UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to__________
Commission File Number: 000-52545
OPHTHALIX INC.
(Exact name of registrant as specified in its charter)
| Delaware | 88-0445167 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 10 Bareket Street, Petach Tikva, Israel | 4951778 | |
| (Address of principal executive offices) | (Zip Code) |
+(972) 3-9241114
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the registrant’s Common Stock on May 11 was 10,441,251.
TABLE OF CONTENTS
| Page | ||
| PART I - FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 15 |
| Item 4. | Controls and Procedures | 16 |
| PART II - OTHER INFORMATION | ||
| Item 1A. | Risk Factors | 16 |
| Item 6. | Exhibits | 16 |
| SIGNATURES | 17 | |
Throughout this report, unless otherwise designated, the terms “we,” “us,” “our,” “the Company” and “our company” refer to OphthaliX Inc., a Delaware corporation, and its Israeli subsidiary, Eyefite Ltd. (“Eyefite”). All amounts in this report are in U.S. Dollars, unless otherwise indicated. The information in the report was updated to reflect a reverse share split (1:4.5) of our shares which became effective as of the close of business on August 6, 2013.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
OPHTHALIX INC. AND ITS SUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2015
U.S. DOLLARS IN THOUSANDS
UNAUDITED
INDEX
Page | ||
| Condensed Consolidated Balance Sheets | 2 | |
| Condensed Consolidated Statements of Comprehensive Loss | 3 | |
| Condensed Consolidated Statements of Changes in Stockholders' Deficiency | 4 | |
| Condensed Consolidated Statements of Cash Flows | 5 | |
| Notes to Condensed Consolidated Financial Statements | 6 - 11 |
- - - - - - - - - - - - - - -
| - 1 - |
OPHTHALIX INC. AND ITS SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands, except share and per share data
March 31, 2015 | December 31, 2014 | |||||||
| Unaudited | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 5 | $ | 9 | ||||
| Investment in Parent Company | 511 | 794 | ||||||
| Prepaid expenses | 243 | 209 | ||||||
| Total current assets | 759 | 1,012 | ||||||
| PROPERTY AND EQUIPMENT, NET | 1 | 1 | ||||||
| Total assets | $ | 760 | $ | 1,013 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIENCY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Parent company | $ | 2,697 | $ | 2,457 | ||||
| Other accounts payable and accrued expenses | 235 | 246 | ||||||
| Total current liabilities | 2,932 | 2,703 | ||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Derivative related to Service Agreement | *) | *) | ||||||
| STOCKHOLDERS' EQUITY (DEFICIENCY): | ||||||||
| Share capital | ||||||||
| Preferred Stock - | ||||||||
| Authorized : 1,000,000 shares at March 31, 2015 and December 31, 2014, Issued and Outstanding: 0 shares at March 31, 2015 and December 31, 2014 | - | - | ||||||
| Common Stock of $0.001 par value - | ||||||||
| Authorized: 100,000,000 shares at March 31, 2015 and December 31, 2014, Issued and Outstanding: 10,441,251 shares at March 31, 2015 and December 31, 2014 | 10 | 10 | ||||||
| Additional Paid-in capital | 5,502 | 5,494 | ||||||
| Accumulated other comprehensive income (loss) | (181 | ) | 102 | |||||
| Accumulated deficit | (7,503 | ) | (7,296 | ) | ||||
| Total stockholders' deficiency | (2,172 | ) | (1,690 | ) | ||||
| Total liabilities and stockholders' deficiency | $ | 760 | $ | 1,013 | ||||
*) Represents an amount lower than $1
The accompanying notes are an integral part of the condensed consolidated financial statements.
