☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2023 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ |
☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Israel | 65 Yigal Alon St., Tel Aviv 6744316, Israel Tel: +972 3 7177050 | |
(Jurisdiction of incorporation or organization) | (Address of principal executive offices) |
Title of each class to be registered | Trading Symbol(s) | Name of each exchange on which each class is to be registered | ||
Ordinary shares, par value NIS 0.3 per share | PRFX | The Nasdaq Stock Market LLC |
Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☒ | ||||
Emerging Growth Company ☒ |
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A. | [RESERVED] | 3 |
B. | Capitalization and Indebtedness | 3 |
C. | Reasons for the Offer and Use of Proceeds | 3 |
D. | Risk Factors | 3 |
32 | ||
A. | History and Development of the Company | 32 |
B. | Business Overview | 33 |
C. | Organizational Structure | 48 |
D. | Property, Plants and Equipment | 48 |
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A. | Operating Results | 52 |
B. | Liquidity and Capital Resources | 54 |
C. | Research and Development, Patents and Licenses | 58 |
D. | Trend Information | 58 |
E. | Critical Accounting Estimates | 59 |
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A. | Directors and Senior Management | 60 |
B. | Compensation | 62 |
C. | Board Practices | 64 |
D. | Employees | 76 |
E. | Share Ownership | 76 |
F | Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation | 77 |
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A. | Major Shareholders | 77 |
B. | Related Party Transactions | 79 |
C. | Interests of Experts and Counsel | 80 |
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A. | Consolidated Statements and Other Financial Information | 80 |
B. | Significant Changes | 81 |
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A. | Offer and Listing Details | 81 |
B. | Plan of Distribution | 81 |
C. | Markets | 81 |
D. | Selling Shareholders | 81 |
E. | Dilution | 81 |
F. | Expenses of the Issue | 81 |
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A. | Share Capital | 81 |
B. | Articles of Association | 81 |
C. | Material Contracts | 81 |
D. | Exchange Controls | 82 |
E. | Taxation | 82 |
F. | Dividends and Paying Agents | 91 |
G. | Statement by Experts | 91 |
H. | Documents on Display | 91 |
I. | Subsidiary Information | 91 |
J. | Annual Report to Security Holders. | 91 |
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A. | Debt Securities | 92 |
B. | Warrants and rights | 92 |
C. | Other Securities | 92 |
D. | American Depositary Shares | 92 |
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● | our ability to continue as a going concern; | |
● | our history of losses and need for additional capital to fund our operations, and our ability to obtain additional capital on acceptable terms, or at all; |
● | our dependence on the success of our initial product candidate, PRF-110; |
● | the outcomes of preclinical studies, clinical trials and other research regarding PRF-110 and future product candidates; |
● | our limited experience managing clinical trials; |
● | our ability to retain key personnel and recruit additional employees; |
● | our reliance on third parties for the conduct of clinical trials, product manufacturing and development; |
● | the impact of competition and new technologies; |
● | our ability to comply with regulatory requirements relating to the development and marketing of our product candidates; |
● | our ability to establish and maintain strategic partnerships and other corporate collaborations; |
● | the implementation of our business model and strategic plans for our business and product candidates; |
● | the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and our ability to operate our business without infringing the intellectual property rights of others; |
● | the overall global economic environment; |
● | our ability to develop an active trading market for our ordinary shares and whether the market price of our ordinary shares is volatile; |
● | statements as to the impact of the political and security situation in Israel on our business, including due to the current war between Israel and Hamas; and |
● | those factors referred to in “Item 3.D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and Financial Review and Prospects”, as well as in this Annual Report on Form 20-F generally. |
A. | [RESERVED] |
B. | Capitalization and Indebtedness |
C. | Reasons for the Offer and Use of Proceeds |
D. | Risk Factors |
● | The report of our independent registered public accounting firm contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern; |
● | We have incurred significant losses and negative cash flows from operations since our inception and expect to incur losses for the foreseeable future. We may never achieve or maintain profitability; |
● | Our limited operating history may make it difficult for you to assess our future viability. We have never generated revenues and may never be profitable; |
● | We will need substantial additional funding, which may not be available to us on acceptable terms or at all. If we are unable to raise capital when needed, we may be forced to delay, reduce and/or eliminate our research and drug development programs or future commercialization efforts; and |
● | Raising additional capital may cause dilution to our shareholders, restrict our operations or require us to relinquish rights to our product candidates. |
● | We are dependent on the success of our initial product candidate, PRF-110, which is currently in a Phase 3 clinical trial, and future additional trials are currently planned. Our clinical trials of PRF-110 may not be successful. If we are unable to obtain approval for and commercialize PRF-110, or experience significant delays in doing so, our business will be materially harmed; |
● | We have experienced delays in the manufacturing of our clinical trial batches and if we experience further delays, our business may be further harmed; |
● | We are dependent on a single supplier from which we obtain some of our critical materials and components used in the manufacturing of PRF-110; |
● | We have not yet commercialized any products or technologies, and we may never become profitable; |
● | If we are unable to successfully complete our clinical trial programs for PRF-110, or if such clinical trials take longer to complete than we project, our ability to execute our current business strategy will be adversely affected; |
● | We have limited experience in conducting and managing clinical trials necessary to obtain regulatory approvals. If our drug candidates and technologies do not receive the necessary regulatory approvals, we will be unable to commercialize our products; |
● | If third parties on which we will have to rely for clinical trials do not perform as contractually required or as we expect, we may not be able to obtain regulatory approval for or commercialize our products; and |
● | If our competitors develop and market products that are less expensive or more effective than our product, our revenues and results may be harmed and our commercial opportunities may be reduced or eliminated; |
● | If we are unable to maintain patent protection for our products, our competitors could develop and commercialize products and technology similar or identical to our product candidates, and our ability to successfully commercialize any product candidates we may develop, and our science may be adversely affected. |
● | Conditions in the Middle East and in Israel may harm our operations. |
