ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
Not applicable. Not applicable. Not applicable. D. | American Depositary Shares |
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 |
There are no material modifications to the rights of security holders. ITEM 15. CONTROLS AND PROCEDURES |
(a) Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2021,2023, or the Evaluation Date. Based on such evaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated and communicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.
(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, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our management, including our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) as of the Evaluation Date. Based on that evaluation, our management has concluded that our internal control over financial reporting was effective as of the Evaluation Date. As all internal control systems, no matter how well designed, have inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. (c) Attestation Report of the Registered Public Accounting Firm This Annual Report on Form 20-F does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting due to an exemption for emerging growth companies provided in the JOBS Act. (d) Changes in Internal Control over Financial Reporting During the year ended December 31, 2021,2023, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT |
Our board of directors has determined that one member of our audit committee, Augustine Lawlor, is an audit committee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and the Nasdaq Listing Rules. Our board of directors has adopted a Code of Ethics applicable to all of our directors and employees, including our Chief Executive Officer, Chief Financial Officer, 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. The full text of the Code of Ethics is posted on our website at www.painreform.com. Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this Annual Report on Form 20-F and is not incorporated by reference herein. If we make any amendment to the Code of 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. We have not granted any waivers under our Code of Business Conduct and Ethics. ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Brightman Almagor Zohar & Co., a Firm in the Deloitte Global Network, an independent registered public accounting firm, or Deloitte, has served as our principal independent registered public accounting firm for the year ended December 31, 2020 and through to October 21, 2021.
On December 9, 2021, Kesselman & Kesselman, was appointed as our principal independent registered public accounting firm in Israel and a member of PricewaterhouseCoopers International Limited, or Kesselman & Kesselman.
The following table provides information regarding fees paid or to be paid by us to Deloitte and to Kesselman & Kesselman for all services, including audit services, for the years ended December 31, 2021 and 2020
93
| | Year Ended December 31, | | | | 2021 | | | 2020 | | (USD in thousands) | | | | | | | Audit fees (1) | | | 141 | | | | 107 | | Audit-related fees | | | - | | | | - | | Tax fees | | | - | | | | - | | All other fees | | | - | | | | 45 | | | | | | | | | | | Total | | | | | | | 152 | |
The following table provides information regarding fees paid or to be paid by us to Deloitte and to Kesselman & Kesselman, for all services, including audit services, for the years ended December 31, 20212023 and 2020:2022:
| | Year Ended December 31, | | | | 2023 | | | 2022 | | (USD in thousands) | | | | | | | Audit fees (1) | | | 120 | | | | 107 | | Audit-related fees(2) | | | 122 | | | | 5 | | Tax fees | | | - | | | | - | | All other fees | | | - | | | | 23 | | Total | | | 242 | | | | 135 | |
(1) | The audit fees for the years ended December 31, 20212023 and 2020 includes2022 include professional services rendered in connection with the audit of our annual financial statements and the review of our interim financial statements, statutory audits of the Company and its subsidiary, issuanceCompany. |
(2) | Issuance of consents and assistance with review of documents filed with the SEC. |
Pre-Approval of Auditors’ Compensation Our audit committee has a pre-approval policy for the engagement of our independent registered public accounting firm 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 services, audit-related services and tax services that may be performed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general pre-approval, it will require specific pre-approval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to perform the prohibited non-audit functions defined in applicable SEC rules. ITEM 16D.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 |
On October 21, 2021, Deloitte ceased to be our independent accountant by mutual agreement.
Deloitte audited our financial statements as of and for the fiscal years ended December 31, 2020 and 2019. The reports of Deloitte on the financial statements of the Company for the fiscal years ended December 31, 2020 and 2019, did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.
During our fiscal years ended December 31, 2020 and 2019, and through the interim period ended October 21, 2021, there were no disagreements between us and Deloitte on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Deloitte, would have caused Deloitte to make reference to the subject matter of the disagreements in connection with its audit reports on our financial statements.
During our two most recent fiscal years ended December 31, 2020 and 2019, and the interim period ended October 21, 2021, Deloitte did not advise the Company of any reportable events specified in Item 304(a)(1)(v) of Regulation S-K with respect to us.
Effective December 9, 2021, Kesselman & Kesselman was appointed as our new independent registered public accounting firm.
During the fiscal year ended December 31, 2020, and the subsequent interim period prior to the engagement of Kesselman & Kesselman, we did not consult Kesselman & Kesselman regarding (i) the application of accounting principles to any specified transaction, either completed or proposed; (ii) the type of audit opinion that might be rendered on our financial statements, and either a written report was provided to the registrant or oral advice was provided that the new accountant concluded was an important factor considered by the registrant in reaching a decision as to the accounting, auditing or financial reporting issue; or (iii) any matter that was either the subject of a disagreement (as defined in Item 16F(a)(1)(iv) and the related instructions to this Item) or a reportable event (as defined in Item 16F(a)(1)(v)).
ITEM 16GITEM 16G.. CORPORATE GOVERNANCE |
Under the Companies Law, companies incorporated under the laws of the State of Israel, whose shares are publicly traded, including companies whose shares are listed on the Nasdaq Capital Market are considered public companies under Israeli law and are required to comply with various corporate governance requirements under Israeli law relating to such matters as external directors, the audit committee, compensation, policy, company’s auditors, and an internal auditor. This is the case even if our shares are not listed on the Tel Aviv Stock Exchange. These requirements are in addition to the corporate governance requirements imposed by the Nasdaq Listing Rules, and other applicable provisions of U.S. securities laws to which we are subject as a foreign private issuer due to the listing of the ordinary shares on the Nasdaq Capital Market. Under the Nasdaq Listing Rules, a foreign private issuer, such as us, may generally follow its home country rules of corporate governance in lieu of the comparable requirements of the Nasdaq Capital Market, except for certain matters including (among others) the composition and responsibilities of the audit committee and the independence of its members within the meaning of the rules and regulations of the SEC. We intend to rely on this “home country practice exemption” with respect to the following Nasdaq Listing Rules:
| ● | Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, rather than seeking approval for corporate actions in accordance with Nasdaq Listing Rule 5635. In particular, under this Nasdaq Listing Rule, shareholder approval is generally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rights or if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leading to a change of control; (iii) adoption or amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights (including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) if such equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is required (subject to certain limited exceptions) for, among other things: (a) transactions with directors concerning the terms of their service (including indemnification, exemption, and insurance for their service or for any other position that they may hold at a company), for which approvals of the compensation committee, board of directors, and shareholders are all required; (b) extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described below under “Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain Transactions;” (c) terms of office and employment or other engagement of our controlling shareholder, if any, or such controlling shareholder’s relative, which require the special approval described below under “Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain Transactions;” (d) approval of transactions with Company’s Chief Executive Officer with respect to his or hers compensation, whether in accordance with the approved compensation policy of the Company or not in accordance with the approved compensation policy of the Company, or transactions with officers of the Company not in accordance with the approved compensation policy; and (e) approval of the compensation policy of the Company for office holders. In addition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies. |
| ● | Nomination of our directors. Israeli law and our amended articles of association do not require director nominations to be made by a nominating committee of our board of directors consisting solely of independent directors, as required under the Listing Rules of the Nasdaq Stock Market. We rely on the exemption available to foreign private issuers under the Nasdaq Listing Rules and follow Israeli law and practice with regard to the process of nominating directors, in accordance with which directors are recommended by our board of directors for election by our shareholders (other than directors elected by our board of directors to fill a vacancy). |
| ● | Quorum requirement. Under our amended and restated articles of association and as permitted under the Companies Law, a quorum for any meeting of shareholders shall be the presence of at least two shareholders present in person, by proxy or by a written ballot, who hold at least 25% of the voting power of our shares (or if a higher percentage is required by law, such higher percentage) instead of 33 1/3% of the issued share capital required under the Nasdaq Listing Rules. If within half an hour from the time designated for the meeting a quorum is not present, them will stand adjourned to the same day in the following week, at the same time and place. If a quorum is not present at the adjourned meeting within half hour from the time designated for its start, the meeting shall take place with any number of participants. |
| ● | Periodic reports. As opposed to making periodic reports to shareholders and proxy solicitation materials available to shareholders in the manner specified by the Nasdaq Marketplace Rules, the Companies Law does not require us to distribute periodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders but to make such reports available through a public website. We will only mail such reports to shareholders upon request; and |
| ● | Compensation of officers. We follow Israeli law and practice with respect to the approval of officer compensation. While our compensation committee currently complies with the provisions of the Nasdaq Listing Rules relating to composition requirements and Israeli law generally requires that the compensation of the chief executive officer and all other executive officers be approved, or recommended to the board for approval, by the compensation committee (and in certain instances, shareholder approval is required), Israeli law includes relief from compensation committee approval in certain instances. For details regarding the approvals required under the Israeli Companies Law and regulation promulgated thereunder for the approval of compensation of the chief executive officer, all other executive officers and directors, see Item 6C “Directors, Senior Management and Employees— Board Practices — Approval of Related Party Transactions under Israeli Law — Disclosure of Personal Interests of an Office Holder and Approval of Certain Transactions”). |
Except as stated above, we intend to comply with the rules generally applicable to U.S. domestic companies listed on the Nasdaq Capital Market, subject to certain exemptions the JOBS Act provides to emerging growth companies. We may in the future decide to use other foreign private issuer exemptions with respect to some or all of the other Nasdaq Listing Rules. Following our home country governance practices, as opposed to the requirements that would otherwise apply to a company listed on the Nasdaq Capital Market, may provide less protection than is accorded to investors under the Nasdaq Listing Rules applicable to domestic issuers. ITEM 16H. MINE SAFETY DISCLOSURE |
Not applicable. ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 16J. INSIDER TRADING POLICIES
Pursuant to applicable SEC transition guidance, the disclosure required by Item 16J will only be applicable to the Company from the fiscal year ending on December 31, 2024.
ITEM 16K. CYBERSECURITY
We have developed and maintain a cybersecurity risk management program, consisting of cybersecurity policies, procedures, compliance and awareness programs to mitigate risk and to ensure compliance with security, availability and confidentiality trust principles. The cybersecurity process has been integrated into our overall risk management system and process, and is solely internally managed. Management is responsible for identifying risks that threaten achievement of the control activities stated in the management’s description of the services organizations systems. Management has implemented a process for identifying relevant risks that could affect the organization’s ability to provide secure and reliable service to its users. The risk assessment occurs annually, or as business needs change, and covers identification of risks that could act against the company's objectives as well as specific risks related to a compromise to the security of data. See “Item 3.D — Risk Factors — Risks Related to Our Drug Development and Business — Our business and operations would suffer in the event of IT system failures, cybersecurity attacks, data breaches, or vulnerabilities in our or our third-party vendors’ information security program or defenses.” The level of each identified risk is determined by considering the impact of the risk itself and the likelihood of the risk materializing and high scoring risks are actioned upon. Risks are analyzed to determine whether the risk meets company risk acceptance criteria to be accepted or whether a mitigation plan will be applied. Mitigation plans include both the individual or department responsible for the plan and may include budget considerations. The oversight of cybersecurity threats is undertaken by our Chief Executive Officer, who holds over two decades of experience in information technology and the design and architecture of information systems, and is supported by management. Our audit committee is responsible for cybersecurity oversight and monitoring risk. Management informs the audit and investment committee of such risk by committee meetings. As previously disclosed, during the quarter ended June 30, 2022, we identified a material weakness in our internal control over financial reporting relating to a cybersecurity incident in which a third party impersonated a supplier of services by using a falsified email domain account and requested us to wire a payment to a false bank account. As a result, we transferred an amount of $165,000 to the third party (a fictitious vendor). We were able to recover most of the falsely obtained payment from our financial institution, but have established a reserve for the amount of the disbursement that we have no assurance will be recoverable. Other than the above incident, we have not, to our knowledge, experienced any material IT system failures or any material cybersecurity attacks to date. See “Item 3.D — Risk Factors — Risks Related to Our Drug Development and Business — Our business and operations would suffer in the event of IT system failures, cybersecurity attacks, data breaches, or vulnerabilities in our or our third-party vendors’ information security program or defenses.”
As of the date of this report, we are not aware of any material risks from cybersecurity threats that have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations or financial condition.
PART III ITEM 17. FINANCIAL STATEMENTS |
We have elected to provide financial statements and related information pursuant to Item 18. ITEM 18. FINANCIAL STATEMENTS |
The financial statements and the related notes required by this Item are included in this Annual Report on Form 20-F beginning on page F-1.
Exhibit No. | | Exhibit Description | | | | 1.1Exhibit No. | | Exhibit Description | | | | |
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| | | | | 101 | | The following financial information from PainReform Ltd.’s Annual Report on Form 20-F for the year ended December 31, 2023, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Statement of Financial Position, (ii) Statements of Comprehensive Loss, (iii) Statements of Changes in Equity, (iv) Statements of Cash Flows and (iv) Notes to Financial Statements.* |
# | Management contract or compensatory plan. |
SIGNATURES 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 Form 20-F for the year ended December 31, 2021, formatted in Inline Extensible Business Reporting Language (XBRL): (i) Statement of Financial Position, (ii) Statements of Comprehensive Loss, (iii) Statements of Changes in Equity, (iv) Statements of Cash Flows and (iv) Notes to Financial Statements.* |
# | Management contract or compensatory plan.
|
SIGNATURES
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 Form 20-F filed on its behalf.
| PAINREFORM LTD. | | | | | | Date: February 29, 2024 | By: | /s/ Ilan Hadar | | | | Ilan Hadar | | | | Chief Executive Officer | | | | | | Date: March 16, 2022 | By: | /s/ Ilan Hadar | | | | Ilan Hadar | | | | Chief Executive Officer | |
100
PAINREFORM LTD. FINANCIAL STATEMENTS AS OF DECEMBER 31, 2023 U.S. DOLLARS IN THOUSANDS INDEX AS OF DECEMBER 31, 2021
U.S. DOLLARS IN THOUSANDS
INDEX | | Page | | | | | | F-2 | (Firm Name: Kesselman & Kesselman / PCAOB ID No. 1309) | | | | | | | | F-3 | | | | | | F-4 | | | | | | F-5 | | | | | | F-6 - F-7 | | | | | | F-8 - F-27 |
| Page
| | | To the board of directors and shareholders of PainReform Ltd Opinion on the Financial Statements We have audited the accompanying balance sheets of PainReform Ltd. (the “Company”) as of December 31, 2023,and 2022, and the related statements of comprehensive loss, and shareholders’ equity and cash flowsfor each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. | F-2Substantial Doubt about the Company’s Ability to Continue as a Going Concern
| The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1(b) to the financial statements, the Company has incurred recurring losses and negative cash flows from operations and has an accumulated deficit as of December 31, 2023 that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1(b). The financial statements do not include any adjustments that might result from the outcome of this uncertainty. (Firm Name: Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/Kesselman & Kesselman / PCAOB ID No. 1309)Certified Public Accountants (Isr.)
| | (Firm Name: Brightman Almagor Zohar & Co / PCAOB ID No. 1197)A member of PricewaterhouseCoopers International Limited
Tel-Aviv, Israel | February 29, 2024 | | | We have served as the Company's auditor since 2021. |
| | | | F-5
| | | | F-6
| | | | F-8
| | | | F-9 - F-24
|
Report of Independent Registered Public Accounting FirmTo theboard of directors and shareholders of PainReform Ltd.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of PainReform Ltd. (the “Company’) as of December 31, 2021 and the related statements of comprehensive loss, changes in convertible preferred shares and shareholders’ equity (deficit) and cash flows for the year then ended, including the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Kesselman & Kesselman
Certified Public Accountants (Isr.)