| - 2 - |
OPHTHALIX INC. AND ITS SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
U.S. dollars in thousands, except share and per share data
Three months ended March 31, | Year ended December | |||||||||||
| 2015 | 2014 | 2014 | ||||||||||
| Unaudited | ||||||||||||
| Operating expenses: | ||||||||||||
| Research and development | $ | 106 | $ | 196 | $ | 721 | ||||||
| General and administrative | 82 | 160 | 425 | |||||||||
| Total operating expenses | 188 | 356 | 1,146 | |||||||||
| Financial expenses, net | 19 | 12 | 49 | |||||||||
| Net loss | $ | 207 | $ | 368 | $ | 1,195 | ||||||
| Net loss per share: | ||||||||||||
| Basic and diluted net loss per share | $ | 0.02 | $ | 0.04 | $ | 0.11 | ||||||
| Weighted average number of shares of Common Stock used in computing basic and diluted net loss per share | 10,441,251 | 10,441,251 | 10,441,251 | |||||||||
| Other comprehensive loss: | ||||||||||||
| Available-for-sale investments: | ||||||||||||
| Changes in net unrealized loss | 283 | 111 | 381 | |||||||||
| Total other comprehensive loss | $ | 283 | $ | 111 | $ | 381 | ||||||
| Comprehensive loss | $ | 490 | $ | 479 | $ | 1,576 | ||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
| - 3 - |
OPHTHALIX INC. AND ITS SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
U.S. dollars in thousands, except share and per share data
| Accumulated | ||||||||||||||||||||||||
| Shares of Common Stock | Additional paid-in | Accumulated | other comprehensive | Total stockholders' | ||||||||||||||||||||
| Number | Amount | capital | deficit | loss | deficiency | |||||||||||||||||||
| Balance as of December 31, 2013 | 10,441,251 | $ | 10 | $ | 5,469 | $ | (6,101 | ) | $ | 483 | $ | (139 | ) | |||||||||||
| Stock based compensation | - | - | 25 | - | - | 25 | ||||||||||||||||||
| Unrealized loss from investment in Parent company | - | - | - | - | (381 | ) | (381 | ) | ||||||||||||||||
| Net loss | - | - | - | (1,195 | ) | - | (1,195 | ) | ||||||||||||||||
| Balance as of December 31, 2014 | 10,441,251 | 10 | 5,494 | (7,296 | ) | 102 | (1,690 | ) | ||||||||||||||||
| Stock based compensation | - | - | 8 | - | - | 8 | ||||||||||||||||||
| Unrealized loss from investment in Parent company | - | - | - | - | (283 | ) | (283 | ) | ||||||||||||||||
| Net loss | - | - | - | (207 | ) | - | (207 | ) | ||||||||||||||||
| Balance as of March 31, 2015 (unaudited) | 10,441,251 | $ | 10 | $ | 5,502 | $ | (7,503 | ) | $ | (181 | ) | $ | (2,172 | ) | ||||||||||
| Accumulated | ||||||||||||||||||||||||
| Shares of Common Stock | Additional paid-in | Accumulated | other comprehensive | Total stockholders' | ||||||||||||||||||||
| Number | Amount | capital | deficit | income | deficiency | |||||||||||||||||||
| Balance as of January 1, 2014 | 10,441,251 | $ | 10 | $ | 5,469 | $ | (6,101 | ) | $ | 483 | $ | (139 | ) | |||||||||||
| Stock based compensation | - | - | 57 | - | - | 57 | ||||||||||||||||||
| Unrealized loss from investment in Parent Company | - | - | - | - | (111 | ) | (111 | ) | ||||||||||||||||
| Net loss | - | - | - | (368 | ) | - | (368 | ) | ||||||||||||||||
| Balance as of March 31, 2014 (unaudited) | 10,441,251 | $ | 10 | $ | 5,526 | $ | (6,469 | ) | $ | 372 | $ | (561 | ) | |||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
| - 4 - |
OPHTHALIX INC. AND ITS SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands, except share and per share data
Three months ended March 31, | Year ended December 31, | |||||||||||
| 2015 | 2014 | 2014 | ||||||||||
| Unaudited | ||||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net loss | $ | (207 | ) | $ | (368 | ) | $ | (1,195 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Depreciation | *) - | *) - | *) - | |||||||||
| Stock based compensation | 8 | 57 | 25 | |||||||||
| Changes in fair value of the derivative related to Service Agreement | - | (1 | ) | (7 | ) | |||||||
| Increase in other accounts receivable prepaid expenses | (34 | ) | (33 | ) | (189 | ) | ||||||
| Decrease in other accounts payables and accrued expenses | (11 | ) | (22 | ) | (17 | ) | ||||||
| Increase in balance with Parent company | 240 | 211 | 970 | |||||||||
| Net cash used in operating activities | (4 | ) | (156 | ) | (413 | ) | ||||||
| Cash flows from investing activities: | ||||||||||||
| Net cash provided by investing activities | - | - | - | |||||||||
| Cash flows from financing activities: | ||||||||||||
| Net cash provided by financing activities | - | - | - | |||||||||
| Change in cash and cash equivalents | (4 | ) | (156 | ) | (413 | ) | ||||||
| Cash and cash equivalents at the beginning of the period | 9 | 422 | 422 | |||||||||
| Cash and cash equivalents at the end of the period | $ | 5 | $ | 266 | $ | 9 | ||||||
*) Represents an amount lower than $1
The accompanying notes are an integral part of the condensed consolidated financial statements.
