| SIGNIFICANT ACCOUNTING POLICIES | NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES
a. Basis of presentation The
Company’s audited consolidated financial statements as of December 31, 2020 and 2019, and for each of the years in the three-year
period ended December 31, 2020, have been prepared in conformity with accounting principles generally accepted in the United States
(“ U.S. GAAP The
financial statements have been prepared on the basis of historical cost, subject to adjustment of financial assets and liabilities
to their fair value through profit or loss. The Company classifies its expenses on the statement of comprehensive loss based on
the operating characteristics of such expenses.
b. Use of estimates The
preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions,
it also requires that management exercise its judgment in applying the Company’s accounting policies. The Company’s
management believes that the estimates, judgments and assumptions used were reasonable based upon information available at the
time they were 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 in the statements
of operations during each reporting period. Actual results could differ materially from those estimates.
c. Functional currency and translation to the reporting currency The
functional currency of the Company is the New Israeli Shekel (“ NIS The
financial statements of the Company were translated into U.S. dollars in accordance with ASC 830, “Foreign Currency
Matters”. Accordingly, assets and liabilities were translated from local currencies to U.S. dollars using year end
exchange rates, equity items were translated at the exchange rates of the date of the equity transaction, and income and
expense items were translated at average exchange rates during the year. Gains
or losses resulting from translation adjustments (which result from translating an entity’s financial statements into U.S.
dollars if its functional currency is different than the U.S. dollar) are reported in other comprehensive income (loss). Balances
denominated in, or linked to foreign currency are stated on the basis of the exchange rates prevailing at the balance sheet date.
For foreign currency transactions included in the statement of income, the exchange rates applicable on the relevant transaction
dates are used. Transaction gains or losses arising from changes in the exchange rates used in the translation of such balances
are carried to financing income or expenses as applicable. The
following table presents data regarding the U.S. dollar exchange rate:
2020 2019 2018
At December 31, 1 U.S. $ = NIS 3.215 NIS 3.456 NIS 3.748
Increase (decrease) during the year (7.0 )% (7.8 )% 8.1 %
Average yearly exchange rates NIS 3.442 NIS 3.564 NIS 3.595
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. Restricted cash: Amounts
included in restricted cash are held in interest bearing saving accounts, represent cash amounts required to be set aside by a
contractual agreement for the rental of the Company’s premises and for credit cards and cash amounts required to be set
aside by other contractual agreements.
f. Property and equipment Property
and equipment are stated at historical cost less depreciation. Assets are depreciated using the straight-line method over the
estimated useful lives of the assets. The annual depreciation rates are as follows:
%
Computers 33
Office furniture and equipment 7
Leasehold improvements 16.67
Laboratory equipment 15-33
g. Impairment of non-financial assets The
long-lived assets of the Company are reviewed for impairment in accordance with ASC 360, “Property, Plant, and Equipment”,
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the carrying amount of an asset with the future undiscounted cash
flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During the years 2020,
2019, and 2018, no impairment losses were identified.
h. Leases In
accordance with ASU No. 2016-02, Leases (Topic 842), right-of-use (“ ROU Because
most of the Company’s leases do not provide an implicit interest rate, the Company uses its estimated incremental borrowing
rate to determine the present value of lease payments. Lease expenses for operating lease payments are recognized on a straight-line
basis over the lease term, and the related ROU assets and liabilities are reduced to the present value of the remaining lease
payments at the end of each period. Short-term leases (with a term of 12 months or less) are not recorded as ROU assets or liabilities
in the consolidated balance sheets. The Company’s lease agreements include rental payments that adjust periodically for
inflation and do not contain any material residual value guarantees or material restrictive covenants.
i. Stock-based compensation The
Company accounts for equity-based compensation awards to employees, directors and nonemployees based on the grant date fair value
of those awards. The Company estimates the fair value of stock options using the Black-Scholes option pricing model. Forfeitures
are recognized as they occur. The
option pricing model requires a number of assumptions. Until the closing of the Merger, there was no market for the Company’s
Ordinary Shares, consequently the Company utilized third-party valuations to estimate the fair value of its Ordinary Shares. For
the estimation of the expected volatility of the Company’s share price, the Company used the historical volatility of comparable
companies in the industry with characteristics similar to the Company, including stage of product development and focus on the
life science industry. The expected term of options granted represents the period of time that options granted are expected to
be outstanding, the company uses management’s estimates for the expected term of options due to insufficient readily available
historical exercise data. The risk-free interest rate is based on the yield rates of U.S. Government Treasury Bonds with an equivalent
term. The Company has historically not paid dividends and has no foreseeable plans to pay dividends.