A member of PricewaterhouseCoopers International Limited
Tel-Aviv, Israel
March 16, 2022
We have served as the Company’s auditor since 2021
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of PainReform Ltd.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of PainReform Ltd. (the "Company") as of December 31, 2020, the related statements of comprehensive loss, changes in shareholders’ deficit and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Brightman Almagor Zohar & Co.
Certified Public Accountants
A Firm in the Deloitte Global Network
Tel Aviv, Israel
March 18, 2021
We have served as the Company's auditor since 2008.
BALANCE SHEETS
| U.S. dollars in thousands (except share and per share data) |
| | | | | As of December 31, | | | | Note | | | 2021 | | | 2020 | | Assets | | | | | | | | | | Current assets: | | | | | | | | | | Cash and cash equivalents | | | | | $ | 16,537 | | | $ | 15,677 | | Restricted cash | | 2e | | | | 34 | | | | 13 | | Prepaid clinical trial expenses and deferred clinical trial costs | | 7c | | | | 1,728 | | | | 1,294 | | Prepaid expenses and other current assets | | 3 | | | | 721 | | | | 807 | | | | | | | | | | | | | | Total current assets | | | | | | 19,020 | | | | 17,791 | | | | | | | | | | | | | | Property and equipment, net | | | | | | 53 | | | | 10 | | | | | | | | | | | | | | Total assets | | | | | $ | 19,073 | | | $ | 17,801 | | | | | | | | | | | | | | Liabilities and shareholders’ equity | | | | | | | | | | | | | | | | | | | | | | | | Trade payables | | | | | $ | 136 | | | $ | 720 | | Employees and related liabilities | | | | | | 423 | | | | 92 | | Accrued expenses | | | | | | 198 | | | | 149 | | | | | | | | | | | | | | Total current liabilities | | | | | $ | 757 | | | $ | 961 | | | | | | | | | | | | | | Non-current liabilities: | | | | | | | | | | | | Provision for unrecognized tax positions | | 6f | | | | 234 | | | | 220 | | Total non-current liabilities | | | | | | 234 | | | | 220 | | | | | | | | | | | | | | Total liabilities | | | | | $ | 991 | | | $ | 1,181 | | | | | | | | | | | | | | Commitments and contingencies | | 7 | | | | 0 | | | | 0 | | | | | | | | | | | | | | Shareholders’ Equity: | | 9 | | | | | | | | | | Ordinary shares, NIS 0.03 par value; Authorized: 26,666,667 and 16,666,667 shares as of December 31, 2021 and 2020, respectively; Issued and outstanding: 10,482,056 and 8,758,037 shares as of December 31, 2021 and 2020, respectively; | | | | | $ | 94 | | | $ | 78 | | Additional paid-in capital | | | | | | 41,715 | | | | 33,023 | | Accumulated deficit | | | | | | (23,727 | ) | | | (16,481 | ) | | | | | | | | | | | | | Total shareholders’ equity | | | | | | 18,082 | | | | 16,620 | | | | | | | | | | | | | | Total liabilities, shareholders’ equity | | | | | $ | 19,073 | | | $ | 17,801 | |
| | | | | As of December 31, | | | | Note | | | 2023 | | | 2022 | | Assets | | | | | | | | | | Current assets: | | | | | | | | | | Cash and cash equivalents | | | | | $ | 8,026 | | | $ | 4,096 | | Short term deposit | | | | | | - | | | | 6,085 | | Restricted cash | | 2f | | | | 10 | | | | 10 | | Prepaid clinical trial expenses and deferred clinical trial costs | | 6b | | | | 1,514 | | | | 1,728 | | Prepaid expenses and other current assets | | 3 | | | | 249 | | | | 365 | | Total current assets | | | | | | 9,799 | | | | 12,284 | | Non-current assets | | | | | | | | | | | | Operating lease right of use asset | | 6a | | | | 93 | | | | | | Property and equipment, net | | | | | | 38 | | | | 44 | | Total long-term assets | | | | | | 131 | | | | 44 | | Total assets | | | | | $ | 9,930 | | | $ | 12,328 | | | | | | | | | | | | | | Liabilities and shareholders’ equity | | | | | | | | | | | | | | | | | | | | | | | | Trade payables | | | | | $ | 221 | | | $ | 209 | | Employees and related liabilities | | | | | | 465 | | | | 499 | | Operating lease liability | | | | | | 56 | | | | | | Accrued expenses | | 4 | | | | 1,668 | | | | 356 | | | | | | | | | | | | | | Total current liabilities | | | | | $ | 2,410 | | | $ | 1,064 | | | | | | | | | | | | | | Non-current liabilities: | | | | | | | | | | | | Operating lease liability | | | | | | 30 | | | | | | Provision for unrecognized tax positions | | 5f | | | | 251 | | | | 243 | | | | | | | | | | | | | | Total non-current liabilities | | | | | | 281 | | | | 243 | | | | | | | | | | | | | | Total liabilities | | | | | $ | 2,691 | | | $ | 1,307 | | | | | | | | | | | | | | Commitments | | 6 | | | | | | | | | | | | | | | | | | | | | | Shareholders’ Equity: | | 7 | | | | | | | | | | Ordinary shares, NIS 0.3 par value; Authorized: 5,000,000 and 2,666,667 shares as of December 31, 2023, and 2022, respectively; Issued and outstanding: 1,728,347 and 1,081,755 shares as of December 31, 2023, and 2022, respectively (*) | | | | | $ | 147 | | | $ | 94 | | Additional paid-in capital | | | | | | 48,955 | | | | 43,446 | | Accumulated deficit | | | | | | (41,863 | ) | | | (32,519 | ) | | | | | | | | | | | | | Total shareholders’ equity | | | | | | 7,239 | | | | 11,021 | | | | | | | | | | | | | | Total liabilities and shareholders’ equity | | | | | $ | 9,930 | | | $ | 12,328 | |
The accompanying notes are an integral part of the financial statements.F - 4
(*) All share amounts have been retroactively adjusted to reflect a 1-for-10 reverse share split (Note 1c) PAINREFORM LTD. STATEMENTS OF COMPREHENSIVE LOSS
| U.S. dollars in thousands (except share and per share data) |
| | | | | For the Year Ended December 31, | | | | Note | | | 2023 | | | 2022 | | | 2021 | | | | | | | | | | | | | | | Operating expenses: | | | | | | | | | | | | | Research and development expenses | | 8a | | | $ | (6,035 | ) | | $ | (4,422 | ) | | $ | (2,860 | ) | General and administrative expenses | | 8b | | | | (3,549 | ) | | | (4,447 | ) | | | (4,348 | ) | | | | | | | | | | | | | | | | | Operating loss | | | | | | (9,584 | ) | | | (8,869 | ) | | | (7,208 | ) | | | | | | | | | | | | | | | | | Financial income (expenses), net | | 8c | | | | 248 | | | | 86 | | | | (32 | ) | | | | | | | | | | | | | | | | | Loss before taxes | | | | | | (9,336 | ) | | | (8,783 | ) | | | (7,240 | ) | | | | | | | | | | | | | | | | | Income tax expenses | | | | | | (8 | ) | | | (9 | ) | | | (6 | ) | | | | | | | | | | | | | | | | | Net loss and comprehensive loss | | | | | $ | (9,344 | ) | | $ | (8,792 | ) | | $ | (7,246 | ) | | | | | | | | | | | | | | | | | Basic and diluted net loss per share | | 2o | | | $ | (7.14 | ) | | $ | (8.13 | ) | | $ | (7.25 | ) | | | | | | | | | | | | | | | | | Weighted average number of Ordinary Share used in computing basic and diluted net loss per share (*) | | | | | | 1,308,920 | | | | 1,081,755 | | | | 999,562 | |
| | | | | For the Year Ended December 31, | | | | Note | | | 2021 | | | 2020 | | | 2019 | | | | | | | | | | | | | | | Operating expenses: | | | | | | | | | | | | | Research and development expenses | | 10a | | | $ | (2,860 | ) | | $ | (354 | ) | | $ | (136 | ) | General and administrative expenses | | 10b | | | | (4,348 | ) | | | (1,317 | ) | | | (553 | ) | | | | | | | | | | | | | | | | | Operating loss | | | | | | (7,208 | ) | | | (1,671 | ) | | | (689 | ) | | | | | | | | | | | | | | | | | Financial expense, net | | 10c | | | | (32 | ) | | | (2,162 | ) | | | (590 | ) | | | | | | | | | | | | | | | | | Loss before taxes | | | | | | (7,240 | ) | | | (3,833 | ) | | | (1,279 | ) | | | | | | | | | | | | | | | | | Tax expenses | | | | | | (6 | ) | | | (220 | ) | | | 0 | | Net loss and comprehensive loss | | | | | $ | (7,246 | ) | | $ | (4,053 | ) | | $ | (1,279 | ) | | | | | | | | | | | | | | | | | Basic and diluted net loss per share (*) | | 2m | | | $ | (0.74 | ) | | $ | (1.25 | ) | | $ | (4.17 | ) | | | | | | | | | | | | | | | | | Weighted average number of shares of ordinary share used in computing basic and diluted net loss per share (*) | | | | | | 9,812,234 | | | | 3,243,943 | | | | 576,556 | |
(*) Share and per share data is presented on a retroactive basis to reflect the reverse share split, refer to note 1(c).
The accompanying notes are an integral part of the financial statements. (*) All share amounts have been retroactively adjusted to reflect a 1-for-10 reverse share split (Note 1c) STATEMENTS OF CHANGES IN SHAREHOLDERS’EQUITY
U.S. dollars in thousands (except share data) | | Ordinary shares(**) | | | Additional paid-in | | | Accumulated | | | Total shareholders’ | | | | Number | | | Amount | | | capital | | | Deficit | | | equity | | | | | | | | | | | | | | | | | | Balance as of January 1, 2021 | | | 894,142 | | | $ | 78 | | | $ | 33,023 | | | $ | (16,481 | ) | | $ | 16,620 | | | | | | | | | | | | | | | | | | | | | | | Share-based compensation to employees and directors | | | - | | | | - | | | | 812 | | | | - | | | | 812 | | | | | | | | | | | | | | | | | | | | | | | Share-based compensation to service providers | | | - | | | | - | | | | 412 | | | | - | | | | 412 | | | | | | | | | | | | | | | | | | | | | | | Shares and warrants issuance - Private Investment in Public Equity (“PIPE”), net | | | 130,435 | | | | 12 | | | | 5,542 | | | | - | | | | 5,554 | | | | | | | | | | | | | | | | | | | | | | | Exercise of warrants | | | 41,967 | | | | 4 | | | | 1,926 | | | | - | | | | 1,930 | | | | | | | | | | | | | | | | | | | | | | | Net loss and comprehensive loss | | | - | | | | - | | | | - | | | | (7,246 | ) | | | (7,246 | ) | | | | | | | | | | | | | | | | | | | | | | Balance as of December 31, 2021 | | | 1,066,544 | | | $ | 94 | | | $ | 41,715 | | | $ | (23,727 | ) | | $ | 18,082 | | | | | | | | | | | | | | | | | | | | | | | Share-based compensation to employees and directors | | | - | | | | - | | | | 1,389 | | | | - | | | | 1,389 | | | | | | | | | | | | | | | | | | | | | | | Share-based compensation to service providers | | | - | | | | - | | | | 342 | | | | - | | | | 342 | | | | | | | | | | | | | | | | | | | | | | | Share issuance to service providers | | | 15,211 | | | | - | | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | Net loss and comprehensive loss | | | - | | | | - | | | | - | | | | (8,792 | ) | | | (8,792 | ) | | | | | | | | | | | | | | | | | | | | | | Balance as of December 31, 2022 | | | 1,081,755 | | | $ | 94 | | | $ | 43,446 | | | $ | (32,519 | ) | | $ | 11,021 | | | | | | | | | | | | | | | | | | | | | | | Share-based compensation to employees and directors | | | - | | | | - | | | | 804 | | | | - | | | | 804 | | | | | | | | | | | | | | | | | | | | | | | Share issuance to service providers | | | 8,697 | | | | * | | | | - | | | | - | | | | * | | | | | | | | | | | | | | | | | | | | | | | Issuance of common stock and pre-funded warrants upon private placement, net of underwriting commissions and other offering costs. (***) | | | 467,895 | | | | 39 | | | | 1,411 | | | | - | | | | 1,450 | | Issuance and exercise of common stock warrants upon private placement, net of underwriting commissions and other offering costs. (Note 7c) | | | 170,000 | | | | 14 | | | | 3,294 | | | | | | | | 3,308 | | | | | | | | | | | | | | | | | | | | | | | Net loss and comprehensive loss | | | - | | | | - | | | | - | | | | (9,344 | ) | | | (9,344 | ) | | | | | | | | | | | | | | | | | | | | | | Balance as of December 31, 2023 | | | 1,728,347 | | | $ | 147 | | | $ | 48,955 | | | $ | (41,863 | ) | | $ | 7,239 | |
(*) Represents amount less than $1. (**) All share amounts have been retroactively adjusted to reflect a 1-for-10 reverse share split (Note 1c). (***) In addition to the issuance of 467,895 shares, an additional amount of 467,895 warrants exercisable into common shares were issued. These warrants were classified as long-term liability and were fully exercised. The investor paid for a full exercise of these warrants and decided that the Company will issue 170,000 shares. The investor has a right to issue an additional 297,895 shares (Note 7c). F - 5 U.S. dollars in thousands (except share data)
| | Convertible preferred shares (Temporary equity) | | | Ordinary shares | | | Additional paid-in | | | Accumulated | | | Total shareholders’ | | | | Number | | | Amount | | | Number | | | Amount | | | capital | | | deficit | | | equity (deficit) | | Balance as of Jan 1, 2019 | | | 2,954,267 | | | $ | 6,621 | | | | 576,556 | | | $ | 5 | | | $ | 66 | | | $ | (11,149 | ) | | $ | (11,078 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Share-based compensation | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 89 | | | | 0 | | | | 89 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating lease provided by controlling shareholder | | | - | | | | 0 | | | | - | | | | 0 | | | | 25 | | | | 0 | | | | 25 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss and comprehensive loss | | | - | | | | 0 | | | | - | | | | 0 | | | | 0 | | | | (1,279 | ) | | | (1,279 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of December 31, 2019 | | | 2,954,267 | | | $ | 6,621 | | | | 576,556 | | | $ | 5 | | | $ | 180 | | | $ | (12,428 | ) | | $ | (12,243 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Conversion of preferred shares into ordinary shares | | | (2,954,267 | ) | | | (6,621 | ) | | | 2,954,267 | | | | 26 | | | | 6,595 | | | | 0 | | | | 6,621 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Conversion of convertible notes into ordinary shares | | | 0 | | | | 0 | | | | 2,727,214 | | | | 25 | | | | 7,135 | | | | 0 | | | | 7,160 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Share issuance under Initial Public Offering, net | | | 0 | | | | 0 | | | | 2,500,000 | | | | 22 | | | | 17,288 | | | | 0 | | | | 17,310 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity classification of a derivative warrant liability (Note 4) | | | - | | | | - | | | | - | | | | 0 | | | | 1,552 | | | | 0 | | | | 1,552 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Share-based compensation to employees | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 38 | | | | 0 | | | | 38 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Share-based compensation to service providers | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 202 | | | | 0 | | | | 202 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating lease provided by controlling shareholder | | | - | | | | 0 | | | | - | | | | 0 | | | | 33 | | | | 0 | | | | 33 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss and comprehensive loss | | | - | | | | 0 | | | | - | | | | 0 | | | | 0 | | | | (4,053 | ) | | | (4,053 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of December 31, 2020 | | | 0 | | | $ | 0 | | | | 8,758,037 | | | $ | 78 | | | $ | 33,023 | | | $ | (16,481 | ) | | $ | 16,620 | |
The accompanying notes are an integral part of the financial statements.F - 6
STATEMENT OF CHANGES IN CONVERTIBLE PREFERRED SHARES AND SHAREHOLDERS’ EQUITY (DEFICIT)(Cont.)
