Filed Pursuant to Rule 424(b)(3)
Registration No.: 333-216155
November 24, 2017
MEDIGUS LTD.
PROSPECTUS SUPPLEMENT NO. 4
TO PROSPECTUS DATED APRIL 3, 2017
This prospectus supplement supplements our prospectus dated April 3, 2017, or the Prospectus, relating to the offer and sale of 2,396,887 American Depositary Shares, or ADSs, representing 119,844,350 ordinary shares, par value NIS 0.10 per share, or the Ordinary Shares, which are issuable upon the exercise of outstanding Series A warrants and warrants issued to the placement agent in our public offering, or the Placement Agent Warrants, which closed on March 29, 2017, pursuant to a prospectus dated March 23, 2017.
Each Series A warrant is exercisable into one American Depository Share, or ADS, representing 50 Ordinary Shares, at an exercise price of $3.50 per ADS, collectively, the Series A Warrants. Series A Warrants are exercisable either immediately (or, at the election of the purchaser, six months following the issuance date) and until five years from the date on which they were issued. Each Placement Agent Warrant is exercisable immediately and until five years from the date on which it was issued at an exercise of $4.375 per ADS.
We will receive all of the proceeds from the exercise of the Series A Warrants and the Placement Agent Warrants, collectively the Warrants.
We will not receive any proceeds from any such sale of the ADS to be issued as a result of the exercise of the Warrants.
This prospectus supplement is being filed to include the information set forth in the Immediate Report on Form 6-K furnished on November 24, 2017, with the U.S. Securities and Exchange Commission, which is set forth below. This prospectus supplement should be read in conjunction with the Prospectus, which is to be delivered with this prospectus supplement.
The ADSs trade on The NASDAQ Capital Market, or NASDAQ, under the symbol “MDGS.” On November 22, 2017, the last reported sale price of the ADSs on NASDAQ was $ 2.23 per ADS. Our Ordinary Shares trade on the Tel Aviv Stock Exchange Ltd., or TASE, under the symbol “MDGS.” On November 23, 2017, the last reported sale price of our ordinary shares on the TASE was NIS 0.152, or $0.0432 per share (based on the exchange rate reported by the Bank of Israel on such date). There is currently no established public trading market for the Series A Warrants. The Series A Warrants are not and will not be listed for trading on any national securities exchange.
Investing in our securities involves a high degree of risk. Before investing in any of our securities, you should read the discussion of material risks in investing in our common stock. See “Risk Factors” on page 13 of the Prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
On November 24 2017, we published our unaudited condensed consolidated interim financial statements, together with our operating and financial review, as of September 30, 2017, and for the three months then ended, both of which are presented herein below.
MEDIGUS LTD.
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
AS OF SEPTEMBER 30, 2017
MEDIGUS LTD.
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
AS OF SEPTEMBER 30, 2017
TABLE OF CONTENTS
Page | |
Condensed Consolidated Financial Statements – in US Dollars ($) | |
Condensed Consolidated Statements of Financial Position (unaudited) | F-2 |
Condensed Consolidated Statements of Loss and Other Comprehensive Loss (unaudited) | F-4 |
Condensed Consolidated Statements of Changes in Equity (unaudited) | F-5 |
Condensed Consolidated Statements of Cash Flows (unaudited) | F-9 |
Notes to the Condensed Consolidated Financial Statements (unaudited) | F-11 |
MEDIGUS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
$ in thousands | ||||||||
Assets | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | 1,245 | 3,001 | ||||||
Short-term deposits | 4,538 | - | ||||||
Accounts receivables, net: | ||||||||
Trade | 88 | 21 | ||||||
Other | 292 | 366 | ||||||
Inventory | 196 | 198 | ||||||
6,359 | 3,586 | |||||||
NON-CURRENT ASSETS: | ||||||||
Inventory | 324 | 934 | ||||||
Property and equipment, net | 132 | 178 | ||||||
Intangible assets, net | 14 | 26 | ||||||