● | Our international clinical trials may be delayed or otherwise adversely impacted by social, political and economic factors affecting the particular foreign country. |
● | If we fail to regain compliance with the Nasdaq minimum listing requirements, our ordinary shares will be subject to delisting. Our ability to publicly or privately sell equity securities and the liquidity of our ordinary shares could be adversely affected if our ordinary shares are delisted; |
● | We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine; |
● | Because we are not subject to compliance with rules requiring the adoption of certain corporate governance measures, our shareholders have limited protections against interested director transactions, conflicts of interest and similar matters; and |
● | If we are unable to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act as they apply to a foreign private issuer that is listed on a U.S. exchange, or our internal control over financial reporting is not effective, the reliability of our financial statements may be questioned and our share price may suffer. |
● | initiate and manage clinical trials for PRF-110; |
● | seek regulatory approvals; |
● | implement internal systems and infrastructures; |
● | hire management and other personnel; and |
● | progress PRF-110 towards commercialization. |
● | the costs, timing and outcome of manufacturing clinical trial and commercial quantities of PRF-110; |
● | the scope, progress, results and costs of our current and future clinical trials of PRF-110 for our current targeted uses; |
● | the costs, timing and outcome of regulatory review of PRF-110; |
● | the extent to which we acquire or invest in businesses, products and technologies, including entering into or maintaining licensing or collaboration arrangements for PRF-110 on favorable terms, although we currently have no commitments or agreements to complete any such transactions; |
● | the costs and timing of future commercialization activities, including drug sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval, to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of any collaborator that we may have at such time; |
● | the amount of revenue, if any, received from commercial sales of PRF-110, should it receive marketing approval; |
● | the costs of preparing, filing and prosecuting patent applications, maintaining, defending and enforcing our intellectual property rights and defending intellectual property-related claims; |
● | our ability to establish strategic collaborations, licensing or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty or other payments due under any such agreement; |
● | our headcount growth and associated costs as we expand our business operations and our research and development activities; |
● | the costs of operating as a public company; |
● | maintaining minimum shareholders’ equity requirements under the Nasdaq rules; and |
● | the impact of the current wars between Israel and Hamas, and between Russian and Ukraine, which may exacerbate the magnitude of the factors discussed above. |
● | establishing supply arrangements with third-party raw materials and components suppliers, and drug product manufacturers who can manufacture clinical trial and commercial quantities of PRF-110, and developing, validating and maintaining a commercially-viable manufacturing process that is compliant with current Good Manufacturing Practices, or cGMP, at a scale sufficient to meet anticipated demand, which will ultimately enable us to reduce our cost of manufacturing; |
● | successfully initiating patient enrollment and completion of additional clinical trials on a timely basis; |
● | our ability to demonstrate PRF-110’s safety, tolerability and efficacy to the FDA and any comparable foreign regulatory authority for marketing approval; |
● | timely receipt of marketing approvals for PRF-110; |
● | maintaining patent protection, trade secret protection and regulatory exclusivity, both in the U.S. and internationally; |
● | successfully defending and enforcing our proprietary rights in our intellectual property portfolio; |
● | avoiding and successfully defending against any claims that we have infringed, misappropriated or otherwise violated any intellectual property of any third party; |
● | the performance of any future collaborations; |
● | our ability to timely complete any post-marketing approval commitments required by the FDA or other applicable regulatory authorities; |
● | establishing scaled production arrangements with third-party manufacturers to obtain finished products that are compliant with cGMP and appropriately packaged for commercialization; |
● | successful launch of commercial sales following any marketing approval; |
● | maintaining an acceptable safety profile following any marketing approval; |
● | commercial acceptance by patients, the medical community and third-party payors; |
● | the availability of coverage and adequate reimbursement and pricing by third-party payors and government authorities; |
● | the availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing treatments; and |
● | our ability to compete with other post-operative pain, or POP, treatments. |
● | the timing of regulatory approvals in the requested countries, for the applications we seek; |
● | competitive market environment; |
● | the establishment and demonstration in the medical community of the safety and clinical efficacy of our products and their potential advantages over existing therapeutic products; |
● | our ability to enter into strategic agreements with pharmaceutical and biotechnology companies with strong marketing and sales capabilities; |
● | the adequacy and success of distribution and marketing efforts; and |
● | the pricing and reimbursement policies of government and third-party payors, such as insurance companies, health maintenance organizations and other plan administrators. |
● | obtaining regulatory approvals (e.g., an Investigational New Drug, or IND, application) to commence a clinical trial; |
● | reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; |
● | slower than expected rates of patient recruitment due to narrow screening requirements and competing clinical studies; |
● | the inability of patients to meet protocol requirements imposed by the FDA or other regulatory authorities; |
● | the need or desire to modify our manufacturing process; |
● | delays, suspension, or termination of the clinical trials due to the institutional review board responsible for overseeing the study at a particular study site; and |
● | governmental or regulatory delays or “clinical holds” requiring suspension or termination of the trials. |
● | assist us in developing, testing and obtaining regulatory approval; |
● | manufacture our drug candidates; and |
● | market and distribute our products. |
● | perceptions by members of the health care community, including physicians, of the safety and efficacy of our product; |
● | the potential advantages that our product offers over existing treatment methods or other products that may be developed; |
● | the cost-effectiveness of our product relative to competing products; |
● | the availability of government or third-party pay or reimbursement for our products; and |
● | the effectiveness of our or our partners’ sales, marketing and distribution efforts. |
● | litigation involving patients taking our drug; |
● | restrictions on such drugs, manufacturers or manufacturing processes; |
● | restrictions on the labeling or marketing of a drug; |
● | restrictions on drug distribution or use; |
● | requirements to conduct post-marketing studies or clinical trials; |
● | warning letters or untitled letters; |
● | withdrawal of the drugs from the market; |