U.S. dollars in thousands (except share data)
| | Convertible preferred shares (Temporary equity) | | | Ordinary shares | | | Additional paid-in | | | Accumulated | | | Total shareholders’ | | | | Number | | | Amount | | | Number | | | Amount | | | capital | | | deficit | | | equity (deficit) | | Balance as of Jan 1, 2021 | | | 0 | | | $ | 0 | | | | 8,758,037 | | | $ | 78 | | | $ | 33,023 | | | $ | (16,481 | ) | | $ | 16,620 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Share-based compensation to employees and directors | | | | | | | | | | | | | | | | | | | 812 | | | | 0 | | | | 812 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Share-based compensation to service providers | | | | | | | | | | | | | | | | | | | 412 | | | | | | | | 412 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares and warrants issuance - Private Investment in Public Equity ("PIPE"), net | | | 0 | | | | 0 | | | | 1,304,346 | | | | 12 | | | | 5,542 | | | | 0 | | | | 5,554 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Exercise of warrants | | | 0 | | | | 0 | | | | 419,673 | | | | 4 | | | | 1,926 | | | | 0 | | | | 1,930 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss and comprehensive loss | | | - | | | | 0 | | | | - | | | | 0 | | | | 0 | | | | (7,246 | ) | | | (7,246 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of December 31, 2021 | | | 0 | | | $ | 0 | | | | 10,482,056 | | | $ | 94 | | | $ | 41,715 | | | $ | (23,727 | ) | | $ | 18,082 | |
F - 7
STATEMENTS OF CASH FLOWS
| U.S. dollars in thousands | | For the Year Ended December 31, | | | | 2023 | | | 2022 | | | 2021 | | Cash flows from operating activities | | | | | | | | | | Net loss | | $ | (9,344 | ) | | $ | (8,792 | ) | | $ | (7,246 | ) | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | | | Depreciation | | | 15 | | | | 15 | | | | 7 | | Exchange rate differences on cash, cash equivalents and restricted cash | | | (2 | ) | | | - | | | | - | | Share-based compensation to employees and directors | | | 804 | | | | 1,389 | | | | 812 | | Net change in operating lease asset and liability | | | (9 | ) | | | - | | | | - | | Share-based compensation to service providers | | | - | | | | 342 | | | | 412 | | Warrant issuance costs | | | 368 | | | | - | | | | - | | Interest income (expenses) | | | 85 | | | | (85 | ) | | | - | | Change in warrant liability valuation | | | (1,726 | ) | | | - | | | | - | | Loss from inducement offer letter agreement (Note 7c) | | | 1,502 | | | | - | | | | - | | Changes in operating assets and liabilities: | | | | | | | | | | | | | Prepaid expenses and other current assets | | | 330 | | | | 356 | | | | (348 | ) | Trade payables | | | 12 | | | | 73 | | | | (585 | ) | Employees, related liabilities and accrued expenses | | | 1,286 | | | | 243 | | | | 395 | | Net cash used in operating activities | | | (6,679 | ) | | | (6,459 | ) | | | (6,553 | ) | | | | | | | | | | | | | | Cash flows from investing activities | | | | | | | | | | | | | Purchase of property and equipment | | | (9 | ) | | | (6 | ) | | | (50 | ) | Proceeds from short term deposits | | | 7,000 | | | | | | | | | | Purchase of short-term deposit | | | (1,000 | ) | | | (6,000 | ) | | | - | | Net cash provided by (used in) investing activities | | | 5,991 | | | | (6,006 | ) | | | (50 | ) | | | | | | | | | | | | | | Cash flows from financing activities | | | | | | | | | | | | | Proceeds from exercise/issuance of warrants | | | 2,511 | | | | - | | | | 1,930 | | Proceeds from inducement offer letter agreement (Note 7c) | | | 1,334 | | | | | | | | | | Issuance costs | | | (932 | ) | | | - | | | | (446 | ) | Proceeds from Issuance of shares and pre-funded warrants | | | 1,703 | | | | | | | | | | Proceeds from issuance of ordinary shares under Private Investment in Public Equity | | | - | | | | - | | | | 6,000 | | Net cash provided by financing activities | | | 4,616 | | | | - | | | | 7,484 | | Effect of Exchange rate changes on cash, cash equivalents and restricted cash | | | 2 | | | | - | | | | - | | Net increase (decrease) in cash, cash equivalents and restricted cash | | | 3,930 | | | | (12,465 | ) | | | 881 | | Cash, cash equivalents and restricted cash at the beginning of the year | | | 4,106 | | | | 16,571 | | | | 15,690 | | Cash, cash equivalents and restricted cash at the end of the year | | $ | 8,036 | | | $ | 4,106 | | | $ | 16,571 | |
PAINREFORM LTD. STATEMENTS OF CASH FLOWS (Cont.)
U.S. dollars in thousands Supplemental cash flow information: | | December 31, | | | | 2023 | | | 2022 | | | 2021 | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 8,026 | | | $ | 4,096 | | | $ | 16,537 | | | | | | | | | | | | | | | Restricted cash | | | 10 | | | | 10 | | | | 34 | | | | | | | | | | | | | | | Total cash, cash equivalents, and restricted cash | | $ | 8,036 | | | $ | 4,106 | | | $ | 16,571 | | | | | | | | | | | | | | | Supplemental cash flow information: | | | | | | | | | | | | | Acquisition of right-of-use assets by means of lease liabilities | | $ | 113 | | | $ | - | | | $ | - | |
The accompanying notes are an integral part of the financial statements. PAINREFORM LTD. NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data | | For the Year Ended December 31, | | | | 2021 | | | 2020 | | | 2019 | | Cash flows from operating activities | | | | | | | | | | | | | | | | | | | | Net loss | | $ | ( 7,246 | ) | | $ | (4,053 | ) | | $ | (1,279 | ) | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | | | Depreciation | | | 7 | | | | (* | ) | | | 1 | | Operating lease provided by controlling shareholder | | | 0 | | | | 33 | | | | 25 | | Share-based compensation to employees | | | 812 | | | | 38 | | | | 89 | | Share-based compensation to service providers | | | 412 | | | | 202 | | | | 0 | | Interest expense and amortization of discount on convertible notes | | | 0 | | | | 987 | | | | 541 | | Issuance costs | | | 0 | | | | 0 | | | | 47 | | Revaluation of derivative warrant liability | | | 0 | | | | 1,105 | | | | 2 | | Change in: | | | | | | | | | | | | | Other current and non-current assets | | | (348 | ) | | | (1,884 | ) | | | (183 | ) | Trade payables | | | (585 | ) | | | 720 | | | | (2 | ) | Other accounts payable and accrued expenses | | | 395 | | | | 295 | | | | 150 | | | | | | | | | | | | | | | Net cash used in operating activities | | | (6,553 | ) | | | (2,557 | ) | | | (609 | ) | | | | | | | | | | | | | | Cash flows from investing activities | | | | | | | | | | | | | | | | | | | | | | | | | | Purchase of property and equipment | | | (50 | ) | | | (10 | ) | | | 0 | | | | | | | | | | | | | | | Net cash used in investing activities | | | (50 | ) | | | (10 | ) | | | 0 | | | | | | | | | | | | | | | Cash flows from financing activities | | | | | | | | | | | | | | | | | | | | | | | | | | Proceeds from issuance of convertible notes, net | | | 0 | | | | 0 | | | | 241 | | Proceeds from exercise of warrants | | | 1,930 | | | | 0 | | | | 0 | | Proceeds from issuance of ordinary shares | | | | | | | | | | | | | under Private Investment in Public Equity | | | 6,000 | | | | 0 | | | | 0 | | Issuance costs | | | (446 | ) | | | 0 | | | | 0 | | Proceeds from issuance of August and December 2019 convertible notes and warrants, net | | | 0 | | | | 0 | | | | 1,269 | | Proceeds from issuance of ordinary shares under Initial Public Offering, net | | | | | | | 17,310 | | | | | | Net cash provided by financing activities | | | 7,484 | | | | 17,310 | | | | 1,510 | | | | | | | | | | | | | | | Change in cash, cash equivalents and restricted cash | | | 881 | | | | 14,743 | | | | 901 | | Cash, cash equivalents and restricted cash at the beginning of the year | | | 15,690 | | | | 947 | | | | 46 | | | | | | | | | | | | | | | Cash, cash equivalents and restricted cash at the end of the year | | $ | 16,571 | | | $ | 15,690 | | | $ | 947 | |
| a. | PainReform Ltd. (“the Company”) was incorporated and started business operations in November 2007. The Company is a clinical stage specialty pharmaceutical company focused on the reformulation of established therapeutics. The Company’s proprietary extended-release drug-delivery system is designed to provide an extended period of post-surgical pain relief without the need for repeated dose administration while reducing the potential need for the use of opiates. |
| b. | Liquidity (*)Since its inception, the Company has devoted substantially all its efforts to research and development, clinical trials, and capital raising activities. The Company is still in its development and clinical stage and has not yet generated revenues. The Company has incurred significant losses and negative cash flows from operations and incurred losses of $9,344, $8,792 and $7,246 for the years ended December 31, 2023, 2022 and 2021, respectively. During the years ended December 31, 2023, 2022 and 2021, the Company had negative operating cash outflows of $6,679, $6,459, and $6,553, respectively. As of December 31, 2023, the Company’s accumulated deficit was $41,863. The Company has funded its operations to date primarily through equity financing and has cash on hand (including restricted cash) of $8,036 as of December 31, 2023. In July 2023, the Company consummated two registered direct offerings of its ordinary shares and simultaneous private placements of warrants to purchase its ordinary shares, resulting in aggregate gross proceeds of $4.2 million and net proceeds of $3.6 million (Note 7c). In December 2023, the Company consummated a warrant exercise transaction. As part of the transaction, the Company agreed to the exercise of outstanding warrants to purchase up to an aggregate of 467,896 ordinary shares, having an exercise price of $9.00 per ordinary share, issued by the Company in July 2023, at a reduced exercise price of $2.85 per ordinary share. The warrant exercise resulted in aggregate gross proceeds of $1.3 million. In addition, the Investor received 935,792 new warrants with an exercise price of $2.85 (Note 7c). The Company expects to continue incurring losses, and negative cash flows from operations until its product, PRF-110, reaches commercial profitability. As a result of the initiation of the Company's Phase III clinical trial in March 2023, along with its current cash position, the Company does not have sufficient resources to fund operations until the end of its phase III study, nor to continue as a going concern for at least one year from the issuance date of these financial statements. Management's plans include continued raising capital through sale of additional equity securities, debt or capital inflows from strategic partnerships. There are no assurances, however, that the Company will successfully obtain the level of financing needed for its operations. If the Company is unsuccessful in raising capital, it may need to reduce activities, curtail, or abandon some or all of its operations, which could materially harm the Company’s business, financial condition and results of operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business and do not include any adjustments that might result from the outcome of this uncertainty. |
| c. | In June 2023, the Company effected a reverse share split of its shares at the ratio of 1-for-10, such that each ten (10) ordinary shares, par value NIS 0.03 per share, were consolidated into one (1) ordinary share, par value NIS 0.30. As a result of rounding of fractional shares as part of the reverse share split, 18,338 ordinary shares were added, bringing the Company’s total outstanding shares on a post-split basis to 1,090,452. All related share and per share data have been retroactively applied to the financial statements and their related notes for all periods presented. |
Represents amount less than $1F - 8
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data The accompanying notes are an integral part of the financial statements.