470 | 1,138 | |||||||
TOTAL ASSETS | 6,829 | 4,724 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-2 |
MEDIGUS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
$ in thousands | ||||||||
Liabilities and equity | ||||||||
CURRENT LIABILITIES - | ||||||||
Accounts payable and accruals: | ||||||||
Trade | 107 | 367 | ||||||
Other | 718 | 967 | ||||||
825 | 1,334 | |||||||
NON-CURRENT LIABILITIES: | ||||||||
Long-term advanced payments | 107 | 149 | ||||||
Warrants at fair value | 1,456 | 237 | ||||||
Retirement benefit obligation, net | 84 | 77 | ||||||
1,647 | 463 | |||||||
TOTAL LIABILITIES | 2,472 | 1,797 | ||||||
EQUITY - | ||||||||
EQUITY ATTRIBUTED TO THE OWNERS OF THE COMPANY: | ||||||||
Ordinary share capital | 4,135 | 1,189 | ||||||
Share premium | 54,720 | 53,817 | ||||||
Other capital reserves | 348 | 200 | ||||||
Warrants | 1,057 | 1,057 | ||||||
Accumulated deficit | (55,903 | ) | (53,336 | ) | ||||
TOTAL EQUITY | 4,357 | 2,927 | ||||||
TOTAL LIABILITIES AND EQUITY | 6,829 | 4,724 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-3 |
MEDIGUS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND
OTHER COMPREHENSIVE LOSS
(Unaudited)
Nine months ended | Three months ended | Year ended | ||||||||||||||||||
September 30, | September 30, | December 31, | ||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2016 | ||||||||||||||||
$ in thousands | ||||||||||||||||||||
Revenues | 313 | 496 | 117 | 136 | 549 | |||||||||||||||
Cost of revenues: | ||||||||||||||||||||
Products and services | 145 | 154 | 69 | 33 | 176 | |||||||||||||||
Inventory impairment | 297 | - | - | - | - | |||||||||||||||
Gross profit (loss) | (129 | ) | 342 | 48 | 103 | 373 | ||||||||||||||
Research and development expenses | 1,744 | 3,021 | 654 | 708 | 3,655 | |||||||||||||||
Selling and marketing expenses | 541 | 1,845 | 159 | 349 | 2,125 | |||||||||||||||
General and administrative expenses | 2,429 | 3,016 | 490 | 993 | 3,684 | |||||||||||||||
Operating loss | (4,843 | ) | (7,540 | ) | (1,255 | ) | (1,947 | ) | (9,091 | ) | ||||||||||
Profit (loss) from changes in fair value of warrants issued to investors | 2,242 | 17 | (92 | ) | 8 | 25 | ||||||||||||||
Financial income in respect of deposits and exchange rate differences | 66 | 130 | 9 | 43 | 99 | |||||||||||||||
Financial expenses in respect of bank commissions | (15 | ) | (12 | ) | (4 | ) | (3 | ) | (12 | ) | ||||||||||
Financial income (loss), net | 2,293 | 135 | (87 | ) | 48 | 112 | ||||||||||||||
Loss before taxes on income | (2,550 | ) | (7,405 | ) | (1,342 | ) | (1,899 | ) | (8,979 | ) | ||||||||||
Taxes on income | (17 | ) | (24 | ) | - | - | (28 | ) | ||||||||||||
Total comprehensive loss for the period | (2,567 | ) | (7,429 | ) | (1,342 | ) | (1,899 | ) | (9,007 | ) | ||||||||||
Basic loss per share | (0.02 | ) | (0.22 | ) | (0.01 | ) | (0.05 | ) | (0.26 | ) | ||||||||||
Diluted loss per share | (0.03 | ) | (0.22 | ) | (0.01 | ) | (0.05 | ) | (0.26 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-4 |
MEDIGUS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
Equity attributed to the owners of the Company | ||||||||||||||||||||||||||||||||
Ordinary shares | Share premium | Capital reserves from options granted | Capital reserves from transactions with controlling shareholders | Currency translation differences | Warrants | Accumulated deficit | Total equity | |||||||||||||||||||||||||
$ in thousands | ||||||||||||||||||||||||||||||||
BALANCE AS OF JANUARY 1, 2017 | 1,189 | 53,817 | 779 | 538 | (1,117 | ) | 1,057 | (53,336 | ) | 2,927 | ||||||||||||||||||||||
CHANGES DURING THE 9-MONTH PERIOD ENDED SEPTEMBER 30, 2017 - | ||||||||||||||||||||||||||||||||
TOTAL COMPREHENSIVE LOSS FOR THE PERIOD | (2,567 | ) | (2,567 | ) | ||||||||||||||||||||||||||||
TRANSACTIONS WITH SHAREHOLDERS: | ||||||||||||||||||||||||||||||||
Issuance of shares and warrants | 1,344 | 179 | 221 | 1,744 | ||||||||||||||||||||||||||||
Exercise of warrants, net | 1,602 | 626 | 2,228 | |||||||||||||||||||||||||||||
Options granted to employees and service providers | 25 | 25 | ||||||||||||||||||||||||||||||
Forfeiture and expiration of options | 98 | (98 | ) | - | ||||||||||||||||||||||||||||