● | refusal to approve pending applications or supplements to approved applications that we submit; |
● | recall of drugs; |
● | fines, restitution or disgorgement of profits or revenues; |
● | suspension or withdrawal of marketing approvals; |
● | damage to relationships with any potential collaborators; |
● | exclusion from or restrictions on coverage by third-party payors; |
● | unfavorable press coverage and damage to our reputation; |
● | refusal to permit the import or export of drugs; |
● | drug seizure; or |
● | injunctions or the imposition of civil or criminal penalties. |
● | decreased demand for a product; |
● | damage to our reputation; |
● | withdrawal of clinical trial volunteers; and |
● | loss of revenues. |
● | the potential disruption of our ongoing business; |
● | the distraction of management away from the ongoing oversight of our existing business activities; |
● | incurring additional indebtedness; |
● | the anticipated benefits and cost savings of those transactions not being realized fully, or at all, or taking longer to realize than anticipated; |
● | an increase in the scope and complexity of our operations; and |
● | the loss or reduction of control over certain of our assets. |
● | result in costly litigation; |
● | divert management’s attention and resources; |
● | cause product shipment delays; and |
● | require us to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to us, if at all. |
● | others may be able to make products that are similar to our product candidates or utilize similar science or technology but that are not covered by the claims of the patents that we may own or license from our licensors or that incorporate certain research in our product candidates that is in the public domain; |
● | we might not have been the first to file patent applications covering our inventions; |
● | others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; |
● | issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our competitors or other third parties; |
● | our competitors or other third parties might conduct research and development activities in countries where do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; |
● | the patents of others may harm our business if, for example, we are found to have infringed those patents or if those patents serve as prior art to our patents which could potentially invalidate our patents; and |
● | we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property, which could ultimately result in public disclosure of the intellectual property if the third party’s patent application is published or issues to a patent. |
● | difficulty in establishing or managing relationships with clinical research organizations and physicians; |
● | different standards for the conduct of clinical trials and/or health care reimbursement; |
● | our inability to locate qualified local consultants, physicians, and partners; |
● | the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of pharmaceutical products and treatment; and |
● | general geopolitical risks, such as political and economic instability, and changes in diplomatic and trade relations. |
● | to elect or defeat the election of our directors; |
● | amend or prevent amendment of our charter documents or by-laws; |
● | effect or prevent a merger, sale of assets or other corporate transaction; and |
● | to control the outcome of any other matter submitted to our shareholders for vote. |
● | less liquid trading market for our securities; |
● | more limited market quotations for our securities; |
● | determination that our ordinary shares and/or warrants are a “penny stock” that requires brokers to adhere to more stringent rules and possibly resulting in a reduced level of trading activity in the secondary trading market for our securities; |
● | more limited research coverage by stock analysts; |
● | loss of reputation; and |
● | more difficult and more expensive equity financings in the future. |
● | changes or developments in laws or regulations governing our business; |
● | announcements of regulatory approvals or the failure to obtain them, or specific label indications or patient populations for their use, or changes or delays in the regulatory review process; |
● | unsatisfactory results of preclinical studies or clinical trials; |
● | adverse actions taken by regulatory agencies with respect to our manufacturing supply chain or sales and marketing activities; |
● | announcements of innovations or new products by us or our competitors; |
● | any intellectual property infringement, misappropriation or other actions in which we may become involved; |
● | any adverse changes to our relationships with manufacturers or suppliers; |
● | announcements concerning our competitors; |
● | achievement of expected product sales and profitability or our failure to meet expectations; |
● | our commencement of, or involvement in, litigation; and |
● | any changes in our board of directors or management. |
ITEM 4. INFORMATION ON THE COMPANY |
A. | History and Development of the Company |
B. | Business Overview |
● | addressing unmet medical needs; |
● | de-risked drug development by using long-established APIs and our patented, proprietary extended release drug-delivery system; |
● | reduced development costs; |
● | rapid preclinical and clinical testing; |
● | well understood paths to approval: and |
● | the potential to disrupt current practices. |
● | PRF-110 is highly viscous and thus stays in place when placed into a surgical wound bed. |
● | PRF-110 remains within the surgical site when the skin is closed, without being toxic or proinflammatory. |
● | PRF-110 is easy to administer and its use is consistent with current surgical practice. |
● | PRF-110 is highly uniform and resistant to degradation in the wound, resulting is sustained,/extended release of the analgesic. |
● | Ropivacaine, the active drug used in PRF-110, is a safe and well-characterized local anesthetic. |
● | The components that make up the remainder of the PRF-110 formulation are classified as GRAS (Generally Regarded As Safe) by the FDA. |
● | We have amassed a human toxicology portfolio for PRF-110, demonstrating that there are no PRF-110-associated serious adverse events in either healthy controls or in surgical patients. |
● | Based on extensive toxicology and pharmacokinetic studies, as well as positive Phase 2 results, the FDA has granted our company an IND for PRF-110 and approved the initiation of Phase 3 trials for the treatment of post-operative pain. |
● | Unlike many drug trials that take months to years to complete and which are complex and whose endpoints are difficult to interpret, the planned trials are expected to last for 72 hours with a seven day and a one-month follow-up, with primary endpoint of pain measurement on the familiar scale of 0 (no pain) to 10 (worst imaginable pain). |
● | Upon completion of the Phase 3 studies, if successful, we plan to apply for an NDA for the management of post-operative pain. |
● | If and when approved for commercial sale, we intend to capitalize on the opportunity and carry out post-approval trials in a number of additional surgical indications, including breast augmentation/reduction, bariatric procedures, hysterectomy, cholecystectomy as well as orthopedic procedures including joint replacements and open fracture repair. We intend to capitalize on these opportunities to become the leader in opiate-free, long-acting local and regional analgesia. |
● | Hospitals; |
● | Free-standing surgical centers; and |
● | Surgical offices. |
● | Posimir by Durect (DRRX). A bupivacaine collagen matrix was recently approved by the FDA for only arthroscopic subacromial decompression (niche market ~600,000 annual procedures in the U.S.). |