| d. | In May 2023, the Company announced that its supplier of the active pharmaceutical ingredient, or API, had received a deficiency notice from the FDA related to the supplier’s Drug Master File, or DMF. The DMF is the file on record with the FDA representing the manufacturing process and facility to produce the API. As a result, the second part of the Company’s first Phase 3 trial was delayed and re-commenced once the required information was provided by the supplier to the FDA and the deficiency notice was resolved, which occurred in September 2023. None of the issues raised were related to the Company’s PRF-110 product. Following the FDA review process of the DMF the Company received a notification from the FDA in September 2023 and an official letter in November 2023, allowing the use of the API manufactured by the DMF holder and an approval to proceed with the clinical trial. In October 2023, the Company reactivated the clinical study and enrolled the first patients in the second part of the Phase 3 trial with the Company’s contract research organization, which will include up to 415 patients in the double-blind study multiple clinical sites in the U.S., measuring pain reduction by PRF-110 over 72 hours compared with a placebo and Naropin® (ropivacaine). |
| e. | U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Israel and Hamas and the conflict between Russia and Ukraine. Although the length and impact of these ongoing military conflicts is highly unpredictable, they could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets. Additionally, Russia’s prior annexation of Crimea, recent recognition of two separatist republics in the Donetsk and Luhansk regions of Ukraine and subsequent military interventions in Ukraine have led to sanctions and other penalties being levied by the United States, European Union and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic, and the so-called Luhansk People’s Republic, including agreement to remove certain Russian financial institutions from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) payment system. Additional potential sanctions and penalties have also been proposed and/or threatened. Russian military actions and the resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult for us to obtain additional funds. Any of the abovementioned factors could affect our business, prospects, financial condition, and operating results. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict. |
| f. | On October 7, 2023, an unprecedented attack was launched against Israel, which thrust Israel into a state of war. The Company is continuing the development of its product and progressing with the clinical trials taking place out of Israel. At this time, the Company's management does not expect this situation to have a material impact on its operations or its business results. |
F - 9 NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data | g. | The Company reports its financial results in U.S. dollars. A portion of research and development and general and administrative expenses of our Israeli operations are incurred in New Israeli Shekel ("NIS"). As a result, the Company is exposed to exchange rate risks that may materially and adversely affect our financial results. If the NIS appreciates against the U.S. dollar, or if the value of the NIS decline against the U.S. dollar, at a time when the rate of inflation in the cost of Israeli goods and services exceed the rate of decline in the relative value of the NIS, then the U.S. dollar-denominated cost of our operations in Israel would increase and our results of operations could be materially and adversely affected. Inflation in Israel compounds the adverse impact of a devaluation of the NIS against the U.S. dollar by further increasing the amount of our Israeli expenses. Israeli inflation may also (in the future) outweigh the positive effect of any appreciation of the U.S. dollar relative to the NIS, if, and to the extent that, it outpaces such appreciation or precedes such appreciation. The Israeli rate of inflation did not have a material adverse effect on our financial condition during 2023 ,2022 and 2021. Given our general lack of currency hedging arrangements to protect us from fluctuations in the exchange rates of the NIS in relation to the U.S. dollar (and/or from inflation of such non-U.S. currencies), the Company may be exposed to material adverse effects from such movements. the Company cannot predict any future trends in the rate of inflation in Israel or the rate of devaluation (if any) of the U.S. dollar against the NIS. |
NOTE 1:NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES |
| a. | Basis of presentation: The financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The significant accounting policies described below have been applied consistently in relation to all the periods presented, unless otherwise stated. |
| b. | Use of estimate in preparation of financial statements: The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company evaluates on an ongoing basis its assumptions. Estimates are primarily used for, but not limited to, valuation of share-based compensation, clinical trial accrual expenses, and valuation allowances. The Company’s management believes that the estimates, judgments, and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of expenses during the reporting periods. Actual results could differ from those estimates. |
|
| | PainReform Ltd. ("the Company") was incorporated and started business operations in November 2007. The Company is a clinical stage specialty pharmaceutical company focused on the reformulation of established therapeutics. The Company’s proprietary extended release drug-delivery system is designed to provide an extended period of post-surgical pain relief without the need for repeated dose administration while reducing the potential need for the use of opiates.
|
| b. | LiquidityNOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| c. | Financial statements in United States dollars: The Company’s functional currency is the U.S. dollar (“dollar” or “$”) since the dollar is the currency of the primary economic environment in which the Company has operated and expects to continue to operate in the foreseeable future. Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Balances in non-U.S. dollar currencies are translated into U.S. dollars using historical and current exchange rates for non-monetary and monetary balances, respectively. For non-U.S. dollar transactions and other items in the statements of income (indicated below), the following exchange rates are used: (i) for transactions - exchange rates at transaction dates or average exchange rates; and (ii) for other items (derived from non-monetary balance sheet items such as depreciation) - historical exchange rates. Currency transaction gains and losses are presented in financial income or expenses, as appropriate. |
| d. | Cash and cash equivalents: Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less at acquisition. |
| e. | Short term deposit: Bank deposits with original maturity dates of more than three months but at balance sheet date are less than one year are included in short-term deposits. The fair value of bank deposits approximates the carrying value since they bear interest at rates close to the prevailing market rates. |
| f. | Restricted cash: As of December 31, 2023 and 2022, the Company’s restricted cash consisted of immaterial bank deposits that were denominated in NIS. Restricted deposits are presented at cost including accrued interest. These bank deposits are used as securities for the Company's credit cards. |
Since its inception, the Company has devoted substantially all of its efforts to research and development, clinical trials, and capital raising activities. The Company is still in its development and clinical stage and has not yet generated revenues. | g. | Fair Value Measurements: The carrying values of Company’s financial assets and liabilities, including cash and cash equivalents, restricted cash, other current assets, trade payables and other accounts payable approximate their fair value due to the short-term maturity of these instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. Assets and liabilities recorded at fair value in the financial statements are categorized as follows: Level 1 - Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date; Level 2 - Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable inputs for similar assets or liabilities. These include quoted prices for identical or similar assets or liabilities in active markets and quoted prices for identical or similar assets of liabilities in markets that are not active; Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. As of December 31, 2023, and 2022 no assets or liabilities are measured at their fair value. |
F - 11 NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| h. | Property and equipment, net: Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets at the following rates: |
| | % | | | | | | | Computers, software and electronic equipment | | | 33 | | Furniture and office equipment | | | 7 | |
The Company has incurred losses of $7,246, $4,053 and $1,279 for the years ended December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021, the Company’s accumulated deficit was $23,727. The Company has funded its operations to date primarily through equity financing. | i. | Research and development expenses: Research and development costs include costs of payroll and related expenses of employees, subcontractors and consultants and other costs related to the Company's operation of its planned clinical trials. Research and development expenses are charged to the statements of comprehensive loss as incurred. Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. The Company outsources its clinical trial activities utilizing external entities such as clinical research organizations, independent clinical investigators, and other third-party service providers to assist the Company with the execution of its clinical trials. Clinical trial expenses are charged to research and development expense as incurred. The Company accrues for expenses resulting from obligations under contracts with its clinical research organization (CRO). The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which services are provided. The Company’s objective is to reflect the appropriate trial expense in the financial statements by matching the appropriate expenses with the period in which services and efforts are expended. In the event advance payments are made to a CRO, the payments are recorded as prepaid clinical trial expenses and deferred clinical trial costs, which will be recognized as expenses as services are rendered. |
| j. | Employee severance benefits: The Company is required to make severance payments upon dismissal of an Israeli employee or upon termination of employment in certain circumstances. In accordance with the current employment terms with all of its employees (Section 14 of the Israeli Severance Pay Law, 1963) located in Israel, the Company makes regular deposits with certain insurance companies for accounts controlled by each applicable employee in order to secure the employee’s full retirement benefit and severance obligation. The Company is relieved from any severance pay liability with respect to each such employee after it makes the payments on behalf of the employee. The liability accrued in respect of these employees and the amounts funded, as of the respective agreement dates, are not reflected on the Company’s balance sheet, as the amounts funded are not under the control and management of the Company and the pension or severance pay risks have been irrevocably transferred to the applicable insurance companies. The amounts of severance payment expenses were $73, $60 and $58 for the years ended December 31, 2023, 2022 and 2021, respectively. |
| k. | Legal and other contingencies: Certain conditions may exist as of the date of the financial statements, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities, if any, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s management evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. Management applies the guidance in ASC 450-20, “Loss Contingencies” when assessing losses resulting from contingencies. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be reasonable estimated, then the estimated liability is recorded as accrued expenses in the Company’s financial statements. Legal costs incurred in connection with loss contingencies are expensed as incurred. |
F - 12 NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| l. | Income taxes: The Company accounts for income taxes using the asset and liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value if it is more likely than not that a portion or all the deferred tax assets will not be realized, based on the weight of available positive and negative evidence. As of December 31, 2023, and 2022, the Company had a full valuation allowance on its deferred tax assets. The Company implements a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax positions as the largest amount that is more than 50% (cumulative basis) likely to be realized upon ultimate settlement. As of December 31, 2023 and 2022, the total gross amount of provision for unrecognized tax positions was $251 and $243, respectively (Note 5f). The Company recognizes interest and penalties, if any, related to unrecognized tax positions in tax expenses and exchange differences in financial expense. |
| m. | Concentrations of credit risk: Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and restricted cash. Cash and cash equivalents and restricted cash are invested in a major bank in Israel and the United States. Management believes that the banks that hold the Company’s cash, cash equivalent and restricted cash are financially sound and, accordingly, minimal credit risk exists with respect to this cash, cash equivalent and restricted cash. |
| n. | Dependence on a single supplier risk: The Company relies, and expects to continue to rely, on a single supplier to manufacture supplies and raw materials for its clinical trial. This clinical trial could be adversely affected by a significant interruption in these manufacturing services or the availability of raw materials. |
F - 13 NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
Additional funding will be required to complete the Company’s research and development and clinical trials, to attain regulatory approvals, to begin the commercialization efforts of the Company’s product and to achieve a level of sales adequate to support the Company’s cost structure. | o. | Derivative warrant liability Financial equity instruments that do not meet the US GAAP criteria for equity classification are classified as a liability at fair value and are adjusted to fair value at each reporting period. Changes in fair value are recognized in the Company’s statements of comprehensive loss in accordance with ASC 815, “Accounting for Derivative Financial Instruments”. |
On March 11, 2021, the Company closed a private placement of 1,304,346 ordinary shares and accompanying warrants to purchase an aggregate of up to 652,173 ordinary shares at a combined purchase price of $4.60 per share and accompanying warrant resulting in gross proceeds of $6,000. The warrants are exercisable immediately at an exercise price of $4.60 per share and expire five and a half years from the issuance date.
On July 22 2021, the Company issued 419,673 ordinary shares upon exercise of warrants for consideration totalling $1,930 (Note 9).
Based on the Company's current operating plan, the Company believes that its existing capital resources will be sufficient to fund operations for at least twelve months after the date the financial statements are issued. | p. | Basic and diluted loss per share: Basic loss per share is computed on the basis of the net loss for the period divided by the weighted average number of Ordinary Shares and vested Ordinary Shares issuable for little or no further consideration outstanding during the period. Diluted loss per share is based upon the weighted average number of ordinary shares and of potential Ordinary Shares outstanding when dilutive. Potential Ordinary Shares include outstanding stock options, restricted shares and warrants, which are included under the treasury stock method when dilutive. For the years ended December 31, 2023, 2022 and 2021, all outstanding share options, restricted shares, and warrants have been excluded from the calculation of the diluted net loss per share as all such securities are anti-dilutive for all years presented. |
| The loss and the weighted average number of shares used in computing basic and diluted net loss per share is as follows: |
| | Year ended December 31, | | | | 2023 | | | 2022 | | | 2021 | | | | | | | | | | | | Numerator: | | | | | | | | | | Net loss applicable to shareholders of ordinary shares | | $ | (9,344 | ) | | $ | (8,792 | ) | | $ | (7,246 | ) | | | | | | | | | | | | | | Denominator: | | | | | | | | | | | | | Shares of Ordinary Share and restricted shares used in computing basic and diluted net loss per share (*) | | | 1,308,920 | | | | 1,081,755 | | | | 999,562 | | Net loss per share of ordinary share, basic and diluted | | $ | (7.14 | ) | | $ | (8.13 | ) | | $ | (7.25 | ) |
| The Company effected a 3-for-1 reverse split of the Company’s ordinary shares and convertible preferred shares on July 6, 2020.(*) All issued and outstanding ordinary shares and convertible preferred shares and related per share amounts contained in these financial statements have been retroactively adjusted to reflect thisa 1-for-10 reverse share split for all periods presented.
|
On September 3, 2020, the Company closed its initial public offering ("IPO") of 2,500,000 units at a price of $8.00 per unit. Each unit consisted of one ordinary share and one warrant to purchase one ordinary share. The ordinary shares and warrants were immediately separable from the units and were issued separately. The warrants are exercisable immediately, expire five years from the date of issuance and have an exercise price of $8.80 per share. On October 5, 2020, the underwriters exercised their over-allotment option and were issued warrants to purchase 375,000 ordinary shares in return for net amount of $3. The Company received gross proceeds of approximately $20,000 (net proceeds of approximately $17.3 million after deducting underwriting discounts and commissions and other offering expenses)(Note 1c).
F - 9
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| d. | In late 2019, a novel strain of COVID-19, was reported in Wuhan, China. While initially the outbreak was largely concentrated in China, it rapidly spread across the globe, including in Israel and the United States. The extent to which COVID-19 pandemic impacts the Company’s operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the outbreak, and the actions that may be required to contain the COVID-19 or treat its impact. As of December 31, 2021 and signing date on these financial statements the Company did not experience a significant impact on its operation.
|
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES |
| | | a.F - 14 | Basis of presentation:PAINREFORM LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| q. | Share-based compensation: Share-based compensation to employees and consultants is accounted for in accordance with ASC 718, “Compensation - Share Compensation” (“ASC 718”), which requires estimation of the fair value of share-based payment awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service period using the straight-line method. The Company has elected to recognize forfeitures, as incurred. The Company grants share-equivalents (“Share Based Compensation”) to its employees, officers, directors, and non-employees in consideration for services rendered (Note 7). The Company accounts for Share-Based Compensation awards classified as equity awards using the grant-date fair value method. The fair value at grant-date of the issued equity award is recognized as an expense on a straight-line basis over the requisite service period. The fair value of each share option granted is estimated using the Black-Scholes option pricing model, which requires a number of assumptions, of which the most significant are the expected share price, volatility, and the expected option term. Expected volatility was calculated based on comparable public companies in the same industry. The expected share option term is calculated for share options granted using the “simplified” method when the required conditions are met. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. The expected dividend yield assumption is based on the Company’s historical experience and expectation of no future dividend pay outs. The Company has historically not paid cash dividends and has no foreseeable plans to pay cash dividends in the future. The Company elected to recognize Share-Based Compensation cost for awards with only service conditions that have a graded vesting schedule using the straight-line method based on the multiple-option award approach. |
| r. | Deferred offering costs The Company capitalizes certain legal and other third-party fees that are directly related to the Company’s in-process equity financings until such financings are consummated. After the consummation of such equity financings, these costs are recorded as a reduction of the respective gross proceeds. Should a planned equity financing be abandoned, terminated, or significantly delayed, the deferred offering costs are written off to operating expenses. As of December 31, 2023 and 2022, there were no deferred offering costs. |
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). | s. | Segment Reporting The Company has one operating and reportable segment. An operating segment is defined as a component that engages in business activities whose operating results are reviewed by the chief operating decision maker, who is the Company’s Chief Executive Officer, for the purpose of assessing performance and allocating resources and for which discrete financial information is available. |
The significant accounting policies described below have been applied consistently in relation to all the periods presented, unless otherwise stated.
| t. | Leases | b. | Use of estimate in preparation of financial statements:
|
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company evaluates on an ongoing basis its assumptions. The Company’s management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of expenses during the reporting periods. Actual results could differ from those estimates.