j. Employee benefits The
Company is required by Israeli law to make severance payments to Israeli employees upon their dismissal or termination of employment
in certain circumstances. The Company operates a number of post-employment defined contribution plans. A defined contribution
plan is a program that benefits an employee after termination of employment, under which the Company regularly makes fixed payments
to a fund administered by a separate and independent entity so that the Company has no legal or constructive obligation to pay
additional contributions if such fund does not contain sufficient assets to pay all employees the benefits to which they may be
entitled relating to employee service in the current and prior periods. The fund assets are not included in the Company’s
consolidated balance sheets. The Company operates pension and severance compensation plans subject to Section 14 of the Israeli
Severance Pay Law. The plans are funded through payments to insurance companies or pension funds administered by trustees. In
accordance with its terms, the plans meet the definition of a defined contribution plan. Short
term employee benefits - Labor laws in Israel entitle every employee to vacation days, paid sick leave and recreation pay, computed
annually. The Company recognizes a liability and an expense in respect of vacation and recreation pay based on the individual
entitlement of each employee.
k. Revenue Recognition The
Company has not yet generated any revenue from product sales or otherwise.
l. Research and development expenses, net Research
and development expenses include costs directly attributable to the conduct of research and development programs, including the
cost of salaries, share-based compensation expenses, payroll taxes and other employee benefits, subcontractors and materials used
for research and development activities, including clinical trials, manufacturing costs, consulting fees and facilities and overhead
costs. All costs associated with research and developments are expensed as incurred. As of December 31, 2020, the Company had
not yet capitalized development expenses. Grants
received from Israel Innovation Authority, Ministry of Industry, Trade and Labor (the “ IIA
m. General and administrative General
and administrative expenses consist of compensation and related benefits, including stock-based compensation, for executive and
corporate personnel; professional and consulting fees; and allocated overhead such as facilities and equipment rent and maintenance,
insurance costs allocated to general and administrative expenses, costs of patent applications, maintenance, depreciation expense,
marketing costs, and other miscellaneous expenses which are allocated to general and administrative expense.
n. Patents The
Company expenses all costs associated with patents for product candidates under development as incurred. As a result of the Company’s
research and development efforts, the Company is applying for a number of patents to protect proprietary technology and inventions.
To date, the Company has not capitalized patent costs. The Company recorded a charge to operations of approximately $374 thousand,
$120 thousand and $242 thousand for the years ended December 31, 2020, 2019 and 2018, respectively, related to patent costs.
o. Income taxes The
Company accounts for income taxes in accordance with ASC 740-10 “Accounting for Income Taxes”. This Statement requires
the use of the liability method of accounting for income taxes, whereby deferred tax asset and liability account balances are
determined based on the 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. As
the Company is currently engaged primarily in development activities and is not expected to generate taxable income in the foreseeable
future, the Company provides a valuation allowance, to reduce deferred tax assets to their estimated realizable value. ASC
740 contains a two-step approach to recognizing and measuring a liability for 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 benefit as the largest amount
that is more than 50% likely to be realized upon ultimate settlement. As of December 31, 2020, the Company recorded a liability
of $682 thousand for uncertain tax positions. The Company does not expect that the amounts of uncertain tax positions will change
significantly within the next year.
