other than for their services as external directors pursuant to the Companies Law and the regulations promulgated thereunder. Compensation of an external director is determined prior to his or her appointment and may not be changed during his or her term subject to certain exceptions.
The Companies Law provides that a person is not qualified to serve as an external director if (i) the person is a relative of a controlling shareholder of the company, or (ii) if that person or his or her relative, partner, employer, another person to whom he or she was directly or indirectly subordinate, or any entity under the person’s control, has or had, during the two years preceding the date of appointment as an external director: (a) any affiliation or other disqualifying relationship with the company, with any person or entity controlling the company or a relative of such person, or with any entity controlled by or under common control with the company; or (b) in the case of a company with no shareholder holding 25% or more of its voting rights, had at the date of appointment as an external director, any affiliation or other disqualifying relationship with a person then serving as chairman of the board or chief executive officer, a holder of 5% or more of the issued share capital or voting power in the company or the most senior financial officer.
The term “relative” is defined under the Companies Law as a spouse, sibling, parent, grandparent or descendant; spouse’s sibling, parent or descendant; and the spouse of each of the foregoing persons.
Under the Companies Law, the term “affiliation” and the similar types of disqualifying relationships include (subject to certain exceptions):
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•
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an employment relationship;
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•
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a business or professional relationship even if not maintained on a regular basis (excluding insignificant relationships);
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•
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service as an office holder, excluding service as a director in a private company prior to the initial public offering of its shares if such director was elected as a director of the private company in order to serve as an external director following the initial public offering.
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The term “office holder” is defined under the Companies Law as the chief executive officer (referred to in the law as a general manager), chief business manager, deputy general manager, vice general manager, any other person assuming the responsibilities of any of these positions regardless of that person’s title, a director and any other manager directly subordinate to the general manager.
In addition, a person may not serve as an external director if that person’s position or professional or other activities create, or may create, a conflict of interest with that person’s responsibilities as a director or otherwise interfere with that person’s ability to serve as a director or if the person is an employee of the Israel Securities Authority or an Israeli stock exchange. A person may furthermore not continue to serve as an external director if he or she received direct or indirect compensation from the company, including amounts paid pursuant to indemnification or exculpation contracts or commitments and insurance coverage for his or her service as an external director, other than as permitted by the Companies Law and the regulations promulgated thereunder.
Following the termination of an external director’s service on a board of directors, such former external director and his or her spouse and children may not be provided a direct or indirect benefit by the company, its controlling shareholder or any entity under its controlling shareholder’s control. This includes engagement as an office holder or director of the company or a company controlled by its controlling shareholder or employment by, or provision of services to, any such company for consideration, either directly or indirectly, including through a corporation controlled by the former external director. This restriction extends for a period of two years with regard to the former external director and his or her spouse or child and for one year with respect to other relatives of the former external director.
If at the time at which an external director is appointed all members of the board of directors who are not controlling shareholders or relatives of controlling shareholders of the company are of the same gender, the external director to be appointed must be of the other gender. A director of one company may not be appointed as an external director of another company if a director of the other company is acting as an external director of the first company at such time.
According to regulations promulgated under the Companies Law, a person may be appointed as an external director only if he or she has professional qualifications or if he or she has accounting and financial expertise (each, as defined below). In addition, at least one of the external directors must be determined by our board of directors to have accounting and financial expertise. However, if at least one of our other directors (i) meets the independence requirements under the Exchange Act, (ii) meets the standards of the NASDAQ Listing Rules for membership on the audit committee, and (iii) has accounting and financial expertise as defined under the Companies Law, then neither of our external directors is required to possess accounting and financial expertise as long as each possesses the requisite professional qualifications.
A director with accounting and financial expertise is a director who, due to his or her education, experience and skills, possesses an expertise in, and an understanding of, financial and accounting matters and financial statements, such that he or she is able to understand the financial statements of the company and initiate a discussion about the presentation of financial data. A director is deemed to have professional qualifications if he or she has any of (i) an academic degree in economics, business management, accounting, law or public administration, (ii) an academic degree or has completed another form of higher education in the primary field of business of the company or in a field which is relevant to his/her position in the company, or (iii) at least five years of experience serving in one of the following capacities, or at least five years of cumulative experience serving in two or more of the following capacities: (a) a senior business management position in a company with a significant volume of business; (b) a senior position in the company’s primary field of business; or (c) a senior position in public administration or service. The board of directors is charged with determining whether a director possesses financial and accounting expertise or professional qualifications.
Our board of directors has determined that of our two external directors, Yuval Yanai possesses accounting and financial expertise, while Katherine Wolf possesses professional qualifications.
Board Committees
Audit Committee
Companies Law Requirements
Pursuant to the requirements of the Companies Law, we appointed an audit committee upon the closing of our IPO. An audit committee must be comprised of at least three directors, including all of the external directors, one of whom must serve as chairman of the committee. The audit committee may not include the chairman of the board, a controlling shareholder of the company, a relative of a controlling shareholder, a director employed by or providing services on a regular basis to the company, to a controlling shareholder or to an entity controlled by a controlling shareholder, or a director who derives most of his or her income from a controlling shareholder. In addition, under the Companies Law, the majority of the directors serving on the audit committee of a publicly traded company must be unaffiliated directors. In general, an “unaffiliated director” under the Companies Law is defined as either an external director or as a director who meets the following criteria:
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•
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he or she meets the qualifications for being appointed as an external director, except for the requirements that the director (i) be an Israeli resident (which does not apply to companies such as ours whose securities have been offered outside of Israel or are listed for trading outside of Israel) and (ii) possess accounting and financial expertise or professional qualifications; and
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•
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he or she has not served as a director of the company for a period exceeding nine consecutive years. For this purpose, a break of less than two years in the service shall not be deemed to interrupt the continuation of the service.
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NASDAQ Listing Requirements
Under the NASDAQ Listing Rules, we are required to maintain an audit committee consisting of at least three independent directors, each of whom is financially literate and one of whom has accounting or related financial management expertise.
Our audit committee consists of Mr. Yanai (chair), Mr. Grobman and Ms. Wolf. All of the members of our audit committee are independent directors in accordance with Rule 10A-3(b)(1) under the Exchange Act and satisfy the independent director requirements under the NASDAQ Listing Rules.
All members of our audit committee meet the requirements for financial literacy under the NASDAQ Listing Rules. Mr. Yanai is an audit committee financial expert as such term is defined in the rules of the SEC.
Audit Committee Role
Our board of directors has adopted an audit committee charter that sets forth the responsibilities of the audit committee consistent with the rules and regulations of the SEC and the NASDAQ Listing Rules, as well as the requirements for such committee under the Companies Law, including the following:
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oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of our independent registered public accounting firm to the board of directors in accordance with Israeli law;
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•
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recommending the engagement or termination of the person filling the office of our internal auditor; and
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recommending the terms of audit and non-audit services provided by the independent registered public accounting firm for pre-approval by our board of directors.
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Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control and legal compliance functions by pre-approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of our independent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.
Under the Companies Law, our audit committee is responsible for:
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(i)
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determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or the independent auditor, and making recommendations to the board of directors to improve such practices;
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(ii)
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determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether such transaction is extraordinary or material under the Companies Law) (see “—Approval of Related Party Transactions under Israeli Law”);
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(iii)
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establishing the approval process for certain transactions with a controlling shareholder or in which a controlling shareholder has a personal interest;
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(iv)
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where the board of directors approves the work plan of the internal auditor, examining such work plan before its submission to the board of directors and proposing amendments thereto;
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(v)
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examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to fulfill his responsibilities;
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(vi)
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examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders, depending on which of them is considering the appointment of our auditor; and
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(vii)
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establishing procedures for the handling of employees’ complaints as to deficiencies in the management of our business and the protection to be provided to such employees.
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Our audit committee may not approve any actions requiring its approval (see “—Approval of Related Party Transactions under Israeli Law” in this Item 6.C. below), unless at the time of the approval a majority of the committee’s members are present, which majority consists entirely of unaffiliated directors, including at least one external director.
Compensation Committee and Compensation Policy
The members of the compensation committee of our board of directors are Ms. Wolf (chair), Mr. Grobman and Mr. Yanai. All of the members of our compensation committee are independent under the NASDAQ Listing Rules.
Under the Companies Law, the board of directors of a public company must appoint a compensation committee. The compensation committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of the compensation committee. However, subject to certain exceptions, Israeli companies whose securities are traded on stock exchanges such as the NASDAQ Global Market, and who do not have a controlling shareholder, do not have to meet this majority requirement; provided, however, that the compensation committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction where the company’s securities are traded. Each compensation committee member who is not an external director must be a director whose compensation does not exceed an amount that may be paid to an external director. The compensation committee is subject to the same limitations as the audit committee under the Companies Law as to who may not be a member of the committee.
The duties of the compensation committee include recommending to the company’s board of directors a policy regarding the terms of engagement of office holders, to which we refer as a compensation policy. Such policy must be adopted by the company’s board of directors, after considering the recommendations of the compensation committee, and must be approved by the company’s shareholders, which approval requires what we refer to as a Special Majority Approval for Compensation. A Special Majority Approval for Compensation requires shareholder approval by a majority vote of the shares present and voting at a meeting of shareholders called for such purpose, provided that either: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in such compensation arrangement; or (b) the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights. Under the Companies Law, subject to certain conditions, the board of directors may adopt the compensation policy even if it is not approved by the shareholders. Under the Companies Law, a company must adopt a compensation policy within nine months following its becoming a public company. Pursuant to those requirements, our compensation committee and board of directors adopted our compensation policy, and our shareholders approved it at a special general meeting of shareholders held on December 30, 2014.
The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, including exculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy must relate to certain factors, including the advancement of the company’s objectives, the company’s business plan and its long-term strategy, and the creation of appropriate incentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensation policy must furthermore consider additional factors, including:
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the education, skills, expertise and accomplishments of the relevant office holder;
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the office holder’s roles and responsibilities and prior compensation agreements with him or her;
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the relationship between the cost of the terms offered and the cost of the compensation of the other employees of the company, including those employed through manpower companies;
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the impact of disparities in salary upon work relationships in the company;
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the possibility of reducing variable compensation at the discretion of the board of directors;
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the possibility of setting a limit on the exercise value of non-cash variable share-based compensation; and
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as to severance compensation, the period of service of the office holder, the terms of his or her compensation during such service period, the company’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of its profits, and the circumstances under which the person is leaving the company.
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The compensation policy must also include the following principles:
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(for the directors and chief executive officer) the link between variable compensation and long-term performance and measurable criteria;
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the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;
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the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which such compensation was based was inaccurate and was required to be restated in the company’s financial statements;
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the minimum holding or vesting period for variable, share-based compensation; and
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maximum limits for severance compensation.
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The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequent approval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders, including:
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recommending whether a compensation policy should continue in effect, if the then-current policy (for a company such as ours) has a term of greater than three years (approval of either a new compensation policy or the continuation of an existing compensation policy for a company such as ours must in any case occur every three years);
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recommending to the board of directors periodic updates to the compensation policy;
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assessing implementation of the compensation policy; and
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determining whether the compensation terms of the chief executive officer of the company need not be brought to approval of the shareholders.
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Compensation Committee Role
Our board of directors has adopted a compensation committee charter setting forth the responsibilities of the compensation committee, which include:
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the responsibilities set forth in the compensation policy;
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reviewing and approving the granting of options and other incentive awards to the extent such authority is delegated by our board of directors; and
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reviewing, evaluating and making recommendations regarding the compensation and benefits for our non-employee directors.
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Internal Auditor
Under the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor recommended by the audit committee. An internal auditor may not be:
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a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;
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a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;
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an office holder (including a director) of the company (or a relative thereof); or
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a member of the company’s independent accounting firm, or anyone on its behalf.
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The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee is required to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. Pursuant to the foregoing requirements, we have appointed Hila Barr-Hoisman from Deloitte Brightman Almagor Zohar Israel, as our internal auditor.
Approval of Related Party Transactions under Israeli Law
Fiduciary Duties of Directors and Executive Officers
The Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “—Executive Officers and Directors” is an office holder under the Companies Law.
An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care with which a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in good faith and in the best interests of the company.
The duty of care includes a duty to use reasonable means to obtain:
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information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and
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all other important information pertaining to any such action.
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The duty of loyalty includes a duty to:
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•
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refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;
|
|
|
•
|
refrain from any activity that is competitive with the company;
|
|
|
•
|
refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and
|
|
|
•
|
disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position as an office holder.
|
Disclosure of Personal Interests of an Office Holder and Approval of Certain Transactions
The Companies Law requires that an office holder promptly disclose to the company any personal interest that he or she may be aware of and all related material information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be made promptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest of any person in an action or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative of such person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, but excluding a personal interest stemming from one’s ownership of shares in the company.
A personal interest furthermore includes the personal interest of a person for whom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or she holds a proxy even if such person has no personal interest in the matter. An office holder is not, however, obliged to disclose a personal interest if it derives solely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinary transaction is defined as any of the following:
|
|
•
|
a transaction other than in the ordinary course of business;
|
|
|
•
|
a transaction that is not on market terms; or
|
|
|
•
|
a transaction that may have a material impact on a company’s profitability, assets or liabilities.
|
If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless the company’s articles of association provide for a different method of approval. Further, so long as an office holder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemed a breach of his or her duty of loyalty. However, generally, a company may only approve a transaction or action in which an office holder has a personal interest that is in the best interests of the company. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s audit committee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requires approval first by the company’s compensation committee, then by the company’s board of directors. If such compensation arrangement or an undertaking to indemnify or insure is inconsistent with the company’s stated compensation policy, or if the office holder is the chief executive officer (apart from a number of specific exceptions), then such arrangement is further subject to a Special Majority Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require the approval of the compensation committee, board of directors and, subject to certain exceptions, shareholders by ordinary majority, in that order, and under certain circumstances, a Special Majority Approval for Compensation. If shareholders of a company do not approve the compensation terms of office holders, other than directors, the compensation committee and board of directors may override the shareholders’ decision, subject to certain conditions.
Generally, a person who has a personal interest in a matter that is considered at a meeting of the board of directors or the audit committee may not be present at such a meeting or vote on that matter unless the chairman of the board of directors or audit committee (as applicable) determines that he or she should be present in order to present the transaction that is subject to approval. If a majority of the members of the audit committee or the board of directors (as applicable) has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors (as applicable) on such transaction and the voting on approval thereof, but shareholder approval is also required for such transaction.
Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain Transactions
Pursuant to the Companies Law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controlling shareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder who holds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, the holdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement of a controlling shareholder or his or her relative, directly or indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who is not an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder. In addition, the shareholder approval requires one of the following, which we refer to as a Special Majority:
|
|
•
|
at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meeting are voted in favor of the transaction, excluding abstentions; or
|
|
|
•
|
the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting do not exceed 2% of the voting rights in the company.
|
To the extent that any such transaction with a controlling shareholder is for a period extending beyond three years, approval is required once every three years, unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances related thereto.
Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require the approval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with the company’s stated compensation policy.
Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder or his or her relative, or with directors, that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the audit committee or the compensation committee, as the case may be, and board of directors. Under these regulations, a shareholder holding at least 1% of the issued share capital of the company may require, within 14 days of the publication of such determinations, that despite such determinations by the relevant committee and the board of directors, such transaction will require shareholder approval under the same majority requirements that would otherwise apply to such transactions.
Shareholder Duties
Pursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and to refrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect to the following matters:
|
|
•
|
an amendment to the company’s articles of association;
|
|
|
•
|
an increase of the company’s authorized share capital;
|
|
|
•
|
the approval of related party transactions and acts of office holders that require shareholder approval.
|
A shareholder also has a general duty to refrain from discriminating against other shareholders.
In addition, certain shareholders have a duty of fairness toward the company. These shareholders include a controlling shareholder, a shareholder who knows that he or she has the power to determine the outcome of a shareholder vote and a shareholder who has the power to appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define the substance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the duty of fairness.
Exculpation, Insurance and Indemnification of Directors and Officers
Under the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate an office holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if a provision authorizing such exculpation is included in its articles of association. Our amended and restated articles of association which are effective prior to the closing of our IPO include such a provision. A company may not exculpate in advance a director from liability arising out of a prohibited dividend or distribution to shareholders.
Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him or her as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provision authorizing such indemnification:
|
|
•
|
financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court; however, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited to events which, in the opinion of the board of directors, can be foreseen based on the company’s activities when the undertaking to indemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detail the abovementioned foreseen events and amount or criteria;
|
|
|
•
|
reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (i) no indictment was filed against such office holder as a result of such investigation or proceeding, and (ii) no financial liability was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent; and (2) in connection with a monetary sanction; and
|
|
|
•
|
reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her by the company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of a conviction for an offense that does not require proof of criminal intent.
|
Under the Companies Law, a company may insure an office holder against the following liabilities incurred for acts performed by him or her as an office holder, if and to the extent provided in the company’s articles of association:
|
|
•
|
a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would not harm the company;
|
|
|
•
|
a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and
|
|
|
•
|
a financial liability imposed on the office holder in favor of a third party.
|
Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:
|
|
•
|
a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not harm the company;
|
|
|
•
|
a breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office holder;
|
|
|
•
|
an act or omission committed with intent to derive illegal personal benefit; or
|
|
|
•
|
a fine or forfeit levied against the office holder.
|
Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committee and the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related Party Transactions under Israeli Law.”
Our articles permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Law.
We have obtained directors and officers liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay all premiums thereunder to the fullest extent permitted by the Companies Law. In addition, we have entered into agreements with each of our directors and executive officers exculpating them from liability to us for damages caused to us as a result of a breach of duty of care and undertaking to indemnify them, in each case, to the fullest extent permitted by our amended and restated articles of association and the Companies Law, including with respect to liabilities resulting from our IPO to the extent that these liabilities are not covered by insurance. In the opinion of the SEC, however, indemnification of directors and office holders for liabilities arising under the Securities Act is against public policy and therefore unenforceable.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics applicable to all of our directors and employees, including our Chief Executive Officer, Chief Financial Officer, Vice President Finance, controller or principal accounting officer, or other persons performing similar functions, which is a “code of ethics” as defined in Item 16B of Form 20-F promulgated by the SEC. We have posted the full text of the Code of Business Conduct and Ethics on our website at www.macrocure.com. Information contained on, or that can be accessed through, our website does not constitute a part of this annual report and is not incorporated by reference herein. If we make any amendment to the Code of Business Conduct and Ethics or grant any waivers, including any implicit waiver, from a provision of the code of ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of the SEC. Under Item 16B of Form 20-F, if a waiver or amendment of the Code of Business Conduct and Ethics applies to our principal executive officer, principal financial officer, principal accounting officer or controller and relates to standards promoting any of the values described in Item 16B(b) of Form 20-F, we are required to disclose such waiver or amendment on our website in accordance with the requirements of Instruction 4 to such Item 16B.
As of December 31, 2015, we had 13 employees, 9 based in Israel and 4 based in the United States. The total number of our full-time employees and the distribution of our employees according to main areas of activity, as of the end of each of the last three fiscal years, are set forth in the following table.
|
|
|
Number of full-time
employees by area of
activity as of
|
|
|
|
|
December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
Area of Activity
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
7
|
|
|
|
8
|
|
|
|
9
|
|
|
Research and development
|
|
|
6
|
|
|
|
20
|
|
|
|
20
|
|
|
Total
|
|
|
13
|
|
|
|
28
|
|
|
|
29
|
|
During the periods covered by the above tables, we did not employ a significant number of temporary employees, although we did utilize a contract research organization, or CRO, for overseeing and implementing our clinical trials in the United States, which itself had many employees.
As of March 31, 2016, we had a total of five employees, four of whom were resident in Israel and one of whom was resident in the United States.