In accordance with Accounting Standards Codification (“ASC”) 842, Leases, the Company determines whether an arrangement is or contains a lease at the inception of the arrangement and whether such a lease is classified as a financing lease or operating lease at the commencement date of the lease. | c. | Financial statements in United States dollars:
|
The Company’s functional currency is the U.S. dollar (“dollar” or “$”) since the dollar is the currency of the primary economic environment in which the Company has operated and expects to continue to operate in the foreseeable future. Transactions and balances denominated in dollars are presented at their original amounts. Transactions and balances denominated in currencies other than dollars have been re-measured to dollars at the dates of the transactions. All transaction gains and losses from re-measurement and from translation of monetary balance sheet items denominated in currencies other than dollars are reflected in the statements of comprehensive loss as financial expenses, net.
F - 10
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| | |
| | | d. | Cash and cash equivalents:
|
Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less at acquisition.
As of December 31, 2021 and 2020, the Company’s restricted cash consisted of immaterial bank deposits that were denominated in New Israeli Shekel. Restricted deposits are presented at cost including accrued interest. These bank deposits are used as securities for the Company's credit card and rent guaranty. Leases consist real estate property that are classified as operating leases with rental payment linked to the index. The Company recorded right of use (“ROU”) asset and a lease liability of the Company obligation to make the lease payments. The ROU asset and the liability are included in non-current assets, current liabilities and non-current liabilities on the balance sheet. Operating lease ROU and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term, which may include options to extend or terminate the lease, when it is reasonably certain at the commencement date whether the Company will or will not exercise the option to renew or terminate the lease. | f. | Fair Value Measurements:
|
The carrying values of Company’s financial assets and liabilities, including cash and cash equivalents, restricted cash, other current assets, trade payables and other accounts payable approximate their fair value due to the short-term maturity of these instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. Assets and liabilities recorded at fair value in the financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels are directly related to the amount of subjectivity with the inputs to the valuation of these assets or liabilities as follows:
Level 1 - Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
Level 2 - Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable inputs for similar assets or liabilities. These include quoted prices for identical or similar assets or liabilities in active markets and quoted prices for identical or similar assets of liabilities in markets that are not active;
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
As of December 31, 2019 the Company’s derivative warrant liability was classified within Level 3 of the fair value hierarchy because their fair values are estimated by utilizing valuation models and significant unobservable inputs. During 2020 the derivative warrant was classified to equity (see note 4)In previous periods the Company elected the short-term lease recognition exemption for all leases with a term shorter than 12 months period. This means that for those leases, the Company did not recognize ROU assets or lease liabilities but recognizes lease expenses over the lease term on a straight-line basis (Note 6a). As of December 31, 2021, and 2020 no assets or liabilities are measured in fair value.
| g. | Property and equipment, net:
|
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets at the following rates:
| %
| Computers, software and electronic equipment
| | | 33
| | Furniture and office equipment | | | 7
| | Leasehold improvements
| | | * | |
*The depreciable life of leasehold improvements is limited by the expected lease term, unless there is a transfer of title or a purchase option for the leased asset reasonably certain of exercise.
| h. | Research and development expenses:
|
Research and development costs include costs of payroll and related expenses of employees, subcontractors and consultants and other costs related to the Company's operation of its planned clinical trial. Research and development expenses are charged to the statements of comprehensive loss as incurred.
Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. The Company outsources its clinical trial activities utilizing external entities such as clinical research organizations, independent clinical investigators, and other third-party service providers to assist the Company with the execution of its clinical trials. Clinical trial costs are expensed as incurred.
F - 11
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| | |
The Company accounts for income taxes in accordance with ASC 740, “Income Taxes”. ASC 740 prescribes the use of the asset and liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances in respect of deferred tax assets are provided for, if necessary, to reduce deferred tax assets to amounts more likely than not to be realized. As of December 31, 2021, and 2020, the Company had a full valuation allowance on its deferred tax assets.
The Company implements a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax positions as the largest amount that is more than 50% (cumulative basis) likely to be realized upon ultimate settlement. As of December 31, 2021 and 2020, the total gross amount of provision for unrecognized tax positions was $234 and $220, respectively (Note 6e). The Company recognizes interest and penalties, if any, related to unrecognized tax positions in tax expenses and exchange differences in financial expense.
| j. | Concentrations of credit risk:
|
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and restricted cash. Cash and cash equivalents and restricted cash are invested in a major bank in Israel and the United States.
Management believes that the banks that hold the Company’s cash, cash equivalent and restricted cash are financially sound and, accordingly, minimal credit risk exists with respect to this cash, cash equivalent and restricted cash.
The Company relies, and expects to continue to rely, on a single supplier to manufacture supplies and raw materials for its clinical trial. This clinical trial could be adversely affected by a significant interruption in these manufacturing services or the availability of raw materials.
Proceeds from the sale of notes with a conversion feature are allocated to equity based on the intrinsic value of such conversion feature (if any) in accordance with ASC 470-20 “Debt with Conversion and Other Options”, with a corresponding discount on the notes recorded in liabilities which is amortized in finance expense over the term of the notes. Convertible notes with convertible features that are determined to not be beneficial are allocated entirely to liabilities.
F - 12
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| | |
| l. | Derivative warrant liability
|
Financial equity instruments that do not meet the US GAAP criteria for equity classification are classified as a liability at fair value and are adjusted to fair value at each reporting period. Changes in fair value are recognized in the Company’s statements of comprehensive loss in accordance with ASC 815, “Accounting for Derivative Financial Instruments”.
| m. | Basic and diluted loss per share:
|
Basic loss per share is computed by dividing the loss for the period applicable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.
For the years ended December 31, 2021, 2020 and 2019, all outstanding share options, convertible notes, and warrants have been excluded from the calculation of the diluted net loss per share as all such securities are anti-dilutive for all years presented.
The loss and the weighted average number of shares used in computing basic and diluted net loss per share is as follows:
| | Year ended December 31, | | | | 2021 | | | 2020 | | | 2019 | | | | | | | | | | | | Numerator: | | | | | | | | | | Net loss applicable to shareholders of ordinary shares | | $ | (7,246 | ) | | $ | (4,053 | ) | | $ | (1,279 | ) | Interest accrued on convertible preferred shares | | | 0 | | | | 0 | | | | (1,130 | ) | Total loss attributed to ordinary shares | | | (7,246 | ) | | | (4,053 | ) | | | (2,409 | ) | | | | | | | | | | | | | | Denominator: | | | | | | | | | | | | | Shares of ordinary share used in computing basic and diluted net loss per share | | | 9,812,234 | | | | 3,243,943 | | | | 576,556 | | Net loss per share of ordinary share, basic and diluted | | $ | (0.74 | ) | | $ | (1.25 | ) | | $ | (4.17 | ) |
| n. | Share-based compensation:
|
Share-based compensation to employees and consultants is accounted for in accordance with ASC 718, “Compensation - Share Compensation” (“ASC 718”), which requires estimation of the fair value of share-based payment awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service period using the graded vesting method. The Company has elected to recognize forfeitures, as incurred.
The fair value of share options granted was estimated using the Black Scholes model, which requires a number of assumptions, of which the most significant are the expected share price, volatility, and the expected option term. Expected volatility was calculated based on comparable public companies in the same industry. The expected share option term is calculated for share options granted using the “simplified” method. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term.
The expected dividend yield assumption is based on the Company’s historical experience and expectation of no future dividend pay outs. The Company has historically not paid cash dividends and has no foreseeable plans to pay cash dividends in the future.
F - 13
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| | |
| o. | Deferred offering costsF - 15
|
The Company capitalizes certain legal and other third-party fees that are directly related to the Company’s in-process equity financings until such financings are consummated. After the consummation of such equity financings, these costs are recorded as a reduction of the respective gross proceeds. Should a planned equity financing be abandoned, terminated or significantly delayed, the deferred offering costs are written off to operating expenses. As of December 31, 2021 and 2020, there were no deferred offering costs.
The Company has one operating segment. An operating segment is defined as a component that engages in business activities whose operating results are reviewed by the chief operating decision maker for the purpose of assessing performance and allocating resources and for which discrete financial information is available.
Right of Use ("ROU") assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company elected the practical expedient of the short-term lease recognition exemption for all leases with a term shorter than 12 months
| r.PAINREFORM LTD.
| Disclosure of recent accounting pronouncements
|
ASC Topic 740, "Income Taxes ", was amended to simplify the accounting for income taxes to improve consistency of accounting methods and remove certain exceptions. Effective January 1, 2021, the Company adopted this income taxes amendment. The implementation of the updated guidance did not have a significant effect on the Company’s financial statements.
| s. | Issued accounting pronouncements effectiveNOTES TO FINANCIAL STATEMENTS
U.S. dollars in future periods |
In August 2020, the FASB issued guidance that is expected to reduce complexity and improve comparability of financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. This guidance will be effective for the Company on January 1, 2022 and is not expected to have a material impact on the Company’s financial statements and disclosures.
thousands, except share and per share data F - 14
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 3:-
| PREPAID EXPENSES AND OTHER CURRENT ASSETS
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| | December 31, | | | | 2021 | | | 2020 | | | | | | | | | Receivables from governmental authorities | | $ | 218 | | | $ | 53 | | Prepaid expenses | | | 473 | | | | 734 | | Other | | | 30 | | | | 20 | | | | | | | | | | | | | $ | 721 | | | $ | 807 | |
NOTE 4:- | FAIR VALUE MEASUREMENTS
|
During the year ended December 31, 2019, the Company issued warrants related to its convertible notes (refer to Note 5(b)). As of December 31, 2019, the warrants did not meet the US GAAP criteria for equity classification, and accordingly were classified as a derivative warrant liability and were measured at fair value on the issuance date and as of December 31, 2019, as well as through the date of consummation of the IPO, with changes in fair value recognized as financial expenses in the statements of comprehensive loss. On September 3, 2020, upon consummation of the IPO, the exercise price of the warrants and the number of shares to be issued upon exercise of the warrants were fixed (refer to Note 5(b)), such that it then met the criteria for equity classification of the warrants under US GAAP. Accordingly, the derivative warrant liability was classified to equity as of such date.
A summary of significant unobservable inputs (Level 3 inputs) used in measuring as follows:
| u. | Recently Issued Accounting Pronouncements Not Yet Adopted In November 2023, the FASB issued ASU No. 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU improves reportable segments disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The ASU also require that a public entity that has a single reportable segment to provide all the disclosures required by the amendments and all existing segment disclosures in Topic 280. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating this guidance to determine the impact it may have on its financial statements related disclosure. |
| | September 3, | | | December 31 | | | | 2020 | | | 2019 | | Exercise price | | | | | | | Expected volatility | | 72.29% | | | 72.29% | | Risk free rate | | 0.22% | | | 1.5-1.67% | | Expected life (years) | | 3.98-5 | | | 4.65-5 | | Dividend yield | | 0 | | | 0 | |
F - 15
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 4:- | FAIR VALUE MEASUREMENTS (Cont.)
| | |
The following table presents changes in the fair value of the derivative warrant liability recorded in respect of the warrants:
Balance as of December 31, 2018 | | $ | 0 | | | | | | | Issuance of warrants in connection with convertible notes (Note 5 (b)) | | | 445 | | Changes in fair value | | | 2 | | | | | | | Balance as of December 31, 2019 | | $ | 447 | | | | | | | Changes in fair value | | | 1,105 | | Equity classification of a derivative warrant liability | | | (1,552 | ) | | | $ | 0 | |
NOTE 5:- | CONVERTIBLE NOTESNOTE 3:-
| PREPAID EXPENSES AND OTHER CURRENT ASSETS |
| a. | | December 31, | | | | 2023 | | | 2022 | | | | | | | | | Receivables from governmental authorities | | $ | 45 | | | $ | 55 | | Prepaid expenses | | | 204 | | | | 310 | | | | | | | | | | | | | $ | 249 | | | $ | 365 | |
| | December 31, | | | | 2023 | | | 2022 | | | | | | | | | Directors’ fees | | $ | 34 | | | $ | 33 | | Manufacturing and trials expenses | | | 1,486 | | | | 168 | | Advisors and legal expenses | | | 148 | | | | 155 | | | | | | | | | | | | | $ | 1,668 | | | $ | 356 | |
From 2014 until 2019, the Company issued convertible notes in the total principal amount of $4,417 to existing shareholders. The Company recorded interest expense amounting to $271 and $379 for the years ended December 31, 2020 and 2019, respectively.F - 16
|
Concurrent with the closing of the IPO, all of the Company’s convertible notes (inclusive of accrued interest on all outstanding notes) were converted into 2,415,022 units (consisting of one ordinary share and one warrant to purchase one ordinary share).
| b.PAINREFORM LTD.
| In August and December 2019, the Company issued 14.2 units of convertible notes (the “2019 Convertible Notes”) and warrants. Each unit consisted of one convertible note and one warrant. In consideration for the units issued the Company received a total amount of $1,420 (representing a consideration of $100 per unit), after giving effect to a 10% discount.
|
On September 3, 2020, upon consummation of the IPO, the outstanding balance of the 2019 Convertible Notes was converted into 312,170 units, each consisting of one ordinary share and one warrant to purchase one ordinary share, exercisable immediately, at an exercise price of $8.80 and with an expiry date of 5 years from the IPO closing date (refer to note 1(c)).
Additionally, on the IPO consummation date, the amount and exercise price of the warrants originally granted in August and December 2019, was fixed at 297,589 warrants and at an exercise price of $6.72, each exercisable into a single unit (refer to Note 1(c)), consisting of one ordinary share and one warrant to purchase one ordinary shares, exercisable through September 3, 2025, at an exercise price of $8.80. Accordingly, since the warrants met the criteria of equity classification, the respective derivative warrant liability, was classified in equity (refer to note 4).
| c. | On December 9, 2019,NOTES TO FINANCIAL STATEMENTS
U.S. dollars in connection with the 2019 Convertible Notes, the Company issued to the placement agent in the offering described above warrants (the “Agents' Warrants”) to purchase an aggregate of 55,785 ordinary shares or units (refer to Note 1(d)), at an exercise price of $6.72 per unit. Each unit consists of one ordinarythousands, except share and one warrant to purchase one ordinaryper share exercisable through September 3, 2025, at an exercise price of $8.80. The Agents' Warrants expire on December 8, 2024.data |
As a result of the issuance of the Agents' Warrants, the Company recorded a discount on the convertible note, which was amortized as financial expense amounting to $65 for the year ended December 31, 2020.