● | Xaracoll by Innocoll, a surgically implantable and bioresorbable bupivacaine-collagen matrix, FDA approved the product for only open inguinal hernia repair. |
● | Allay Therapeutics ATX-101, a product based on bupivacaine is in development stage. |
● | TLC590, from the Taiwan Liposome Company, is a liposomal formulation of ropivacaine that completed Phase II trials in patients following hernia surgery. | |
● | Cali Biosciences developing an injectable ropivacaine formulation CPL-01 which is currently in phase III for bunion and hernia; and | |
● | Vertex pharmaceuticals, which completed phase III clinical studies in abdominoplasty and bunionectomy with VX-548, a selective NaV1.8 inhibitor. |
● | completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s good laboratory practice, or GLP, regulations; |
● | submission to the FDA of an IND, which must take effect before human clinical trials begin; |
● | approval by an independent institutional review board, or IRB, representing each clinical site before each clinical trial may be initiated; |
● | performance of adequate and well-controlled human clinical trials in accordance with good clinical practices, or GCP, to establish the safety and efficacy of the proposed drug product for each proposed indication; |
● | preparation and submission to the FDA of an NDA requesting marketing for one or more proposed indications; |
● | review by an FDA advisory committee, where appropriate or if applicable; |
● | satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product, or components thereof, are produced to assess compliance with current Good Manufacturing Practices, or cGMP, requirements and to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity; |
● | satisfactory completion of FDA audits of clinical trial sites to assure compliance with GCPs and the integrity of the clinical data; |
● | payment of user fees and securing FDA approval of the NDA; and |
● | compliance with any post-approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy, or REMS, and the potential requirement to conduct post-approval studies. |
Phase 1: | The drug is initially introduced into healthy human subjects or, in certain indications such as cancer, patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness and to determine optimal dosage. |
Phase 2: | The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. |
Phase 3: | The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product. |
Phase 4: | Post-approval studies, which are conducted following initial approval, are typically conducted to gain additional experience and data from treatment of patients in the intended therapeutic indication. |
● | restrictions on the marketing or manufacturing of the product, including total or partial suspension of production, complete withdrawal of the product from the market or product recalls; |
● | fines, warning letters or holds on post-approval clinical trials; |
● | refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license approvals; |
● | product seizure or detention, or refusal to permit the import or export of products; or |
● | injunctions or the imposition of civil or criminal penalties. |
● | Compliance with the EU’s stringent pharmacovigilance and safety reporting rules, pursuant to which inter alia post-authorization studies and additional monitoring obligations can be imposed, has to be ensured. |
● | The manufacturing of authorized drugs, for which a separate manufacturer’s license is mandatory, must also be conducted in strict compliance with the EMA’s GMP requirements and comparable requirements of other regulatory bodies in the EU, which mandate the methods, facilities and controls used in manufacturing, processing and packing of drugs to assure their safety and identity. |
● | The marketing and promotion of authorized drugs, including industry-sponsored continuing medical education and advertising directed toward the prescribers of drugs, cooperation with healthcare professionals and advertising of drugs directed to the general public, are strictly regulated in the EU notably under Directive 2001/83EC, as amended, and EU member state laws. |
C. | Organizational Structure |
D. | Property, Plant and Equipment |
ITEM 4A. UNRESOLVED STAFF COMMENTS |
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
● | continue the ongoing and planned preclinical and clinical development of our drug candidates; |
● | build a portfolio of drug candidates through the acquisition or in-license of drugs, drug candidates or technologies; |
● | initiate preclinical studies and clinical trials for any additional drug candidates that we may pursue in the future; |
● | seek marketing approvals for our current and future drug candidates that successfully complete clinical trials; |
● | establish a sales, marketing and distribution infrastructure to commercialize any drug candidate for which we may obtain marketing approval; |
● | develop, maintain, expand and protect our intellectual property portfolio; |
● | implement operational, financial and management systems; and |
● | attract, hire and retain additional administrative, clinical, regulatory and scientific personnel. |
● | employee-related expenses, including salaries, benefits and stock-based compensation expense; |
● | fees paid to consultants for services directly related to our drug development and regulatory effort; |
● | expenses incurred under agreements with contract research organizations, as well as CMOs and consultants that conduct preclinical studies and clinical trials; |
● | costs associated with preclinical activities and development activities; and |
● | costs associated with technology and intellectual property licenses. |
● | number of clinical trials required for approval and any requirement for extension trials; |
● | per patient trial costs; |
● | number of patients that participate in the clinical trials; |
● | number of sites included in the clinical trials; |
● | countries in which the clinical trial is conducted; |
● | length of time required to enroll eligible patients; |
● | potential additional safety monitoring or other studies requested by regulatory agencies; and |
● | efficacy and safety profile of the drug candidate. |
A. | Operating Results |
Year ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Statements of comprehensive loss data: | (US$ thousands) | |||||||||||
Research and development | 6,035 | 4,422 | 2,860 | |||||||||
General and administrative | 3,549 | 4,447 | 4,348 | |||||||||
Total operating loss | 9,584 | 8,869 | 7,208 | |||||||||
financial (income) expenses, net | (248 | ) | (86 | ) | 32 | |||||||
Loss before taxes | 9,336 | 8,783 | 7,240 | |||||||||
Income tax expense | 8 | 9 | 6 | |||||||||
Net loss | 9,344 | 8,792 | 7,246 |
JOBS Act Exemptions and Foreign Private Issuer Status |
● | the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; |
● | the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; |
● | the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events; and |
● | Regulation FD, which regulates selective disclosures of material information by issuers. |
B. | Liquidity and Capital Resources. |
● | the costs, timing and outcome of manufacturing clinical trial and commercial quantities of PRF-110; |
● | the scope, progress, results and costs of our current and future clinical trials of PRF-110 for our current targeted uses; |
● | the costs, timing and outcome of regulatory review of PRF-110; |
● | the extent to which we acquire or invest in businesses, products and technologies, including entering into or maintaining licensing or collaboration arrangements for PRF-110 on favorable terms, although we currently have no commitments or agreements to complete any such transactions; |