Israeli labor laws govern the length of the workday and workweek, minimum wages for employees, procedures for hiring and dismissing employees, determination of severance pay, annual leave, sick days, advance notice of termination, payments to the National Insurance Institute, and other conditions of employment and include equal opportunity and anti-discrimination laws. While none of our employees is party to any collective bargaining agreements, certain provisions of the collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations (including the Industrialists’ Associations) are applicable to our employees in Israel by order of the Israeli Ministry of the Economy. These provisions primarily concern pension fund benefits for all employees, insurance for work-related accidents, recuperation pay and travel expenses. We generally provide our employees with benefits and working conditions beyond the required minimums.
We have never experienced any employment-related work stoppages and believe our relationships with our employees are good.
Equity Incentive Plans
2008 Stock Option Plan
In November 2008, we adopted our 2008 Stock Option Plan, or the 2008 Plan. The 2008 Plan permits the grant of options to our directors, employees, officers, consultants and service providers, among others.
The initial reserved pool under the 2008 Plan was 690,000 ordinary shares, which, following subsequent increases and decreases, and option exercises, now consists of a total of 1,127,322 ordinary shares, all of which are issuable under outstanding options. The 2008 Plan expires in November 2018. The 2008 Plan is administered by our board of directors or a committee designated by our board of directors, which determines, subject to Israeli law, the grantees of options, the terms of the options, including exercise prices, vesting schedules, acceleration of vesting, the type of option and the other matters necessary or desirable for, or incidental to the administration of the 2008 Plan. The 2008 Plan provides for the issuance of options under various Israeli tax regimes including, without limitation, pursuant to Sections 102 and 3(i) of the Israeli Income Tax Ordinance (New Version) 1961, or the Ordinance.
Section 102 of the Ordinance allows employees, directors and officers, who are not controlling shareholders and who are Israeli residents, to receive favorable tax treatment for compensation in the form of shares or options. Section 102 of the Ordinance includes two alternatives for tax treatment involving the issuance of options or shares to a trustee for the benefit of the grantees and also includes an additional alternative for the issuance of options or shares directly to the grantee. Section 102(b)(2) of the Ordinance, which provides the most favorable tax treatment for grantees, permits the issuance to a trustee under the “capital gains track.” In order to comply with the terms of the capital gains track, all options granted under a specific plan and subject to the provisions of Section 102 of the Ordinance, as well as the shares issued upon exercise of such options and other shares received following any realization of rights with respect to such options, such as share dividends and share splits, must be registered in the name of a trustee selected by the board of directors and held in trust for the benefit of the relevant employee, director or officer. The trustee may not release these options or shares to the relevant grantee before the second anniversary of the registration of the options in the name of the trustee. However, under this track, we are not allowed to deduct an expense with respect to the issuance of the options or shares.
The 2008 Plan provides that options granted to our employees, directors and officers who are not controlling shareholders and who are considered Israeli residents are intended to qualify for special tax treatment under the “capital gains track” provisions of Section 102(b)(2) of the Ordinance. Under the 2008 Plan, our Israeli non-employee service providers and controlling shareholders may only be granted options under Section 3(i) of the Ordinance, which does not provide for similar tax benefits.
Options granted under the 2008 Plan are subject to vesting schedules and generally expire ten years from approval of the options and generally vest over four years commencing on the date of grant, such that 25% vests on the first anniversary of the date of grant and an additional 6.25% vests at the end of each subsequent three-month period thereafter for 36 months. Under the 2008 Plan, in the event of termination of employment or services for reasons of disability or death, the grantee, or in the case of death, his or her legal successor, may exercise options that have vested prior to termination within a period of twelve months after the date of termination. If a grantee’s employment or service is terminated for cause, all of the grantee’s vested and unvested options expire on the date of termination. If a grantee’s employment or service is terminated without cause, the grantee may exercise his or her vested options within 180 days after the date of termination. Any expired or unvested options are returned to the pool for reissuance.
The exercise price and the number and/or type of shares issuable upon exercise of options under the 2008 Plan shall be adjusted due to a stock split (forward or reverse), stock dividend, recapitalization or similar adjustment affecting our outstanding share capital. The exercise price per share of any outstanding option that has not been exercised yet and has not expired yet shall be reduced by the net amount payable on each share of our outstanding share capital due to any cash dividend distributed to our shareholders.
The 2008 Plan provides that in the event of a merger or consolidation of our company, or a sale of all, or substantially all, of our shares or assets or other transaction having a similar effect on us, then without the consent of the option holder, our board of directors or its designated committee, as applicable, may but is not required to (i) cause any outstanding award to be assumed or an equivalent award to be substituted by such successor corporation, or (ii) in case the successor corporation refuses to assume or substitute the award (a) provide the grantee with the option to exercise the award as to all or part of the shares (even a portion not then otherwise vested) or (b) cancel the options against payment in cash in an amount determined by the board of directors or the committee as fair in the circumstances. Notwithstanding the foregoing, our board of directors or its designated committee may upon such event amend or terminate the terms of any award, including conferring the right to purchase any other security or asset that the board of directors shall deem, in good faith, appropriate. Pursuant to the foregoing provisions of the 2008 Plan, our board of directors has determined that upon the occurrence of any such merger or similar event, the vesting of options granted to certain of our executive officers will accelerate, thereby enabling such officers to exercise those options (even to the extent not otherwise exercisable).
Following the adoption of our 2013 Plan (as described below), all ordinary shares underlying awards under the 2008 Plan that expire or that are cancelled, terminated or forfeited for any reason are automatically added to, and become available for grant under, the 2013 Plan.
2013 Share Incentive Plan
In October 2013, we adopted our 2013 Share Incentive Plan, or the 2013 Plan. The 2013 Plan permits the grant of options, restricted shares and other share-based awards to our directors, employees, officers, consultants, advisors and service providers, among others.
The reserved pool under the 2013 Plan was 1,108,324 ordinary shares, which following subsequent events now consists of a total of 1,892,104 ordinary shares (that are either (i) issuable under outstanding options or (ii) available for issuance under future share-based grants). Pursuant to an amendment to the 2013 Plan, the number of shares issuable under the 2013 Plan automatically increases on an annual basis, commencing in January 2015, by an amount equal to the lesser of (i) 2% of the number of outstanding shares as of the prior year-end and (ii) an amount determined by our board of directors. No grants may be made under the 2013 Plan after October 2023, although the 2013 Plan will remain in effect until the expiration of all outstanding awards granted prior to that time. The 2013 Plan is administered by our board of directors or a committee designated by our board of directors, which determines, subject to Israeli law, the grantees of options, the terms of the options, including exercise prices, vesting schedules, acceleration of vesting, the type of option and the other matters necessary or desirable for, or incidental to the administration of the 2013 Plan. The 2013 Plan provides for the issuance of options under various tax regimes including, without limitation, pursuant to Sections 102 and 3(i) of the Ordinance.
The 2013 Plan provides that options granted to our employees, directors and officers who are not controlling shareholders and who are considered Israeli residents are intended to qualify for special tax treatment under the “capital gains track” provisions of Section 102(b)(2) of the Ordinance. Our Israeli non-employee service providers and controlling shareholders may only be granted options under Section 3(i) of the Ordinance, which does not provide for similar tax benefits.
Options granted under the 2013 Plan generally vest over four years commencing on the date of grant, such that 25% vests on the first anniversary of the date of grant and an additional 6.25% vests at the end of each subsequent three-month period thereafter for 36 months. Under the 2013 Plan, in the event of termination of employment or services for reasons of disability or death, the grantee, or in the case of death, his or her legal successor, may exercise options that have vested prior to termination within a period of one year after the date of termination. If a grantee’s employment or service is terminated for cause, all of the grantee’s vested and unvested options expire on the date of termination. If a grantee’s employment or service is terminated for any other reason, the grantee may exercise his or her vested options within 90 days after the date of termination. Any expired or unvested options are returned to the pool for reissuance.
The 2013 Plan provides that in the event of a merger or consolidation of our company, or a sale of all, or substantially all, of our shares or assets or other transaction having a similar effect on us, then without the consent of the option holder, our board of directors or its designated committee, as applicable, may but is not required to (i) cause any outstanding award to be assumed or an equivalent award to be substituted by such successor corporation, or (ii) in case the successor corporation refuses to assume or substitute the award (a) provide the grantee with the option to exercise the award as to all or part of the shares or (b) cancel the options against payment in cash in an amount determined by the board of directors or the committee as fair in the circumstances. Notwithstanding the foregoing, our board of directors or its designated committee may upon such event amend or terminate the terms of any award, including conferring the right to purchase any other security or asset that the board of directors shall deem, in good faith, appropriate. In the case of a stock split (forward or revenue), stock dividend, recapitalization or similar adjustment affecting our outstanding share capital, the exercise price and the number and/or type of shares issuable upon exercise of options under the 2013 Plan shall be adjusted accordingly.
Options granted under the 2013 Plan to U.S. residents may qualify as incentive stock options within the meaning of Section 422 of the Code, or may be non-qualified. The exercise price for “incentive stock options” must not be less than the fair market value on the date on which an option is granted, or 110% of the fair market value if the option holder holds more than 10% of our share capital.
The following table presents certain data for our 2008 and 2013 Plans as of December 31, 2015.
|
Plan
|
|
Total ordinary
shares reserved
under plan
|
|
|
Shares available
for future grants
under plan
|
|
|
Aggregate
number of
options
exercised
|
|
|
Aggregate
number of
options
outstanding
|
|
|
Weighted average
exercise price of
options
outstanding
|
|
|
2008 Stock Option Plan
|
|
|
1,379,172
|
|
|
|
—
|
|
|
|
251,850
|
|
|
|
1,127,322
|
|
|
$
|
6.00
|
|
|
2013 Share Incentive Plan
|
|
|
1,552,467
|
|
|
|
1,032,148
|
|
|
|
1,518
|
|
|
|
518,801
|
|
|
$
|
9.20
|
|
Share Ownership of Executive Officers and Directors
For information concerning the overall beneficial ownership of our ordinary shares by our executive officers and directors, please see the table in Item 7. “Major Shareholders and Related Party Transactions—Major Shareholders” below. As of December 31, 2015, options to purchase 1,258,297 ordinary shares granted to our directors and executive officers were outstanding under our share option plans at a weighted average exercise price of $7.98 per share. The ordinary shares held by our directors and executive officers do not have voting rights that differ from those enjoyed by all holders of our ordinary shares.
Item 7
. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
The following table sets forth information with respect to the beneficial ownership of our shares as of February 29, 2016 by:
|
|
·
|
each person or entity known by us to own beneficially more than 5% of our outstanding shares;
|
|
|
·
|
each of our directors and executive officers individually; and
|
|
|
·
|
all of our executive officers and directors as a group.
|
The beneficial ownership of ordinary shares is determined in accordance with the rules of the SEC and generally includes any ordinary shares over which a person exercises sole or shared voting or investment power, or the right to receive the economic benefit of ownership. For purposes of the table below, we deem shares subject to options or warrants that are currently exercisable or exercisable within 60 days of February 29, 2016 to be outstanding and to be beneficially owned by the person holding the options or warrants for the purposes of computing the percentage ownership of that person but we do not treat them as outstanding for the purpose of computing the percentage ownership of any other person. The percentage of shares beneficially owned is based on 17,080,652 ordinary shares outstanding as of February 29, 2016.
As of February 29, 2016, we had two holders of record of our ordinary shares in the United States, including Cede & Co., the nominee of The Depository Trust Company. These shareholders held in the aggregate 6,935,007 ordinary shares, or 40.6% of our outstanding ordinary shares as of February 29, 2016. The number of record holders in the United States is not representative of the number of beneficial holders nor is it representative of where such beneficial holders are resident since the vast majority of these ordinary shares were held by Cede & Co., the nominee of The Depository Trust Company, on behalf of brokers or other nominees, who in turn held ordinary shares on behalf of underlying beneficial holders.
All of our shareholders, including the shareholders listed below, have the same voting rights attached to their ordinary shares. See “Item 10.B. Articles of Association.” None of our principal shareholders or our directors and executive officers has different or special voting rights with respect to his, her or its ordinary shares. Unless otherwise noted below, each shareholder’s address is c/o Macrocure Ltd., 25 Hasivim Street, Petach Tikva 4959383, Israel.
A description of any material relationship that our principal shareholders have had with us or any of our predecessors or affiliates within the past three years is included below under “Item 7.B. Related Party Transactions.”
|
|
|
Number and Percentage of
Ordinary Shares
Beneficially Owned
|
|
|
Name
|
|
Number
|
|
|
Percent
|
|
|
5% or Greater Shareholders
(other than directors and executive officers)
|
|
|
|
|
|
|
|
Pontifax (Israel) and affiliated venture funds(1)
|
|
|
1,874,884
|
(2)
|
|
|
11.0
|
%
|
|
Viola Private Equity I, L.P. and affiliated entities(3)
|
|
|
1,822,006
|
(4)
|
|
|
10.3
|
%
|
|
Viatcheslav Mirilashvili(5)
|
|
|
3,333,032
|
(6)
|
|
|
19.2
|
%
|
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
|
Nissim Mashiach
|
|
|
859,602
|
(7)
|
|
|
4.8
|
%
|
|
Shai Lankry
|
|
|
48,622
|
(8)
|
|
|
0.3
|
%
|
|
Tomer Kariv
|
|
|
1,874,884
|
(9)
|
|
|
11.0
|
%
|
|
Ze’ev Bronfeld
|
|
|
2,702,496
|
(10)
|
|
|
15.8
|
%
|
|
Ranan Grobman
|
|
|
387,053
|
(11)
|
|
|
2.3
|
%
|
|
David Ben Ami
|
|
|
1,840,000
|
(12)
|
|
|
10.8
|
%
|
|
Yuval Yanai
|
|
|
13,750
|
(13)
|
|
|
0.1
|
%
|
|
Katherine Wolf
|
|
|
13,750
|
(14)
|
|
|
0.1
|
%
|
|
All Directors and Executive Officers as a Group (8 persons)
|
|
|
7,740,157
|
(15)
|
|
|
42.8
|
%
|
|
(1)
|
The address of Pontifax (Israel) and its affiliated venture funds, to which we refer collectively as Pontifax, is 14 Shenkar St., Herzliya Pituach, PO Box 4093, Herzliya, 46140, Israel. Each of Mr. Tomer Kariv, who is the chief executive officer of Pontifax, and Mr. Ron Nussbaum, shares voting and dispositive power with respect to the shares held by Pontifax.
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|
(2)
|
Includes 13,750 ordinary shares issuable upon the exercise of options that are currently exercisable or exercisable within 60 days of February 29, 2016.
|
|
(3)
|
The address of Viola Private Equity I, L.P., or Viola, is Ackerstein Towers, Building D, 12 Abba Eban Avenue, 46120 Herzliya Pituach, Israel. Mr. Harel Beit-On, Mr. Shlomo Dovrat, Mr. Avi Zeevi and Mr. Eylon Penchas hold indirect interests in, and are directors in, and/or shareholders of, various entities that are the general partners of Viola and may be deemed to be the beneficial owners of the shares held by Viola.
|
|
(4)
|
Includes an aggregate of (i) 669,898 ordinary shares issuable upon the exercise of warrants at the weighted average exercise price of NIS 0.01, all of which were exercisable as of February 29, 2016.
|
|
(5)
|
The address of Viatcheslav Mirilashvili is Hamanofim St., Herzliya Pituach, Herzliya, 46725, Israel.
|
|
(6)
|
Consists of (i) 2,693,770 ordinary shares held by Viatcheslav Mirilashvili, and (ii) (a) 391,184 ordinary shares and (b) 248,078 ordinary shares issuable upon the exercise of warrants that are currently exercisable at the weighted average exercise price per share of NIS 0.01, held by Vaizra Ventures Ltd., or Vaizra Ventures, an entity in which Mr. Mirilashvili indirectly holds 100% of the equity. As described in footnote (8) below, an entity for which Ranan Grobman, a director of our company, serves as a director and in which he holds a 40% equity interest, holds a currently exercisable option to purchase 10% of the ordinary shares of our company beneficially owned by Mr. Mirilashvili (including shares held or beneficially owned by Vaizra Ventures), in the aggregate.
|
|
(7)
|
Consists entirely of options to purchase ordinary shares, all of which are currently exercisable.
|
|
(8)
|
Consists entirely of options to purchase ordinary shares, all of which are either currently exercisable or exercisable within 60 days of February 29, 2016.
|
|
(9)
|
Consists of 1,874,884 ordinary shares (including 13,750 ordinary shares issuable upon the exercise of options that are currently exercisable or exercisable within 60 days of February 29, 2016) beneficially owned by Pontifax, for which Mr. Kariv serves as chief executive officer. Mr. Kariv and Ran Nussbaum share voting and dispositive power with respect to the shares held by Pontifax.
|
|
(10)
|
Includes 13,750 ordinary shares issuable upon the exercise of options that are currently exercisable or exercisable within 60 days of February 29, 2016.
|
|
(11)
|
Includes 333,303 ordinary shares that constitute 10% of the 3,333,032 ordinary shares beneficially owned by Mr. Mirilashvili (including via Vaizra Ventures), in the aggregate, which are subject to a currently exercisable option to purchase that is held by an entity in which Mr. Grobman holds a 40% equity interest and for which he serves as a director. Mr. Grobman disclaims beneficial ownership of those 333,303 ordinary shares except to the extent of his pecuniary interest therein. Also includes 13,750 ordinary shares issuable upon the exercise of options that are held by Mr. Grobman and that are currently exercisable or exercisable within 60 days of February 29, 2016.
|
|
(12)
|
Includes 13,750 ordinary shares issuable upon the exercise of options that are currently exercisable or exercisable within 60 days of February 29, 2016.
|
|
(13)
|
Consists entirely of options to purchase ordinary shares, all of which are either currently exercisable or exercisable within 60 days of February 29, 2016.
|
|
(14)
|
Consists entirely of options to purchase ordinary shares, all of which are either currently exercisable or exercisable within 60 days of February 29, 2016.
|
|
(15)
|
Please see footnotes 7 through 13 above for information concerning the beneficial ownership of our directors and executive officers.
|
|
|
B.
|
Related Party Transactions
|
The following is a description of material transactions, or series of related material transactions, since January 1, 2015, to which we were or will be a party and in which the other parties included or will include our directors, executive officers, holders of more than 10% of our voting securities or any member of the immediate family of any of the foregoing persons.
Registration Rights
We are party to a Second Amended and Restated Registration Rights Agreement, dated July 22, 2014 (which became effective upon the closing of our IPO) with certain of our security holders, to which we refer as the registration rights agreement. Under the registration rights agreement, holders of a total of 3,746,010 of our ordinary shares, as of our IPO (which excludes ordinary shares issuable upon exercise of certain of our outstanding warrants, whose holders also possess registration rights) have the right to require us to register their ordinary shares under the Securities Act under specified circumstances and will have incidental registration rights as described below.
Demand Registration Rights
At any time, the holders of at least 50% of the registrable securities then outstanding may request that we file a registration statement (including a registration of the sale of their shares on a delayed or continuous basis under Form F-3) with respect to the registrable securities held by them. This demand right is subject to an anticipated aggregate offering price, net of selling expenses, of at least $5.0 million in an ordinary demand registration and $1.0 million for a registration on Form F-3. Upon receipt of such registration request, we are obligated to use our best efforts to effect, as soon as practicable, the registration under the Securities Act of all registrable securities that the Holders request to be registered. Our shareholders have the right to utilize their demand rights up to three times for an ordinary demand and up to two times in every 12 month period in the case of a demand for registration on Form F-3.
We will not be obligated to file a registration statement at any such time if in the good faith judgment of our board of directors (as reflected in a certificate delivered by our chief executive officer or the chairman of our board of directors), such registration would be seriously detrimental to our company, provided that we do not use that exemption more than once in any 12 month period. We also have the right not to effect or take any action to effect a registration statement during the period of 180 days following the effective date of a previous registration.
Piggyback Registration Rights
In addition, if we register any of our ordinary shares in connection with the public offering of such securities solely for cash, the holders of all registrable securities are entitled to notice of the registration and to include all or a portion of their registrable securities in the registration. If the public offering that we are effecting is underwritten, the right of any shareholder to include shares in the registration related thereto is conditioned upon the shareholder accepting the terms of the underwriting as agreed between us and the underwriters. Each shareholder may furthermore only include such quantity of registrable securities as the underwriters in their sole discretion determine will not jeopardize the success of our offering.
