GENERAL | 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 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 September 30, 2015, the Company holds 446,827 Can-Fite ordinary shares, representing approximately 1.6% of Can-Fite's outstanding share capital. 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 shares 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. EyeFite will also be required to make payments of 20% of sublicensing revenues, excluding royalties and net of the required milestone payments. During 2014 and 2015, the Company did not reach any milestone or generate revenue that would trigger additional payments to Can-Fite. As of September 30, 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. Share Purchase Agreement: On June 18, 2015, the Company entered into a Share Purchase Agreement with Improved Vision Systems (I.V.S) Ltd (“IVS”), an Israeli company and its shareholders (the “Sellers”). Subsequently, on August 25, 2015, the Share Purchase Agreement was amended (such Share Purchase Agreement, as amended, the “Agreement”). The agreement closing is pending the fulfillment of certain criteria, as further describe below. Upon the terms and subject to the conditions further described in the Agreement, the Company will acquire IVS from the Sellers through the transfer to the Company of all issued and outstanding ordinary shares of IVS in exchange for (i) the issuance by the Company of an aggregate of 2,920,748 shares of common stock of the Company to the Sellers, (ii) the issuance by the Company of options to purchase an aggregate of 303,174 shares of Common stock of the Company to holders of commitments to be granted options to purchase ordinary shares of IVS (the “Option Holders”), and (iii) the issuance by the Company of an aggregate of 2,219,771 shares of common stock of the Company to the Sellers and options to purchase 230,411 shares of common stock of the Company to the Option Holders upon the fulfillment of certain milestones (collectively, the "Milestone Securities"). The Milestone Securities shall be issued as follows: (i) 1,289,569 Milestone Securities shall be issued upon successful completion of a human clinical study of the first application of the Company’s eye tracking product and (ii) 1,160,613 Milestone Securities shall be issued upon the first commercial sale of the Company’s eye tracking product. The Company has agreed to file a registration statement registering the resale of the Company’s common stock issuable under the Agreement at such times and covering such amounts of shares as set forth in the Agreement. In addition to customary closing conditions, the initial closing is subject to, among other things, the following: (i) the Sellers shall have obtained a ruling from the Israeli Tax Authority, and (ii) completion of a fundraising by the Company in an amount no less than $3,000. If the initial closing does not take place prior to October 30, 2015, then the Agreement shall automatically terminate, unless otherwise agreed to in writing between the Company, IVS and its shareholder. d. The Company devotes most of its efforts toward research and development activities. As of September 30, 2015, the Company does not have sufficient capital resources to conduct its research and development activities until commercialization of the underlying products. 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. 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 August 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 August 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 August 2015 and any related balance bears interest at a rate of 3% per annum. As of September 30, 2015, the deferred payments to Can-Fite totaled $3,304. 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. 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 September 30, 2015, together with the Parent company support letters described above, will be sufficient to maintain the Company's operations for at least 12 months. |