| - 5 - |
OPHTHALIX INC. AND ITS SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 1:- | GENERAL |
| a. | OphthaliX Inc. (the "Company" or "OphthaliX"), originally incorporated in the State of Nevada on December 10, 1999 under the name Bridge Capital.com Inc., was a nominally capitalized corporation that did not commence its operations until it changed its name to Denali Concrete Management Inc. ("Denali"), in March 2001. Denali was a concrete placement company specializing in providing concrete improvements in the road construction industry. Denali operated primarily in Anchorage, Alaska, placing curb and gutter, sidewalks and retaining walls for state, municipal and military projects. |
In December 2005, the Company ceased its principal business operations and focused its efforts on seeking a business opportunity, becoming a public shell company in the U.S.
Eye-Fite Ltd. ("Eye-Fite" or the "Subsidiary") was founded on June 27, 2011 in contemplation of the execution of a transaction between Can-Fite BioPharma Ltd. (the "Parent company" or "Can-Fite"), a public company in Israel and U.S, and the Company, as further detailed in Note 1b below.
The Company and its Subsidiary conduct research and development activities using an exclusive worldwide license for CF101, a synthetic A3 adenosine receptor, or A3AR, agonist (known generically as IB-MECA) solely for the field of ophthalmic diseases after the consummation of the transaction. See also Note 1b2.
Following the transaction, Denali changed its name to OphthaliX Inc. and also changed its corporate domicile from Nevada to Delaware.
| b. | Reverse Recapitalization and related arrangements: |
| 1. | Recapitalization: |
On November 21, 2011 (the "Closing Date"), Can-Fite purchased 8,000,000 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) in exchange for all of the issued and outstanding ordinary shares of Eyefite pursuant to the terms of a stock purchase agreement (the “Purchase Agreement”). As a result, Eyefite became a wholly-owned subsidiary of the Company and Can-Fite became its majority stockholder and a parent.
Also on November 21, 2011, the Company issued a warrant to Can-Fite by which Can-Fite has the right, until the earlier of (a) the November 21, 2016 and (b) the closing of the acquisition of the Company by another entity, resulting in the exchange of the Company’s outstanding common shares such that its stockholders prior to such transaction own, directly or indirectly, less than 50% of the voting power of the surviving entity, to convert its right to the Additional Payment (as defined below) into 480,022 shares of Common Stock (subject to adjustment in certain circumstances). The per share exercise price for the shares is $5.148.
The Company also received 714,922 ordinary shares in Can-Fite, representing approximately 7% of Can-Fite's issued and outstanding share capital as of the Closing Date. On June 17, 2013, the Company sold 268,095 Can-Fite ordinary shares for a total consideration of $511. As of March 31, 2015, the Company holds 446,827 Can-Fite ordinary shares, representing approximately 2% of Can-Fite's issued and outstanding share capital.
| - 6 - |
OPHTHALIX INC. AND ITS SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 1:- | GENERAL (Cont.) |
In accordance with the Israeli Securities Law (1968), Section 15C and related Securities Regulations, the ordinary shares issued by Can-Fite to OphthaliX have a "Resale Restriction Period", which consists of one year of full restriction and a liquidation period of eight consecutive quarters. As such, OphthaliX was eligible to sell 12.5% of the Can-Fite ordinary shares it holds every quarter since November 21, 2012. As of March 31, 2015, there are no restrictions on selling the aforementioned shares.
In contemplation of the recapitalization transaction, it was agreed that for every four shares of Common Stock purchased by the New Investors and Can-Fite, they received nine warrants to acquire two share of Common Stock of the Company. The exercise price of such warrants is $7.74 per share of Common Stock. The warrants are exercisable for a period of five years from the date of grant. The warrants do not contain nonstandard anti-dilution provisions (see also Note 6b to the consolidated financial statements as of December 31, 2014).