Other Provisions
We will pay all registration expenses (other than underwriting discounts and selling commissions) and the reasonable fees and expenses of a single counsel for the selling shareholders, related to any demand or piggyback registration. The demand and piggyback registration rights described above will expire five years after our initial public offering, or, in respect of any individual shareholder, when such shareholder (together with any affiliates of the shareholder with whom such shareholder must aggregate its sales under Rule 144 promulgated under the Securities Act) is able to sell all of its registrable securities within any three month period.
Agreements and Arrangements with, and Compensation of, Directors and Executive Officers
We have entered into written confidentiality, non-competition/solicitation and inventions assignment agreements with each of our executive officers. However, the enforceability of the non-competition provisions may be limited under applicable law. Our executive officers will not receive benefits upon the termination of their employment with us, other than payment of salary and benefits (and limited accrual of vacation days) during the required notice period for termination of their employment, which varies for each individual.
Indemnification agreements
Our amended and restated articles of association permit us to exculpate, indemnify and insure each of our directors and office holders to the fullest extent permitted by the Companies Law. Prior to the closing of this offering, we will enter into indemnification agreements with each of our directors and executive officers, undertaking to indemnify them to the fullest extent permitted by the Companies Law, including with respect to liabilities resulting from a public offering of our shares, to the extent that these liabilities are not covered by insurance. We have also obtained directors and officers insurance for each of our executive officers and directors. For further information, see “Item 6.C. Board Practices—Exculpation, Insurance and Indemnification of Directors and Officers.”
Convertible Loan Credit Line from Significant Shareholder
On July 10, 2014, we entered into a convertible loan agreement with Viatcheslav Mirilashvili, who together with Vaizra Ventures, of which he indirectly owns 100% of the equity, constitutes a significant shareholder of ours, pursuant to which Mr. Mirilashvili, to whom we refer as the lender, made available to us a line of credit in an amount of up to $10.0 million that we were permitted to draw upon in one or more installments, at our sole discretion. Any amounts outstanding under the line of credit as of the consummation of the IPO were to automatically convert into ordinary shares of our company to be issued to the lender at the price per share being paid by the public in the IPO, although the underwriters would not have received any discounts or commissions in respect of that conversion. We did not draw from the line of credit at all, and the line of credit expired pursuant to its terms upon the consummation of our IPO.
In consideration of the lender’s having provided the line of credit to us, we issued to the lender a warrant to purchase 439,760 of our ordinary shares at a price per share equal to NIS 0.01. The warrant was to expire 10 years following the date of the convertible loan agreement, or earlier if we were to consummate a merger, sale of all or substantially all of our assets, license of all or substantially all of our intellectual property or similar transaction.
On February 12, 2015 the lender exercised the warrants to purchase 439,760 of our ordinary shares at a price per share equal to NIS 0.01.
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|
C.
|
Interests of Experts and Counsel
|
Not applicable.
Item 8
. FINANCIAL INFORMATION
|
|
A.
|
Consolidated Statements and Other Financial Information
|
Consolidated Financial Statements
We have appended our consolidated financial statements at the end of this annual report, starting at page F-2, as part of this annual report.
Legal Proceedings
Cognate Proceedings
On July 2, 2014, a legal proceeding was initiated against us in the Israeli Magistrate Court of Rishon Lezion at the request of the United States District Court for the District of Maryland, or the U.S. District Court. The U.S. District Court had requested that the Israeli Magistrate Court collect certain evidence and documents from our company, including a laptop computer, that had been used by our former employee, pursuant to a legal action that had been initiated by Cognate Bioservices, Inc., or Cognate, and additional plaintiffs against the former employee in the U.S. District Court for, among other things, misappropriation of trade secrets. In March 2015, Cognate and the additional plaintiffs added our company as a defendant in the case in the U.S. District Court, alleging, among other claims, that we had violated the Computer Fraud and Abuse Act and had misappropriated products and trade secrets of Cognate.
After lengthy proceedings, on January 13, 2016, the Israeli Magistrate Court ordered our company to disclose, at this stage, only the items included in certain categories of evidence sought by the U.S. District Court (the categories relating to computer and storage devices). That order required the turning over of the former employee’s laptop computer. On February 14, 2016, our company filed an appeal, and a motion for leave to appeal regarding this last decision, with the Israeli Central District Court, or the Israeli District Court. On March 8, 2016, our company filed with the Israeli District Court a motion to stay the order to turn over the laptop computer.
On March 10, 2016, the U.S. District Court dismissed the action brought against our company by Cognate and other plaintiffs in that court. On April 7, 2016, Cognate filed a motion to alter or amend the U.S. District Court’s March 10, 2016 judgment. In its motion to alter or amend the judgment, Cognate stated that it has settled its claims with our former employee. On April 12, 2016, the Israeli Magistrate Court, deciding as authorized by the Israeli District Court, dismissed the proceedings against us in that court, in light of the dismissal in the U.S. case, and cancelled its order to us to turn over the laptop computer to Cognate. The court also held that we are entitled to reimbursement of costs associated with the proceedings in the Israeli courts.
On April 14, 2016, we filed with the Israeli District Court a motion to withdraw our motion for leave to appeal without costs, since the January 13, 2016 decision of the Israeli Magistrate Court had been canceled. On the same day, our motion was granted by the Israeli District Court.
Other Proceedings
From time to time, we may become party to additional litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. Except as described above, we are not currently involved in any legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations.
Dividend Policy
We have never declared or paid cash dividends to our shareholders, and we do not intend to pay cash dividends in the foreseeable future. We intend to reinvest any earnings in developing and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will depend on a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects, our strategic goals and plans to expand our business, applicable law and other factors that our board of directors may deem relevant.
See “Item 3.D. Risk Factors—Risks Related to an Investment in Our Ordinary Shares—We have never paid cash dividends on our share capital, and we do not anticipate paying any cash dividends in the foreseeable future” and “Item 10.B. Articles of Association—Description of Share Capital—Dividend and Liquidation Rights.”
No significant changes have occurred since December 31, 2015, except as otherwise disclosed in this annual report.
Item
9. THE OFFER AND LISTING
Our ordinary shares have been quoted on the NASDAQ Global Market under the symbol “MCUR” since July 31, 2014. Prior to that date, there was no public trading market for our ordinary shares. Our IPO was priced at $10.00 per share on July 30, 2014. The following table sets forth for the periods indicated the high and low closing sales prices per ordinary share as reported on NASDAQ:
|
|
|
|
|
|
|
|
|
|
|
(in U.S. dollars)
|
|
|
Annual:
|
|
|
|
|
|
|
|
2015
|
|
$
|
0.85
|
|
|
$
|
15.46
|
|
|
2014 (beginning July 31, 2014)
|
|
|
7.01
|
|
|
|
9.71
|
|
|
Quarterly:
|
|
|
|
|
|
|
|
|
|
First Quarter 2016
|
|
|
0.93
|
|
|
|
1.39
|
|
|
Fourth Quarter 2015
|
|
|
0.85
|
|
|
|
4.26
|
|
|
Third Quarter 2015
|
|
|
2.98
|
|
|
|
14.04
|
|
|
Second Quarter 2015
|
|
|
9.12
|
|
|
|
15.46
|
|
|
First Quarter 2015
|
|
|
7.53
|
|
|
|
11.84
|
|
|
Fourth Quarter 2014
|
|
|
7.01
|
|
|
|
8.30
|
|
|
Third Quarter 2014 (beginning July 31, 2014)
|
|
|
7.10
|
|
|
|
9.71
|
|
|
Most Recent Six Months:
|
|
|
|
|
|
|
|
|
|
March 2016
|
|
|
0.85
|
|
|
|
1.00
|
|
|
February 2016
|
|
|
0.93
|
|
|
|
1.04
|
|
|
January 2016
|
|
|
0.98
|
|
|
|
1.39
|
|
|
December 2015
|
|
|
1.18
|
|
|
|
1.93
|
|
|
November 2015
|
|
|
0.85
|
|
|
|
2.44
|
|
|
October 2015
|
|
|
1.35
|
|
|
|
4.26
|
|
Not applicable.
See “—Listing Details” above.
Not applicable.
Not applicable.
Not applicable.
Item
10. ADDITIONAL INFORMATION
Not applicable.
|
|
B.
|
Articles of Association
|
Registration Number and Purposes of the Company
. Our registration number with the Israeli Registrar of Companies is 51-408376-5. Our purpose as set forth in our articles is to engage in any lawful activity or business
Voting Rights and Conversion
. All ordinary shares have identical voting and other rights in all respects.
Transfer of Shares
. Our fully paid ordinary shares are issued in registered form and may be freely transferred under our articles of association, unless the transfer is restricted or prohibited by another instrument, applicable law or the rules of a stock exchange on which the shares are listed for trade. The ownership or voting of our ordinary shares by non-residents of Israel is not restricted in any way by our articles of association or the laws of the State of Israel, except for ownership by nationals of some countries that are, or have been, in a state of war with Israel.
Election of Directors
. Our ordinary shares do not have cumulative voting rights for the election of directors. As a result, the holders of a majority of the voting power represented at a shareholders meeting have the power to elect all of our directors, subject to the special approval requirements for external directors described under “Item 6.C. Board Practices—External Directors.”
Under our articles, our board of directors must consist of at least four and not more than eleven directors, including at least two external directors required to be appointed under the Companies Law. The amendment of the minimum and maximum number of directors of our company requires the approval of at least 65% of the voting power present and voting (excluding abstentions) at a general meeting of our shareholders.
Pursuant to our articles, each of our directors, other than the external directors, for whom special election requirements apply under the Companies Law, is elected by a simple majority vote of holders of our voting shares, participating and voting at each annual general meeting of our shareholders. Each director, other than the external directors, serves on our board of directors until he or she is removed by a vote of not less than 65% of the voting power of our shareholders present and voting (excluding abstentions) at a general or special meeting of our shareholders or upon the occurrence of certain events, in accordance with the Companies Law and our articles, including the election of his or her successor or his or her earlier death or resignation. In addition, our articles allow our board of directors to appoint directors to fill vacancies on the board of directors to serve for a term of office equal to the remaining period of the term of office of the directors(s) whose office(s) have been vacated. External directors are elected for an initial term of three years, may be elected for additional terms of three years each under certain circumstances, and may be removed from office pursuant to the terms of the Companies Law. Please see “Item 6.C. Board Practices—Board of Directors—External Directors.”
Dividend and Liquidation Rights
. We may declare a dividend to be paid to the holders of our ordinary shares in proportion to their respective shareholdings. Under the Companies Law, dividend distributions are determined by the board of directors and do not require the approval of the shareholders of a company unless the company’s articles of association provide otherwise. Our articles do not require shareholder approval of a dividend distribution and provide that dividend distributions may be determined by our board of directors.
Pursuant to the Companies Law, the distribution amount is limited to the greater of retained earnings or earnings generated over the previous two years, according to our then last reviewed or audited financial statements, provided that the end of the period to which the financial statements relate is not more than six months prior to the date of the distribution. If we do not meet such criteria, then we may distribute dividends only with court approval. In each case, we are only permitted to distribute a dividend if our board of directors and the court, if applicable, determines that there is no reasonable concern that payment of the dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.
In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to their shareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.
Exchange Controls
. There are currently no Israeli currency control restrictions on remittances of dividends on our ordinary shares, proceeds from the sale of the shares or interest or other payments to non-residents of Israel, except for shareholders who are subjects of countries that are, or have been, in a state of war with Israel.
Shareholder Meetings
.
Under Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and no later than 15 months after the date of the previous annual general meeting. All shareholder meetings other than the annual general meeting of shareholders are referred to in our amended and restated articles of association as special general meetings. Our board of directors may call special general meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law provides that our board of directors is required to convene a special general meeting upon the written request of (i) any two or more of our directors or one-quarter or more of the members of our board of directors or (ii) one or more shareholders holding, in the aggregate, either (a) 5% or more of our outstanding issued shares and 1% or more of our outstanding voting power or (b) 5% or more of our outstanding voting power.
Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetings are the shareholders of record on a date to be decided by the board of directors, which may be between four and 40 days prior to the date of the meeting. Furthermore, the Companies Law requires that resolutions regarding the following matters must be passed at a general meeting of our shareholders:
|
|
•
|
amendments to our articles of association;
|
|
|
•
|
appointment or termination of our auditors;
|
|
|
•
|
appointment of external directors;
|
|
|
•
|
approval of certain related party transactions;
|
|
|
•
|
increases or reductions of our authorized share capital;
|
|
|
•
|
the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of its powers is required for our proper management.
|
The Companies Law requires that a notice of any annual general meeting or special general meeting be provided to shareholders at least 21 days prior to the meeting and if the agenda of the meeting includes, among others, the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of a merger, notice must be provided at least 35 days prior to the meeting.
Under the Companies Law and under our articles, shareholders are not permitted to take action by way of written consent in lieu of a meeting.
Voting Rights
Quorum Requirements
Pursuant to our articles, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before the shareholders at a general meeting. As permitted under the Companies Law and the NASDAQ Listing Rules, due to our status as a foreign private issuer, the quorum required for our general meetings of shareholders consists of at least two shareholders present in person, by proxy or written ballot who hold or represent between them at least 25% of the total outstanding voting rights. A meeting adjourned for lack of a quorum is generally adjourned to the same day in the following week at the same time and place or to a later time or date if so specified in the notice of the meeting. At the reconvened meeting, subject to certain exceptions, any two or more shareholders present in person or by proxy shall constitute a lawful quorum.
Vote Requirements
Our articles provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by the Companies Law or by our articles. Under the Companies Law, each of (i) the approval of an extraordinary transaction with a controlling shareholder, (ii) the terms of employment or other engagement of the controlling shareholder of the company or such controlling shareholder's relative (even if such terms are not extraordinary), (iii) the compensation of a company's chief executive officer, (iv) the approval of a compensation policy with respect to a company's office holders, (v) service of the same person as chief executive officer and chairman of the board and (vi) certain other matters, requires the approval of special majorities by shareholders, including, where applicable, a Special Majority and a Special Majority Approval for Compensation, as described above under “Item 6.C. Board
Practices
—Approval of Related Party Transactions under Israeli Law.” Under our articles, the alteration of the rights, privileges, preferences or obligations of any class of our shares requires a simple majority of the class so affected (or such other percentage of the relevant class that may be set forth in the governing documents relevant to such class), in addition to the ordinary majority vote of all classes of shares voting together as a single class at a shareholder meeting.
Further exceptions to the simple majority vote requirement are a resolution for the voluntary winding up, or an approval of a scheme of arrangement or reorganization, of the company pursuant to Section 350 of the Companies Law, which requires the approval of holders of 75% of the voting rights represented at the meeting and voting on the resolution. Our articles also impose certain supermajority voting requirements, which provide that approval by at least 65% of the voting power of our shareholders present and voting (excluding abstentions) at a general meeting is required for any of (i) the amendment of the minimum and maximum number of our directors under our articles, or (ii) removal of a director from office.
Access to Corporate Records
Under the Companies Law, shareholders are provided access to: minutes of our general meetings; our shareholders register and principal shareholders register, articles of association and annual audited financial statements; and any document that we are required by law to file publicly with the Israeli Registrar of Companies or the Israel Securities Authority. In addition, shareholders may request to be provided with any document related to an action or transaction requiring shareholder approval under the related party transaction provisions of the Companies Law. We may deny this request if we believe it has not been made in good faith or if such denial is necessary to protect our interest or protect a trade secret or patent.
Modification of Class Rights
Under the Companies Law and our articles, the rights attached to any class of share, such as voting, liquidation and dividend rights, may be amended by adoption of a resolution by the holders of a majority of the shares of that class present at a separate class meeting, or otherwise in accordance with the rights attached to such class of shares, as set forth in our articles.
Registration Rights
For a description of the registration rights that we have granted to certain of our shareholders and warrant holders, please see “Item 7.B. Related Party Transactions—Registration Rights” above.
Acquisitions under Israeli Law
Full Tender Offer
A person wishing to acquire shares of an Israeli public company and who would as a result hold over 90% of the target company’s issued and outstanding share capital is required by the Companies Law to make a tender offer to all of the company’s shareholders for the purchase of all of the issued and outstanding shares of the company. A person wishing to acquire shares of a public Israeli company and who would as a result hold over 90% of the issued and outstanding share capital of a certain class of shares is required to make a tender offer to all of the shareholders who hold shares of the relevant class for the purchase of all of the issued and outstanding shares of that class. If the shareholders who do not accept the offer hold less than 5% of the issued and outstanding share capital of the company or of the applicable class, and more than half of the shareholders who do not have a personal interest in the offer accept the offer, all of the shares that the acquirer offered to purchase will be transferred to the acquirer by operation of law. However, a tender offer will also be accepted if the shareholders who do not accept the offer hold less than 2% of the issued and outstanding share capital of the company or of the applicable class of shares.
Upon a successful completion of such a full tender offer, any shareholder that was an offeree in such tender offer, whether such shareholder accepted the tender offer or not, may, within six months from the date of acceptance of the tender offer, petition an Israeli court to determine whether the tender offer was for less than fair value and that the fair value should be paid as determined by the court. However, under certain conditions, the offeror may include in the terms of the tender offer that an offeree who accepted the offer will not be entitled to petition the Israeli court as described above.
If (a) the shareholders who did not respond or accept the tender offer hold at least 5% of the issued and outstanding share capital of the company or of the applicable class or the shareholders who accept the offer constitute less than a majority of the offerees that do not have a personal interest in the acceptance of the tender offer, or (b) the shareholders who did not accept the tender offer hold 2% or more of the issued and outstanding share capital of the company (or of the applicable class), the acquirer may not acquire shares from shareholders who accepted the tender offer that will increase its holdings to more than 90% of the company’s issued and outstanding share capital or of the applicable class.
Special Tender Offer
The Companies Law provides that, subject to certain exceptions, an acquisition of shares of an Israeli public company must be made by means of a special tender offer if as a result of the acquisition the purchaser would become a holder of 25% or more of the voting rights in the company. This requirement does not apply if there is already another holder of at least 25% of the voting rights in the company. Similarly, the Companies Law provides that an acquisition of shares in a public company must be made by means of a special tender offer if as a result of the acquisition the purchaser would become a holder of more than 45% of the voting rights in the company, if there is no other shareholder of the company who holds more than 45% of the voting rights in the company, subject to certain exceptions.
A special tender offer must be extended to all shareholders of a company but the offeror is not required to purchase shares representing more than 5% of the voting power attached to the company’s outstanding shares, regardless of how many shares are tendered by shareholders. A special tender offer may be consummated only if (i) the offeror acquired shares representing at least 5% of the voting power in the company and (ii) the number of shares tendered by shareholders who accept the offer exceeds the number of shares held by shareholders who object to the offer (excluding the purchaser, controlling shareholders, holders of 25% or more of the voting rights in the company or any person having a personal interest in the acceptance of the tender offer). If a special tender offer is accepted, the purchaser or any person or entity controlling it or under common control with the purchaser or such controlling person or entity may not make a subsequent tender offer for the purchase of shares of the target company and may not enter into a merger with the target company for a period of one year from the date of the offer, unless the purchaser or such person or entity undertook to effect such an offer or merger in the initial special tender offer.
Merger
The Companies Law permits merger transactions if approved by each party’s board of directors and, unless certain requirements described under the Companies Law are met, by a majority vote of each party’s shareholders. In the case of the target company, approval of the merger further requires a majority vote of each class of its shares.
For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the votes of shares represented at the meeting of shareholders that are held by parties other than the other party to the merger, or by any person (or group of persons acting in concert) who holds (or hold, as the case may be) 25% or more of the voting rights or the right to appoint 25% or more of the directors of the other party, vote against the merger. If, however, the merger involves a merger with a company’s own controlling shareholder or if the controlling shareholder has a personal interest in the merger, then the merger is instead subject to the same Special Majority approval that governs all extraordinary transactions with controlling shareholders (as described under “Item 6.C. Board Practices—Approval of Related Party Transactions under Israeli Law—Fiduciary Duties of Directors and Executive Officers—Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain Transactions.”)