TOTAL TRANSACTIONS WITH SHAREHOLDERS | 2,946 | 903 | 148 | - | - | - | - | 3,997 | ||||||||||||||||||||||||
BALANCE AS OF SEPTEMBER 30, 2017 | 4,135 | 54,720 | 927 | 538 | (1,117 | ) | 1,057 | (55,903 | ) | 4,357 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-5 |
MEDIGUS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
Equity attributed to the owners of the Company | ||||||||||||||||||||||||||||||||
Ordinary shares | Share premium | Capital reserves from options granted | Capital reserves from transactions with controlling shareholders | Currency translation differences | Warrants | Accumulated deficit | Total equity | |||||||||||||||||||||||||
$ in thousands | ||||||||||||||||||||||||||||||||
BALANCE AS OF JULY 1, 2017 | 3,990 | 54,678 | 949 | 538 | (1,117 | ) | 1,057 | (54,561 | ) | 5,534 | ||||||||||||||||||||||
CHANGES DURING THE 3-MONTH PERIOD ENDED SEPTEMBER 30, 2017 - | ||||||||||||||||||||||||||||||||
TOTAL COMPREHENSIVE LOSS FOR THE PERIOD | (1,342 | ) | (1,342 | ) | ||||||||||||||||||||||||||||
TRANSACTIONS WITH SHAREHOLDERS: | ||||||||||||||||||||||||||||||||
Issuance of shares related to warrants exercised in prior period | ||||||||||||||||||||||||||||||||
Exercise of warrants, net | 145 | 13 | 158 | |||||||||||||||||||||||||||||
Receipts on shares account | ||||||||||||||||||||||||||||||||
Options granted to employees and service providers | 7 | 7 | ||||||||||||||||||||||||||||||
Forfeiture and expiration of options | 29 | (29 | ) | - | ||||||||||||||||||||||||||||
TOTAL TRANSACTIONS WITH SHAREHOLDERS | 145 | 42 | (22 | ) | 165 | |||||||||||||||||||||||||||
BALANCE AS OF SEPTEMBER 30, 2017 | 4,135 | 54,720 | 927 | 538 | (1,117 | ) | 1,057 | (55,903 | ) | 4,357 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-6 |
MEDIGUS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
Equity attributed to the owners of the Company | ||||||||||||||||||||||||||||||||
Ordinary shares | Share premium | Capital reserves from options granted | Capital reserves from transactions with controlling shareholders | Currency | Warrants | Accumulated deficit | Total equity | |||||||||||||||||||||||||
$ in thousands | ||||||||||||||||||||||||||||||||
BALANCE AS OF JANUARY 1, 2016 | 870 | 51,990 | 697 | 538 | (1,117 | ) | 1,532 | (44,329 | ) | 10,181 | ||||||||||||||||||||||
CHANGES DURING THE 9-MONTH PERIOD ENDED SEPTEMBER 30, 2016 - | ||||||||||||||||||||||||||||||||
TOTAL COMPREHENSIVE LOSS FOR THE PERIOD | (7,429 | ) | (7,429 | ) | ||||||||||||||||||||||||||||
TRANSACTIONS WITH SHAREHOLDERS: | ||||||||||||||||||||||||||||||||
Issuance of shares and warrants | 170 | 1,025 | 1,195 | |||||||||||||||||||||||||||||
Options granted to employees and service providers | 122 | 122 | ||||||||||||||||||||||||||||||
Forfeiture and expiration of options | 93 | (93 | ) | - | ||||||||||||||||||||||||||||
TOTAL TRANSACTIONS WITH SHAREHOLDERS | 170 | 1,118 | 29 | - | - | - | - | 1,317 | ||||||||||||||||||||||||
BALANCE AS OF SEPTEMBER 30, 2016 | 1,040 | 53,108 | 726 | 538 | (1,117 | ) | 1,532 | (51,758 | ) | 4,069 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-7 |
MEDIGUS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
Equity attributed to the owners of the Company | ||||||||||||||||||||||||||||||||
Ordinary shares | Share premium | Capital reserves from options granted | Capital reserves from transactions with controlling shareholders | Currency translation differences | Warrants | Accumulated deficit | Total equity | |||||||||||||||||||||||||
$ in thousands | ||||||||||||||||||||||||||||||||
BALANCE AS OF JULY 1, 2016 | 870 | 52,080 | 703 | 538 | (1,117 | ) | 1,532 | (49,859 | ) | 4,747 | ||||||||||||||||||||||
CHANGES DURING THE 3-MONTH PERIOD ENDED SEPTEMBER 30, 2016 - | ||||||||||||||||||||||||||||||||
TOTAL COMPREHENSIVE LOSS FOR THE PERIOD | (1,899 | ) | (1,899 | ) | ||||||||||||||||||||||||||||
TRANSACTIONS WITH SHAREHOLDERS: | ||||||||||||||||||||||||||||||||
Issuance of shares and warrants | 170 | 1,025 | 1,195 | |||||||||||||||||||||||||||||
Options granted to employees and service providers | 26 | 26 | ||||||||||||||||||||||||||||||
Forfeiture and expiration of options | 3 | (3 | ) | - | ||||||||||||||||||||||||||||