The transaction was accounted for as a reverse recapitalization which is outside the scope ASC 805, Business Combinations. Under reverse capitalization accounting, EyeFite is considered the acquirer for accounting and financial reporting purposes, and acquired the assets and assumed the liabilities of the Company. Assets acquired and liabilities assumed are reported at their historical amounts. Consequently, the condensed consolidated financial statements of the Company reflect the operations of the acquirer for accounting purposes together with a deemed issuance of shares, equivalent to the shares held by the former shareholders of the legal acquirer and a recapitalization of the equity of the accounting acquirer. These condensed consolidated financial statements include the accounts of the Company since the effective date of the reverse capitalization and the accounts of EyeFite since inception.
| 2. | License and research and development services from Can-Fite: |
In connection with the consummation of the recapitalization transaction, the Company and Can-Fite entered into a license agreement, pursuant to which Can-Fite granted EyeFite a sole and exclusive worldwide license for the use of CF101, solely in the field of ophthalmic diseases ("CF101"). EyeFite will be obligated to make to the U.S. National Institutes of Health ("NIH"), with regard to the patents of which are included in the license to EyeFite, for as long as the license agreement between the Company and NIH remains in effect, a nonrefundable minimum annual royalty fee and potential future royalties of 4.0% to 5.5% on net sales.
In addition, the Company will be obligated to make certain milestone payments ranging from $25 to $500 upon the achievement of various development milestones for each indication. During 2013, the Company accrued an amount of $75 related the glaucoma Phase II clinical trial. EyeFite will also be required to make payments of 20% of sublicensing revenues, excluding royalties and net of the required milestone payments. During 2014, the Company did not reach any milestone or generate revenue that would trigger additional payments to Can-Fite.
| - 7 - |
OPHTHALIX INC. AND ITS SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 1:- | GENERAL (Cont.) |
As of March 31, 2015 the aggregate amount accrued for these milestones payment is $175.
In addition, following the closing of the recapitalization transaction, Can-Fite, OphthaliX and EyeFite entered into a service agreement (the "Service Agreement"). Pursuant to the terms of the Service Agreement, Can-Fite will manage the research and development activities relating to pre-clinical and clinical studies for the development of the ophthalmic indications of CF101. In consideration for Can-Fite's services, EyeFite will pay to Can-Fite a service fee (consisting of all expenses and costs incurred by Can-Fite plus 15%). In addition, the Company is committed to future additional payments equal to 2.5% of any and all proceeds received by EyeFite relating to the activities regarding the drug (the "Additional Payment").
According to the Service Agreement, Can-Fite will have the right, at any time until November 21, 2016, to convert the Additional Payment into an additional 480,022 shares of Common Stock of the Company for total consideration of $2,471 (subject to adjustment in certain circumstances - See also Note 6 to the consolidated financial statements as of December 31, 2014).
| c. | The Company devotes most of its efforts toward research and development activities. As of March 31, 2015, the Company does not have sufficient capital resources to conduct its research and development activities until commercialization of the underlying products. |
The Company is addressing its liquidity issues by implementing initiatives to raise additional funds as well as other measures that will allow it to cover its anticipated budget deficit. Such initiatives include a plan to monetize part or all of the Company's investment in Can-Fite's ordinary shares. In addition, in February 2013 Can-Fite issued to the Company a formal letter, which has been updated periodically (most recently in March 2015), stating that Can-Fite agrees to defer payments owing to it under the Services Agreement from January 31, 2013 for the performance of the clinical trials of CF101 in ophthalmic indications until the completion of fundraising by the Company sufficient to cover such deferred payments. In addition, in March 2015, Can-Fite issued a financial support letter pursuant to which it committed to cover any shortfall in the costs and expenses of operations of the Company which are in excess of the Company's available cash to finance its operations, including cash generated from any future sale of Can-Fite shares held by the Company. Both letters remain in effect for a period of at least 14 months from March 2015 and any related balance bears interest at a rate of 3% per annum.
The Company's inability to raise funds to conduct its research and development activities will have a severe negative impact on its ability to remain a viable company. Liquidity resources, as of March 31, 2015, together with the Parent company support letters described above, will be sufficient to maintain the Company's operations for at least twelve months.