If the transaction would have been approved by the shareholders of a merging company but for the separate approval of each class or the exclusion of the votes of certain shareholders as provided above, a court may still approve the merger upon the petition of holders of at least 25% of the voting rights of a company. For such petition to be granted, the court must find that the merger is fair and reasonable, taking into account the respective values assigned to each of the parties to the merger and the consideration offered to the shareholders of the target company.
Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of the merging entities, and may further give instructions to secure the rights of creditors.
In addition, a merger may not be consummated unless at least 50 days have passed from the date on which a proposal for approval of the merger is filed with the Israeli Registrar of Companies and at least 30 days have passed from the date on which the merger was approved by the shareholders of each party.
Anti-Takeover Measures under Israeli Law
The Companies Law allow us to create and issue shares having rights different from those attached to our ordinary shares, including shares providing certain preferred rights with respect to voting, distributions or other matters and shares having preemptive rights. As of the closing of this offering, no preferred shares will be authorized under our amended and restated articles of association. In the future, if we do authorize, create and issue a specific class of preferred shares, such class of shares, depending on the specific rights that may be attached to it, may have the ability to frustrate or prevent a takeover or otherwise prevent our shareholders from realizing a potential premium over the market value of their ordinary shares. The authorization and designation of a class of preferred shares will require an amendment to our amended and restated articles of association, which requires the prior approval of the holders of a majority of the voting power attaching to our issued and outstanding shares at a general meeting. The convening of the meeting, the shareholders entitled to participate and the majority vote required to be obtained at such a meeting will be subject to the requirements set forth in the Companies Law as described above in this Item 10.B. under “—Voting Rights.”
Borrowing Powers
Pursuant to the Companies Law and our articles, our board of directors may exercise all powers and take all actions that are not required under law or under our amended and restated articles of association to be exercised or taken by our shareholders, including the power to borrow money for company purposes.
Changes in Capital
Our articles enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must be approved by a resolution duly passed by our shareholders at a general meeting by voting on such change in the capital. In addition, transactions that have the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings or profits, require the approval of both our board of directors and an Israeli court.
Transfer Agent and Registrar
The transfer agent and registrar for our ordinary shares is Continental Stock Transfer & Trust Company.
For a description of the registration rights that we granted under our registration rights agreement, please refer to “Item 7.B. Related Party Transactions—Registration Rights.”
We entered into an underwriting agreement by and among our company and Credit Suisse Securities (USA) LLC and Jefferies LLC, as representatives of the underwriters, on July 30, 2014, with respect to the ordinary shares sold in our IPO. We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required to make in respect of such liabilities.
In 1998, Israeli currency control regulations were liberalized significantly, so that Israeli residents generally may freely deal in foreign currency and foreign assets, and non-residents may freely deal in Israeli currency and Israeli assets. There are currently no Israeli currency control restrictions on remittances of dividends on the ordinary shares or the proceeds from the sale of the shares provided that all taxes were paid or withheld; however, legislation remains in effect pursuant to which currency controls can be imposed by administrative action at any time.
Non-residents of Israel may freely hold and trade our securities. Neither our articles nor the laws of the State of Israel restrict in any way the ownership or voting of ordinary shares by non-residents, except that such restrictions may exist with respect to citizens of countries which are in a state of war with Israel. Israeli residents are allowed to purchase our ordinary shares.
The following description is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership and disposition of our ordinary shares. You should consult your own tax advisor concerning the tax consequences of your particular situation, as well as any tax consequences that may arise under the laws of any state, local, foreign or other taxing jurisdiction. This summary does not discuss all of the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examples of such investors include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion.
Certain Israeli Tax Consequences
Capital Gains Taxes Applicable to Non-Israeli Resident Shareholders.
Israeli capital gains tax is imposed on the disposal of capital assets by a non-Israeli resident if such assets are either (i) located in Israel; (ii) shares or rights to shares in an Israeli resident company, or (iii) represent, directly or indirectly, rights to assets located in Israel, unless a specific exemption is available or unless a tax treaty between Israel and the seller's country of residence provides otherwise.
Capital gain is generally subject to tax at the corporate tax rate (26.5% in 2014 and 2015 and 25% in 2016 and thereafter), if generated by a company, or if generated by an individual (from the sale of an asset purchased on or after January 1, 2003) at the rate of 25% or at a rate of 30% in the case of sale of shares by a Substantial Shareholder (i.e., a person who holds, directly or indirectly, alone or together with another, 10% or more of any of the company's “means of control” (including, among other things, the right to receive profits of the company, voting rights, the right to receive proceeds upon liquidation and the right to appoint a director)) at the time of sale or at any time during the preceding 12-month period. Individual and corporate shareholders dealing in securities in Israel are taxed at the tax rates applicable to business income (a corporate tax rate for a corporation and a marginal tax rate of up to 48% for an individual in 2015).
Notwithstanding the foregoing, a non-Israeli resident who derives capital gains from the sale of shares in an Israeli resident company that were purchased after the company was listed for trading on a recognized stock exchange in Israel or outside of Israel will generally be exempt from Israeli tax so long as the shares were not held through a permanent establishment that the non-resident maintains in Israel. However, non-Israeli corporations will not be entitled to the foregoing exemption if Israeli residents: (i) have a controlling interest of 25% or more in such non-Israeli corporation or (ii) are the beneficiaries of, or are entitled to, 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly. In addition, such exemption is not applicable to a person whose gains from selling or otherwise disposing of the shares are deemed to be business income.
Additionally, a sale of shares by a non-Israeli resident may be exempt from Israeli capital gains tax under the provisions of an applicable tax treaty. For example, under the United States-Israel Tax Treaty, the disposition of shares by a shareholder who (i) is a U.S. resident (for purposes of the treaty), (ii) holds the shares as a capital asset, and (iii) is entitled to claim the benefits afforded to such person by the treaty, is generally exempt from Israeli capital gains tax. Such exemption will not apply if (i) the capital gain arising from the disposition can be attributed to a permanent establishment in Israel; (ii) the shareholder holds, directly or indirectly, shares representing 10% or more of the voting rights during any part of the 12-month period preceding such sale, exchange or
disposition, subject to certain conditions; or (iii) such U.S. resident is an individual and was present in Israel for a period or periods aggregating to 183 days or more during the relevant taxable year. In such case, the sale, exchange or disposition of our ordinary shares would be subject to Israeli tax, to the extent applicable; however, under the United States-Israel Tax Treaty, taxpayer U.S. resident would be permitted to claim a credit for such taxes against the U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject to the limitations under U.S. law applicable to foreign tax credits. The United States-Israel Tax Treaty does not relate to U.S. state or local taxes.
In some instances, whether or not our shareholders are liable for Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to the withholding of Israeli tax at source. Shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding at source at the time of sale. Specifically, in transactions involving a sale of all of the shares of an Israeli resident company, in the form of a merger or otherwise, the Israel Tax Authority may require from shareholders who are not liable for Israeli tax to sign declarations in forms specified by this authority or obtain a specific exemption from the Israel Tax Authority to confirm their status as a non-Israeli resident, and, in the absence of such declarations or exemptions, may require the purchaser of the shares to withhold taxes at source.
Taxation of Non-Israeli Shareholders on Receipt of Dividends
. Non-Israeli residents (whether individuals or corporations)
are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 25%. With respect to a person who is a Substantial Shareholder at the time of receiving the dividend or at any time during the preceding 12 months, the applicable tax rate is 30%. Such dividends are generally subject to Israeli withholding tax at a rate of 25% so long as the shares are registered with a nominee company (whether the recipient is a substantial shareholder or not), unless a reduced rate is provided under an applicable tax treaty (subject to the receipt in advance of a valid certificate from the Israel Tax Authority allowing for a reduced tax rate).
Under the United States-Israel Tax Treaty, the maximum rate of tax withheld at source in Israel on dividends paid to a holder of our ordinary shares who is a U.S. resident (for purposes of the United States-Israel Tax Treaty) is 25%. However, for dividends (not generated by an Approved Enterprise, a Benefited Enterprise or a Preferred Enterprise as defined under the Israeli Law for the Encouragement of Capital Investments, 5719-1959) paid to a U.S. corporation holding 10% or more of the outstanding voting rights from the start of the tax year preceding the distribution of the dividend through (and including)
the date of distribution of the dividend
, the maximum rate of withholding tax is generally 12.5%, provided that not more than 25% of the gross income for such preceding year consists of certain types of dividends and interest. U.S. residents who are subject to Israeli withholding tax on a dividend may be entitled to a credit or deduction for U.S. federal income tax purposes in the amount of the taxes withheld, subject to detailed rules contained in U.S. tax legislation.
A non-Israeli resident who receives dividends from which tax was withheld is generally exempt from the obligation to file tax returns in Israel with respect to such income, provided that (i) such income was not generated from business conducted in Israel by the taxpayer for more than 180 days during the tax year and (ii) the taxpayer has no other taxable sources of income in Israel with respect to the period for which a tax return is required to be filed.
We cannot assure you that in the event we declare a dividend we will designate the income that we may distribute in a way that will reduce shareholders' tax liability.
Excess Tax
Beginning on January 1, 2013, an additional tax liability at the rate of 2% was added to the applicable tax rate on the annual taxable income of individuals who are subject to tax in Israel (whether any such individual is an Israeli resident or non-Israeli resident) exceeding NIS 810,720 (in 2015) which amount is linked to the annual change in the Israeli consumer price index, including, but not limited to, dividends, interest and capital gain.
Certain United States Federal Income Tax Consequences
The following is a description of certain United States federal income tax consequences relating to the acquisition, ownership and disposition of our ordinary shares by a U.S. Holder (as defined below). This description addresses only the United States federal income tax consequences to U.S. Holders that hold our ordinary shares as capital assets. This description does not address tax considerations applicable to U.S. Holders that may be subject to special tax rules, including, without limitation:
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banks, financial institutions or insurance companies;
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real estate investment trusts, regulated investment companies or grantor trusts;
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dealers or traders in securities, commodities or currencies;
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tax-exempt entities or organizations, including an “individual retirement account” or “Roth IRA” as defined in Section 408 or 408A of the Code, respectively;
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certain former citizens or long-term residents of the United States;
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persons that received our shares as compensation for the performance of services;
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persons that will hold our shares as part of a “hedging,” “integrated” or “conversion” transaction or as a position in a “straddle” for United States federal income tax purposes;
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partnerships (including entities classified as partnerships for United States federal income tax purposes) or other pass-through entities, or holders that will hold our shares through such an entity;
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holders that acquire ordinary shares as a result of holding or owning our preferred shares;
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holders whose “functional currency” is not the U.S. Dollar; or
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holders that own directly, indirectly or through attribution 10.0% or more of the voting power or value of our shares.
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Moreover, this description does not address the United States federal estate, gift or alternative minimum tax consequences, or any state, local or foreign tax consequences, of the acquisition, ownership and disposition of our ordinary shares.
This description is based on the Code, existing, proposed and temporary United States Treasury Regulations and judicial and administrative interpretations thereof, in each case as in effect and available on the date hereof. All of the foregoing is subject to change, which change could apply retroactively and could affect the tax consequences described below. There can be no assurances that the U.S. Internal Revenue Service, or IRS, will not take a different position concerning the tax consequences of the acquisition, ownership and disposition of our ordinary shares or that such a position would not be sustained. Holders should consult their own tax advisors concerning the U.S. federal, state, local and foreign tax consequences of purchasing, owning and disposing of our ordinary shares in their particular circumstances.
For purposes of this description, a “U.S. Holder” is a beneficial owner of our ordinary shares that, for United States federal income tax purposes, is:
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a citizen or resident of the United States;
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a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States or any state thereof, including the District of Columbia;
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an estate the income of which is subject to United States federal income taxation regardless of its source; or
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a trust if such trust has validly elected to be treated as a United States person for United States federal income tax purposes or if (1) a court within the United States is able to exercise primary supervision over its administration and (2) one or more United States persons have the authority to control all of the substantial decisions of such trust.
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If a partnership (or any other entity treated as a partnership for United States federal income tax purposes) holds our ordinary shares, the tax treatment of a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. Such a partner or partnership should consult its tax advisor as to the particular United States federal income tax consequences of acquiring, owning and disposing of our ordinary shares in its particular circumstance
You should consult your tax advisor with respect to the United States federal, state, local and foreign tax consequences of acquiring, owning and disposing of our ordinary shares.
Distributions
Subject to the discussion below under “Passive Foreign Investment Company Considerations,” if you are a U.S. Holder, the gross amount of any distribution made to you with respect to our ordinary shares before reduction for any Israeli taxes withheld therefrom, other than certain distributions, if any, of our ordinary shares distributed pro rata to all our shareholders, generally will be includible in your income as dividend income to the extent such distribution is paid out of our current or accumulated earnings and profits as determined under United States federal income tax principles. We do not expect to maintain calculations of our earnings and profits under United States federal income tax principles. Therefore, if you are a U.S. Holder you should expect that the entire amount of any distribution generally will be reported as dividend income to you. Subject to applicable limitations, dividends paid to certain non-corporate U.S. Holders may qualify for the preferential rates of taxation with respect to dividends on ordinary shares if certain requirements, including stock holding period requirements, are satisfied by the recipient and the company is eligible for the benefits of the United States-Israel Tax Treaty.
However, such dividends will not be eligible for the dividends received deduction generally allowed to corporate U.S. Holders. To the extent that the amount of any distribution by us exceeds our current and accumulated earnings and profits as determined under United States federal income tax principles, it will be treated first as a return of your adjusted tax basis in our ordinary shares and thereafter as either long-term or short-term capital gain depending upon whether the U.S. Holder has held our ordinary shares for more than one year as of the time such distribution is received.
Subject to certain conditions and limitations, Israeli tax withheld on dividends may be deducted from your taxable income or credited against your United States federal income tax liability. If you are a U.S. Holder, dividends paid to you with respect to our ordinary shares will generally be treated as foreign source income, which may be relevant in calculating your foreign tax credit limitation. However, for periods in which we are a “United Stated-owned foreign corporation,” a portion of dividends paid by us may be treated as U.S. source solely for purposes of the foreign tax credit. We would be treated as a United States-owned foreign corporation if 50% or more of the total value or total voting power of our stock is owned, directly, indirectly or by attribution, by United States persons. To the extent any portion of our dividends is treated as U.S. source income pursuant to this rule, the ability of a U.S. Holder to claim a foreign tax credit for any Israeli withholding taxes payable in respect of our dividends may be limited. A U.S. Holder entitled to benefits under the United States-Israel Tax Treaty may, however, elect to treat any dividends as foreign source income for foreign tax credit purposes if the dividend income is separated from other income items for purposes of calculating the U.S. Holder’s foreign tax credit. U.S. Holders should consult their own tax advisors about the impact of, and any exception available to, the special sourcing rule described in this paragraph, and the desirability of making, and the method of making, such an election.
The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends that we distribute generally should constitute “passive category income,” or, in the case of certain U.S. Holders, “general category income.” A foreign tax credit for foreign taxes imposed on distributions may be denied if you do not satisfy certain minimum holding period requirements. The rules relating to the determination of the foreign tax credit are complex, and you should consult your tax advisor to determine whether and to what extent you will be entitled to this credit.
Sale, Exchange or Other Disposition of Ordinary Shares
Subject to the discussion below under “Passive Foreign Investment Company Considerations,” if you are a U.S. Holder, you generally will recognize gain or loss on the sale, exchange or other taxable disposition of our ordinary shares equal to the difference between the amount realized on such sale, exchange or other taxable disposition and your adjusted tax basis in our ordinary shares, and such gain or loss will be capital gain or loss. The adjusted tax basis in an ordinary share generally will be equal to the cost of such ordinary share. Except as discussed below with respect to foreign currency gain or loss, if you are a non-corporate U.S. Holder, capital gain from the sale, exchange or other taxable disposition of ordinary shares is generally eligible for a preferential rate of taxation applicable to capital gains, if your holding period for such ordinary shares exceeds one year (i.e., such gain is long-term capital gain). The deductibility of capital losses for United States federal income tax purposes is subject to limitations under the Code. Any such gain or loss that a U.S. Holder recognizes generally will be treated as U.S. source income or loss for foreign tax credit limitation purposes.
A U.S. Holder’s initial tax basis in the ordinary shares will generally be the U.S. dollar value of the purchase price of our ordinary shares on the date of purchase. If our ordinary shares are treated as traded on an ‘‘established securities market,’’ a cash basis U.S. Holder or, if it elects, an accrual basis U.S. Holder, will determine the U.S. dollar value of the cost of such ordinary shares by translating the amount paid at the spot rate of exchange on the settlement date of the purchase. Such an election by an accrual basis U.S. Holder must be applied consistently from year to year and cannot be revoked without the consent of the IRS. The amount realized generally will be the U.S. dollar value of the payment received determined on the date of disposition. If our ordinary shares are treated as traded on an established securities market, a cash basis taxpayer, or, if it elects, an accrual basis taxpayer, will determine the U.S. dollar value of the amount realized by translating the amount realized (as determined on the trade date) at the spot rate of exchange on the settlement date of the sale.
On the settlement date, the U.S. Holder will recognize U.S. source foreign currency gain or loss (taxable as ordinary income or loss) equal to the difference (if any) between the U.S. dollar value of the amount received based on the exchange rates in effect on the date of sale or other disposition and the settlement date. However, in the case of ordinary shares traded on an established securities market that are sold by a cash basis U.S. Holder (or an accrual basis U.S. Holder that so elects), the amount realized will be based on the exchange rate in effect on the settlement date for the sale, and no exchange gain or loss will be recognized at that time.
Passive Foreign Investment Company Considerations
PFIC Status of the Company
If we were to be classified as a “passive foreign investment company,” or PFIC, in any taxable year, a U.S. Holder would be subject to special rules generally intended to reduce or eliminate any benefits from the deferral of U.S. federal income tax that a U.S. Holder could derive from investing in a non-U.S. company that does not distribute all of its earnings on a current basis.
A non-U.S. corporation will be classified as a PFIC for federal income tax purposes in any taxable year in which, after applying certain look-through rules with respect to the income and assets of subsidiaries, either:
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at least 75% of its gross income is “passive income”; or
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at least 50% of the average quarterly value of its total gross assets (which, assuming we were a non-publicly traded CFC for the year being tested may be measured by the adjusted tax basis of our assets or, if we were a publicly traded CFC or not a CFC, the total value of our assets may be measured in part by the market value of our ordinary shares, which is subject to change) is attributable to assets that produce “passive income” or are held for the production of passive income.
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Passive income for this purpose generally includes dividends, interest, royalties, rents, gains from commodities and securities transactions, the excess of gains over losses from the disposition of assets which produce passive income, and includes amounts derived by reason of the temporary investment of funds raised in offerings of our ordinary shares. If a non-U.S. corporation owns directly or indirectly at least 25% by value of the stock of another corporation, the non-U.S. corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation and as receiving directly its proportionate share of the other corporation’s income. If we are classified as a PFIC in any year with respect to which a U.S. Holder owns our ordinary shares, we will continue to be treated as a PFIC with respect to such U.S. Holder in all succeeding years during which the U.S. Holder owns our ordinary shares, regardless of whether we continue to meet the tests described above.
Based on our gross income and gross assets (including tangible assets and intangible assets based on the market value of our ordinary shares), and the nature of our business, we do not believe that we were classified as a PFIC for the taxable year ended December 31, 2015. However, based on our gross assets as of the end of the fourth quarter of 2015, we believe that we may be characterized as a PFIC for the 2016 taxable year; nevertheless, PFIC status is based on our income, assets, and activities for the entire taxable year, including the value of our intangible assets based on the market value of our ordinary shares, and it is therefore not possible to finally determine whether we will be characterized as a PFIC for the 2016 taxable year until after the close of such year. Moreover, we must determine our PFIC status annually based on tests that are factual in nature; thus our status in future years will depend on our income, assets, and activities in those years as well as fluctuations in the market price of our ordinary shares. Accordingly, there can be no assurance regarding our PFIC status for the current or any future taxable year.