TOTAL TRANSACTIONS WITH SHAREHOLDERS | 170 | 1,028 | 23 | - | - | - | - | 1,221 | ||||||||||||||||||||||||
BALANCE AS OF SEPTEMBER 30, 2016 | 1,040 | 53,108 | 726 | 538 | (1,117 | ) | 1,532 | (51,758 | ) | 4,069 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-8 |
MEDIGUS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended | Three months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
$ in thousands | ||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
Cash flows used in operations (see Appendix) | (3,809 | ) | (7,764 | ) | (1,213 | ) | (1,906 | ) | ||||||||
Income tax paid | (17 | ) | (10 | ) | - | - | ||||||||||
Net cash flow used in operating activities | (3,826 | ) | (7,774 | ) | (1,213 | ) | (1,906 | ) | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
Investment in short-term deposits | (4,538 | ) | - | 5 | - | |||||||||||
Purchase of property and equipment | - | (32 | ) | - | ||||||||||||
Purchase of intangible assets | - | (3 | ) | - | (1 | ) | ||||||||||
Net cash flow generated from (used in) investing activities | (4,538 | ) | (35 | ) | 5 | (1 | ) | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
Proceeds from issuance of shares and warrants, net | 6,513 | 1,235 | - | 1,235 | ||||||||||||
Proceeds from exercise of warrants | 11 | - | 1 | |||||||||||||
Net cash flow generated from financing activities | 6,524 | 1,235 | 1 | 1,235 | ||||||||||||
DECREASE IN CASH AND CASH EQUIVALENTS | (1,842 | ) | (6,574 | ) | (1,209 | ) | (672 | ) | ||||||||
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 3,001 | 10,312 | 2,444 | 4,488 | ||||||||||||
EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS | 84 | 130 | 8 | 52 | ||||||||||||
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD | 1,245 | 3,868 | 1,245 | 3,868 | ||||||||||||
SUPPLEMENTARY INFORMATION ON ACTIVITIES NOT INVOLVING CASH FLOWS - | ||||||||||||||||
Exercise of warrants | 2,217 | - | 157 | - | ||||||||||||
Transfer of inventory to other accounts receivables | 186 | - | - | - |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-9 |
MEDIGUS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Appendix to the condensed statements of cash flows
Nine months ended | Three months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
$ in thousands | ||||||||||||||||
Net used in operations: | ||||||||||||||||
Loss for the period before taxes on income | (2,550 | ) | (7,405 | ) | (1,342 | ) | (1,899 | ) | ||||||||
Adjustment in respect of: | ||||||||||||||||
Retirement benefit obligation, net | 7 | 3 | - | - | ||||||||||||
Inventory impairment | 297 | - | - | - | ||||||||||||
Depreciation | 46 | 64 | 15 | 23 | ||||||||||||
Amortization of intangible assets | 12 | 15 | 3 | 4 | ||||||||||||
Exchange differences on cash and cash equivalents | (84 | ) | (130 | ) | (8 | ) | (52 | ) | ||||||||
Amounts charged in respect of options granted to employees and service providers | 25 | 122 | 7 | 26 | ||||||||||||
Loss (profit) on change in the fair value of warrants issued to investors | (2,242 | ) | (17 | ) | 92 | (8 | ) | |||||||||
Issuance expenses which were attributed to the warrants classified as a financial liability and charged directly to profit or loss | 908 | - | - | - | ||||||||||||
Changes in operating asset and liability items: | ||||||||||||||||
Decrease (increase) in accounts receivables: | ||||||||||||||||
Trade | (67 | ) | (4 | ) | (66 | ) | 30 | |||||||||
Other | 260 | 376 | 35 | 159 | ||||||||||||
Increase (decrease) in accounts payable: | ||||||||||||||||
Trade | (260 | ) | (47 | ) | (10 | ) | 45 | |||||||||
Other payables and long-term advanced payments | (290 | ) | 18 | (155 | ) | (204 | ) | |||||||||
Increase (decrease) in inventory | 129 | (759 | ) | 216 | (30 | ) | ||||||||||
Net cash used in operations activities | (3,809 | ) | (7,764 | ) | (1,213 | ) | (1,906 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-10 |
MEDIGUS LTD.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - GENERAL:
a. | General |
Medigus Ltd. (the “Company” or with its subsidiary - the “Group”) was incorporated in Israel on December 9, 1999. The address of its registered office is P.O. Box 3030, Omer, 8496500.