● | the costs and timing of future commercialization activities, including drug sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval, to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of any collaborator that we may have at such time; |
● | the amount of revenue, if any, received from commercial sales of PRF-110, should it receive marketing approval; |
● | the costs of preparing, filing and prosecuting patent applications, maintaining, defending and enforcing our intellectual property rights and defending intellectual property-related claims; |
● | our ability to establish strategic collaborations, licensing or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty or other payments due under any such agreement; |
● | our headcount growth and associated costs as we expand our business operations and our research and development activities; |
● | the costs of operating as a public company; |
● | maintaining minimum shareholders’ equity requirements under the Nasdaq rules; and |
● | the impact of the current wars between Israel and Hamas, and between Russian and Ukraine, which may exacerbate the magnitude of the factors discussed above. |
Payments due by period | ||||||||||||||||||||
(US$ thousands) | ||||||||||||||||||||
Less than 1 year | 1-3 Years | 3-5 Years | More than 5 years | Total | ||||||||||||||||
Obligations under master clinical research organization agreement(1) | 2,192 | — | — | — | 2,192 | |||||||||||||||
Obligations under master clinical trial agreement(2) | 6,991 | — | — | — | 6,991 | |||||||||||||||
Total | $ | 9,183 | — | — | — | $ | 9,183 |
Years ended December 31, | ||||||||||||
(US$ thousands) | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Net cash used in operating activities | (6,679 | ) | (6,459 | ) | (6,553 | ) | ||||||
Net cash provided by (used in) investing activities | 5,991 | (6,006 | ) | (50 | ) | |||||||
Net cash provided by financing activities | 4,616 | — | 7,484 | |||||||||
Effect of Exchange rate changes on cash, cash equivalents and restricted cash | 2 | — | — | |||||||||
(Decrease) Increase in cash and cash equivalents and restricted cash | 3,930 | (12,465 | ) | 881 | ||||||||
Cash and cash equivalents and restricted cash, at the beginning of the year | 4,106 | 16,571 | 15,690 | |||||||||
Cash and cash equivalents and restricted cash, at the end of the year | 8,036 | 4,106 | 16,571 |
C. | Research and Development, Patents and Licenses |
D. | Trend Information |
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
A. | Directors and Senior Management |
Name | Age | Position | ||
Senior Management | ||||
Ilan Hadar | 54 | Chief Executive Officer and Chief Financial Officer | ||
Prof. Eli Hazum | 76 | Chief Technology Officer and Director | ||
Dr. Sigal Aviel | 60 | Chief Operating Officer | ||
Rita Keynan | 55 | Vice President of Pharmaceutical Operations | ||
Non-Employee Director | ||||
Dr. Ehud Geller | 77 | Chairman of the Board and Director | ||
Efi Cohen-Arazi(1) (2) (3) (4) | 69 | Director | ||
Dr. Ellen S. Baron(1) (2) (3)(4) | 71 | External Director | ||
Augustine Lawlor(1) (2) (3)(4) | 68 | External Director |
(1) | Member of the Compensation Committee |
(2) | Member of the Audit Committee |
(3) | Independent Director under Israeli Law |
(4) | Independent Director under the Nasdaq Listing Rules |
B. | Compensation |
Salaries, fees, commissions, and bonuses | Pension, retirement and similar benefits | Value of Options Granted(1) | ||||||||||
(in thousands of U.S. dollars) | (in thousands of U.S. dollars) | (in thousands of U.S. dollars) | ||||||||||
All senior management and directors as a group, consisting of 8 persons | 1,269 | 160 | 776 |
(1) | Consists of amounts recognized as share-based compensation expense for the year ended December 31, 2023. Assumptions and key variables used in the calculation of such amounts are discussed in Note 10 of our financial statements. |
Name and Position(1) | Salary | Social Benefits(2) | Bonuses | Value of Options Granted (3) | All Other Compensation(4) | Total | ||||||||||||||||||
(in thousands of U.S. dollars) | ||||||||||||||||||||||||
Ehud Geller, Chairman | - | - | - | 126 | 150 | 276 | ||||||||||||||||||
Ilan Hadar, Chief Executive Officer | 287 | 55 | 62 | 159 | - | 562 | ||||||||||||||||||
Eli Hazum Chief Technology Officer | - | - | - | 126 | 144 | 270 | ||||||||||||||||||
Rita Keynan Vice President of Pharmaceutical Operations | 200 | 57 | 45 | 51 | - | 353 | ||||||||||||||||||
Sigal Aviel Chief Operating Officer | 245 | 48 | 52 | 6 | - | 352 |
(1) | All executive officers listed in the table were employed on a full-time basis during 2023. |
(2) | “Social Benefits” include payments to the National Insurance Institute, advanced education funds, managers’ insurance and pension funds, vacation pay and recuperation pay as mandated by Israeli law. |
(3) | Consists of amounts recognized as share-based compensation expense for the year ended December 31, 2023. Assumptions and key variables used in the calculation of such amounts are discussed in Note 10 of our financial statements. |
(4) | “All Other Compensation” includes chairman of the board of directors' annual fee and directors’ consulting related fees. |
C. | Board Practices |
● | at least a majority of the shares of non-controlling shareholders or shareholders that do not have a personal interest in the approval voted at the meeting are voted in favor (disregarding abstentions); or |
● | the total number of shares of non-controlling shareholders or shareholders that do not have a personal interest in the approval voted against the proposal does not exceed 2% of the aggregate voting rights in the company. |
● | an employment relationship; |
● | a business or professional relationship maintained on a regular basis; |
● | control; and |
● | service as an office holder, excluding service as a director in a private company prior to the first offering of its shares to the public if such director was appointed as a director of the private company in order to serve as an external director following the initial public offering. |
● | such majority includes at least a majority of the shares held by shareholders who are non-controlling shareholders and do not have a personal interest in the election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting, excluding abstentions, to which we refer as a disinterested majority; or |
● | the total number of shares voted by non-controlling shareholders and by shareholders who do not have a personal interest in the election of the external director, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company. |
● | his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and is approved at a shareholders meeting by a disinterested majority, where the total number of shares held by non-controlling, disinterested shareholders voting for such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related or Competing Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with a Related or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director. The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstanding shares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or a company controlled by such shareholder, have a business relationship with the company or are competitors of the company; |
● | the external director proposed his or her own nomination, and such nomination was approved in accordance with the requirements described above; |
● | his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majority required for the initial election of an external director (as described above). |