If we were a PFIC, and you are a U.S. Holder, then unless you make the “mark-to-market” election described below, a special tax regime will apply to both (a) any “excess distribution” by us to you (generally, your ratable portion of distributions in any year which are greater than 125% of the average annual distribution received by you in the shorter of the three preceding years or your holding period for our ordinary shares) and (b) any gain realized on the sale or other disposition of the ordinary shares. Under this regime, any excess distribution and realized gain will be treated as ordinary income and will be subject to tax as if (i) the excess distribution or gain had been realized ratably over your holding period, (ii) the amount deemed realized in each year had been subject to tax in each year of that holding period at the highest marginal rate for such year (other than income allocated to the current period or any taxable period before we became a PFIC, which would be subject to tax, at the U.S. Holder’s regular ordinary income rate for the current year and would not be subject to the interest change discussed below), and (iii) the interest charge generally applicable to underpayments of tax had been imposed on the taxes deemed to have been payable in those years. In addition, dividend distributions made to you will not qualify for the lower rates of taxation applicable to long-term capital gains discussed above under “—Distributions.”
If a U.S. Holder makes the mark-to-market election, then, in lieu of being subject to the tax and interest charge rules discussed above, the U.S. Holder generally will recognize as ordinary income any excess of the fair market value of the ordinary shares at the end of each taxable year over their adjusted tax basis, and will recognize an ordinary loss in respect of any excess of the adjusted tax basis of the ordinary shares over their fair market value at the end of the taxable year (but only to the extent of the net amount of income previously included as a result of the mark-to-market election). If a U.S. Holder makes the election, the U.S. Holder’s tax basis in the ordinary shares will be adjusted to reflect these income or loss amounts. Any gain recognized on the sale or other disposition of ordinary shares in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as an ordinary loss (but only to the extent of the net amount of income previously included as a result of the mark-to-market election).
The mark-to-market election is available only if we are a PFIC and our ordinary shares are “regularly traded” on a “qualified exchange.” Our ordinary shares will be treated as “regularly traded” in any calendar year in which more than a
de minimis
quantity of the ordinary shares are traded on a qualified exchange on at least 15 days during each calendar quarter. The NASDAQ Global Market is a qualified exchange for this purpose. Because a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to be subject to the tax and interest charge rules discussed above with respect to such holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes, including stock in any of the company’s subsidiaries that are treated as PFICs. If a U.S. Holder makes a mark-to-market election, it will be effective for the taxable year for which the election is made and all subsequent taxable years unless our ordinary shares are no longer regularly traded on a qualified exchange or the IRS consents to the revocation of the election.
In certain circumstances, the adverse tax consequences of the special tax regime described above may be mitigated if a U.S. Holder makes a timely “qualified electing fund” election (a “QEF election”) (rather than a mark-to-market election) with respect to its interest in a PFIC; however, we do not intend to provide U.S. Holders with the information required to implement a QEF election with respect to our ordinary shares.
If we are determined to be a PFIC, the general tax treatment for U.S. Holders described in this section would apply to indirect distributions and gains deemed to be realized by U.S. Holders in respect of any of our subsidiaries that also may be determined to be PFICs.
If a U.S. Holder owns ordinary shares during any year in which we are a PFIC, the U.S. Holder generally will be required to file an IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) with respect to the company, generally with the U.S. Holder’s federal income tax return for that year.
U.S. Holders should consult their tax advisors regarding whether we are a PFIC and the potential application of the PFIC rules.
Medicare Tax
Certain U.S. Holders that are individuals, estates or trusts are subject to a 3.8% tax on all or a portion of their “net investment income,” which may include all or a portion of their dividend income and net gains from the disposition of ordinary shares. Each U.S. Holder that is an individual, estate or trust is urged to consult its tax advisors regarding the applicability of the Medicare tax to its income and gains in respect of its investment in our ordinary shares.
Backup Withholding Tax and Information Reporting Requirements
United States backup withholding tax and information reporting requirements may apply to certain payments to certain holders of stock. Information reporting generally will apply to payments of dividends on, and to proceeds from the sale or redemption of, our ordinary shares made within the United States, or by a United States payer or United States middleman, to a holder of our ordinary shares, other than an exempt recipient (including a payee that is not a United States person that provides an appropriate certification and certain other persons). A payer will be required to withhold backup withholding tax from any payments of dividends on, or the proceeds from the sale or redemption of, ordinary shares within the United States, or by a United States payer or United States middleman, to a holder, other than an exempt recipient, if such holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from, such backup withholding tax requirements. Any amounts withheld under the backup withholding rules will be allowed as a credit against the beneficial owner’s United States federal income tax liability, if any, and any excess amounts withheld under the backup withholding rules may be refunded, provided that the required information is timely furnished to the IRS.
Foreign Asset Reporting
Certain U.S. Holders who are individuals are required to report information relating to an interest in our ordinary shares, subject to certain exceptions (including an exception for shares held in accounts maintained by financial institutions) by filing IRS Form 8938 (Statement of Specified Foreign Financial Assets) with their federal income tax return. U.S. Holders are urged to consult their tax advisors regarding their information reporting obligations, if any, with respect to their ownership and disposition of our ordinary shares.
The above description is not intended to constitute a complete analysis of all tax consequences relating to acquisition, ownership and disposition of our ordinary shares. You should consult your tax advisor concerning the tax consequences of your particular situation.
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Dividends and Paying Agents
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Not applicable.
Not applicable.
We are currently subject to the informational requirements of the Exchange Act applicable to foreign private issuers and fulfill the obligations of these requirements by filing reports with the SEC. As a foreign private issuer, we are exempt from the rules under the Exchange Act relating to the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we intend to file with the SEC, within 120 days after the end of each subsequent fiscal year, an annual report on Form 20-F containing financial statements which will be examined and reported on, with an opinion expressed, by an independent public accounting firm. We also intend to file with the SEC reports of foreign private issuer on Form 6-K containing unaudited financial information for the first three quarters of each fiscal year, within 60 days after the end of each quarter.
You may read and copy any document we file with the SEC without charge at the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other information regarding issuers that file electronically with the SEC. Our filings with the SEC are also available to the public through the SEC’s website at http://www.sec.gov.
|
|
I.
|
Subsidiary Information
|
Not applicable.
Item 11
.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss related to changes in market prices, including interest rates and foreign exchange rates, of financial instruments that may adversely impact our consolidated financial position, results of operations or cash flows.
Foreign currency exchange risk
The U.S. dollar is our functional and reporting currency. A portion of our expenses are denominated in shekels, accounting for 13%, 17% and 20% of our expenses in the years ended December 31, 2015, 2014 and 2013, respectively. This exposes us to risk associated with exchange rate fluctuations vis-à-vis the U.S. dollar. See “Item 3.D. Risk Factors—Risks Relating to Our Business and Industry—Exchange rate fluctuations between the U.S. dollar and the Israeli shekel, as well as other non-U.S. currencies, may negatively affect our earnings.” Furthermore, we anticipate that a portion of our expenses, principally of salaries and related personnel expenses, will continue to be denominated in shekels.
To the extent the U.S. dollar weakens against the shekel, we will experience a negative impact on our profit margins. A devaluation of the shekel in relation to the U.S. dollar has the effect of reducing the U.S. dollar amount of our expenses or payables that are payable in shekels, unless those expenses or payables are linked to the U.S. dollar. Conversely, any increase in the value of the shekel in relation to the U.S. dollar has the effect of increasing the U.S. dollar value of our unlinked shekel expenses, which would have a negative impact on our profit margins. In 2015, the value of the shekel depreciated relative to the dollar by 0.3%, and the rate of inflation in Israel was negative 1.0%. In 2014, the value of the shekel depreciated relative to the dollar by 10.7%, and the rate of inflation in Israel was negative 0.2%. In 2013, the value of the shekel appreciated in relation to the U.S. dollar by 7.5%, the effect of which was compounded by inflation in Israel, at a rate of 1.8%.
Because exchange rates between the U.S. dollar and the shekel (as well as between the U.S. dollar and other currencies) fluctuate continuously, such fluctuations have an impact on our results and period-to-period comparisons of our results. The effects of foreign currency re-measurements are reported in our consolidated financial statements of loss.
We do not currently engage in currency hedging activities in order to reduce this currency exposure, but we may begin to do so in the future. Instruments that may be used to hedge future risks may include foreign currency forward and swap contracts. These instruments may be used to selectively manage risks, but there can be no assurance that we will be fully protected against material foreign currency fluctuations.
Inflation-related risks
We do not believe that the rate of inflation in Israel has had a material impact on our business to date, however, our costs in Israel will increase if inflation in Israel exceeds the devaluation of the shekel against the U.S. dollar or if the timing of such devaluation lags behind inflation in Israel.
Item
12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
Item
13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
Item
14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Initial Public Offering
The effective date of the registration statement on Form F-1 (File No. 333- 196961) for our IPO of ordinary shares, par value NIS 0.01, was July 30, 2014. The offering commenced on July 18, 2014 and was closed on August 5, 2014. J.P. Credit Suisse Securities (USA) LLC and Jefferies LLC acted as joint book runners and representatives of the underwriters.
Oppenheimer & Co. Inc. and Nomura Securities International, Inc. acted as additional underwriters
for the offering. We registered 5,350,000 ordinary shares in the offering and granted the underwriters a 30-day over-allotment option to purchase up to 802,500 additional shares from us to cover over-allotments. The over-allotment was not exercised.
As a result, we issued and sold a total of 5,350,000 ordinary shares at a price per share of $10.00 with aggregate gross proceeds of $53.5 million. Under the terms of the offering, we incurred aggregate underwriting discounts of approximately $3.7 million and expenses of approximately $3.1 million in connection with the offering, resulting in net proceeds to us of approximately $46.7 million.
From the effective date of the registration statement and until December 31, 2015, we had not completely used the net proceeds of the IPO. As a result of the failure of CureXcell to meet its primary endpoints in our Phase 3 DFU and VLU clinical trials, we have implemented a restructuring and cost-saving initiative and have adjusted our intended use of the remaining net proceeds of the IPO (which amounted to $26.6 million as of March 1, 2016). We currently expect that such proceeds will be used for a potential acquisition transaction for a new product candidate or other technology (to the extent that we do not use our ordinary shares as consideration in such an acquisition); for the clinical and regulatory development of any new product candidate acquired; and for other general corporate purposes.
None of the net proceeds of the IPO was paid directly or indirectly to any director or officer, of ours or to their associates, persons owning ten percent or more of any class of our equity securities, or to any of our affiliates.
Item
15.
CONTROLS AND PROCEDURES
|
|
(a)
|
Disclosure controls and procedures
|
Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of December 31, 2015, have concluded that, as of such date, our disclosure controls and procedures were effective and ensured that information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.
|
|
(b)
|
Management’s annual report on internal control over financial reporting
|
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation and fair presentation of its published consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015. In making our assessment, our management used the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on such assessment, management has concluded that, as of December 31, 2015, our internal control over financial reporting is effective based on those criteria.
|
|
(c)
|
Attestation Report of Registered Public Accounting Firm
.
|
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal controls over financial reporting because the JOBS Act provides an exemption for us from such requirement, as we qualify as an “emerging growth company” under the JOBS Act.
(d) Changes in internal control over financial reporting
Based on the evaluation conducted by our management, with the participation of our principal executive and principal financial officers, pursuant to Rules 13a-15(d) and 15d-15(d) promulgated under the Exchange Act, our management (including such officers) has concluded that there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this annual report that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
Over the course of 2015, as we continued as a reporting company under the Exchange Act, we continued to implement and to evaluate the effectiveness of our internal control over financial reporting in an effort to ensure that we can provide reasonable assurance concerning the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles.
Item
16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Yuval Yanai is an audit committee financial expert as defined by the SEC rules and is an independent director under the NASDAQ Listing Rules.
We have adopted a Corporate Code of Ethics and Conduct applicable to our executive officers, directors and all other employees. A copy of the code is delivered to every employee of Macrocure Ltd. and its subsidiary, and is available to investors and others on our website at
http://investor.macrocure.com/corporate-governance.cfm
or by contacting our investor relations department. Any waivers of this code for executive officers or directors will be disclosed through the filing of a report of foreign private issuer on Form 6-K or on our website.
Principal Accountant Fees and Services
We paid the following fees for professional services rendered by Somekh Chaikin, Certified Public Accountants (Isr.), a Member Firm of KPMG International, an independent registered public accounting firm, for the years ended December 31, 2015 and 2014:
|
|
|
(in thousands, US dollars)
|
|
|
|
|
|
|
|
|
|
|
Audit Fees
|
|
$
|
104
|
|
|
$
|
296
|
|
|
Tax Fees
|
|
|
20
|
|
|
|
11
|
|
|
Total
|
|
$
|
124
|
|
|
$
|
307
|
|
|
(1)
|
“Audit fees” are aggregate fees for audit services for each of the years shown in this table, including fees associated with the annual audit, reviews of our quarterly financial results submitted in Reports of Foreign Private Issuer on Form 6-K, the Registration Statement on Form F-1 related to our IPO, consultation on various accounting issues and audit services provided in connection with other statuary or regulatory filings.
|
|
(2)
|
“Tax fees” are fees for tax services rendered by our auditors for tax compliance and for tax consulting associated with international transfer pricing.
|
Audit Committee Pre-Approval Policies and Procedures
Our audit committee has adopted a pre-approval policy for the engagement of our independent accountant to perform certain audit and non-audit services. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee pre-approves annually a catalog of specific audit and non-audit services in the categories of audit service, audit-related service and tax services that may be performed by our independent accountants.
Item
16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
Item
16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
Item
16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
Item
16G. CORPORATE GOVERNANCE
As a foreign private issuer, we are permitted to comply with Israeli corporate governance practices instead of the NASDAQ Listing Rules, provided that we disclose those NASDAQ Listing Rule requirements with which we do not comply and the equivalent Israeli requirements that we follow instead. We currently rely on this “foreign private issuer exemption” with respect to the following matters:
|
|
(i)
|
Quorum Requirement for Meetings of Our Shareholders
: As permitted under the Companies Law, pursuant to our articles of association, the quorum required for an ordinary meeting of shareholders consists of at least two shareholders present in person or by proxy, who hold or represent between them at least 25% of the voting power of our shares (and, with respect to an adjourned meeting, generally one or more shareholders who hold or represent any number of shares), instead of 33 1/3% of the issued share capital provided under the NASDAQ Listing Rules.
|
|
|
(ii)
|
Independent Director Oversight of Executive Officer Compensation
: As described under Item 6.C (“Board Practices”— “Board of Directors”— “Board Committees”— “Compensation Committee and Compensation Policy”), under the Companies Law, the compensation of our executives and other office holders is subject to a compensation policy and to the recommendations of a compensation committee of our board of directors that we have adopted and appointed, respectively. The required composition of that committee and the procedure for approval of compensation under that Companies Law amendment differ slightly from those under NASDAQ Listing Rule 5605(d), which requires that the compensation of executive officers be recommended or determined solely by independent directors or by a compensation committee of the board consisting solely of independent directors (as defined under the NASDAQ Listing Rules). While there is significant practical overlap as to who qualifies to serve on the compensation committee under the Companies Law and the NASDAQ Listing Rules, the requirements are not identical, and we comply with the Companies Law requirement.
|
|
|
(iii)
|
Independent Director Oversight of Nominations
: Under Israeli law, there is no requirement to have an independent nominating committee or the independent directors of a company select (or recommend for selection) director nominees, as is required under NASDAQ Listing Rule 5605(e) for a U.S. domestic issuer. Our board of directors handles this process, as is permitted by our amended articles and the Companies Law. We also need not adopt a formal board resolution or charter addressing the director nominations process and such related matters as may be required under the U.S. federal securities laws, as NASDAQ requires for a U.S. issuer.
|
Item
16H. MINE SAFETY DISCLOSURE
Not applicable.
PART III
Item
17. FINANCIAL STATEMENTS
See pages F-2 through F-34 of this annual report.
Item
18. FINANCIAL STATEMENTS
Not applicable.
See exhibit index incorporated herein by reference.
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
|
|
MACROCURE LTD.
|
|
|
|
|
|
|
|
|
By:
|
/s/ Nissim Mashiach
|
|
|
Date: April 19, 2016
|
|
Nissim Mashiach
President and Chief Executive Officer
|
|
|
|
|
INDEX OF EXHIBITS
|
|
|
Exhibit No.
|
|
Description
|
|
|
|
|
|
|
|
1.1
|
|
Articles of Association of Macrocure Ltd., as amended (incorporated by reference to Exhibit 1.1 to the registrant’s Annual Report on Form 20-F for the year ended December 31, 2014, filed by the registrant with the SEC on March 18, 2015)
|
|
|
2.1
|
|
Specimen ordinary share certificate of Macrocure Ltd. (incorporated by reference to Exhibit 4.1 to the registrant’s Registration Statement on Form F-1, as amended (SEC File No. 333-196991))
|
|
|
4.1
|
|
Second Amended and Restated Registration Rights Agreement, dated July 22, 2014 (but effective upon the closing of Macrocure Ltd.’s IPO), by and among Macrocure Ltd. and certain security holders of Macrocure Ltd. (incorporated by reference to Exhibit 4.3 to the registrant’s Registration Statement on Form F-1, as amended (SEC File No. 333-196991))
|
|
|
4.2
|
|
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.8 to the registrant’s Registration Statement on Form F-1, as amended (SEC File No. 333-196961))
|
|
|
4.3
|
|
Summary English Translation of Macrocure Ltd. 2008 Stock Option Plan (incorporated by reference to Exhibit 10.1 to the registrant’s Registration Statement on Form F-1, as amended (SEC File No. 333-196961))
|
|
|
4.4.1
|
|
Macrocure Ltd. 2013 Share Incentive Plan (incorporated by reference to Exhibit 10.2 to the registrant’s Registration Statement on Form F-1, as amended (SEC File No. 333-196961))
|
|
|
4.4.2
|
|
Amendment No. 1 to Macrocure Ltd. 2013 Share Incentive Plan (incorporated by reference to Exhibit 10.2.1 to the registrant’s Registration Statement on Form F-1, as amended (SEC File No. 333-196961))
|
|
|
8.1
|
|
List of subsidiaries of the Registrant
|
|
|
12.1
|
|
Certificate of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002
|
|
|
12.2
|
|
Certificate of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002
|
|
|
13.1
|
|
Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002
|
|
|
15.1
|
|
Consent of Somekh Chaikin, Certified Public Accountants (Isr.), a Member Firm of KPMG International
|
|
|
Macrocure Ltd.
Consolidated Financial Statements
As of December 31, 2015
|
Consolidated Financial Statements as of December 31, 2015
Contents
Page
Report of Independent Registered Public Accou
nt
ing Firm
The Board of Directors and Shareholders
Macrocure Ltd.
We have audited the accompanying consolidated statements of financial position of Macrocure Ltd. and its subsidiary (hereafter – the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of loss and other comprehensive loss, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2015. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the Standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2015 and 2014, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).
Somekh Chaikin
Certified Public Accountants (Isr.)