The Group is a medical device group specializing in developing innovative endoscopic procedures and devices. To date most of the Group’s research and development activities have been focused in developing and manufacturing of the MUSE endoscopy system (hereinafter - “MUSE”), a FDA approved system, for the treatment of gastroesophageal reflux disease (GERD). In addition, the Group uses the technological platform it developed for the purpose of additional special systems and products that are suitable for both medical and industrial applications.
To date, the Company continues negotiations to market the MUSE endoscopy system, together with marketing and selling miniature cameras and related equipment.
The Company’s shares are listed on the Tel Aviv Stock Exchange Ltd. (“TASE”) and as of May 20, 2015, the Company’s American Depository Shares (ADSs) evidenced by American Depositary Receipts (ADRs) are listed on the NASDAQ Capital Market.
b. | During the nine months period ended September 30, 2017, the Group incurred a total comprehensive loss of $2.6 million and negative cash flows from operating activities of $3.8 million. As of September 30, 2017, the Group had accumulated losses of $55.9 million. Based on the projected cash flows and its cash balances as of September 30, 2017, the Group’s Management is of the opinion that without further fund raising it will not have sufficient resources to enable it to continue its operating activities including the development, manufacturing and marketing of its products for a period of at least 12 months from the date of approval of these financial statements. As a result, there is substantial doubt about the Group’s ability to continue as a going concern. |
Management’s plans include the continued commercialization of their products and securing sufficient financing through the sale of additional equity securities, debt or capital inflows from strategic partnerships. There are no assurances however, that the Group will be successful in obtaining the level of financing needed for its operations. If the Group is unsuccessful in commercializing its products and securing sufficient financing, it may need to reduce activities, curtail or cease operations.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and the amounts and classification of liabilities that might be necessary should the Group be unable to continue as a going concern.
NOTE 2 - BASIS FOR PREPARATION OF THE CONDENSED FINANCIAL STATEMENTS:
a. | The Group’s condensed consolidated financial information as of September 30, 2017, and for the nine-month and three-month interim periods ended on that date (hereinafter-“the interim financial information”) has been prepared in accordance with the guidance of IAS 34 ‘Interim Financial Reporting’ (hereafter – “IAS 34”). The interim financial information does not include all of the information and disclosures required in annual financial statements. These financial statements are unaudited but in the opinion of management reflect all adjustments that are of a normal recurring nature that are considered necessary for a fair statement of the result of operations. The interim financial information should be read in conjunction with the 2016 annual financial statements and its accompanying notes, which are in compliance with International Financial Reporting Standards (hereinafter – “IFRS”), which are standards and interpretations issued by the International Accounting Standards Board. Interim results are not indicative of future or full year results. The financial statements were approved on November 23, 2017. |
b. | Estimates |
The preparation of interim financial statements requires the Group’s management to exercise judgment and also requires use of accounting estimates and assumptions that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates.
In the preparation of these interim financial statements, the significant judgments exercised by management in the application of the Group’s accounting policies and the uncertainty involved in the key sources of those estimates were identical to the ones used in the Group’s annual financial statements for the year ended December 31, 2016.
F-11 |
MEDIGUS LTD.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - BASIS FOR PREPARATION OF THE CONDENSED FINANCIAL STATEMENTS(continued):
c. | New international financial reporting standards, amendments to standards and new interpretations: |
Standards, amendments and interpretations to existing standards which are not yet effective and have not been early adopted by the Group:
a. | International Financial Reporting Standard 15 “Revenues from Contracts with Customers” (hereinafter – IFRS 15). |
IFRS 15 will replace, on its first implementation, the directives on the subject of recognizing revenues existing today under International Financial Reporting Standards.
The core principle of IFRS 15 is that revenues from contracts with customers must be recognized in a way that reflects the transfer of control of goods or services supplied to customers in the framework of the contracts by amounts which reflect the proceeds that the entity expects that it will be entitled to receive for those goods or services.