As of March 31, 2015, the deferred payments to Can-Fite totaled $2,580. There are no assurances that the Company will be successful in obtaining an adequate level of financing needed for its long-term research and development activities. If the Company will not have sufficient liquidity resources, the Company may not be able to continue the development of all of its products or may be required to delay part of the development programs.
| - 8 - |
OPHTHALIX INC. AND ITS SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 2:- | UNAUDITED CONDENSED FINANCIAL STATEMENTS |
The unaudited Condensed Consolidated Financial Statements of OphthaliX Inc. have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The Condensed Consolidated Balance Sheet as of March 31, 2015, included herein was derived from the audited Consolidated Financial Statements for the year ended December 31, 2014. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. The results of operations for the three months ended March 31, 2015, are not necessarily indicative of the results that may be expected for the year ending December 31, 2015, or any future period. The information included in this interim report should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Risk Factors," "Quantitative and Qualitative Disclosures About Market Risk," and the Consolidated Financial Statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ materially from those estimates under different assumptions or conditions.
The significant accounting policies applied in the annual financial statements of the Company as of December 31, 2014 are applied consistently in thesecondensed financial statements. For further information, refer to the consolidated financial statements as of December 31, 2014.
| NOTE 3:- | FAIR VALUE MEASUREMENTS |
The Company considers an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and views an inactive market as one in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers. Since the quoted market value of the Company’s Common Stock was based on a sporadically traded stock with little volume, the Company's management determined the Company's stock price fair value based on ASC 820 Fair Value Measurement using the income approach assisted by a third party specialist. Consequently, the Company used the estimated stock price fair value in the underlying assumptions of the computation of the fair value of the derivative related to the Service Agreement.
Embedded derivatives are classified within Level 3 because they are valued using valuation techniques. Some of the inputs to these models are unobservable in the market and are significant.
| - 9 - |
OPHTHALIX INC. AND ITS SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
The Company's investment in Parent Company ordinary shares is measured in accordance with ASC 820, based on the Parent Company's ordinary shares fair value as quoted in the Tel Aviv Stock Exchange.
| NOTE 3:- | FAIR VALUE MEASUREMENTS (Cont.) |
These securities are classified as available-for-sale securities carried at fair value, with unrealized gains and losses reported as a separate component of shareholders' equity under accumulated other comprehensive loss (income) in the condensed consolidated balance sheets. The assets are classified within Level 1 on the fair value hierarchy.
The following table provides information by value level for financial assets and liabilities that are measured at fair value, as defined by ASC 820, on a recurring basis as of March 31, 2015 and December 31, 2014.
| March 31, 2015 | |||||||||||||||||
| Fair value measurements | |||||||||||||||||
| Description | Fair Value | Level 1 | Level 2 | Level 3(1) | |||||||||||||
| Investment in Parent Company | $ | 511 | $ | 511 | $ | - | $ | - | |||||||||
| Derivative related to Service agreement | * | ) | - | - | * | ) | |||||||||||
| Total Financial Assets, net | $ | 511 | $ | 511 | $ | - | $ | - | |||||||||
| *) Represents an amount lower than $1 |
|
December 31, 2014 | ||||||||||||||||
| Fair value measurements | |||||||||||||||||
| Description | Fair Value | Level 1 | Level 2 | Level 3(1) | |||||||||||||
| Investment in Parent company | $ | 794 | $ | 794 | $ | - | $ | - | |||||||||
| Derivative related to Service agreement | * | ) | - | - | * | ) | |||||||||||
| Total Financial Assets, net | $ | 794 | $ | 794 | $ | - | $ | - | |||||||||
| *) Represents an amount lower than $1 |
(1) Fair value measurements using significant unobservable inputs
The following table presents the changes in Level 3 instruments measured on a recurring basis for the three months ended March 31, 2015. The Company's Level 3 instruments consist of derivatives.
| Balance at January 1, 2014 | 7 | ||||
| Change in fair value of derivatives | (7 | ) | |||
| Balance at December 31, 2014 | *) - | ||||
| Change in fair value of derivatives | - | ||||
| Balance at March 31, 2015 | *) - |
| *) Represents an amount lower than $1 |
| - 10 - |
OPHTHALIX INC. AND ITS SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 4:- | EQUITY |
The following table summarizes the activity of stock options:
| Shares Subject to Options Outstanding | |||||||||||||||||
| Description | Number of Shares | Weighted Average Exercise Price | Weighted- Average Remaining Contractual Term(in years) | Aggregate Intrinsic Value(1) | |||||||||||||
| Outstanding as of January 1, 2015 | 117,500 | 7.96 | 7.8 | $ | - | ||||||||||||
| Granted | - | - | - | - | |||||||||||||
| Expired | - | - | - | - | |||||||||||||
| Forfeited/cancelled | - | - | - | - | |||||||||||||
| Outstanding as of March 31, 2015 | 117,500 | 7.96 | 7.6 | $ | - | ||||||||||||
| Exercisable as of March 31, 2015 | 83,773 | 8.39 | 7.3 | - | |||||||||||||
| Vested and expected to be vested | 117,500 | 7.96 | 7.6 | $ | - | ||||||||||||
| (1) | The aggregate intrinsic value is calculated as the difference between the exercise price of the stock options and the closing price of the shares of the Company’s Common Stock of $1.15 as of March 31, 2015. |
As of March 31, 2015, there was $17 of unrecognized stock-based compensation expense all of which is related to stock options. This unrecognized compensation expense, expected to be recognized over a weighted-average period of approximately 0.6 years.