Member Firm of KPMG International
Tel Aviv, Israel
April 18, 2016
Consolidated Statements of Financial Position as at
U.S. dollars in thousands
|
|
|
|
December 31
|
|
|
December 31
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
4
|
|
|
20,966
|
|
|
|
10,868
|
|
|
Short-term investments
|
5
|
|
|
6,607
|
|
|
|
35,313
|
|
|
Other receivables
|
6
|
|
|
344
|
|
|
|
5
36
|
|
|
Total current assets
|
|
|
|
27,917
|
|
|
|
46,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
7
|
|
|
232
|
|
|
|
451
|
|
|
Intangible assets, net
|
8
|
|
|
-
|
|
|
|
276
|
|
|
Deposits
|
5
|
|
|
-
|
|
|
|
1,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
|
232
|
|
|
|
1,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
28,149
|
|
|
|
48,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
9
|
|
|
1,279
|
|
|
|
2,488
|
|
|
Total current liabilities
|
|
|
|
1,279
|
|
|
|
2,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
11
|
|
|
|
|
|
|
|
|
|
Ordinary shares of NIS 0.01 par value
|
|
|
|
47
|
|
|
|
45
|
|
|
Share premium
|
|
|
|
102,261
|
|
|
|
95,941
|
|
|
Capital reserves
|
|
|
|
7,821
|
|
|
|
6,167
|
|
|
Warrants held by shareholders
|
|
|
|
6,042
|
|
|
|
12,256
|
|
|
Accumulated deficit
|
|
|
|
(89,301
|
)
|
|
|
(68,198
|
)
|
|
Total shareholders’
equity
|
|
|
|
26,870
|
|
|
|
46,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
|
|
28,149
|
|
|
|
48,699
|
|
* Represents an amount lower than $1.
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Loss and Other Comprehensive Loss
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses, net
|
|
|
14
|
|
|
|
15,369
|
|
|
|
15,542
|
|
|
|
9,303
|
|
|
General and administrative expenses
|
|
|
15
|
|
|
|
5,720
|
|
|
|
5,374
|
|
|
|
4,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
|
|
|
|
(21,089
|
)
|
|
|
(20,916
|
)
|
|
|
(13,870
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing income
|
|
|
16
|
A
|
|
|
156
|
|
|
|
40
|
|
|
|
193
|
|
|
Financing expense
|
|
|
16
|
B
|
|
|
(18
|
)
|
|
|
(4,544
|
)
|
|
|
(4,498
|
)
|
|
Financing income (expense), net
|
|
|
|
|
|
|
138
|
|
|
|
(4,504
|
)
|
|
|
(4,305
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
|
|
|
|
|
|
|
(20,951
|
)
|
|
|
(25,420
|
)
|
|
|
(18,175
|
)
|
|
Taxes on income
|
|
|
17
|
|
|
|
(152
|
)
|
|
|
(31
|
)
|
|
|
(149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year
|
|
|
|
|
|
|
(21,103
|
)
|
|
|
(25,451
|
)
|
|
|
(18,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Loss that will be transferred
to profit or loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of available for sale financial
assets
|
|
|
|
|
|
|
26
|
|
|
|
(26
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss for the year
|
|
|
|
|
|
|
(21,077
|
)
|
|
|
(25,477
|
)
|
|
|
(18,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share - basic and
diluted (in U.S. dollars)
|
|
|
12
|
|
|
|
(1.16
|
)
|
|
|
(2.15
|
)
|
|
|
(2.46
|
)
|
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Changes in Equity
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
Ordinary
|
|
|
|
|
|
Capital
|
|
|
held by
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2015
|
|
|
45
|
|
|
|
95,941
|
|
|
|
6,167
|
|
|
|
12,256
|
|
|
|
(68,198
|
)
|
|
|
46,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss for the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
26
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26
|
|
|
Loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(21,103
|
)
|
|
|
(21,103
|
)
|
|
Total comprehensive loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
26
|
|
|
|
-
|
|
|
|
(21,103
|
)
|
|
|
(21,077
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration of options
|
|
|
-
|
|
|
|
79
|
|
|
|
(79
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercise of options and warrants
|
|
|
2
|
|
|
|
6,241
|
|
|
|
(13
|
)
|
|
|
(6,214
|
)
|
|
|
-
|
|
|
|
16
|
|
|
Share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
1,720
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,720
|
|
|
Balance as of December 31, 2015
|
|
|
47
|
|
|
|
102,261
|
|
|
|
7,821
|
|
|
|
6,042
|
|
|
|
(89,301
|
)
|
|
|
26,870
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Changes in Equity
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
Ordinary
|
|
|
Preferred
|
|
|
|
|
|
Capital
|
|
|
held by
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2014
|
|
|
20
|
|
|
|
* -
|
|
|
|
48,158
|
|
|
|
5,117
|
|
|
|
8,219
|
|
|
|
(42,747
|
)
|
|
|
18,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss for the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(26
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(26
|
)
|
|
Loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(25,451
|
)
|
|
|
(25,451
|
)
|
|
Total comprehensive loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
(25,451
|
)
|
|
|
(25,477
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of ordinary shares, net of issuance costs
|
|
|
25
|
|
|
|
(*)-
|
|
|
|
46,664
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
46,689
|
|
|
Expiration of warrants and options
|
|
|
-
|
|
|
|
-
|
|
|
|
308
|
|
|
|
(308
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercise of options and warrants
|
|
|
*-
|
|
|
|
-
|
|
|
|
811
|
|
|
|
(279
|
)
|
|
|
(334
|
)
|
|
|
-
|
|
|
|
198
|
|
|
Share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,663
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,663
|
|
|
Grant of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
4,371
|
|
|
|
-
|
|
|
|
4,371
|
|
|
Balance as of December 31, 2014
|
|
|
45
|
|
|
|
-
|
|
|
|
95,941
|
|
|
|
6,167
|
|
|
|
12,256
|
|
|
|
(68,198
|
)
|
|
|
46,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2013
|
|
|
20
|
|
|
|
* -
|
|
|
|
34,394
|
|
|
|
2,483
|
|
|
|
622
|
|
|
|
(24,423
|
)
|
|
|
13,096
|
|
|
Issuance of Preferred shares
|
|
|
-
|
|
|
|
* -
|
|
|
|
13,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,750
|
|
|
Reclassification of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,597
|
|
|
|
-
|
|
|
|
7,597
|
|
|
Expiration of warrants and options
|
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
|
|
(14
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,648
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,648
|
|
|
Loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(18,324
|
)
|
|
|
(18,324
|
)
|
|
Balance as of December 31, 2013
|
|
|
20
|
|
|
|
*-
|
|
|
|
48,158
|
|
|
|
5,117
|
|
|
|
8,219
|
|
|
|
(42,747
|
)
|
|
|
18,767
|
|
* Represents an amount lower than $1.
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Cash Flows
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year
|
|
|
|
(21,103
|
)
|
|
|
(25,451
|
)
|
|
|
(18,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
98
|
|
|
|
106
|
|
|
|
89
|
|
|
Amortization
|
|
|
|
276
|
|
|
|
551
|
|
|
|
551
|
|
|
Finance expense (income), net
|
|
|
|
(138
|
)
|
|
|
4,504
|
|
|
|
4,305
|
|
|
Capital gain from sale of property and equipment
|
|
|
|
(28
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Impairment of property and equipment
|
|
|
|
100
|
|
|
|
-
|
|
|
|
-
|
|
|
Taxes on income
|
|
|
|
152
|
|
|
|
31
|
|
|
|
149
|
|
|
Share based compensation
|
|
|
|
1,720
|
|
|
|
1,663
|
|
|
|
2,648
|
|
|
|
|
|
|
2,180
|
|
|
|
6,855
|
|
|
|
7,742
|
|
|
Changes in operating assets and liability items
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in other receivable
|
|
|
|
128
|
|
|
|
158
|
|
|
|
118
|
|
|
Increase (decrease) in trade and other payables
|
|
|
|
(1,183
|
)
|
|
|
692
|
|
|
|
440
|
|
|
|
|
|
|
(1,055
|
)
|
|
|
850
|
|
|
|
558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax paid
|
|
|
|
(87
|
)
|
|
|
(303
|
)
|
|
|
-
|
|
|
Interest received
|
|
|
|
485
|
|
|
|
32
|
|
|
|
85
|
|
|
Net cash used in operating activities
|
|
|
|
(19,580
|
)
|
|
|
(18,017
|
)
|
|
|
(9,939
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
|
(12
|
)
|
|
|
(227
|
)
|
|
|
(116
|
)
|
|
Proceeds from sale of property and equipment
|
|
|
|
61
|
|
|
|
-
|
|
|
|
-
|
|
|
Decrease (increase) in long terms deposits
|
|
|
|
9
|
|
|
|
(1,238
|
)
|
|
|
2
|
|
|
Decrease (increase) in short-term investments
|
|
|
|
17,188
|
|
|
|
(17,829
|
)
|
|
|
-
|
|
|
Investment in available for sale securities
|
|
|
|
(418
|
)
|
|
|
(17,563
|
)
|
|
|
-
|
|
|
Proceeds from available for sale securities
|
|
|
|
12,864
|
|
|
|
53
|
|
|
|
-
|
|
|
Net cash provided by (used in) investing activities
|
|
|
|
29,692
|
|
|
|
(36,804
|
)
|
|
|
(114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of shares, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of issuance costs
|
|
|
|
-
|
|
|
|
46,689
|
|
|
|
13,750
|
|
|
Exercise of warrants and options
|
|
|
|
16
|
|
|
|
198
|
|
|
|
-
|
|
|
Net cash provided by financing activities
|
|
|
|
16
|
|
|
|
46,887
|
|
|
|
13,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
|
10,128
|
|
|
|
(7,934
|
)
|
|
|
3,697
|
|
|
Effect of exchange rate changes on cash and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash equivalents
|
|
|
|
(30
|
)
|
|
|
(193
|
)
|
|
|
(24
|
)
|
|
Cash and cash equivalents at beginning
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of the year
|
|
|
|
10,868
|
|
|
|
18,995
|
|
|
|
15,322
|
|
|
Cash and cash equivalents at end of the year
|
|
|
|
20,966
|
|
|
|
10,868
|
|
|
|
18,995
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 1 - The Reporting Entity
|
|
1.
|
Macrocure Ltd. (the “Company”) was incorporated in Israel on January 14, 2008. The registered address of the Company's office is 25 Hasivim St. Petach Tikva, Israel. Since its inception, the Company has been engaged in the biotechnology field and focused on developing, manufacturing and commercializing novel cell therapy products to address unmet needs in the treatment of chronic and other hard-to-heal wounds, as well as other potential regenerative medicine applications.
|
|
|
On August 19 , 2015 the Data safety Monitoring Board , announced, based on pre-specified, futility analysis, that the venous leg ulcers (“VLU”) study is not expected to meet its primary end point.
|
On October 27, 2015 the Company announced that results from the diabetic foot ulcers (“DFU”) study did not meet its primary and secondary endpoint.
|
|
2.
|
As a result of the disappointing announcement of the Company Phase 3 trials, the Company does not anticipate proceeding with further clinical or regulatory steps towards the eventual commercialization of its product. Due to these results, the Company halted the development and manufacturing initiatives for its product, both by terminating the newly-commenced operations in the United States, and by ceasing research and development, and clinical activities, for its product, in Israel.
|
|
|
The Company expect that it will not generate any future revenues from the product and doesn’t currently have an alternate prospective source of future revenues.
|
|
|
The management is focused on identifying new business opportunities, while continuing to focus on managing and conserving its existing cash through cost reduction and restructuring initiatives.
|
|
|
3.
|
The Company has incurred operational losses in each year since its inception at a total amount of $89,301 as of December 31, 2015 and does not expect to generate revenue from marketing its products.
|
|
|
4.
|
On August 5, 2014 the Company closed an Initial Public Offering (“IPO”) of its ordinary shares, which resulted in the sale of 5,350,000 ordinary shares at a public offering price of $10 per share, before underwriting discounts. The Company received net proceeds from the IPO of approximately $46.7 million (net of issuance costs and underwriting discounts of approximately $6.8 million).
|
In addition, 81,435 preferred A shares and 27,241 warrants to purchase preferred A shares were automatically converted into 3,746,010 ordinary shares and 1,253,086 warrants to purchase ordinary shares, respectively. In addition, the vesting of the remaining unvested portion of the options to purchase 859,602 ordinary shares held by an officer of the Company was accelerated.
|
|
5.
|
The consolidated financial statements of the Company as of and for the year ended December 31, 2015 comprise the Company and its wholly owned U.S. subsidiary (together referred to as the “
Company
”).
|
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 2 - Basis of Preparation
A. Statement of Compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board (“IASB”).
These condensed interim consolidated financial statements were authorized for issue by the Company’s Board of Directors on April 18, 2015.
The consolidated financial statements have been prepared on the historical cost basis, except for financial instruments, which are measured at fair value as available-for-sale.
C. Functional and presentation currency
These consolidated financial statements are presented in U.S. dollars, which is the Company's functional currency. The U.S dollar is the currency of the primary economic environment in which the Company operates and expects to operate in the foreseeable future.
D. Use of estimates and judgment
In preparing these consolidated financial statements, management has made judgments, estimates and assumptions that affect the application of the Company’s accounting policies and the reported amounts recognized in the financial statements. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively.
Critical estimates computed by the Company that may cause a material adjustment to the carrying amounts of liabilities in the future periods are discussed below:
Fair value of share-based compensation
:
The Company
grants share-based compensation to employees and consultants. The fair value of the share options is measured at the grant date using the Black-Scholes option pricing model and assumptions regarding unobservable inputs used in the valuation models.
The value of the transactions, measured as described above, is recognized as an expense over the vesting period. Concurrently with the periodic recognition of an expense, an increase is recognized in a capital reserve, within the Company’s equity. See Note 11C (4) for the assumptions used to calculate the fair value of options.
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 3 - Significant Accounting Policies
The accounting policies set out below have been applied consistently for all periods presented in these consolidated financial statements and have been applied consistently by the
Company
entities.
A. Basis of consolidation
(1) Subsidiary
A subsidiary is an entity controlled by the Company. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of the subsidiary are included in the consolidated financial statements from the date that control commences until the date that control is lost.
(2) Transactions eliminated on consolidation
Intercompany balances and transactions, and any unrealized income and expenses arising from Intercompany transactions, are eliminated in preparing the consolidated financial statements.
B. Foreign currency transactions
Transactions in foreign currencies are translated to the functional currency of the Company
entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at the reporting date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortized cost in foreign currency translated at the exchange rate at the end of the year.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
Foreign currency differences arising on translation are recognized in profit or loss.
C. Financial instruments
(1) Non-derivative financial assets
Initial recognition of financial assets
The Company initially recognizes receivables and deposits on the date that they are created. All other financial assets acquired in a regular way purchase are recognized initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument, meaning on the date the Company undertook to purchase or sell the asset. Non-derivative financial instruments comprise deposits, investments in debt securities, accounts receivable and cash and cash equivalents.
Cash and cash equivalents include cash balances available for immediate use and short-term highly liquid investments (with original maturities of three months or less).
Derecognition of financial assets
Financial assets are derecognized when the contractual rights of the Company to the cash flows from the asset expire, or the Company transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred.
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 3 - Significant Accounting Policies (cont’d)
C. Financial instruments (cont’d)
(1) Non-derivative financial assets (cont’d)
Regular way sales of financial assets are recognized on the trade date, meaning on the date the Company undertook to sell the asset.
Available-for-sale financial assets
The Company’s investments in debt securities classified as available-for-sale financial assets. Available-for-sale financial assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses, foreign currency differences and the accrual of effective interest on available-for-sale debt instruments, are recognized directly in other comprehensive income and presented within equity in a reserve for financial assets classified as available-for-sale. When an investment is derecognized, the cumulative gain or loss in the reserve for available-for-sale financial assets is transferred to profit or loss.
(2) Non-derivative financial liabilities
Non-derivative financial liabilities include trade and other payables.
Initial recognition of financial liabilities
Financial liabilities are recognized initially on the trade date at which the Company
becomes a party to the contract creating the obligation.
Financial liabilities are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, financial liabilities are measured at amortized cost using the effective interest method.
Derecognition of financial liabilities
Financial liabilities are derecognized when the obligation of the Company, as specified in the agreement, expires or when the obligation is discharged or cancelled.
(3) Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of the shares are recognized as a deduction from equity, net of any tax effects.
(4) Issuance of Warrants
|
|
(1)
|
Consideration received in respect of warrants issued by the Company as part of capital raises, under which, upon exercise, the Company would issue a fixed amount of its own equity instruments in exchange for a fixed amount of cash is recognized and classified as equity in the statements of financial position.
|
|
|
(2)
|
Consideration received in respect of warrants issued by the Company as part of capital raises, under which, upon exercise, the Company would issue variable number of its own equity instruments (e.g. due to net settlement feature) are recognized and classified as derivatives. Accordingly, the warrants are measured at fair value through profit or loss.
|
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 3 - Significant Accounting Policies (cont’d)
D. Property and equipment
Property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.
Gains and losses on disposal of a property and equipment items are determined by comparing the net proceeds from disposal with the carrying amount of the asset, and are recognized in profit or loss.
An asset is depreciated from the date it is ready for use, meaning the date it reaches the location and condition required for it to operate in the manner intended by management. Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful life of each part of the property and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset.
The estimated useful lives for the current and comparative periods are as follows:
|
●
|
Furniture and office equipment
|
11 years
|
|
|
●
|
Laboratory equipment
|
3-7 years
|
|
|
●
|
Computers
|
3 years
|
|
|
●
|
Leasehold improvements
|
The shorter of the lease term and the useful life
|
|
Depreciation methods and useful lives are reviewed at the end of each reporting year and adjusted if appropriate.
E. Intangible assets
Separately acquired intangible assets are shown at historical cost. The cost of separately acquired intangible asset comprises its purchase price, and any acquisition related costs.
Licensed Technology (as defined in Note 10A) has a finite useful life and is carried at cost less accumulated amortization. Amortization is calculated using the straight-line method to allocate the cost of licenses over their useful life, see also Note 8B.
F. Research and development expenses, net
Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project or from the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale; the Company’s intention to complete the intangible asset; and the Company’s ability to measure reliably the expenditure attributable to the intangible asset during its development. Since the Company’s research and development projects are often subject to regulatory approval procedures and other uncertainties, the conditions for the capitalization of costs incurred before receipt of approvals are not normally satisfied, and, therefore, research and development expenses are recognized in profit or loss when incurred.
The Company’s research and development expenses are presented net of any incremental income that is generated as part of its research and development activities.
As of December 31, 2015, no development expenditures have met the recognition criteria and thus the Company expensed all of its development expenditures as incurred.
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 3 - Significant Accounting Policies (cont’d)
|
|
G.
|
Impairment of non-financial assets
|
Assets that are subject to depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use.
Income tax includes current and deferred tax. Current tax is the expected tax payable (or receivable) on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date.
A provision for uncertain tax positions, or reduction in deferred tax asset, is recognized when it is more probable than not that the
Company
will have to use its economic resources to pay the obligation.
Deferred tax is recognized for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is recognized for unused tax losses, tax benefits and deductible temporary differences, to the extent that it is probable that there will be future taxable profits against which such tax benefits can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
As of December 31, 2015, no deferred tax assets have been recorded since it is not probable that the Company will have future taxable income against which any tax losses, benefits or deductible temporary differences can be utilized.
(1) Post-employment benefits
The Company's liability for severance pay is pursuant to Section 14 of the Israeli Severance Compensation Act, 1963 ("Section 14"). The majority of the Company’s employees are included under this section and are entitled only to monthly deposits made in the employee’s name with insurance companies at a rate of 8.33% of an employee’s monthly salary. Payments in accordance with Section 14 release the Company from any future severance payments in respect of those employees. The funds deposited are made available to the employee at the time the employer-employee relationship is terminated, regardless of cause of termination. The severance pay liabilities and deposits under Section 14 are accounted for as defined contribution benefits and accordingly are not reflected in the statement of financial position, as the severance pay risks have been irrevocably transferred to the severance funds.
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 3 - Significant Accounting Policies (cont’d)
|
|
I.
|
Employee benefits (cont’d)
|
(2) Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided or upon the actual absence of the employee when the benefit is not accumulated. A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Company
has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. The employee benefits are classified, for measurement purposes, as short-term benefits or as other long-term benefits depending on when the Company expects the benefits to be wholly settled.
(3) Termination benefits
Termination benefits are recognized as an expense when the Company
is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date.