IFRS 15 sets forth a single model for recognizing revenues, according to which the entity will recognize revenues according to the said core principle by implementing five stages:
(1) | Identifying the contract(s) with the customer. |
(2) | Identifying the separate performance obligations in the contract. |
(3) | Determining the transaction price. |
(4) | Allocating the transaction price to separate performance obligations in the contract. |
(5) | Recognizing revenue when (or as) each of the performance obligations is satisfied. |
The Standard will be implemented as from annual periods starting January 1, 2018. The Group assessed that the impact of the adoption of the new revenue standards on its consolidated financial statements will not be significant.
b. | International Financial Reporting Standard 9 “Financial Instruments” (hereinafter – “IFRS 9” or “the Standard”): |
IFRS 9 deals with the classification, measurement and recognition of financial assets and financial liabilities. The full version of IFRS 9 was published in July 2014. This Standard replaces the present existing directives in International Accounting Standard 39 “Financial Instruments: Recognition and Measurement” (hereinafter IAS 39) regarding the classification and measurement of financial instruments. IFRS 9 leaves the measurement model connected with measuring financial assets, but simplifies it and sets forth three main categories: amortized cost, fair value through other comprehensive income and fair value through profit or loss. The classification is based on the business model of the entity and on characteristics of the contractual cash flows of the financial asset. Investments in capital instruments will be measured at fair value through profit or loss. Nevertheless, the entity’s management can choose, on the date of initial recognition, irrevocably, to present the changes in fair value of an investment in a capital instrument in other comprehensive income, without recycling them to profit or loss.
The Standard presents a new model for an impairment of financial instruments, based on the Expected Credit Loss Model. This model replaces the existing model in IAS 39, which is based on the Incurred Loss Model. The new impairment model requires the recognition of impairment provisions based on expected credit losses (ECL) rather than only incurred credit losses as is the case under IAS 39. It applies to financial assets classified at amortised cost, debt instruments measured at fair value in other comprehensive income and contract assets under IFRS 15 Revenue from Contracts with Customers. While the group has not yet undertaken a detailed assessment of how its impairment provisions would be affected by the new model, it may result in an earlier recognition of credit losses.
Regarding classification and measurement of financial liabilities, there were no changes, excluding the recognition of changes in the fair value of liabilities designated to the fair value through “profit or loss” category, resulting from the entity’s own credit risk, in other comprehensive income.
The Standard will be implemented retrospectively as from annual periods starting January 1, 2018. According to the provisions of IFRS 9 it may be implemented earlier. The Group is examining the expected effect of IFRS 9 on its financial statements.
F-12 |
MEDIGUS LTD.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES:
The accounting policies adopted in the preparation of the interim financial information are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended December 31, 2016.
NOTE 4 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT:
Estimates of fair value
The following is an analysis of the financial instruments measured at fair value, according to valuation methods that are similar to the methods described in the annual financial statements. Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).
The following table presents the group’s financial liabilities measured at fair value, net of unrecognized Day 1 Loss:
September 30, 2017 | December 31, 2016 | ||||||||
$ in thousands | |||||||||
Fair value of warrants | 1,952 | 237 | |||||||
Unrecognized Day 1 Loss | (496 | ) | - | ||||||
Fair value of warrants, net | 1,456 | 237 |
NOTE 5 - INVENTORY:
Composed as follows:
September 30, 2017 | December 31, 2016 | ||||||||
$ in thousands | |||||||||
Current assets: | |||||||||
Work in progress | 187 | 128 | |||||||
Finished goods | 9 | 70 | |||||||
196 | 198 | ||||||||
Non-current assets: | |||||||||
Raw materials and supplies | 428 | 829 | |||||||
Work in progress | 116 | 66 | |||||||
Finished goods | 77 | 39 | |||||||
Provision for impairment | (297 | ) | - | ||||||
324 | 934 |
NOTE 6 - EARNINGS PER SHARE:
Basic net loss per share is computed by dividing net loss attributable to ordinary shareholders of Medigus Ltd. by the weighted average number of shares outstanding for the reporting periods.
Diluted net loss per share is computed by dividing the basic net loss per share including adjustment of the dilutive effect of the Company’s revaluation of warrants, by the weighted-average number of ordinary shares and the potential dilutive ordinary shares outstanding during the period. Diluted shares outstanding include the dilutive effect of in-the-money options using the treasury stock method and presumed share settlement of the Company’s deferred payments liability.