F - 16
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 6:NOTE 5:- | TAXES ON INCOME |
| a. | a. | Tax rates applicable to the Company: |
Taxable income of the Company is subject to the Israeli Corporate tax rate which was 23% for the years ended December 31, 2021,2020 and 2019.
| b. | Taxable income of the Company is subject to the Israeli Corporate tax rate which was 23% for the years ended December 31, 2023, 2022 and 2021. |
Net operating loss carry forward:
|
As of December 31, 2021, and 2020, the Company had net operating loss carry forwards for Israeli income tax purposes of approximately $19,261 and $15,114, | b. | Net operating loss carry forward: As of December 31, 2023, and 2022, the Company had net operating loss carry forwards for Israeli income tax purposes of approximately $24,774 and $19,695, respectively. Net operating loss carry forwards in Israel may be carried forward indefinitely and offset against future taxable income. | c. | As of December 31, 2021, the Company had final tax assessments for tax years prior to and including the tax year ended December 31, 2015.
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows:
| | December 31, | | | | 2021 | | | 2020 | | Deferred tax assets: | | | | | | | Net operating loss carry forward | | $ | 4,434 | | | $ | 3,476 | | | | | | | | | | | Deferred tax asset before valuation allowance | | | 4,434 | | | | 3,476 | | Valuation allowance | | | (4,434 | ) | | | (3,476 | ) | | | | | | | | | | Net deferred tax asset | | $ | 0 | | | $ | 0 | |
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized.
The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible and net operating losses are utilized. Based on consideration of these factors, the Company recorded a full valuation allowance on December 31, 2021 and 2020. | e. | Reconciliation of theoretical tax expenses to actual expenses |
The primary difference between the statutory tax rate of the Company and the effective rate results virtually from the changes in valuation allowance in respect of carry forward tax losses, share based compensation expenses and research and development expenses due to the uncertainty of the realization of such tax benefits.
| f. | Uncertain tax positions:
|
A reconciliation of the opening and closing amounts of total unrecognized tax benefits is as follows:
| | December 31, | | | December 31, | | | December 31, | | | | 2021 | | | 2020 | | | 2019 | | Opening balance | | | 220 | | | | 0 | | | | 0 | | Tax positions taken in the current year | | | 0 | | | | 217 | | | | 0 | | Interest | | | 6 | | | | 3 | | | | 0 | | Exchange difference | | | 8 | | | | 0 | | | | 0 | | | | | | | | | | | | | | | Closing balance | | $ | 234 | | | $ | 220 | | | $ | 0 | |
The balance of total unrecognized tax position as of December 31, 2021 is $234 which, if recognized, would affect the effective tax rate in the Company's statements of comprehensive loss.
The Company recognizes interest and penalties, if any, related to unrecognized tax positions in tax expenses and exchange differences in financial expense. The accrued interest and exchange difference related to uncertain tax positions and the expenses recognized during the year ended December 31, 2021, are $9 and $8.
F - 17
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 7:- | COMMITMENTS AND CONTINGENCIES |
| a. | During the years ended December 31, 2020 and 2019, the Company was party to a lease agreement with a related party for an annual fee of $33. As of December 31, 2020, the lease agreement with the related party was terminated.
On December 10, 2020, the Company entered into a new rental agreement with an un-related party for a period of twelve months starting on January 1, 2021, with an extension option for an additional twelve months, for an annual rental fee of $20. As of December 31, 2021 the agreement was terminated.
On July 26, 2021 the Company engaged in a new rental agreement with an un-related party for a period of twelve months starting on August 15, 2021 with an extension option for an additional twelve months subject to the Company's prior notice. The annual rent fees are $75. The Company gave the lessor a bank guaranty of $16, as collateral and the bank holds this amount restricted cash.
|
| c. | As of December 31, 2023, the Company had final tax assessments for tax years prior to and including the tax year ended December 31, 2018. |
| d. | Deferred income taxes: Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows: |
| | December 31, | | | | 2023 | | | 2022 | | | | | | | | | Net operating loss carry forward | | $ | 5,698 | | | $ | 4,530 | | | | | | | | | | | Research and development expenses | | | 1,179 | | | | 812 | | Other | | | 48 | | | | 34 | | | | | | | | | | | Less: Valuation allowance | | | (6,925 | ) | | | (5,376 | ) | | | | | | | | | | Net deferred tax asset | | $ | - | | | $ | - | |
| | In assessing the realization of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible and net operating losses are utilized. Based on consideration of these factors, the Company recorded a full valuation allowance on December 31, 2023, and 2022. |
On November 23, 2020, the Company entered into an employment agreement with Rita Kenan under which Mrs. Kenan serves as the VP Operations commencing January 1, 2021. Under the terms of the agreement, the Company paid Mrs. Keenan a bonus,F - 17
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in the amount of $45 in 2021.thousands, except share and per share data NOTE 5:- | TAXES ON INCOME (Cont.) |
| e. | Reconciliation of theoretical tax expenses to actual expenses
The primary difference between the statutory tax rate of the Company and the effective rate results virtually from the changes in valuation allowance in respect of carry forward tax losses, share based compensation expenses and research and development expenses due to the uncertainty of the realization of such tax benefits. On November 13, 2020 and December 3, 2020, the Company entered into a Master Clinical Research Organization Agreement (the “First Agreement”) and a Master Clinical Trial Agreement (the “Second Agreement”) with Lotus Clinical Research ("Lotus") as the Company's clinical research organization. According to the agreements Lotus will serve as the clinical research organization for the Company's planned Phase 3 trials of PRF-110, which are expected to take place in 2022. Under the first agreement, the Company is obligated to pay an accumulated amount of approximately $2,907 (excluding pass-through costs) upon milestone completions and under the second agreement an accumulated amount of approximately $7,107 (excluding advertising budget) upon actual number of evaluable subjects. | f. | Uncertain tax positions: A reconciliation of the opening and closing amounts of total unrecognized tax benefits is as follows: |
| | December 31, | | | | 2023 | | | 2022 | | | 2021 | | Opening balance | | $ | 243 | | | $ | 234 | | | $ | 220 | | Tax positions taken in the current year | | | | | | | - | | | | - | | Interest and Exchange rate differences | | | 8 | | | | 9 | | | | 14 | | | | | | | | | | | | | | | Closing balance | | $ | 251 | | | $ | 243 | | | $ | 234 | |
Under the First Agreement, a non-refundable payment of $581 was made on December 28, 2020. In Addition, during 2021 payments in a total amount of $581 were made according to milestones set in the agreement. | | The balance of total unrecognized tax position, which, if recognized, would affect the effective tax rate in the Company’s statements of comprehensive loss. The Company recognizes interest and penalties, if any, related to unrecognized tax positions in tax expenses and exchange differences in income tax expense. The accrued interest and exchange difference related to uncertain tax positions and the expenses recognized during the years ended December 31, 2023, 2022 and 2021 was $ 8, $9, $14 respectively. |
Under the Second Agreement, a non-refundable deposit (the “Second Agreement Deposit”) of $710 was made on January 12, 2021.F - 18
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data | a. | On July 26, 2021, the Company engaged in a rental agreement for its principal offices at Tel Aviv, Israel for a 12 months period. On August 1, 2022 the Company extended the rental agreement for an additional 12-month period. On August 1, 2023, the Company signed a new lease agreement ("the New lease agreement") for its principal offices for a period of one year, or until July 31, 2024, with additional option on behalf of the Company for a period of one year until July 31, 2025, that the Company’s management expects to be exercised. According to the Company's accounting policy, in regard to the New lease agreement, the Company recognized ROU assets and lease liabilities. The rent of the office is $5 per month, linked to the consumer price index. If the Company exercises its right to extend the lease for the additional year, the rent will increase by 5%. The annual rent expenses in 2023 was $66. Cash paid for amounts included in the measurement of lease liabilities $33. The weighted average remaining lease term is 1.5 years. The weighted average discount rate was 8.5%. |
| b. | On November 13, 2020, and December 3, 2020, the Company entered into a Master Clinical Research Organization Agreement (the “First Agreement”) and a Master Clinical Trial Agreement (the “Second Agreement”) with Lotus Clinical Research (“Lotus”) as the Company’s clinical research organization. According to the agreements Lotus will serve as the clinical research organization for the Company’s planned Phase 3 trials of PRF-110, which began in March 2023 and to take place during the years 2023 - 2024. The Company and the CRO negotiated and signed the updated terms of the First Agreement and the Second Agreement and mutually agreed to update the total milestone completion payment to $5.9 million and to update the payment for the actual number of evaluable subjects to $9.9 million, total $15.8. As of December 31, 2023, the Company accounted for the amounts of $1,514 as prepaid clinical trial expense and recognized expenses of $4.1 million and $1.1 million as clinical trials expenses in 2023 and 2022, respectively. |
As of December 31, 2021F - 19
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and 2020, the Company accounted for these amounts of net $1,728 and $1,294 as prepaid clinical trial expense and deferred clinical trial costs after recognition of $145 clinical trials expenses in 2021. |
per share data NOTE 8:NOTE 7:- | SHAREHOLDERS’ EQUITY |
| a. | Ordinary shares:
The Ordinary Shares confer upon their holders the right to participate and vote in general shareholder meetings of the Company and to share in the distribution of dividends, if any, declared by the Company, and rights to receive a distribution of assets upon liquidation. | TEMPORARY EQUITY
|
Convertible Preferred | b. | Share activity: | | | | | On March 11, 2021, the Company issued to certain institutional investors (the “Purchasers”) 130,345 Ordinary Shares and warrants to purchase up to an aggregate of 65,217 ordinary shares at a combined purchase price of $46.0 per Ordinary Share and accompanying warrant in a Private Investment in Public Equity (“Private placement”) pursuant to a securities purchase agreement. The private placement resulted in gross proceeds of approximately $6,000. The Company received net amount of $5,554 less issuance costs.: Convertible preferred shares consisted of the following:
| | Convertible Preferred Shares - Series A | | | | Shares Authorized | | | Shares Issued and Outstanding | | | Carrying Value | | | Liquidation Preference | | As of December 31, 2019 | | | 18,300,000 | | | | 2,954,267 | | | $ | 6,621 | | | $ | 15,250 | |
The preferred shares conferred upon their holders all rights accruing to holders of ordinary shares in the Company, and, in addition, the rights, preferences and privileges granted to the preferred shares as follows.
On September 3, 2020, upon consummation of the IPO, all of the Company’s outstanding convertible preferred shares were converted into 2,954,267 ordinary shares.
F - 18
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
On July 22, 2021, as a result of an exercise of warrants to purchase 41,967 shares held by one of the Purchasers, the Company received gross proceeds of $1,930. In connection with the private placement, the Company also entered into a Registration Rights Agreement, dated as of March 8, 2021, with the Purchasers (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, the Company filed a registration statement (the “Registration Statement”), with the SEC to register the resale of the ordinary shares and the Ordinary Shares issuable upon exercise of the warrants. The Registration Statement was declared effective on April 9, 2021. The Company paid the placement agents of the private placement a cash placement fee equal to $390 and an expense reimbursement of $40. The Company also issued to the placement agents warrants to purchase 5,217 Ordinary Shares, at an exercise price of $50.6 per ordinary share and a term expiring on March 10, 2026. The Company paid a total of approximately $500 in placement agent fees and other expenses. |
NOTE 9:F -
| SHAREHOLDERS’ EQUITY |
Ordinary shares:
The ordinary shares confer upon their holders the right to participate and vote in general shareholder meetings of the Company and to share in the distribution of dividends, if any, declared by the Company, and rights to receive a distribution of assets upon liquidation.
Shares developments: 20
| NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data NOTE 7:- | SHAREHOLDERS’ EQUITY (Cont.) |
| c. | Warrants and warrants units: | | | | | | The following table summarizes the warrants and warrants units outstanding as of December 31, 2023: |
Type | Issuance Date | Number of warrants | Exercise price(**) | Exercisable through | August 2019 warrants | August 22, 2019 | 205,268 | $67.2(*) | August 22, 2024 | December 2019 warrants | December 9, 2019 | 148,106 | $67.2(*) | December 8, 2024 | Warrants to underwriters | September 3, 2020 | 125,000 | $100.00 | September 1, 2025 | Warrants to underwriters | October 5, 2020 | 375,000 | $88.0 | September 3, 2025 | IPO warrants | September 3, 2020 | 2,812,170 | $88.0 | September 3, 2025 | PIPE warrants | March 11, 2021 | 232,500 | $46.0 | September 10, 2026 | Warrants to PIPE placement agent | March 11,2021 | 52,173 | $50.6 | March 8, 2026 | December 2023 warrants | December 28,2023 | 935,792 | $2.85 | December 28,2028 | December 2023 warrants | December 28,2023 | 32,753 | $3.56 | December 28,2028 | | | | | | TOTAL | | 4,918,762 | | |
On July 6, 2020, pursuant to the Company’s shareholders approval, the Company effected a 3-for-1 reverse split of the Company’s ordinary shares and convertible preferred shares.
|
| b. | In addition, on the IPO closing date, the Company granted to the underwriters of the IPO warrants to purchase 125,000 ordinary shares, which equals five percent (5%(*) of the total number of units sold in the IPO, excluding the over-allotment option, at an exercise price $10.00 per share. TheEach 10 warrants (the “Underwriters’ Warrants”) contain a cashless exercise feature. The Underwriters’ Warrants are exercisable for ordinary shares on a cash or cashless basis atinto one IPO unit consisting of one share and one IPO warrant with an exercise price of $10.00 per$88.0.
(**) Exercise prices amounts have been retroactively adjusted to reflect a 1-for-10 reverse share split (Note 1c). On July 14, 2023, the Company sold to a certain institutional investor (“the investor”) an aggregate of 117,930 ordinary share which price reflects 125% of the publicshares in a registered direct offering at a purchase price of the units issued in the offering. The Underwriters’ Warrants are exercisable following twelve (12) months after the effective date of the registration statement relating to the IPO$9.00 per share, and expire five (5) years after such effective date. The Underwriters’ Warrants are non-transferable.
As part of the IPO, the Company granted the IPO underwriters an over-allotmentpre-funded warrants to purchase up to 375,000 additional warrants183,300 ordinary shares at the public offeringa purchase price of $0.01, less the underwriting discounts and commissions. |
On October 5, 2020 the underwriters exercised their over-allotment option and were issued warrants to purchase 375,000 ordinary shares in return for net amount of $3. The warrants are exercisable through September 3, 2025, at an exercise price of $8.80.
| c. | On March 11, 2021,$8.999, resulting in gross proceeds of approximately $2.7 million. In addition, the Company issued to certain institutional investors (the “Purchasers”) 1,304,346 ordinary shares andthe investor unregistered warrants to purchase up to an aggregate of 652,173301,230 ordinary shares in a concurrent private placement.