p. Loss per share Basic
loss per share is calculated based on the weighted average number of ordinary shares outstanding during each year. Diluted net
loss per share is calculated based on the weighted average number of ordinary shares outstanding during each year, plus dilutive
potential shares in accordance with ASC 260, “Earnings per Share.” All
outstanding preferred stock, options and warrants for the years ended December 31, 2020, 2019 and 2018 have been excluded from
the calculation of the diluted net loss per share because all such securities are anti-dilutive for all years presented. For the
years ended December 31, 2020, 2019 and 2018, the total weighted average number of shares related to outstanding potential shares
excluded from the calculations of diluted net loss per share was 3,526,214, 3,247,127 and 8,638,789, respectively. The following
data show the amounts used in computing income (loss) per share and the effect on income (loss):
Year ended December 31,
(in
thousands except share and per share data) 2020 2019 2018
Basic and diluted (loss)
per share:
(Loss) from continuing operations $ (11,824 ) $ (9,384 ) $ (4,242 )
Interest of 6% to Cumulative Preferred Stock - (198 ) (659 )
$ (11,824 ) $ (9,582 ) $ (4,901 )
Number of common shares at the beginning of the year 10,334,126 3,509,405 3,509,344
Weighted average number of shares issued for cash 2,603,763 518,295 -
Weighted average number of shares issued in connection with the merger - 322,617 -
Weighted average number of stock options exercised 21,749 80,073 2
Weighted average number of warrants exercised 209,570 15,609 -
Weighted average number of shares issued in connection with conversion of Preferred Shares - 4,203,487 -
Number of shares used in per share computation 13,169,208 8,649,486 3,509,346
Basic and diluted net (loss) per share $ (0.90 ) $ (1.11 ) $ (1.40 )
q. Concentrations of credit risk: Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents,
restricted cash and cash held with respect to CVR Agreement (as defined in Note 8). Cash
and cash equivalents and restricted cash are invested in major banks in Israel. Cash held with respect to CVR Agreement is deposited
in a trust account with a private investment house. Such deposits in Israel are not insured. Management believes that the financial
institutions that hold the Company’s investments are financially sound and, accordingly, minimal credit risk exists with
respect to these investments. The
Company has no foreign exchange contracts or any other hedging arrangements.
r. Fair value of financial instruments The
Company applies ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), pursuant to which fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”)
in an orderly transaction between market participants at the measurement date. ASC
820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes
the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs
that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent
of the Company. The
financial instruments presented on the balance sheet at fair value are grouped into classes with similar characteristics using
the following fair value hierarchy which is determined based on the source of input used in measuring fair value: Level
1 - quoted prices (unadjusted) in active markets for identical assets or liabilities. Level
2 - inputs other than quoted prices included within level 1 that are observable either directly or indirectly. Level
3 - inputs that are not based on observable market data (valuation techniques which use inputs that are not based on observable
market data). The Company’s warrants, exercised to ordinary shares prior to the Merger in 2019, were classified as level
3 in the fair value hierarchy and measured at fair value on a recurring basis.
s. Comprehensive income (loss) Comprehensive
loss is the change in shareholders’ equity from transactions and other events and circumstances other than those resulting
from investments by shareholders and distributions to shareholders. The
Company accounts for comprehensive income (loss) in accordance with ASC 220, “Comprehensive Income”. This statement
establishes standards for the reporting and display of comprehensive income (loss) and its components in a full set of general-purpose
financial statements. The
Company’s other comprehensive income (loss) is currently comprised of gains or losses resulting from translation adjustments
which result from translating the Company’s financial statements into U.S. dollars when its functional currency is different
than the U.S. dollar.
t. Reclassification Certain
comparative figures have been reclassified to conform to the current year presentation. Such reclassifications did not have
any significant impact on the Company’s equity, net income or cash flows.
u. Recently Issued Accounting Standards In
December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU
2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes
certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent
application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial
statements and related disclosures, the adoption of this ASU is not expected to have a material impact on its consolidated financial
statements. In
March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), which provides optional guidance to ease the potential
burden in accounting due to reference rate reform. The guidance in this update provides optional expedients and exceptions for
applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria
are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected
to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to
contract modifications made and hedging relationships entered into on or before December 31, 2022. The adoption of this ASU is
not expected to have a material impact on the Company’s consolidated financial statements.
v. Recently Adopted Accounting Standards In
August 2018, the Financial Accounting Standards Board (“ FASB In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes FASB ASC Topic 840, Leases (Topic 840) and
provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The
new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the
principle of whether or not the lease is effectively a financed purchase by the lessee. This classification determines whether
lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively.
A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve
months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance
for operating leases. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption
permitted upon issuance. The Company adopted this standard on January 1, 2019. |