F-13 |
MEDIGUS LTD.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 - EARNINGS PER SHARE(continued):
The following table presents the numerator and denominator of the basic and diluted net loss per share computations for the three and nine months ended September 30, 2017 and 2016:
Nine months ended | Three months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
$ in thousands, except per share amounts | ||||||||||||||||
Numerator: | ||||||||||||||||
Net loss attributable to Medigus Ltd. for basic loss per share | (2,567 | ) | (7,429 | ) | (1,342 | ) | (1,899 | ) | ||||||||
Adjustment of revaluation of warrants issued to investors | (476 | ) | - | - | - | |||||||||||
Net loss attributable to Medigus Ltd. for diluted loss | (3,043 | ) | (7,429 | ) | (1,342 | ) | (1,899 | ) | ||||||||
Denominator: | ||||||||||||||||
Weighted average shares – denominator for basic net loss per share | 111,865 | 33,369 | 150,247 | 36,100 | ||||||||||||
Shares settlement presumed for warrants issued to investors | 5,355 | - | - | - | ||||||||||||
Denominator for diluted loss per share | 117,220 | 33,369 | 150,247 | 32,047 | ||||||||||||
Net loss per share attributable to Medigus Ltd. | ||||||||||||||||
Basic | (0.02 | ) | (0.22 | ) | (0.01 | ) | (0.05 | ) | ||||||||
Diluted | (0.03 | ) | (0.22 | ) | (0.01 | ) | (0.05 | ) |
NOTE 7 - TRANSACTIONS WITH RELATED PARTIES:
Compensation to key management personnel for employment services which were provided to the Group (including stock based compensation) in the nine-month and three-month periods ended September 30, 2017 was $407 thousand and $142 thousand, respectively (in the nine-month and three-month periods ended September 30, 2016 - $282 thousand and $55 thousand), respectively.
NOTE 8 - EQUITY:
a) | On March 15, 2017, the Group effected a change in the ratio of ordinary shares per ADS from 5 ordinary shares per ADS to 50 ordinary shares per ADS. The change in the ordinary shares ratio for the ADSs had the same effect as a 1-for-10 reverse stock split of the ADSs. |
b) | On March 28, 2017, the Company allotted in a public issue, a total of 48,985,700 ordinary shares of the Company, a total of 2,142,858 warrants (Series A) for the purchase of an additional 107,142,900 shares and a total 1,163,144 warrants (Series B) for the purchase of an additional 58,157,200 shares for total cash consideration of approximately $7.5 million. Each warrant (Series A) is exercisable into 50 ordinary shares of the Company at an exercise price of $3.50 per warrant during the five years following the allotment. Each warrant (Series B) is exercisable into 50 ordinary shares of the Company at an exercise price of $0.01 per warrant during the five years following the allotment. |
Series A warrants and Series B warrants may, under certain circumstances, also be exercised via a cashless exercise mechanism, whereby the number of shares the value of which equals the exercise premium in cash will be deducted from the number of shares to be issued upon exercise of the warrant. In addition, the number of warrants outstanding will be adjusted for certain events specified in the warrant agreement.
F-14 |
MEDIGUS LTD.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 - EQUITY(continued):
To the placement agent on this offering the Company issued 150,000 warrants. Each warrant is exercisable into 50 shares in consideration for an exercise price of $4.375 per warrant during the 5 years following the allotment. The warrants may, under certain circumstances, also be exercised via a cashless exercise mechanism.
These warrants are classified as financial liabilities measured at fair value through profit or loss at each reporting period, as the warrants may be net share settled. The warrants are initially recognized at fair value adjusted to defer the difference between the fair value at initial recognition and the transaction price (“Day 1 profit or loss”), as the Company uses valuation techniques that incorporate data not obtained from observable markets. Transaction costs allocated to the warrants are recognized immediately in profit or loss.
Unrecognized Day 1 profit or loss is amortized over the life of the instrument. Any unrecognized Day 1 profit or loss is immediately recognized in income statement if fair value of the financial instrument in question can be determined either by using only market observable model inputs or by reference to a quoted price for the same product in an active market.
Upon exercise, the carrying amount of the warrants (which is presented net of the related unrecognized Day 1 profit or loss, if any) is reclassified to equity with no impact on profit or loss.
Net proceeds from the issuance, net of cash issuance expenses, amounted to approximately $6.5 million. Issuance expenses were attributed to equity and liability in proportion with the allocation of the proceeds.
The warrants are presented as non-current liabilities, as cash settlement is not required.
During March 2017, 130,000 warrants (Series B) were exercised. Accordingly, 6,500,000 ordinary shares of the Company were allotted.
During the second quarter of 2017, 929,155 warrants (Series B) were exercised. Accordingly, 46,455,750 ordinary shares of the Company were allotted.
During the third quarter of 2017, 104,029 warrants (Series B) were exercised. Accordingly, 5,201,450 ordinary shares of the Company were allotted.
Medigus Ltd.