On July 18, 2023, the Company sold to the investor an aggregate of 145,000 ordinary shares in a registered direct offering at a purchase price of $9.00 per share, and pre-funded warrants to purchase up to 21,666 ordinary shares at a combined purchase price of $4.60 per ordinary share and accompanying warrant in a Private Investment in Public Equity ("Private placement") pursuant to a securities purchase agreement. The private placement resulted$8.999, resulting in gross proceeds of approximately $6,000. $1.5 million. In addition, the Company issued to the investor unregistered warrants to purchase up to an aggregate of 166,666 ordinary shares in a concurrent private placement. The Company receiveddetermined that the ordinary share warrants issued in July 2023 (the “Common Warrants”) were not indexed to the Company’s own ordinary shares and also, the investor possessed a right to receive any additional consideration that investors of common shares may be entitled to upon a fundamental transaction (as defined in the agreement), therefore were precluded from equity classification. The Common Warrants were measured at fair value at inception and in subsequent reporting periods with changes in fair value recognized as financial income or expense as change in fair value of warrant liabilities in the period of change in the condensed statements of comprehensive loss. The Company had recorded the value of the warrants that were issued in the July 2023 transactions as a long-term liability. The Company used the Black-Scholes option pricing model to calculate the valuation with standard deviation of 85.45%, which was based on a share price of $9.00 and a risk-free rate of 4.0%. The valuation of the warrants was $5.48 on July 14, 2023, and $5.17 on July 18, 2023, which resulted in a total valuation of the warrants of $2.5 million as of July 2023. The Company revalued these warrants as of December 28, 2023, prior to the exercise, with standard deviation of 93.49%, which was based on a share price of $3.11 and a risk-free rate of 3.87%. Each warrant valuation was $1.68, which resulted in a total valuation of the warrants of $0.8 million. The change of $1.7 million was recorded as finance income. F - 21 NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data NOTE 7:- | SHAREHOLDERS’ EQUITY (Cont.) |
The contractual term of the warrants was five years. The warrants were fully exercised and the long-term commitment was exercised to the Equity of the Company. On December 28, 2023, the Company entered into an inducement offer letter agreement, or the Inducement Letter, with the investor, of certain of the Company’s existing warrants to purchase up to (i) 301,230 ordinary shares issued on July 14, 2023 at an exercise price of $9.00 per ordinary share, or the July 14 Warrants, and (ii) 166,666 ordinary shares issued on July 18, 2023 at an exercise price of $9.00 per ordinary share, or the July 18 Warrants and together with the July 14, Warrants, the Existing Warrants. Pursuant to the Inducement Letter, the investor agreed to exercise for cash its Existing Warrants to purchase an aggregate of 467,896 ordinary shares at a reduced exercise price of $2.85 per ordinary share, resulting in gross proceeds to the Company of approximately $1.3 million, and net amountproceeds of $5,554 less issuance costs.approximately $1 million (as of December 31, 2023, $78 were recorded in accrued expenses), in consideration of the Company’s agreement to issue new warrants to purchase American Depositary Shares (“ADS”), or the New Warrants to purchase up to an aggregate of 935,792 ordinary shares at an exercise price of $2.85 per ordinary shares. The valuation of the New Warrants on the grant date was $2.2 million. According to the agreement, the Company recorded a loss of $1.5 million which is included in the financial expenses in the statement of comprehensive loss. As of December 31, 2023 the Company issued 170,000 shares out of the 467,896 shares that the investor paid for, leaving the investor with the right to receive an additional 297,896 shares. In addition, the Company issued 32,753 warrants to the broker with an exercise price of $3.56 per ordinary share. The valuation of the warrants on the grant date was $73. | d. | Share-based compensation: |
On July 22, 2021, as a result of an exercise of warrants to purchase 419,673 shares held by one of the Purchasers, the Company received gross proceeds of $1,930. In connection with the private placement, the Company also entered into a Registration Rights Agreement, dated as of March 8, 2021, with the Purchasers (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, the Company filed a registration statement (the “Registration Statement”), with the SEC to register the resale of the ordinary shares and the ordinary shares issuable upon exercise of the warrants. The Registration Statement was declared effective on April 9, 2021. | | On August 7, 2008, the Board of Directors approved the adoption of the 2008 Share Option Plan (the “2008 Plan”). The 2008 Plan has expired, and no additional grants may be made. |
The Company paid the placement agents of the private placement a cash placement fee equal to $390 and an expense reimbursement of $40. The Company also issued to the placement agents warrants to purchase 52,173 ordinary shares, at an exercise price of $5.06 per ordinary share and a term expiring on March 10, 2026. The Company paid a total of approximately $500 in placement agent fees and other expenses. | | On July 2, 2019, the Board of Directors approved the adoption of the 2019 Plan. Under the 2019 Plan, the Company may grant its officers, directors, employees and consultants share options of the Company. Each share option granted shall be exercisable at such times and terms and conditions as the Board of Directors may specify in the applicable share option agreement, provided that no share option will be granted with a term in excess of 10 years. Upon the adoption of the 2019 Plan, the Company reserved for issuance 97,148 ordinary shares. On February 23, 2021, the shareholders of the Company approved the grant of options to purchase an aggregate of 30,000 Ordinary Shares to three current board members, the Chairman of the board of directors and to the Chief Technology Officer (who is also a director). Each was granted with options to purchase 6,000 Ordinary Shares of the Company. The options are exercisable to acquire one Ordinary Share of the Company at an exercise price of $45.0 per share. The options vest on a quarterly basis over thirty-six months, so that 1/12 of the options shall vest on the last day of each three-month period, provided that on such date each of the serving directors and Chief Technology Officer, shall serve in such capacity. The options will expire after ten years from their grant date. In April 2022, the Company’s board of directors approved the grant of options to purchase 16,446 Ordinary Shares of the Company to employees. The options were granted under the Company’s 2019 plan. The fair value of share options granted was estimated using the Black Scholes option-pricing model. The options vest over a four-year period, 4/16 of the options shall vest following the lapse of a period of twelve months commencing at the date of grant. The remaining 12/16 of the options shall vest on quarterly basis, so that 1/16 of the options shall vest on the expiry of each quarter. The weighted average grant date fair value per option was $8.90 with an exercise price of $10.60. |
F - 22 NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data NOTE 7:- | SHAREHOLDERS’ EQUITY (Cont.) |
F - 19 | | | | | Modification of share-based compensation On November 23, 2022 (“the commencement date”), the Company’s board of directors approved: (1) the cancellation of certain outstanding options granted to employees in September 2019 (which were fully vested), November 2020, January 2021, May 2021 and April 2022, and the grant of a greater number of replacement options thereof under the new terms with a lower exercise price of US $5.70 and a shorter vesting period (except for September 2019's grant). (2) The grant of 2,127 options to a new employee on the same terms of the replacement options granted to the rest of the Company's employees, as described (the "Modification"). The New Options vest and become exercisable under the following schedule: 50% of the shares covered by the options are immediately vesting on the commencement date determined by the administrator (and in the absence of such determination, the date on which such options were granted), and 6.25% of the shares covered by the options at the end of each subsequent three-month period thereafter over the course of the following three years. The Modification was considered as a Type I modification. The total incremental fair value of these options amounted to $165. An amount of 50% of the incremental fair value were vested immediately at the commencement date and an amount of $83 was recognized immediately, and the remaining incremental fair value will be recognized over the remaining vesting period through December 31, 2024. In addition, the unrecognized compensation cost as of the date of the Modification was recognized over the vesting period of the new options. As a result, an amount of 50% of the unrecognized compensation cost of the cancelled options were vested immediately in the amount of $454, and the remaining unrecognized compensation cost are recognized over the remaining vesting period and until December 31, 2024. As a result of the Modification, (A) 66,764 options were cancelled, comprised of (i) 5,117 options that had been granted in September 2019, at an exercise price of $33.4, (ii) 26,730 options that had been granted in November 2020, at an exercise price of $57.4, (iii) 13,365 options granted in January 2021, at an exercise price of $57.4, and (iv) 5,107 options granted in May 2021, at an exercise price of $30.1, and (ii) 16,446 options that had been granted in April 2022 at an exercise price of $10.6 (the “Cancelled Options”), and (B) 98,877 new options had been granted (including 2,127 option granted to a new employee) (the “New Options”). The intrinsic value of share options outstanding and exercisable as of December 31, 2023 was $2. On June 8, 2023, the Company’s shareholders approved the grant of options to purchase an aggregate of 54,000 shares to two current board members, and to the chairman of the board of directors. Each recipient received a grant of options to purchase 18,000 ordinary shares of the Company, at an exercise price of $5.89 per share. Fifty percent of the options vested upon grant, with the remaining shares vesting on a quarterly basis over three years so that 7,500 Options shall vest on the expiry of each quarter thereafter, provided that on such date each of the serving directors, shall serve in such capacity. The options expire after ten years from their grant date. The Company determined the valuation of the options with these assumptions: average expected term 5.36 years, average risk-free interest rate of 3.85%, volatility of 90.43%, zero dividend yield is expected. The grant-date fair value was $3.20 for each option. The valuation of the option on the grant date was $174. |
F - 23 NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data NOTE 7:- | SHAREHOLDERS’ EQUITY (Cont.) |
| | As of December 31, 2023, the Company had 49,720 unvested options. The total unrecognized compensation cost of employee and directors’ options as of December 31, 2023, is $383. The intrinsic value of share options outstanding as of December 31, 2023 was $2 The intrinsic value of share options exercisable as of December 31, 2022 was $9. |
| 3. | The following tables summarizes information about options granted to employees and directors: The 2008 Plan Share options outstanding and exercisable to employees and directors under the 2008 Plan are as follows: |
| | Number of options | | | Weighted average exercise price | | | Weighted average remaining contractual life | | | | | | | USD | | | | | Options outstanding at beginning of year | | | 15,388 | | | $ | 2.40 | | | | 1.25 | | Changes during the year: | | | | | | | | | | | | | Options granted | | | - | | | | - | | | | - | | Options exercised | | | - | | | | - | | | | - | | Options forfeited | | | - | | | | - | | | | - | | Options outstanding at end of year | | | 15,388 | | | $ | 2.40 | | | | 0.25 | | Options exercisable at end of year | | | 15,388 | | | $ | 2.40 | | | | 0.25 | |
| | The 2019 Plan Share options outstanding and exercisable to employees and directors under the 2019 Plan are as follows: |
| | Number of options | | | Weighted average exercise price | | | Weighted average remaining contractual life | | | | | | | USD | | | | | Options outstanding at beginning of year | | | 133,994 | | | $ | 14.40 | | | | 9.39 | | Changes during the year: | | | | | | | | | | | | | Options granted | | | 54,000 | | | | 5.89 | | | | 9.44 | | Options cancelled | | | - | | | | - | | | | - | | Options exercised | | | - | | | | - | | | | - | | Options forfeited | | | - | | | | - | | | | - | | Options outstanding at end of year | | | 187,994 | | | $ | 11.94 | | | | 8.69 | | Options exercisable at end of year | | | 138,274 | | | $ | 13.44 | | | | 8.56 | |
NOTE 9:F - 24
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data NOTE 7:- | SHAREHOLDERS’ EQUITY (Cont.) | | |
Warrants and warrants units | 4. | The following table sets forth the assumptions that were used in determining the fair value of options granted to employees in 2019 plan for the years ended on December 31, 2023, 2022 and 2021: |
| | 2023 | | | | 2022* | | | | 2021* | | Expected term (years) | | | 5.00-6.41 | | | | 5.28-6.07 | | | | 5.86-6.11 | | Risk-free interest rates | | | 3.82%-3.87 | % | | | 2.69%-3.88 | % | | | 0.52%-1.13 | % | Volatility | | | 90.43 | % | | | 79.3%-82.6 | % | | | 69.67%-78.99 | % | Dividend yield | | | - | | | | - | | | | - | | Exercise price | | $ | 5.89 | | | $ | 5.70-10.60 | | | $ | 30.13-57.38 | |
The following table summarizes the warrants and warrants units outstanding as of December 31, 2021: | | * The assumptions presented above are the original assumptions used to determine the options fair value at the date of the grants. The assumptions used to determine the incremental value of the options at the modification date are as presented at the Company's options valuation. The Company recognized $731, $1,104 and $713 during the years ended December 31, 2023, 2022 and 2021, respectively, as share-based compensation expenses which was included in general and administrative expenses, and $73, $285 and $99 during the years ended December 31, 2023, 2022 and 2021, respectively, as share-based compensation expense which was included in research and development expenses. |
| 5. | In August 2020, the Company signed a public relation service agreement (the “Service Agreement”) with Crescendo Communications, LLC (“Crescendo”), for a period of two years, commencing immediately after the IPO closing date, and in consideration for 3.75% of the Company's share capital fully diluted Pre-IPO. On August 23, 2020, the Company's Board of Directors approved the Service Agreement with Crescendo and the grant of 15,211 restricted Company's Ordinary Shares ("the first grant"). The Company recognized no expenses during the year ended December 31, 2023 and recognized $275 and $412 during the year ended December 31, 2022, and 2021, respectively, as share-based compensation expenses with respect to the first grant. In April 2022 the foregoing shares were issued. In May 2022, following discussions between the Company and Crescendo regarding the number of shares to which they are entitled, the Company's board of Directors approved the grant of an additional 8,697 of the Company's Ordinary shares, par value NIS 0.3 each to Crescendo ("the second grant"). In February 2023, the Company granted to Crescendo the second grant. During 2022, the Company has recognized $67 as share-based compensation expenses in connection with the second grant, no expense was recognized during the year ended December 31, 2023. |
F - 25 NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data NOTE 8:- | SELECTED STATEMENTS OF OPERATIONS DATA |
| a. | Research and development expenses: |
| | Year ended December 31, | | | | 2023 | | | 2022 | | | 2021 | | | | | | | | | | | | Subcontractors and consultants | | $ | 1,001 | | | $ | 2,228 | | | $ | 1,654 | | Payroll and related expenses | | | 699 | | | | 766 | | | | 719 | | Share-based compensation expense | | | 73 | | | | 285 | | | | 99 | | Clinical trials expenses | | | 4,262 | | | | 1,121 | | | | 357 | | Other expenses | | | - | | | | 22 | | | | 31 | | | | | | | | | | | | | | | | | $ | 6,035 | | | $ | 4,422 | | | $ | 2,860 | |
| b. | General and administrative expenses: |
| | Year ended December 31, | | | | 2023 | | | 2022 | | | 2021 | | | | | | | | | | | | Professional services | | $ | 1,209 | | | $ | 1,489 | | | $ | 1,697 | | Payroll and related expenses | | | 877 | | | | 780 | | | | 688 | | D&O insurance | | | 394 | | | | 653 | | | | 935 | | Rent and office maintenance | | | 191 | | | | 249 | | | | 210 | | Share-based compensation expense | | | 731 | | | | 1,104 | | | | 713 | | Other expenses | | | 147 | | | | 172 | | | | 105 | | | | | | | | | | | | | | | | | $ | 3,549 | | | $ | 4,447 | | | $ | 4,348 | |
| c. | Other financial income (expenses), net: |
| | Year ended December 31, | | | | 2023 | | | 2022 | | | 2021 | | | | | | | | | | | | Interest income | | | 406 | | | | 160 | | | | - | | Issuance expenses | | | (368 | ) | | | - | | | | - | | Bank fees | | | (16 | ) | | | (13 | ) | | | (10 | ) | Loss from Inducement offer letter agreement (Note 7c) | | | (1,502 | ) | | | - | | | | | | Change in fair value of derivative warrant liability (Note7c) | | | 1,726 | | | | - | | | | - | | Exchange rate differences | | $ | 2 | | | | (61 | ) | | $ | (22 | ) | Total other financial expenses, net | | $ | 248 | | | | 86 | | | $ | (32 | |
F - 26 NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data Type | ISSUANCE DATE | NUMBER OF WARRANTS | EXERCISE PRICE | EXERCISABLE THROUGH | August 2019 warrants (note 5b) | August 22, 2019 | 205,268 | $6.72 (*) | August 22, 2024 | December 2019 warrants (note 5b) | December 9, 2019 | 92,321 | $6.72 (*) | December 8, 2024 | Warrants to 2019 Convertible Notes placement agent (note 5c) | December 9, 2019 | 55,785 | $6.72 (*) | December 8, 2024 | Warrants to underwriters (note 9) | September 3, 2020 | 125,000 | $10.00 | September 1, 2025 | Warrants to underwriters (note 9) | October 5, 2020 | 375,000 | $8.80 | September 3, 2025 | IPO warrants (note 1d, note 5b) | September 3, 2020 | 2,812,170 | $8.80 | September 3, 2025 | PIPE warrants (note 1c) | March 11, 2021 | 232,500 | $4.60 | September 10, 2026 | Warrants to PIPE placement agent (note 1c) | March 11,2021 | 52,173 | $5.06 | March 8, 2026 | | | | | | Total | | 3,950,217 | | |
NOTE 9:- | RELATED PARTIES BALANCES AND TRANSACTIONS |
| a. | On January 26, 2020, the Company’s Board of Directors approved a one-time immediate payment of $150 and a payment of $37.5 on a quarterly basis (for such time as the service engagement continues) to the Chairman of the Board of Directors contingent upon shareholder approval, which was granted on July 6, 2020 and successful completion of Company’s IPO which closed on September 3, 2020. |
(*) Each warrant is exercisable into a unit consisting of one share and one warrant | b. | On February 23, 2021, the shareholders of the Company approved the grant of options to purchase an aggregate of 30,000 Ordinary Shares to three board members, the Chairman of the board of directors and to its Chief Technology Officer (who also serves as a director). |
Share-based compensation:
On August 7, 2008, the Board of Directors approved the adoption of the 2008 Share Option Plan (the “2008 Plan”). As of December 31, 2021, and 2020, 153,882 share options were outstanding and no share options were available for future grant under the 2008 Plan. Each share option granted is exercisable at such times and terms and conditions as the Board of Directors may specify in the applicable share option agreement, provided that no share option will be granted with a term in excess of 10 years.