● | he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does not apply to companies whose securities have been offered outside of Israel or are listed outside of Israel); and |
● | he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than two years in service shall not be deemed to interrupt the continuation of the service. |
● | retaining and terminating our independent auditors, subject to the ratification of the board of directors, and in the case of retention, to that of the shareholders; |
● | pre-approving of audit and non-audit services and related fees and terms, to be provided by the independent auditors; |
● | overseeing the accounting and financial reporting processes of the Company and audits of our financial statements, the effectiveness of our internal control over financial reporting and making such reports as may be required of an audit committee under the rules and regulations promulgated under the Exchange Act; |
● | reviewing with management and our independent auditor our annual and quarterly financial statements prior to publication or filing (or submission, as the case may be) to the SEC; |
● | recommending to the board of directors the retention and termination of the internal auditor, and the internal auditor’s engagement fees and terms, in accordance with the Companies Law as well as approving the yearly or periodic work plan proposed by the internal auditor; |
● | reviewing with our general counsel and/or external counsel, as deem necessary, legal and regulatory matters that could have a material impact on the financial statements; |
● | identifying irregularities in our business administration, inter alia, by consulting with the internal auditor or with the independent auditor, and suggesting corrective measures to the board of directors; and |
● | reviewing policies and procedures with respect to transactions (other than transactions related to the compensation or terms of services) between the company and officers and directors, or affiliates of officers or directors, or transactions that are not in the ordinary course of the Company’s business and deciding whether to approve such acts and transactions if so required under the Companies Law. |
● | determining whether there are deficiencies or irregularities in the business management practices of our company, including in consultation with our internal auditor or the independent auditor, and making recommendations to the board of directors to improve such practices; |
● | determining the approval process for transactions with a controlling shareholder or in which a controlling shareholder has a personal interest; |
● | determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether such transaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”); |
● | where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to the board of directors and proposing amendments thereto; |
● | examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of its responsibilities; |
● | examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders, depending on which of them is considering the appointment of our auditor; and |
● | establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to such employees. |
● | Officers’ interests are as closely as possible aligned with our interests; |
● | The correlation between pay and performance will be enhanced; |
● | We will be able to recruit and retain top level executives capable of leading us to further business success, facing the challenges ahead; |
● | Our officers will be motivated to achieve a high level of business performance without taking unreasonable risks. Therefore, the variable compensation component may not be based on extreme business performance goals which might potentially impose unreasonable risks on our officers; and |
● | An appropriate balance between different compensation elements (e.g., fixed vs. variable, short-term vs. long-term and cash payments vs. equity-based compensation). |
● | recommending whether a compensation policy should continue in effect, if the then-current policy has a term of greater than five years from the company’s initial public offering, or otherwise three years (approval of either a new compensation policy or the continuation of an existing compensation policy must in any case occur five years from the company’s initial public offering, or otherwise every three years); |
● | recommending to the board of directors periodic updates to the compensation policy; |
● | assessing implementation of the compensation policy; |
● | determining whether to approve the terms of compensation of certain office holders which, according to the Companies Law, require the committee’s approval; and |
● | determining whether the compensation terms of a candidate for the position of the chief executive officer of the company needs to be brought to approval of the shareholders according to the Companies Law. |
● | the responsibilities set forth in the compensation policy; |
● | reviewing and approving the granting of options and other incentive awards to the extent such authority is delegated by our board of directors; and |
● | reviewing, evaluating and making recommendations regarding the compensation and benefits for our non-employee directors. |
● | overseeing our corporate governance functions on behalf of the board; |
● | making recommendations to the board regarding corporate governance issues; |
● | identifying and evaluating candidates to serve as our directors consistent with the criteria approved by the board; |
● | reviewing and evaluating the performance of the board; |
● | serving as a focal point for communication between director candidates, non-committee directors and our management; selecting or recommending to the board for selection candidates to the board; and |
● | making other recommendations to the board regarding affairs relating to our directors. |
● | a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights; |
● | a person (or a relative of a person) who has the power to appoint a director or the general manager of the company; |
● | an office holder or director (or a relative of an officer or director) of the company; or |
● | a member of the company’s independent accounting firm, or anyone on its behalf. |
● | information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and |
● | all other important information pertaining to these actions. |
● | refrain from any act involving a conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs; |
● | refrain from any activity that is competitive with the company; |
● | refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and |
● | disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position as an office holder. |
● | a transaction other than in the ordinary course of business; |
● | a transaction that is not on market terms; or |
● | a transaction that may have a material impact on the company’s profitability, assets, or liabilities. |
● | an amendment of the articles of association of the company; |
● | an increase in the company’s authorized share capital; |
● | a merger; or |
● | the approval of related party transactions and acts of office holders that require shareholder approval. |
● | financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court. However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited to events which, in the opinion of the board of directors, can be foreseen based on the company’s activities when the undertaking to indemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking must detail the abovementioned foreseen events and amount or criteria; |