| - 11 - |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of our balance sheets, statements of income and cash flows. This section should be read in conjunction with our Annual Report on Form 10-K for the Year Ended December 31, 2014 and our interim financial statements and accompanying notes to these financial statements. All amounts are in U.S. dollars and rounded.
Forward-Looking Statement Notice
This quarterly report on Form 10-Q contains forward-looking statements about our expectations, beliefs or intentions regarding, among other things, our product development efforts, business, financial condition, results of operations, strategies or prospects. In addition, from time to time, we or our representatives have made or may make forward-looking statements, orally or in writing. Forward-looking statements can be identified by the use of forward-looking words such as “believe,” “expect,” “intend,” “plan,” “may,” “should” or “anticipate” or their negatives or other variations of these words or other comparable words or by the fact that these statements do not relate strictly to historical or current matters. These forward-looking statements may be included in, but are not limited to, various filings made by us with the United States Securities and Exchange Commission, or the SEC, press releases or oral statements made by or with the approval of one of our authorized executive officers. Forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements, including, but not limited to, those set forth in our most recent annual reports referenced below.
This report identifies important factors which could cause our actual results to differ materially from those indicated by the forward-looking statements, particularly those set forth under Item 1A. “Risk Factors” as disclosed in our Annual Report on Form 10-K, as filed with the SEC on March 25, 2015.
Such risk factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
All forward-looking statements attributable to us or persons acting on our behalf speak only as of the date of this report and are expressly qualified in their entirety by the cautionary statements included in this report. We undertake no obligations to update or revise forward-looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. In evaluating forward-looking statements, you should consider these risks and uncertainties.
Description of Business
We are a clinical-stage biopharmaceutical company focused on developing therapeutic products for the treatment of ophthalmic disorders. We have in-licensed certain patents and patent applications protecting the use in the ophthalmic field of our current pipeline drug under development, a synthetic A3 adenosine receptor, or A3AR, agonist, CF101 (known generically as IB-MECA). CF101 is currently being developed by us to treat two ophthalmic indications: glaucoma and uveitis. We are currently conducting a Phase II trial with respect to the development of CF101 for the treatment of glaucoma or related syndromes of ocular hypertension.
CF101 is a highly-selective, orally bioavailable small molecule synthetic drug, which targets the A3AR. We believe that CF101 has a favorable safety profile and a potent anti-inflammatory activity, mediated via its capability to inhibit the production of inflammatory cytokines, such as TNF-α, MMPs, IL-1, and IL-6. This is mediated by activation of the A3AR, which is highly expressed in inflammatory tissues in contrast to normal tissues where expression levels of the receptor are very low. We believe that the anti-inflammatory and neuro-protective effects of CF101 make it a candidate for use in the treatment of ophthalmic indications.
| - 12 - |
We are focused on the development of CF101 for the treatment of glaucoma, with a Phase II study ongoing in Israel and Europe. We recently amended the ongoing Phase II study protocol and continue to the second cohort, where patients will be treated with 2 mg CF101 or placebo. This decision is based on positive data from the psoriasis Phase II/III study currently conducted with CF101 by our majority stockholder and parent, Can-Fite. As a result, there will not be an interim analysis and the full study data is expected to be announced in mid-2015. If successful, the treatment of glaucoma with an oral drug has the potential to be a breakthrough treatment in resolving patient compliance issues with current topical treatments. A third-party validation for the utilization of A3 adenosine receptor agonists for lowering intraocular pressure and treating glaucoma has been recently published by Professor M. Francesca Cordeiro, a Professor of Glaucoma & Retinal Neuro-degeneration at the University College of London and Imperial College in London.