Operating and Financial Review as of September 30, 2017, and for the Nine Months and Three Months then Ended
The information contained in this section should be read in conjunction with (1) our unaudited condensed consolidated interim financial statements as of September 30, 2017, and for the nine months and three months then ended and related notes included in this report and (2) our audited consolidated financial statements and related notes for the year ended December 31, 2016, which appears in our Form 20-F filed with the Securities and Exchange Commission on March 31, 2017, or the annual report, and the other information contained in such annual report. Factors that could cause our actual results in the future to differ from our expectations or projections include the risks and uncertainties relating to our business described in our annual report under the heading “Risk Factors.”
Revenues for the three months ended September 30, 2017, were $117 thousand, a decrease of 14%, compared to the three months ended September 30, 2016. This decrease was primarily due to a decrease in sales to National Aeronautics and Space Administration (NASA) in the amount of approximately $95 thousand during the three months period ended September 30, 2017. Revenues for the nine month ended September 30, 2017, were $313 thousand, a decrease of 37%, compared to the nine months ended September 30, 2016. This decrease was primarily due to a decrease in sales to National Aeronautics and Space Administration (NASA) in the amount of approximately $238 thousand and to one of Israel's leading industrial companies in the amount of approximately $118 thousand during the nine months period ended September 30, 2016.
Gross profit for the three months ended September 30, 2017, was $48 thousand, a decrease of $55 thousand, compared to $103 thousand gross profit for the three months ended September 30, 2016. This decrease was primarily due to the decrease in the company revenues during the three months ended September 30, 2017. Gross loss for the nine months ended September 30, 2017, was $129 thousand, a decrease of $471 thousand, compared to $342 thousand gross profit for the nine months ended September 30, 2016. This decrease was primarily due to an inventory impairment of $297 thousand and a decrease on revenues as described above.
Research and development expenses for the three months ended September 30, 2017, were $654 thousand, a decrease of 8%, compared to the three months ended September 30, 2016. The decrease resulted primarily due to a cost reduction program, which was implemented since the third quarter of 2016, partly offset by one time charges of materials of $202 thousand. Research and development expenses for the nine months ended September 30, 2017, were $1,744 thousand, a decrease of 42%, compared to the nine months ended September 30, 2016. The reason for the decrease is similar to the one discussed above in the three-month comparison.
Sales and marketing expenses for the three months ended September 30, 2017, were $159 thousand, a decrease of 54%, compared to the three months ended September 30, 2016. The decrease resulted primarily due to a cost reduction program, which was implemented since the third quarter of 2016. Sales and marketing expenses for the nine months ended September 30, 2017, were $541 thousand, a decrease of 71%, compared the nine months ended September 30, 2016. The reason for the decrease is similar to the one discussed above in the three-month comparison.
General and administrative expenses for the three months ended September 30, 2017, were $490 thousand, a decrease of 51% compared to the three months ended September 30, 2016. This decrease resulted primarily due to a decrease in professional fees expenses and the cost reduction program which was implemented by the Company since the third quarter of 2016. General and administrative expenses for the nine months ended September 30, 2017, were $2,429 thousand, a decrease of 20%, compared to the nine months ended September 30, 2016. The reason for the decrease is similar to the one discussed above in the three-month comparison.
Operating loss for the three months ended September 30, 2017, was $1,255 thousand, compared to $1,947 thousand in the three months ended September 30, 2016. Operating loss for the nine months ended September 30, 2016, was $4,843 thousand, compared to $7,540 thousand in the nine months ended September 30, 2016. The decrease in operating loss was due to all of the reasons described above.
Loss from changes in fair value of warrants issued to investors for the three months ended September 30, 2017, was $92 thousand, a decrease of $100 thousands compared to the three months ended September 30, 2016. This decrease, as of September 30, 2017, resulted primarily due to changes in warrants fair value, as well as warrants exercises. Profit from changes in fair value of warrants issued to investors for the nine months ended September 30, 2017, were $2,242 thousand, an increase of $2,225 thousand, compared to the nine months ended September 30, 2016. The reason for the increase is primarily due to changes in warrants fair value.
The Company held $ 5.8 million in cash and cash equivalents and short term deposits as of September 30, 2017.
Net cash used in operating activities was $1.2 million for the three months ended September 30, 2017, compared to net cash used in operating activities of $1.9 million for the corresponding 2016 period. The $0.7 million decrease in net cash used in operating activities was primarily due to a cost reduction program which was implemented by the Company since the third quarter of 2016. Net cash used in operating activities was $3.8 million for the nine months ended September 30, 2017, compared to net cash used in operating activities of $7.8 million for the corresponding 2016 period. The $4.0 million decrease in net cash used in operating activities during the nine-month period in 2017, compared to the nine-month period in 2016 is similar to the one discussed above in the three-month comparison.