The intrinsic value of share options outstanding and exercisable as of December 31, 2021, 2020 and 2019 was $168, $651 and $275, respectively.
| | Number of options | | | Weighted average exercise price | | | Weighted average remaining contractual life | | | | | | | | | | | | Options outstanding as of December 31, 2019 | | | 153,882 | | | $ | 0.24 | | | | 4.25 | | Options granted in 2020 | | | | | | | | | | | | | Options outstanding as of December 31, 2020 | | | 153,882 | | | $ | 0.24 | | | | 3.25 | | Options granted in 2021 | | | | | | | | | | | | | Options outstanding as of December 31, 2021 | | | 153,882 | | | $ | 0.24 | | | | 2.25 | | | | | | | | | | | | | | | Options exercisable as of December 31, 2021 | | | 153,882 | | | $ | 0.24 | | | | 2.25 | |
F - 20
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| c. | On June 8, 2023, the Company’s shareholders approved the grant of options to purchase an aggregate of 54,000 shares to two current board members, and to the chairman of the board of directors. The valuation of the option on the grant date was $174. (Note 7d2) NOTE 9:- | SHAREHOLDERS’ EQUITY (Cont.)
| | |
On July 2, 2019, the Board of Directors approved the adoption of the 2019 Share Option Plan (the “2019 Plan”). Under the 2019 Plan, the Company may grant its officers, directors, employees and consultants share options of the Company. Each share option granted shall be exercisable at such times and terms and conditions as the Board of Directors may specify in the applicable share option agreement, provided that no share option will be granted with a term in excess of 10 years.
Upon the adoption of the 2019 Plan, the Company reserved for issuance 971,476 ordinary shares. As of December 31, 2021, share options to purchase 971,476 ordinary shares were outstanding (as of December 31, 2020, share options to purchase 219,456 ordinary shares were outstanding).
On February 23, 2021, the shareholders of the Company approved the grant of options to purchase an aggregate of 300,000 ordinary shares to three current board members, the Chairman of the board of directors and to the Chief Technology Officer (who is also a director). Each was granted with options to purchase 60,000 ordinary shares of the Company. The options are exercisable to acquire one Ordinary share of the Company at an exercise price of $4.50 per share. The options vest on a quarterly basis over thirty-six months, so that 1/12 of the options shall vest on the last day of each three-month period, provided that on such date each of the serving directors and Chief Technology Officer, shall serve in such capacity. The options will expire after ten years from their grant date.
In January through May 2021 the Company granted an aggregate of 452,020 options to employees. The options are exercisable at exercise prices ranging from $3.01 to $5.74 per share. The options vest over a four year period, 4/16 of the options shall vest following the lapse of a period of twelve months commencing at the date of grant. The remaining 12/16 of the options shall vest on quarterly basis, so that 1/12 of the options shall vest on the expiry of each quarter, provided that on such date each of the employees shall continue to provide the services as an employee of the Company. The options will expire after ten years from their grant date.
The following table summarizes information about options granted to employees:
| | Year ended December 31, 2021 | | | Year ended December 31, 2020 | | | Year ended December 31, 2019 | | | | Number of options | | | Weighted average Exercise price | | | Number of options | | | price | | | Number of options | | | price | | | | | | | | | | | | | | | | | | | | | Outstanding at the beginning of the year | | | 219,456 | | | | 2.62 | | | | 219,456 | | | | 2.62 | | | | 0 | | | | 0 | | | | | | | | | | | | | | | | | | | | | | | | | | | Granted | | | 752,020 | | | | 5.07 | | | | 0 | | | | 0 | | | | 219,456 | | | | 2.62 | | | | | | | | | | | | | | | | | | | | | | | | | | | Forfeited | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | | | | | | | | | | | | | | | | | | | | | | | | Exercised | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | | | | | | | | | | | | | | | | | | | | | | | | Outstanding at the end of the year | | | 971,476 | | | | 4.51 | | | | 219,456 | | | | 2.62 | | | | 219,456 | | | | 2.62 | | | | | | | | | | | | | | | | | | | | | | | | | | | Exercisable at the end of the year | | | 361,280 | | | | 3.58 | | | | 200,269 | | | | 2.55 | | | | 156,386 | | | | 2.77 | |
F - 21
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 9- | SHAREHOLDERS’ EQUITY (Cont.)
| | |
| c. | The following table sets forth the assumptions that were used in determining the fair value of options granted to employees in 2019 plan for the years ended on December 31, 2021, 2020 and 2019:
|
| | Year ended December 31 | | | | 2021 | | | 2020 | | | 2019 | | Expected life | | | 5.86-6.11 | | | | - | | | | 5.75-10 | | Risk-free interest rates | | | 0.52%-1.13 | % | | | 0 | | | | 1.43%-2.13 | % | Volatility | | | 69.67%-78.99 | % | | | 0 | | | | 82.29%-85.56 | % | Dividend yield | | | 0 | | | | 0 | | | | 0 | | Exercise price | | $ | 3.013-5.738 | | | | - | | | $ | 0.24-3.339 | |
The Company recognized $713 and $18 during the years ended December 31, 2021 and 2020, respectively, as share-based compensation expense which was included in general and administrative expenses, and $99 and $18 during the years ended December 31, 2021 and 2020, respectively, as share-based compensation expense which was included in research and development expenses.
The following table summarizes information about share options outstanding and exercisable in 2019 plan to employees and directors during the years ended December 31, 2020 were as follows:
| | Number of options | | | Weighted average exercise price | | | Weighted average remaining contractual life | | | | | | | | | | | | Options outstanding as of December 31, 2020 | | | 219,456 | | | $ | 2.62 | | | | 8.56 | | Options granted in 2021 | | | 752,020 | | | $ | 5.06 | | | | 9.05 | | Options outstanding as of December 31, 2021 | | | 971,746 | | | $ | 4.51 | | | | 8.72 | | | | | | | | | | | | | | | Options exercisable as of December 31, 2021 | | | 361,280 | | | $ | 3.58 | | | | 8.14 | |
The intrinsic value of share options outstanding as of December 31, 2021 and 2020 was $224 and $407, respectively. The intrinsic value of share options exercisable as of December 31, 2021 and 2020 was $224 and $385, respectively.
| d. | In August 2020, the Company entered into an IR/PR service agreement (the “Service Agreement”) with Crescendo Communications, LLC (“Crescendo”), for a period of two years, commencing immediately after the IPO closing date, and in consideration for 152,110 restricted Company's ordinary shares, reflecting 3.75% of the Company's' share capital fully diluted Pre-IPO. On August 23, 2020, the Company's Board of Directors approved the Service Agreement with Crescendo and the grant of the abovesaid ordinary shares. The Company recognized $412 and $137 during the year ended December 31, 2021 and 2020 as share-based compensation expense related to the shares. As of December 31, 2021, the foregoing shares have not been formally issued.
|
F - 22
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 10:- | SELECTED STATEMENTS OF OPERATIONS DATA
|
| a. | Research and development expenses:
|
| | Year ended December 31, | | | | 2021 | | | 2020 | | | 2019 | | | | | | | | | | | | Subcontractors and consultants | | $ | 1,654 | | | $ | 217 | | | $ | 21 | | Payroll and related expenses | | | 719 | | | | 90 | | | | 59 | | Share-based compensation expense | | | 99 | | | | 18 | | | | 14 | | Clinical trials expenses | | | 357 | | | | 0 | | | | 0 | | Other expenses | | | 31 | | | | 29 | | | | 42 | | | | | | | | | | | | | | | | | $ | 2,860 | | | $ | 354 | | | $ | 136 | |
| b. | General and administrative expenses:
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| | Year ended December 31, | | | | 2021 | | | 2020 | | | 2019 | | | | | | | | | | | | Professional services | | $ | 1,697 | | | $ | 727 | | | $ | 342 | | Payroll and related expenses | | | 688 | | | | 154 | | | | 60 | | D&O insurance | | | 935 | | | | 360 | | | | 0 | | Rent and office maintenance | | | 210 | | | | 37 | | | | 33 | | Share-based compensation expense | | | 713 | | | | 20 | | | | 75 | | Other expenses | | | 105 | | | | 19 | | | | 43 | | | | | | | | | | | | | | | | | $ | 4,348 | | | $ | 1,317 | | | $ | 553 | |
| c. | Financial expenses, net:
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| | Year ended December 31, | | | | 2021 | | | 2020 | | | 2019 | | | | | | | | | | | | Interest expense and amortization of discount on convertible notes | | $ | 0 | | | $ | 987 | | | $ | 541 | | Issuance expenses | | | 0 | | | | 65 | | | | 47 | | Bank fees | | | 10 | | | | 3 | | | | 2 | | Change in fair value of derivative warrant liability | | | 0 | | | | 1,105 | | | | 2 | | Exchange rate differences | | | 22 | | | | 2 | | | | (2 | ) | Total financial expenses, net | | $ | 32 | | | $ | 2,162 | | | $ | 590 | |
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NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 11:- | RELATED PARTIES BALANCES AND TRANSACTIONS
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| a. | During the year ended 2019 the Company issued convertible notes in the amount of $95, to existing shareholders. As described under Note 5 above, the notes bore interest at an annual interest rate of 8%, compounded on the basis of a 365-day year and were convertible into convertible preferred shares of the Company.
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| b. | Starting in January 2014, the Company sub-leased office space and received management services from Zori Medica 2010 Ltd., a private company affiliated with Medica Venture Partners, the controlling shareholder of the Company. The Company was subject to an annual rental fee of $33 for the office space and $20 as a quarterly management fee. The management services continued until the end of March 2018.
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The sublease ceased as of August 2019, and from then until December 31, 2020 the Company was provided with an office space at no cost by Medica Venture Partners. For the years ended December 31, 2020 and 2019, the Company recorded an amount of $33 and $25, respectively, as a lease expense and a corresponding increase in additional paid-in capital, representing a contribution from its controlling shareholder. As of December 31, 2020, the lease agreement with the related party was terminated.
| c. | On January 26, 2020, the Company’s Board of Directors approved a one-time immediate payment of $150 and a payment of $37.5 on a quarterly basis (for such time as the service engagement continues) to the Chairman of the Board of Directors contingent upon shareholder approval which was granted on July 6, 2020 and successful completion of Company’s IPO which closed on September 3, 2020.
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| d. | On February 23, 2021, the shareholders of the Company approved the grant of options to purchase an aggregate of 300,000 ordinary shares to three board members, the Chairman of the board of directors and to its Chief Technology Officer (who also serves as a director).
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Balances with related parties: | | Balances with related parties: |
| | Year ended December 31, | | | | 2023 | | | 2022 | | | 2021 | | | | | | | | | | | | Employees accrued salaries and bonuses | | | 324 | | | | 359 | | | | 356 | | Directors accrued fees expenses | | | 33 | | | | 33 | | | | 82 | | | | | | | | | | | | | | | | | $ | 357 | | | $ | 392 | | | $ | 438 | |
| | 2021 | | | 2020 | | | | | | | | | Employees accrued salaries | | $ | 356 | | | $ | 79 | | Directors accrued expenses | | $ | 82 | | | $ | 35 | | | | | | | | | | | | | $ | 438 | | | $ | 114 | |
Transactions with related parties:
| | 2021 | | | 2020 | | | 2019 | | Amounts charged to: | | | | | | | | | | Research and development expenses | | $ | 151 | | | $ | 0 | | | $ | 0 | | | | | | | | | | | | | | | General and administrative expenses | | | 2,155 | | | | 370 | | | | 210 | | | | | | | | | | | | | | | Interest expense on convertible notes | | $ | 0 | | | $ | 251 | | | $ | 351 | |
| | Transactions with related parties: |
| | Year ended December 31, | | | | 2023 | | | 2022 | | | 2021 | | Amounts charged to: | | | | | | | | | | Research and development expenses | | $ | 528 | | | $ | 702 | | | $ | 151 | | | | | | | | | | | | | | | General and administrative expenses | | $ | 1,676 | | | $ | 2,091 | | | $ | 2,155 |
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