(4) Share based compensation
The grant date fair value of share-based compensation awards granted to employees is recognized as a salary expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognized as an expense in respect of share-based compensation awards that are conditional upon meeting service and non-market performance conditions, is adjusted to reflect the number of awards that are expected to vest. In respect of other service providers, where the fair value of the goods or services received as consideration of equity instruments cannot be measured reliably, they are measured by reference to the fair value of the equity instruments granted.
Government grants are recognized initially at fair value when there is reasonable assurance that they will be received and the Company
will comply with the conditions associated with the grant. Unconditional government grants are recognized when the Company
is entitled to receive them. Grants that compensate the Company
for expenses incurred are presented as a deduction from the corresponding expense
Grants from the Israel Office of the Chief Scientist (“OCS”) with respect to research and development projects are accounted for as forgivable loans according to IAS 20. Grants received from the OCS are recognized as a liability according to their fair value on the date of their receipt, unless on that date it is reasonably certain that the amount received will not be refunded. The amount of the liability is reexamined each period, and any changes in the present value of the cash flows discounted at the original interest rate of the grant are recognized in profit or loss. The difference between the amount received and the fair value of the liability on the date of the receipt of the grant is recognized as a deduction from research and development expenses.
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 3 - Significant Accounting Policies (cont’d)
|
|
J.
|
Government grants (cont’d)
|
As of December 31, 2015, the Company’s management estimates that the Company will not be required to refund grants received from the OCS which relate to an inactive research and development project, and accordingly, no provision was included in the financial statements.
K. Financing income and expenses
Financing income includes interest income and foreign currency gains . Interest income is recognized as it accrues using the effective interest method.
Financing expense includes bank charges, changes in foreign currency losses and change in fair value of warrants held by shareholders before the recapitalization event in 2013, see also Note11B4, and an amount that reflects a line of credit provided to the Company in 2014, see also Note 10H.
In the statements of cash flows, interest received is presented as part of cash flows from operating activities.
Foreign currency gains and losses on financial assets and financial liabilities are reported on a net basis as either financing income or financing expenses, depending on whether foreign currency movements are in a net gain or net loss position.
L. Loss per share
The Company
presents basic and diluted earnings or loss per share (“EPS”) data for its ordinary shares. Basic EPS is calculated by dividing the loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year, which includes, inter alia, ordinary shares issuable for little or no consideration. There is no difference between basic and diluted EPS since there are no dilutive potential ordinary shares.
M. Segment reporting
The Company
does not present segment information as the Company currently operates in a single segment.
N. New standards and interpretations not yet adopted
IFRS 9,
Financial Instruments
A final version of the standard, which includes revised guidance on the classification and measurement of financial instruments, and a new model for measuring impairment of financial assets. This guidance has been added to the chapter dealing with general hedge accounting requirements issued in 2013.
IFRS 9 (2014) is effective for annual periods beginning on or after January 1, 2018 with early adoption being permitted.
The Group has not yet commenced examining the effects of adopting IFRS 9 (2014) on the financial statements.
IFRS 16,
Leases
IFRS 16 sets out the principles of the recognition, measurement, presentation, and disclosure of leases. IFRS 16 is effective for annual periods beginning on or after January 1, 2019 with early adoption being permitted for entities that apply IFRS 15
, Revenue from Contracts with Customers
at or before the date of initial application of IFRS 16.
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 4
-
Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash for immediate withdrawal
|
|
|
20,709
|
|
|
|
2,531
|
|
|
Bank deposits (*)
|
|
|
257
|
|
|
|
8,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,966
|
|
|
|
10,868
|
|
(*) Bank deposits bear interest of 0.07%
Due to a contractual requirement to provide a bank guaranty to the lessor of the Company’s offices, the Company was required by the bank to maintain a minimum level of cash and cash equivalents as security for the bank guaranty in the amount of $60, linked to the Consumer Price Index (“CPI”), however, no specific deposit is required to be designated for that specific purpose (see also Note 10G).
Note 5
-
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale debt securities
|
|
|
4,720
|
|
|
|
17,484
|
|
|
Bank deposits (*)
|
|
|
1,887
|
|
|
|
17,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,607
|
|
|
|
35,313
|
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
Deposits (*)
|
|
|
-
|
|
|
|
1,255
|
|
(*) Bank deposits bear interest ranging from 0.25% to 1.4%.
Note 6 – Other Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government authorities
|
|
|
110
|
|
|
|
149
|
|
|
Prepaid expenses
|
|
|
106
|
|
|
|
157
|
|
|
Healthcare professionals – see Note 10B
|
|
|
95
|
|
|
|
171
|
|
|
Other
|
|
|
33
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
344
|
|
|
|
536
|
|
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 7 - Property and Equipment, Net
Composition of property and equipment and the depreciation thereof, grouped by major classifications and the changes during the year ended at December 31, 2015 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
Buildings under construction
|
|
|
100
|
|
|
|
(100
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Furniture and Office equipment
|
|
|
31
|
|
|
|
(13
|
)
|
|
|
18
|
|
|
|
12
|
|
|
|
(6
|
)
|
|
|
6
|
|
|
|
12
|
|
|
Computers
|
|
|
191
|
|
|
|
5
|
|
|
|
196
|
|
|
|
126
|
|
|
|
35
|
|
|
|
161
|
|
|
|
35
|
|
|
Leasehold improvements
|
|
|
221
|
|
|
|
(2
|
)
|
|
|
219
|
|
|
|
115
|
|
|
|
19
|
|
|
|
134
|
|
|
|
85
|
|
|
Laboratory equipment
|
|
|
441
|
|
|
|
(144
|
)
|
|
|
297
|
|
|
|
280
|
|
|
|
(83
|
)
|
|
|
197
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
984
|
|
|
|
(254
|
)
|
|
|
730
|
|
|
|
533
|
|
|
|
(35
|
)
|
|
|
498
|
|
|
|
232
|
|
Composition of property and equipment and the depreciation thereof, grouped by major classifications and the changes during the year ended at December 31, 2014 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
Buildings under construction
|
|
|
-
|
|
|
|
100
|
|
|
|
100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100
|
|
|
Furniture and Office equipment
|
|
|
31
|
|
|
|
-
|
|
|
|
31
|
|
|
|
9
|
|
|
|
3
|
|
|
|
12
|
|
|
|
19
|
|
|
Computers
|
|
|
194
|
|
|
|
(3
|
)
|
|
|
191
|
|
|
|
91
|
|
|
|
35
|
|
|
|
126
|
|
|
|
65
|
|
|
Leasehold improvements
|
|
|
103
|
|
|
|
118
|
|
|
|
221
|
|
|
|
91
|
|
|
|
24
|
|
|
|
115
|
|
|
|
106
|
|
|
Laboratory equipment
|
|
|
429
|
|
|
|
12
|
|
|
|
441
|
|
|
|
236
|
|
|
|
44
|
|
|
|
280
|
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
757
|
|
|
|
227
|
|
|
|
984
|
|
|
|
427
|
|
|
|
106
|
|
|
|
533
|
|
|
|
451
|
|
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 8 - Intangible Assets
|
|
A.
|
Composition of Intangible assets and the amortization thereof and changes during the years ending at December 31, 2015 and 2014 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
:
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
2,541
|
|
|
|
2,541
|
|
|
Additions
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
2,541
|
|
|
|
2,541
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation
:
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
2,265
|
|
|
|
1,714
|
|
|
Additions
|
|
|
276
|
|
|
|
551
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
2,541
|
|
|
|
2,265
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciated cost
|
|
|
-
|
|
|
|
276
|
|
|
|
B.
|
Intangible assets represent acquired Licensed Technology including additional acquisition related costs (see Note 10A).
|
The Company estimates the useful life of the Licensed Technology in accordance with the duration of the patent, which was expired in June 2015. Amortization of the intangible asset is included in research and development expenses.
Note 9 - Trade and Other Payables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables
|
|
|
394
|
|
|
|
61
|
|
|
Payroll and related accruals
|
|
|
266
|
|
|
|
845
|
|
|
Government authorities
|
|
|
40
|
|
|
|
59
|
|
|
Accrued expenses
|
|
|
579
|
|
|
|
1,509
|
|
|
Other payables
|
|
|
-
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,279
|
|
|
|
2,488
|
|
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 10 - Contingent Liabilities and Commitments
|
|
A.
|
In January 2008 and January 2011, the Company entered into agreements with Professor David Danon (the “Researcher”) to acquire a license to use technology relating to culturing macrophages from blood (the “Licensed Technology”).
|
In September 2010, the Company’s Board of Directors approved the grant of options to purchase 183,218 ordinary shares of the Company to the intermediary in the Licensed Technology acquisition transaction for his professional services and arranging the transaction.
The options, which vested immediately, are exercisable at an exercise price of NIS 0.01 per share until the earlier of: (i) approximately eight years following the date of grant; or (ii) a Merger or Acquisition event (“M&A event”) as defined in the agreement.
The Company estimated the fair value of the options on the date of grant to be approximately $1,179. This amount was capitalized in the Company's financial statements to the Intangible assets which represents the Licensed Technology (see also Note 8).
|
|
B.
|
In January 2008, the Company entered into an agreement with Magen David Adom (“MDA Agreement”), Israel’s national blood bank, under which MDA which used to supply the blood that served as the raw material for, and manufactured, the Company's CureXcell product in Israel. The MDA Agreement terminated upon the expiration of a certain patents in June 2015. The CureXcell product was sold to health care professionals in Israel for clinical purposes as part of the Company’s research and development activities.
|
|
|
Research and development expenses are presented net of proceeds received from sales of CureXcell to healthcare professionals in Israel since these sales are an integral part of the Company’s research and development activities rather than standalone revenues in the ordinary course of business (see Note 14).
|
|
|
C.
|
In July 2010 and March 2013, the Company entered into an agreement with the American Red Cross (“ARC”) to provide raw materials, produce the clinical trial supplies of the Company’s CureXcell for North America, and provide space used by the Company in the ARC’s facility . On November 17, 2015, the Company terminated the agreement as a consequence of the negative outcome of the Phase III trials and was required to pay a termination fee in the amount of $72.
|
|
|
D.
|
In September 2013, the Company entered into a Master Services Agreement with a contract service organization (the “CRO”), pursuant to which it retained the CRO to carry out the Company's clinical trials and implement the trial process planned by the Company's clinical trials team. Work is carried out by the CRO on a project by project basis, in accordance with project work orders submitted by the Company.
|
During 2015 and 2014, the service provided by the CRO was in the amount of $2,388 and $2,962 , respectively.
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 10 - Contingent Liabilities and Commitments (cont’d)
|
|
E.
|
In February 2014, the Company entered into a manufacturing agreement with a third-party (the “Manufacturer”), for the manufacture of the kits of
sterile plastic transfusion and infusion bags.
On November 17, 2015, following the failure of the clinical trials, the Company terminated the agreement.
|
F. Office of Chief Scientist
The Company partially financed its research and development expenditures under programs sponsored by the OCS for the support of certain research and development activities conducted in Israel. In return for the OCS’s participation, the Company is committed to pay royalties at a rate of 3% - 4.5% of sales of the developed products linked to U.S. dollars, until repayment of 100% of the amount of grants received, plus annual interest at the LIBOR rate. As of December 31, 2015 the Company’s total commitment for royalties payable with respect to future sales, based on OCS participation received, totaled approximately $800 (including accrued LIBOR interest). In addition, the OCS may impose certain conditions on any arrangement under which it permits the Company to transfer know-how or development and manufacturing out of Israel.
As of December 31, 2015, following the failure of the clinical trials, the Company’s management estimates that the Company will not be required to refund grants received from the OCS, and accordingly, no provision was included in the financial statements.
G. Line of credit
On July 10, 2014, the Company entered into a convertible loan agreement with a related party (‘‘the Lender’’), pursuant to which the Lender has made available a line of credit to the Company in an amount of up to $10 million that the Company may draw upon in one or more installments, at its sole discretion. The line of credit would expire upon the earlier of (i) the consummation of an IPO or (ii) 12 months following the execution of the convertible loan agreement. Any amounts outstanding under the line of credit as of the consummation of an IPO will automatically convert into ordinary shares of the Company to be issued to the Lender at the price per share being paid by the public in an offering.
In consideration of this line of credit, the Company issued to the Lender warrants to purchase 439,760 ordinary shares of the Company at a price per share equal to NIS 0.01. The warrants will expire 10 years following the date of the convertible loan agreement, or earlier if the Company consummate a merger, sale of all or substantially all of its assets, license of all or substantially all of its intellectual property or similar transaction.
Further to that mentioned in Note 1(3), on August 5, 2014 , the Company closed an IPO of its ordinary shares and the Company’s right to drew funds under the convertible credit line was terminated.
As a result of the aforesaid, the Company recognized a financing expense in 2014 at the amount of $4,371 that reflects the line of credit provided, and on the other hand an increase in warrants held by shareholders based on the fair value of the warrants which was determined according to the Company’s equity value.
On February 12, 2015 the Lender exercised the warrants into ordinary shares.
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 10 - Contingent Liabilities and Commitments (cont’d)
H. Litigation
In March 2015, Cognate Bioservices, Inc. and other plaintiffs (together – “Cognate”) added the Company as a defendant in a case in the U.S. District Court of Maryland (the “U.S. Court”) that they had brought against the Company’s former employee in July 2, 2014, for, among other things, misappropriation of trade secrets. Cognate’s amended complaint had alleged, among other claims, that the Company had violated the Computer Fraud and Abuse Act and had misappropriated products and trade secrets of Cognate. Cognate had also initiated a related proceeding against the Company in the Israeli Magistrate Court of Rishon Lezion (the “Israeli Magistrate Court”), in which the U.S. Court had requested that certain evidence be collected from the Company. On March 10, 2016, the U.S. Court dismissed the action against the Company. On April 7, 2016, Cognate filed a motion to alter or amend the U.S. District Court’s March 10, 2016 judgment. In its motion to alter or amend the judgment, Cognate stated that it has settled its claims with the former employee. On April 12, 2016, the Israeli Magistrate Court, deciding as authorized by the Israeli Central District Court (the “Israeli District Court”), dismissed the proceedings against the Company in that court, in light of the dismissal in the U.S. case, and cancelled its order to turn over the laptop computer to Cognate. The court also held that the Company was entitled to reimbursement of costs associated with the proceedings in the Israeli courts.
On April 14, 2016, the Company filed with the Israeli District Court a motion to withdraw its motion for leave to appeal without costs. On the same day, the motion was granted by the Israeli District Court.
Management does not expect any financial exposure and cannot assess any possible development of the litigation and its chances.
Note 11 - Equity
A. Share capital
Composed as of December 31, 2015 and 2014 of shares of NIS 0.01 par value, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary share
|
|
|
100,000,000
|
|
|
|
100,000,000
|
|
|
|
17,057,757
|
|
|
|
16,262,465
|
|
1. Rights attached to share
Each ordinary share is entitled to one vote at meetings of the Company’s shareholders, to appoint, dismiss and replace directors, to receive bonus shares, profits and dividends as declared by the Board of Directors and to participate in distribution of surplus assets of the Company upon its liquidation.
2. Share split
On July 18, 2014, the Company effected a bonus share distribution of 46-to-1 bonus shares (equivalent to a 46-for-1 stock split). For accounting purposes, this transaction was recorded as a stock split and accordingly, all ordinary shares, options to ordinary shares, warrant to ordinary shares and loss per share amounts have been adjusted retroactively for all periods presented in these financial statements. In addition the conversion rate for each preferred A share and warrant to preferred A share was adjusted to reflect such bonus share distribution. See also note 11A(3).
3. Conversion of series A preferred shares
See Note 1(4) regarding the automatic conversion of series A preferred shares and warrants to preferred A shares to ordinary shares and warrants to ordinary shares, respectively, as part of the Company’s IPO.
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 11 - Equity (Cont’d)
B. Financing rounds
|
|
1.
|
During 2008 and 2009, the Company entered into share purchase agreements with third-party investors (the “2008 and 2009 Agreements”), pursuant to which the Company issued total of 2,168,072 ordinary shares, warrants to purchase 156,584 ordinary shares at an exercise price equal to the par value, and warrants to purchase 183,218 ordinary shares at an exercise price of $10.54 per share, for total consideration of $12,565 (net of issuance costs of $428).
|
As of December 31, 2015, 156,584 warrants have been exercised for consideration of their par-value, 36,708 warrants were exercised for total consideration of $388 and 146,510 warrants expired.
|
|
2.
|
During the years 2010-2012, the Company entered into share purchase agreements with several investors (the “2010 and 2012 Agreements”), pursuant to which the Company issued
total of 1,950,308 Preferred A shares and warrants to purchase 975,338 Preferred A shares at an exercise price of $15.39 per share. The warrants were fully vested upon the closing of each of the agreements and are exercisable until the earlier of: (i) 5 years after the closing date of each of the agreements; or (ii) certain merger or acquisition events. The investors may exercise the warrants either in a cash or cashless manner.
|
The total consideration was $24,826 (net of total issuance costs of $102) and was allocated to warrants classified as a derivative liability due to their net share settlement feature, based on their fair value at the grant date, using the Black-Scholes option-pricing model. The remaining amount was allocated to Preferred A shares and share premium. The warrants were measured at fair value through profit or loss.
In July 2013, the warrants that were granted to the investors under the 2010 and 2012 Agreements were amended such that (i) the exercise price per each Preferred A share issuable upon the exercise of each such warrant was reduced to NIS 0.01; (ii) the number of Preferred A warrants was increased by additional 261,786 Preferred A warrants (approximately 2.5% of the Company’s fully diluted share capital following the Recapitalization as defined below) and were granted to the holders of such warrants on a pro-rata basis; and (iii) all Preferred A warrants were fully vested and are exercisable until certain M&A events ("Recapitalization").
Following the above mentioned reduction in the exercise price of the warrants granted under the 2010 and 2012 Agreements, the Company changed the warrants classification from derivative instruments measured at fair value through profit and loss to equity, since upon the change in exercise price the warrants became “in substance” shares and no longer met the definition of derivatives in accordance with IAS 32.
Total number of warrants to preferred A shares exercised into ordinary shares during 2015 and 2014 is 197,432 and 54,464, respectively.
|
|
3.
|
In July 2013, following the Recapitalization, the Company entered into a share purchase agreement (the "2013 Agreement") with some of the Company's existing shareholders as well as new investors, pursuant to which the Company issued 1,795,702 Preferred A shares for an aggregate purchase price of $13,750 (net of issuance costs of $300).
|
The proceeds from the 2013 Agreement were allocated to Preferred A shares and share premium.
|
|
4.
|
See Note 1(4) regarding the Company’s IPO.
|
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 11 - Equity (Cont’d)
|
|
C.
|
Share-based compensation
|
|
|
(1)
|
Expense recognized in the statement of loss and other comprehensive loss is as follows:
|
The expense that was recognized for services received from employees and service providers is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
386
|
|
|
|
452
|
|
|
General and administrative
|
|
|
1,334
|
|
|
|
1,211
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation
|
|
|
1,720
|
|
|
|
1,663
|
|
(2)
Share based compensation plans for employees and consultants:
The Company has reserved for issuance as share options two option plans for employees and consultants limited to 2,931,639 options to purchase ordinary shares. As of December 31, 2015, 1,032,148 ordinary shares of the Company were still available for future grant. Any options, which are forfeited or not exercised before expiration, become available for future grants.
Options granted under the Company’s 2008 and 2013 Israeli Share Option Plan (hereinafter- “Plan”) are exercisable in accordance with the terms of the Plan, within 10 years from the date of grant, against payment of an exercise price. The options for employees vest over a period of two to four years.