According to GlobalData, the global market for glaucoma drugs is estimated to exceed $3 billion by 2018 and the global uveitis therapeutics market is expected to grow from $0.3 billion in 2010 to $1.6 billion by 2017. None of our product candidates have been approved for sale or marketing and, to date, there have been no commercial sales of any of our product candidates.
Our corporate strategy is to build a specialized ophthalmic company that develops and in-licenses drugs for the treatment of ophthalmic diseases. We intend to seek to obtain technologies that complement and expand our existing pipeline by entering into in-license or co-development agreements with academic institutions and biotechnology or pharmaceutical companies. We intend to commercialize our products through out-licensing arrangements with third parties who may perform any or all of the following tasks: completing development, securing regulatory approvals, manufacturing, marketing and sales. We do not intend to develop our own manufacturing facilities or sales forces.
Results of Operations -Three Months Ended March 31, 2015 Compared to the Three Months Ended March 31, 2014
| Three Months Ended December 31, | ||||||||
| 2015 | 2014 | |||||||
| Operating expenses: | ||||||||
| Research and development | $ | 106,000 | $ | 196,000 | ||||
| General and administrative | 82,000 | 160,000 | ||||||
| Total operating costs | 188,000 | 356,000 | ||||||
| Financial expenses, net | 19,000 | 12,000 | ||||||
| Net loss | $ | 207,000 | $ | 368,000 | ||||
Revenues
We did not generate any revenues from operations. We had no revenues because we do not have any commercial products and we do not expect to have such products for several years, if at all.
Operating Expenses
Research and development expenses. Research and development expenses were $106,000 for the three months ended March 31, 2015, compared to $196,000 for the three months ended March 31, 2014, a decrease of $90,000 or 46%. The decrease in research and development expenses is primarily related to the completion of Phase III study in DES. Assuming we will have sufficient liquidity, we anticipate significantly higher costs in the future as our Phase II CF101 study for glaucoma progresses.
General and administrative expenses. General and administrative expenses were $82,000 for the three months ended March 31, 2015, compared to $160,000 for the three months ended March 31, 2014, a decrease of $78,000 or 49%. The decrease in general and administrative expenses was primarily related to the termination of a CEO during 2014 and the reversal of share based compensation expenses that are related to unvested stock options of the aforementioned CEO.
Financial Expenses (Income), Net
Financial expenses, net were $19,000 for the three months ended March 31, 2015 compared to financial expenses, net of $12,000 for the three months ended March 31, 2014, a change of $7,000 or 58%. Financial expenses, net consisted primarily of interest expenses due to deferred payments to our parent company, Can-Fite.
| - 13 - |
Net Loss
As a result of the foregoing, we incurred a net loss of $207,000 for the three months ended March 31, 2015 compared $368,000 for the three months ended March 31, 2014, a decrease of $161,000 or 44%.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.
As of March 31, 2015 and December 31, 2014, we had $5,000 and $9,000 in cash and cash equivalents, a working capital deficit of $2,173,000 and $1,691,000 and an accumulated deficit of $7,503,000 and $7,296,000. The increase in working capital deficit was primarily due to deferred payments to Can-Fite and decrease in the fair value of our investment in Can-Fite’s securities. Net cash used in operating activities was approximately $4,000 for the three months ended March 31, 2015, compared with net cash used in operating activities of approximately $156,000 for the three months ended March 31, 2014. The decrease in net cash used in operating activities was primarily related to the completion of the Phase III CF101 study for DES. There was no net cash provided by investing activities and financing activities for the three months ended March 31, 2015 and 2014.
In February 2013, Can-Fite issued us a formal letter, which has been updated periodically (most recently in March 2015), stating that Can-Fite agrees to defer payments owed to it under the Services Agreement (under which Can-Fite manages, as an independent contractor, all activities relating to pre-clinical and clinical studies performed for the development of the ophthalmic indications of CF101) beginning on January 31, 2013 until the completion of fundraising by the Company sufficient to cover such deferred payments. As of March 31, 2015, the deferred payments to Can-Fite totaled approximately $2,580,000. In addition, in March 2015, Can-Fite issued a financial support letter pursuant to which it committed to cover any shortfall in our costs and expenses of the operations which are in excess of our available cash to finance our operations, including cash generated from any future sale of Can-Fite shares held by us. Both letters remain in effect for a period of at least 14 months from March 2015 and any related balance bears interest at a rate of 3% per annum.
Liquidity resources, as of March 31, 2015, together with the Can-Fite support letters as discussed above, will be sufficient to maintain the Company's operations for at least twelve months. For a long term solution, we will need to seek additional capital for the purpose of further testing our products, managing our business and obtaining certifications necessary in order to market them.