● | reasonable litigation expenses, including attorneys’ fees, incurred by the office holder: (i) as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (a) no indictment was filed against such office holder as a result of such investigation or proceeding and (b) no financial liability was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent; and (ii) in connection with a monetary sanction; |
● | expenses associated with an administrative procedure, as defined in the Israeli Securities Law, conducted regarding an office holder, including reasonable litigation expenses and reasonable attorneys’ fees; and |
● | reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her by the company, on its behalf, or by a third party or in connection with criminal proceedings in which the office holder was acquitted or as a result of a conviction for an offense that does not require proof of criminal intent. |
● | a breach of duty of care to the company or to a third party, including a breach arising out of the negligent conduct of the office holder; |
● | a breach of fiduciary duty to the company, to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company; |
● | a monetary liability imposed on the office holder in favor of a third party; and |
● | expenses incurred by an office holder in connection with an administrative procedure, including reasonable litigation expenses and reasonable attorneys’ fees. |
● | a breach of fiduciary duty, except for indemnification and insurance for a breach of the fiduciary duty to the company and to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company; |
● | a breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office holder; |
● | an act or omission committed with intent to derive illegal personal benefit; or |
● | a fine or forfeit levied against the office holder. |
D. | Employees. |
E. | Share Ownership. |
F. | Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation |
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
A. | Major Shareholders |
● | each of our directors and senior management; |
● | all of our directors and senior management as a group; and |
● | each person (or group of affiliated persons) known by us to be the beneficial owner of 5% or more of the outstanding ordinary shares. |
Ordinary Shares Beneficially Owned | Percentage Owned** | |||||||
Senior Management and Directors | ||||||||
Ilan Hadar(1) | 38,300 | 2.2 | % | |||||
Dr. Ehud Geller(2) | 347,228 | 19.9 | % | |||||
Dr. Sigal Aviel(3) | 15,273 | * | ||||||
Rita Keynan(4) | 19,414 | 1.1 | % | |||||
Prof. Eli Hazum(5) | 33,388 | 1.9 | % | |||||
Ellen S. Baron(6) | 6,000 | * | % | |||||
Augustine Lawlor(7) | 6,000 | * | % | |||||
Efi Cohen-Arazi(8) | 18,000 | * | % | |||||
All senior management and directors as a group (8 persons) | 483,603 | 25.7 | % | |||||
More than 5% Shareholders | ||||||||
Armistice Capital, LLC (9) | 172,957 | (10) | 9.99 | %(9) | ||||
XT Hi-Tech Investments (1992) Ltd. (11) | 106,588 | 6.2 | % | |||||
Medica III Investment group (2) | 347,228 | 19.9 | % |
* | Less than 1% |
** | Based on 1,728,347 ordinary shares outstanding. |
(1) | Consists of options to purchase 38,300 ordinary shares exercisable at $5.70 per share and expiring on November 23, 2032. Does not include options to purchase 8,839 ordinary shares exercisable at $5.70 per share and expiring on November 23, 2032, that vest in more than 60 days from February 29, 2024. |
(2) | Consists of 347,228 beneficially owned by the Medica III Investment group which includes Medica III Investments (International) L.P. which holds 111,275 ordinary shares, Medica III Investments (Israel) L.P. which holds 40,446 ordinary shares, Medica III Investments (S.F.) L.P. which holds 43,958 ordinary shares, Medica III Investments (P.F.) L.P. which holds 23,658 ordinary shares, Medica III Investments (Israel) (B) L.P. which holds 57,143 ordinary shares, and Poalim Medica III Investments L.P. which holds 52,748 ordinary shares and Dr. Ehud Geller who holds options to purchase 18,000 ordinary shares that are currently exercisable or will be exercisable within 60 days from February 29, 2024. The beneficial owners under Medica Group are: MCP Opportunity Secondary Program III L.P 10.57%, NYC Police Pension Fund 8.8%, Quantum Partners LDC 13.2%, Migdal Insurance Company Ltd 8.8%. None of which include individuals who hold more than 5% interest. Medica III Management L.P., an entity held 50% by Dr. Ehud Geller and 50% by Batsheva Elran, is the managing entity of Medica III Fund. The principal business address of Medica III Investment is 60C Medinat Hayehudim, Herzliya, 4676670, Israel. Does not include options to purchase 6,000 ordinary shares approved for issuance to Mr. Geller. Such options are exercisable at $5.90 per share and expiring on February 23, 2031, that vest in more than 60 days from February 29, 2024. |
(3) | Consists of options to purchase 5,117 ordinary shares exercisable at a weighted average exercise price of $2.40 per share and expiring on May 23, 2029 and 10,156 ordinary shares exercisable at a weighted average exercise price of $5.70 expiring on November 23, 2032. Does not include options to purchase 2,344 ordinary shares exercisable at $5.70 per share and expiring on November 23, 2032, that vest in more than 60 days from February 29, 2024. |
(4) | Consists of options to purchase 19,414 ordinary shares exercisable at $5.70 per share and expiring on November 23, 2032. Does not include options to purchase 4,481 ordinary shares exercisable at $5.70 per share and expiring on November 23, 2032, that vest in more than 60 days from February 29, 2024. |
(5) | Consists of options to purchase 15,388 ordinary shares exercisable at $2.40 per share and expiring on April 2, 2024, options to purchase 6,000 ordinary shares exercisable at $45.00 per share and expiring on February 23, 2031 and options to purchase 12,000 ordinary shares exercisable at $5.90 per share and expiring on August 6, 2033. Does not include options to purchase 6,000 ordinary shares exercisable at $5.90 per share and expiring on August 6, 2033, that vest in more than 60 days from February 29, 2024 |
(6) | Consists of options to purchase 6,000 ordinary shares exercisable at $45.00 per share and expiring on February 23, 2031. |
(7) | Consists of options to purchase 6,000 ordinary shares exercisable at $45.00 per share and expiring on February 23, 2031, and options to purchase 12,000 ordinary shares exercisable at $5.90 per share and expiring on August 6, 2033 Does not include options to purchase 6,000 ordinary shares exercisable at $5.90 per share and expiring on August 6, 2033, that vest in more than 60 days from February 29, 2024. |
(8) | Consists of options to purchase 6,000 ordinary shares exercisable at $45.00 per share and expiring on February 23, 2031 and options to purchase 12,000 ordinary shares exercisable at $5.90 per share and expiring on August 6, 2033. Does not include options to purchase 6,000 ordinary shares exercisable at $5.90 per share and expiring on August 6, 2033, that vest in more than 60 days from February 29, 2024 |
(9) | The securities are directly held by Armistice Capital Master Fund Ltd., a Cayman Islands exempted company (the “Master Fund”), and may be deemed to be beneficially owned by: (i) Armistice Capital, LLC (“Armistice Capital”), as the investment manager of the Master Fund; and (ii) Steven Boyd, as the Managing Member of Armistice Capital. The ownership percentage in the table gives effect to the 9.99% beneficial ownership limitation set forth in the warrants as described below. The address of Armistice Capital Master Fund Ltd. is c/o Armistice Capital, LLC, 510 Madison Avenue, 7th Floor, New York, NY 10022. |