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 11 – Equity (cont’d)
|
|
C.
|
Share-based compensation (cont’d)
|
|
|
(3)
|
Option grants during 2015 and 2014:
|
|
|
1.
|
On April 13, 2014, the Company granted 370,070 options to purchase ordinary shares under the Plan for an exercise price of $10.20 per share to its employees and consultant.
|
|
|
2.
|
On July 22, 2014, the Company granted 219,972 options to purchase ordinary shares under the Plan for an exercise price of $10.00 per share to its Board of Directors members.
|
|
|
3.
|
On December 31, 2014, the Company granted 50,000 options to purchase ordinary shares under the Plan for an exercise price of $7.32 per share to its employee.
|
|
|
4.
|
In February, March and May 2015, the Company's Board of Directors approved a grant of 305,000 options to certain officers under the Company’s 2013 Option Plan (hereinafter- “Plan”) at an weighted average exercise price of US$9.66 per share. Under the Plan, the options vest over a period of four years and are exercisable within 10 years from the date of grant, upon payment of an exercise price.
|
|
|
5.
|
In March 2015, the Company's Board of Directors approved a grant of 135,000 options to the Company President and CEO under the Company’s 2013 Plan at an exercise price of US$9.33 per share. The vesting of the options would occur over a four year period but would only begin upon the achievement of a particular milestones. The options are exercisable within 10 years from the date of grant, upon payment of an exercise price.
|
|
|
In the second half of 2015, the milestones weren’t achieved and therefore the options were forfeited.
|
|
|
6.
|
In June and August, 2015, the Company's Board of Directors approved a grant of 168,640 options to certain officers and employees, under the Company’s 2013 Plan at an weighted average exercise price of US$13.63 per share. The vesting of the options would occur over a four year period but would only begin upon the achievement of a particular milestones. The options are exercisable within 10 years from the date of grant, upon payment of an exercise price.
|
|
|
In the second half of 2015, the milestones weren’t achieved and therefore the options were forfeited.
|
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 11 – Equity (cont’d)
|
|
C.
|
Share-based compensation (cont’d)
|
|
|
(4)
|
The number and weighted average exercise prices of options are as follows:
|
|
|
|
Weighted average exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1
|
|
|
7.22
|
|
|
|
5.78
|
|
|
|
1,849,106
|
|
|
|
1,341,544
|
|
|
Expired
|
|
|
8.68
|
|
|
|
6.72
|
|
|
|
(9,246
|
)
|
|
|
(80,592
|
)
|
|
Forfeited
|
|
|
10.30
|
|
|
|
-
|
|
|
|
(800,859
|
)
|
|
|
-
|
|
|
Exercised
|
|
|
10.20
|
|
|
|
4.67
|
|
|
|
(1,518
|
)
|
|
|
(67,850
|
)
|
|
Granted
|
|
|
10.69
|
|
|
|
9.85
|
|
|
|
608,640
|
|
|
|
656,004
|
|
|
Outstanding at December 31
|
|
|
7.00
|
|
|
|
7.22
|
|
|
|
1,646,123
|
|
|
|
1,849,106
|
|
|
|
|
|
Options outstanding as of December 31, 2015
|
|
|
|
|
|
|
|
|
Weighted average remaining contractual life
|
|
|
Weighted average exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of exercise prices (U.S. Dollar)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01 – 3.26
|
|
|
|
845,066
|
|
|
|
7.21
|
|
|
|
2.47
|
|
|
4.91 – 7.32
|
|
|
|
61,548
|
|
|
|
4.32
|
|
|
|
4.91
|
|
|
9.68 – 16.04
|
|
|
|
739,509
|
|
|
|
8.43
|
|
|
|
12.37
|
|
|
|
|
|
|
1,646,123
|
|
|
|
7.65
|
|
|
|
7.00
|
|
|
|
|
|
|
|
|
|
|
Share price (in U.S. dollar)
|
|
|
3.35-13.85
|
|
|
|
7.25-9.80
|
|
|
Expected life of share options (in years)(*)
|
|
|
5-7
|
|
|
|
5.5-7.0
|
|
|
Expected volatility
|
|
|
72%-91
|
%
|
|
|
104%-127
|
%
|
|
Risk-free interest rate
|
|
|
1.94%-2.35
|
%
|
|
|
1.85%-2.28
|
%
|
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
(*)
|
The expected life of the share options is based on the midpoints between the available exercise dates (the end of the vesting periods) and the last available exercise date (the contractually expiry date), as adequate historical experience is not available to provide a reasonable estimate.
|
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 12 - Basic and Diluted Loss Per Share
Basic and Diluted
Basic and Diluted loss per share is calculated by dividing the loss of the Company by the weighted average number of the issued and outstanding ordinary shares during the year, including Weighted average number of warrants and options to purchase ordinary shares which were granted with an exercise price of par value (2015 – 1,510,609, 2014 – 1,083,605, 2013 - 387,412).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year
|
|
|
(21,103
|
)
|
|
|
(25,451
|
)
|
|
|
(18,324
|
)
|
|
Weighted average number of Ordinary shares outstanding
|
|
|
18,248,340
|
|
|
|
11,863,372
|
|
|
|
7,444,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share (in U.S. dollars)
|
|
|
(1.16
|
)
|
|
|
(2.15
|
)
|
|
|
(2.46
|
)
|
|
Number of options excluded from the diluted loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
calculation due to their anti-dilutive effect
|
|
|
1,439,951
|
|
|
|
1,826,152
|
|
|
|
4,254,402
|
|
Note 13 - Financial Instruments
The
Company
has exposure to the following risks from its use of financial instruments:
This Note presents quantitative and qualitative information about the
Company’s
exposure to each of the above risks, and the
Company’s
objectives, policies and processes for measuring and managing risk.
|
|
B.
|
Risk management framework
|
The Company’s board of directors has overall responsibility for carrying out risk management activities. In this regard, the finance department identifies, defines and assesses financial risks. Risk management policies are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company, through its training and management of standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.
Credit risk is the risk of financial loss to the
Company
if a counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the
Company’s
cash and cash equivalents and other receivables.
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 13 - Financial Instruments (cont’d)
Cash and cash equivalent and short-term deposits
On December 31, 2015 and 2014, the
Company
held cash and cash equivalents of $20,966 and $10,868, respectively. In addition on December 31, 2015 and 2014, the Company held short-term deposits of $1,887 and $17,829, respectively. The Company’s cash and cash equivalents and deposits are deposited with financial institutions having a high credit rating.
Available for sale financial Assets
On December 31, 2015 and 2014, the
Company
held Available for sale financial Assets of $4,720 and $17,484 , respectively. The Company’s Available for sale financial assets comprised of debt securities issued by corporations that have a credit rating of at least A1/A+ (from three different rating agencies).
The maximum exposure to credit risk for investments in debt instruments by type of counterparty was as follows:
|
|
|
December 31
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale financial assets:
|
|
|
|
|
|
|
|
Debentures issued by entities:
|
|
|
|
|
|
|
|
Rated AA+
|
|
|
1,738
|
|
|
|
-
|
|
|
Rated AA
|
|
|
374
|
|
|
|
2,784
|
|
|
Rated AA-
|
|
|
2,608
|
|
|
|
5,473
|
|
|
Rated A+
|
|
|
-
|
|
|
|
7,009
|
|
|
Rated A
|
|
|
-
|
|
|
|
2,218
|
|
|
|
|
|
4,720
|
|
|
|
17,484
|
|
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it has sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.
Company management monitors rolling forecasts of the Company’s liquidity reserves on the basis of anticipated cash flows and maintains the liquidity balances at a level that it believes is sufficient to meet its needs.
As of December 31, 2015 and 2014 the
Company’s
contractual obligation of financial liability is in respect of trade and other payables in the amount of $1,279 and $2,488 respectively. The contractual maturity of this financial liability is less than one year and in its carrying amount.
The contractual obligations do not include royalties that the Company may be obligated to pay to MDA or the OCS, as detailed under Note 10G based upon future sales of its products, as the Company is unable to estimate the actual amount or timing of these costs that will incur in the future to these parties.
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 13 - Financial Instruments (cont’d)
Market risk is the risk that changes in market prices, such as foreign exchange rates, the CPI, interest rates and equity prices will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.
|
|
(1)
|
Foreign currency risks
|
The
Company’s
activities are partly denominated in foreign currencies, which exposes the Company to risks resulting from changes in exchange rates. The
Company
does not use derivatives to hedge currency risk.
The
Company’s
exposure to foreign currency risk was as follows:
|
|
(a)
|
The exposure to foreign currency risk
|
The
Company’s
exposure to foreign currency risk was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets and
financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
20,478
|
|
|
|
488
|
|
|
|
-
|
|
|
|
20,966
|
|
|
Short term investments
|
|
|
6,607
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,607
|
|
|
Other receivable
|
|
|
92
|
|
|
|
145
|
|
|
|
-
|
|
|
|
237
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payable
|
|
|
(976
|
)
|
|
|
(157
|
)
|
|
|
(146
|
)
|
|
|
(1,279
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,201
|
|
|
|
476
|
|
|
|
(146
|
)
|
|
|
26,531
|
|
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 13 - Financial Instruments (cont’d)
|
|
(1)
|
Foreign currency risks (cont’d)
|
(a) The exposure to foreign currency risk (cont’d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets and
financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
9,802
|
|
|
|
1,066
|
|
|
|
10,868
|
|
|
Short term investments
|
|
|
35,313
|
|
|
|
-
|
|
|
|
35,313
|
|
|
Other receivables
|
|
|
184
|
|
|
|
339
|
|
|
|
523
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,246
|
|
|
|
9
|
|
|
|
1,255
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payable
|
|
|
(2,132
|
)
|
|
|
(366
|
)
|
|
|
(2,498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,413
|
|
|
|
1,048
|
|
|
|
45,461
|
|
A change as of December 31 in the exchange rates of the following currencies against the U.S. dollar, as indicated below would have affected the measurement of financial instruments denominated in other currencies and would have increased (decreased) profit or loss and equity by the amounts shown below. This analysis is based on currency exchange rate that the
Company
considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables remain constant.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in the exchange rate of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5% in the NIS
|
|
|
23
|
|
|
|
(23
|
)
|
|
|
45
|
|
|
|
(45
|
)
|
|
10% in the NIS
|
|
|
46
|
|
|
|
(46
|
)
|
|
|
90
|
|
|
|
(90
|
)
|
|
5% in the Euro
|
|
|
(7
|
)
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
|
10% in the Euro
|
|
|
(14
|
)
|
|
|
14
|
|
|
|
-
|
|
|
|
-
|
|
* The effect of the change on equity is the same as on profit or loss.
As of December 31, 2015, the Company has debt securities classified as available for sale financial investments, for which the Company is exposed to risk of fluctuations in the security price that is determined by reference to the quoted market price.
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 13 - Financial Instruments (cont’d)
|
|
(2)
|
Security price risk (cont’d)
|
Security price risk – sensitivity analysis
The Company’s investments in securities include investments in corporate debt securities. The sensitivity analysis below presents the effect of a change in debt security prices (or the underlying assets) on the fair value of securities held by the Company, assuming that all other variables remain constant.
A change in debt security prices would have increased (decreased) equity by the amounts shown below (including tax effects):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase of 5%
|
|
|
62
|
|
|
|
233
|
|
|
|
223
|
|
|
|
868
|
|
|
Increase of 10%
|
|
|
124
|
|
|
|
466
|
|
|
|
453
|
|
|
|
1,736
|
|
|
Decrease of 5%
|
|
|
-
|
|
|
|
(233
|
)
|
|
|
-
|
|
|
|
(868
|
)
|
|
Decrease of 10%
|
|
|
-
|
|
|
|
(466
|
)
|
|
|
-
|
|
|
|
(1,736
|
)
|
F. Fair value
|
|
(1)
|
Financial instruments which their fair value approximates their carrying amounts
|
The carrying amounts of certain financial assets and liabilities, including cash and cash equivalents, receivables, deposits, trade and other payables, are the same as or approximate to their fair value.
The table below analyzes financial instruments carried at fair value, using a valuation method in accordance with the fair value hierarchy level. The different levels have been defined as follows:
|
|
—
|
Level 1: quoted prices (unadjusted) in active markets for identical instruments
|
|
|
—
|
Level 2: inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly
|
|
|
—
|
Level 3: inputs that are not based on observable market data (unobservable inputs).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets
|
|
|
4,720
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,720
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,720
|
|
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 13 - Financial Instruments (cont’d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets
|
|
|
17,484
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,484
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,484
|
|
Note 14 - Research and Development Expenses, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payroll and related expenses
|
|
|
2,613
|
|
|
|
2,618
|
|
|
|
2,065
|
|
|
Materials, subcontractors and consultants
|
|
|
12,264
|
|
|
|
12,387
|
|
|
|
6,498
|
|
|
Depreciation and amortization
|
|
|
298
|
|
|
|
573
|
|
|
|
631
|
|
|
Rent, insurance and maintenance
|
|
|
71
|
|
|
|
198
|
|
|
|
182
|
|
|
Other
|
|
|
246
|
|
|
|
209
|
|
|
|
379
|
|
|
|
|
|
15,492
|
|
|
|
15,985
|
|
|
|
9,755
|
|
|
Less – income from healthcare professionals (see Note 10B)
|
|
|
123
|
|
|
|
443
|
|
|
|
452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,369
|
|
|
|
15,542
|
|
|
|
9,303
|
|
Note 15 - General and Administrative Expenses
|
|
|
Year ended December 31
|
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
Payroll and related expenses
|
|
|
2,554
|
|
|
|
2,575
|
|
|
|
3,927
|
|
|
Professional expenses
|
|
|
2,406
|
|
|
|
1,895
|
|
|
|
431
|
|
|
Rent, insurance and maintenance
|
|
|
418
|
|
|
|
241
|
|
|
|
141
|
|
|
Other
|
|
|
342
|
|
|
|
663
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,720
|
|
|
|
5,374
|
|
|
|
4,567
|
|
Note 16 - Financing Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
126
|
|
|
|
40
|
|
|
|
94
|
|
|
Net foreign exchange income
|
|
|
30
|
|
|
|
-
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
156
|
|
|
|
40
|
|
|
|
193
|
|
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 16 - Financing Income (Expense), Net (cont’d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit line (See Note 10G)
|
|
|
-
|
|
|
|
4,371
|
|
|
|
-
|
|
|
Bank charges
|
|
|
18
|
|
|
|
15
|
|
|
|
15
|
|
|
Net foreign exchange loss
|
|
|
-
|
|
|
|
158
|
|
|
|
-
|
|
|
Change in fair value of warrants held by shareholders
|
|
|
-
|
|
|
|
-
|
|
|
|
4,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
4,544
|
|
|
|
4,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing income (expenses), net
|
|
|
138
|
|
|
|
(4,504
|
)
|
|
|
(4,305
|
)
|
Note 17 - Taxes on Income
|
|
A.
|
Details regarding the tax environment of the Company
|
(1) Corporate tax rate
|
|
(a)
|
Presented below are the tax rates relevant to the Company in the years 2013-2015:
2013 - 25%
2014 – 26.5%
2015 - 26.5%
|
|
|
(b)
|
After the reporting date, On January 4, 2016 the Knesset plenum approved the corporate tax rate would be reduced by 1.5% from 26.5% to 25% as from January 1,2016.
|
|
|
(c)
|
On February 4, 2010, Amendment 174 to the Income Tax Ordinance (New Version) – 1961 (hereinafter – the “Ordinance”) was published in the Official Gazette. The amendment added Section 87A to the Ordinance, which provides a temporary order whereby Accounting Standard No. 29 “Adoption of International Financial Reporting Standards (IFRS)” that was issued by the Israel Accounting Standards Board shall not apply when determining the taxable income for the 2007, 2008 and 2009 tax years even if this standard was applied when preparing the financial statements (hereinafter – the “Temporary Order”). On January 12, 2012, Amendment 188 to the Ordinance was issued, according by which the Temporary Order was amended so that Standard 29 shall not apply when determining the taxable income for 2010 and 2011. On July 31, 2014 Amendment 202 to the Ordinance was issued, by which the Temporary Order was extended to the 2012 and 2013 tax years, effective retroactively as from January 1, 2012.
|
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 17 - Taxes on Income (cont’d)
|
|
(2)
|
Benefits under the Law for the Encouragement of Capital Investments
|
(a)
Beneficiary enterprise
The Company has elected the year of 2012 as the year of election for the “Beneficiary Enterprise”. The income generated by the “Beneficiary Enterprise” is exempt from tax over a period of 2 years and is subject to a reduced rate of company tax for a period of up to 5 years beginning with the year in which the Company first had taxable income (limited to a maximum period of 12 years from the year of election). The tax benefit period of the beneficiary enterprise that commenced operations in 2012 has not yet commenced. The benefits are contingent upon compliance with the terms of the Encouragement Law.
A company having a beneficiary enterprise that distributes a dividend from exempt income, will be required in the tax year of the dividend distribution to pay corporate tax on the amount of the dividend distributed at the tax rate that would have been applicable to it in the year the income was produced if it had not been exempt from tax.
|
|
(3)
|
Benefits under the Law for the Encouragement of Industry (Taxes) - 1969
|
If the Company qualifies as an “Industrial Company” as defined in the Law for the Encouragement of Industry (Taxes) – 1969, it is entitled to benefits of which the most significant ones are as follows:
|
|
(a)
|
Higher rates of depreciation.
|
|
|
(b)
|
Amortization in three equal annual portions of issuance expenses when registering shares for trading as from the date the shares of the company were registered.
|
|
|
(c)
|
An 8-year period of amortization for patents and know-how serving in the development of the enterprise.
|
|
|
(d)
|
The possibility of submitting consolidated tax returns by companies in the same line of business.
|
|
|
(4)
|
Macrocure Inc., the U.S. subsidiary is taxed based on U.S. tax laws. The tax rates applicable to the subsidiary is approximately 35% (Federal and State). Taxes on income recorded in profit or loss are current tax expenses of this subsidiary.
|
B. Unrecognized deferred tax assets
As of December 31, 2015 and 2014, the Company had carry forward losses for tax purposes in the amount of $52,666 and $36,624, respectively. The tax losses may be carried forward and offset against taxable income in the future for an indefinite period.
As of December 31, 2015 and 2014, the Company had deductible temporary differences in the net amount of $17,560 and $13,009, respectively.
The Company has not recorded deferred tax assets with respect to carry forward losses and deductible temporary differences because it is not probable that future taxable profit will be available against which the Company can use the benefits therefrom.
Notes to the Consolidated Financial Statements as of December 31, 2015
U.S. dollars in thousands (except share and per share data)
Note 17 - Taxes on Income (cont’d)
|
|
(2)
|
Benefits under the Law for the Encouragement of Capital Investments (cont’d)
|
C. Tax assessments
The Company and its subsidiary have not been assessed since incorporation. In accordance with the Israeli Income Tax Ordinance, tax assessments of the Company through tax year 2011 are considered final.
The main reconciling item between the statutory tax rate of the Company and the effective tax rate is current year tax losses and benefits for which no deferred tax assets were created.
Note 18 - Geographical Information
The
Company’s
non-current assets based on their geographical locations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Israel
|
|
|
166
|
|
|
|
511
|
|
|
United States
|
|
|
66
|
|
|
|
216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
232
|
|
|
|
727
|
|
Note 19 - Related Parties
Compensation and benefits to key management personal
In addition to their salaries, the
Company
provides non-cash benefits to a director and executive officers (such as a car, medical insurance, etc.), and contributes to a post-employment defined benefit plan on their behalf. The Company’s executive officers are subject to mutual term of notice of 3-9 months.
Executive officers also participate in the
Company’s
share option programs. For further information see Note 11C regarding share-based compensation.
Compensation and benefits to key management personnel (including directors) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Amount in
|
|
|
Number of
|
|
|
Amount in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term benefits
|
|
|
11
|
|
|
|
1,919
|
|
|
|
10
|
|
|
|
2,298
|
|
|
Share-based compensation
|
|
|
10
|
|
|
|
1,291
|
|
|
|
9
|
|
|
|
1,445
|
|
|
Total
|
|
|
|
|
|
|
3,210
|
|
|
|
|
|
|
|
3,743
|
|
For further information regarding convertible loan agreement with a related party see Note 10H.
Note 20 - Subsequent Events
On March 10, 2016, the US Court dismissed the action brought against the Company by Cognate and on April 12, 2016, the Israeli Magistrate Court dismissed the proceedings against the Company in light of the dismissal in the U.S. case , see also Note 10H.
F - 34