Developing drugs, conducting clinical trials and commercializing products is expensive and we will need to raise substantial additional funds to achieve our strategic objectives. Although we believe our existing cash and other financial assets resources will be sufficient to fund our current projected cash requirements, factoring in the deferment letter from Can-Fite, to operate our business as currently conducted at least for twelve months from the balance sheet date, we will require significant additional financing in the future. Additional financing may not be available on acceptable terms, if at all. Our future capital requirements will depend on many factors, including:
| ● | the failure to obtain regulatory approval or achieve commercial success of our product candidates, which currently includes only CF101; | |
| ● | the level of research and development investment required to develop our product candidates, and maintain and improve our patented or licensed technology position; | |
| ● | the costs of obtaining or manufacturing product candidates for research and development and testing; | |
| ● | the results of preclinical and clinical testing, which can be unpredictable in product candidate development and any decision to initiate additional preclinical or clinical studies; | |
| ● | changes in product candidate development plans needed to address any difficulties that may arise in manufacturing, preclinical activities or clinical studies; |
| - 14 - |
| ● | our success in establishing and effecting out-licensing agreements with strategic partners, the terms of these agreements and the success of these potential future licensees and partners in selling our products; | |
| ● | our success rate in preclinical and clinical efforts associated with milestones and royalties, if applicable; | |
| ● | the costs of investigating patents that might block us from developing potential product candidates; | |
| ● | the costs of recruiting and retaining qualified personnel; | |
| ● | the costs, timing and outcomes involved in obtaining regulatory approvals; | |
| ● | the number of product candidates we pursue in the future; | |
| ● | our revenues, if any; | |
| ● | the costs of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights; | |
| ● | our need or decision to acquire or license complementary technologies or new platform or product candidate targets; and | |
| ● | the costs of financing unanticipated working capital requirements and responding to competitive pressures. |
We currently have no agreements, arrangements, or understandings with any person to obtain funds through bank loans, lines of credit, or any other sources, other than the formal letter from Can-Fite agreeing to defer payments owed to it under the services agreement. Until we can generate significant continuing revenues, we expect to satisfy our future cash needs through debt or equity financings, or by out-licensing our product candidate. We cannot be certain that additional funding will be available to us on acceptable terms, or at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminate one or more of our research or development programs or our commercialization efforts.
We are addressing our liquidity issues by implementing initiatives to raise additional funds as well as other measures that we believe will allow the coverage of our anticipated budget deficit. Such initiatives may include monetizing of our assets, by intention to realize our remaining investment in Can-Fite’s shares.
As of the date of this report, we have no material capital commitments.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity capital expenditures or capital resources.
Critical Accounting Policies
Our significant accounting policies, which include management’s best estimates and judgments, are included in Note 2 to the financial statements for the three months ended March 31, 2015 included in this Quarterly Report on Form 10-Q for the three months ended March 31, 2015.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we have elected not to provide the disclosure required by this item.
| - 15 - |
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting
There has been no change in our internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act, during our most recent fiscal quarter ended March 31, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II-OTHER INFORMATION
Item 1A. Risk Factors
See Item 1A. “Risk Factors” as disclosed in our Annual Report on Form 10-K, as filed with the SEC on March 25, 2015.
Item 6. Exhibits
| SEC Ref. No. | Title of Document | |
| 31.1 | Rule 13a-14(a) Certification by Principal Executive Officer | |
| 31.2 | Rule 13a-14(a) Certification by Principal Financial Officer | |
| 32.1 | Section 1350 Certification of Principal Executive Officer | |
| 32.2 | Section 1350 Certification of Principal Financial Officer | |
| 101.INS | XBRL Instance Document * | |
| 101.SCH | XBRL Taxonomy Extension Schema Document * | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document * | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document * | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document * | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document * |
| * | Attached as Exhibit 101 to this report are the following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Comprehensive Loss, (iii) the Condensed Statements of Changes in Stockholders’ Deficiency, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Financial Statements. |
| - 16 - |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| OphthaliX Inc. | ||
| Date: May 13, 2015 | By | /s/ Pnina Fishman |
| Pnina Fishman, Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: May 13, 2015 | By | /s/ Itay Weinstein |
| Itay Weinstein, Chief Financial Officer | ||
| (Principal Financial Officer) | ||
-17-