(10) | The following information is based on a Schedule 13G filed on February 14, 2024. Does not include: (i) 87,500 ordinary shares issuable upon exercise of warrants issued in September 2020, (ii) 297,896 ordinary shares underlying warrants exercised in December 2023, the issuance of which is held in abeyance subject to a beneficial ownership limitation provision in the warrant, and (iii) 935,792 ordinary shares issuable upon exercise of warrants issued in December 2023. The warrants issued in December 2023 are subject to a beneficial ownership limitation of 4.99% and the warrants issued in September 2020 and the shares held in abeyance are subject to a beneficial ownership limitation of 9.99%, which such limitations restrict the Master Fund from exercising that portion of the warrants that would result in the Master Fund and its affiliates owning, after exercise, a number of shares of common stock in excess of the beneficial ownership limitation. |
(11) | The following information is based on a Schedule 13G/A filed on January 23, 2024. XT Hi-Tech Investments (1992) Ltd., or XT Hi-Tech, is an indirect wholly owned subsidiary of XT Investments Ltd. (“XT Investments”), which is a direct wholly-owned subsidiary of XT Holdings, of which Orona Investments Ltd. (“Orona”) and Lynav Holdings Ltd. (“Lynav”) are each the direct owners of one-half of the outstanding ordinary shares. Orona is indirectly owned 56% by Mr. Udi Angel, who also indirectly owns 100% of the means of control of Orona. Lynav is held 95% by CIBC Bank and Trust Company (Cayman) Ltd. (“CIBC”)— as trustee of a discretionary trust established in the Cayman Islands. Udi Angel is member of the board of directors of XT Hi-Tech and has a casting vote with respect to various decisions taken by the board, including voting and disposition over the ordinary shares held by XT Hi-Tech. The principal business address XT Hi-Tech is 9 Andre Saharov Street, P.O. Box 15090, Haifa 31905, Israel. |
B. | Related Party Transactions |
C. | Interests of Experts and Counsel |
ITEM 8. FINANCIAL INFORMATION. |
A. | Consolidated Statements and Other Financial Information. |
B. | Significant Changes |
ITEM 9. THE OFFER AND LISTING |
A. | Offer and Listing Details |
B. | Plan of Distribution |
C. | Markets |
D. | Selling Shareholders |
E. | Dilution |
F. | Expenses of the Issue |
ITEM 10. ADDITIONAL INFORMATION |
A. | Share Capital |
B. | Memorandum and Articles of Association |
C. | Material Contracts |
D. | Exchange Controls |
E. | Taxation. |
● | amortization over an eight-year period of the cost of patents and rights to use a patent and know-how which were purchased in good faith and are used for the development or advancement of the Industrial Enterprise; |
● | deduction over a three-year period of expenses incurred in connection with the issuance and listing of shares on a stock market; and |
● | under certain conditions, an election to file tax returns with related Israeli Industrial Companies. |
● | owns a Preferred Enterprise, which is defined as an “Industrial Enterprise” (as defined under the Investment Law) that is classified as either a “Competitive Enterprise” (as defined under the Investment Law) or a “Competitive Enterprise in the Field of Renewable Energy” (as defined under the Investment Law); |
● | is controlled and managed from Israel; |
● | is not a “Family Company,” a “Home Company,” or a “Kibbutz” (collective community) as defined under the Income Tax Ordinance; |
● | keeps acceptable books of account and files reports in accordance with the provisions of the Investment Law and the Income Tax Ordinance; and |
● | was not, and certain officers of which were not, convicted of certain crimes in the 10 years prior to the tax year with respect to which benefits are being claimed. |
F. | Dividends and Paying Agents |
G. | Statement by Experts |
H. | Documents on Display |
I. | Subsidiary Information. |
J. | Annual Report to Security Holders. |
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
A. | Debt Securities. |
B. | Warrants and rights. |
C. | Other Securities. |
D. | American Depositary Shares |
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
ITEM 15. CONTROLS AND PROCEDURES |
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT |
ITEM 16B. CODE OF ETHICS |
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Year Ended December 31, | ||||||||
2023 | 2022 | |||||||
(USD in thousands) | ||||||||
Audit fees (1) | 120 | 107 | ||||||
Audit-related fees(2) | 122 | 5 | ||||||
Tax fees | - | - | ||||||
All other fees | - | 23 | ||||||
Total | 242 | 135 |
(1) | The audit fees for the years ended December 31, 2023 and 2022 include professional services rendered in connection with the audit of our annual financial statements and the review of our interim financial statements, statutory audits of the Company. |
(2) | Issuance of consents and assistance with review of documents filed with the SEC. |
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
ITEM 16G. CORPORATE GOVERNANCE |
● | Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, rather than seeking approval for corporate actions in accordance with Nasdaq Listing Rule 5635. In particular, under this Nasdaq Listing Rule, shareholder approval is generally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rights or if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leading to a change of control; (iii) adoption or amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights (including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) if such equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is required (subject to certain limited exceptions) for, among other things: (a) transactions with directors concerning the terms of their service (including indemnification, exemption, and insurance for their service or for any other position that they may hold at a company), for which approvals of the compensation committee, board of directors, and shareholders are all required; (b) extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described below under “Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain Transactions;” (c) terms of office and employment or other engagement of our controlling shareholder, if any, or such controlling shareholder’s relative, which require the special approval described below under “Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain Transactions;” (d) approval of transactions with Company’s Chief Executive Officer with respect to his or hers compensation, whether in accordance with the approved compensation policy of the Company or not in accordance with the approved compensation policy of the Company, or transactions with officers of the Company not in accordance with the approved compensation policy; and (e) approval of the compensation policy of the Company for office holders. In addition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies. |
● | Nomination of our directors. Israeli law and our amended articles of association do not require director nominations to be made by a nominating committee of our board of directors consisting solely of independent directors, as required under the Listing Rules of the Nasdaq Stock Market. We rely on the exemption available to foreign private issuers under the Nasdaq Listing Rules and follow Israeli law and practice with regard to the process of nominating directors, in accordance with which directors are recommended by our board of directors for election by our shareholders (other than directors elected by our board of directors to fill a vacancy). |
● | Quorum requirement. Under our amended and restated articles of association and as permitted under the Companies Law, a quorum for any meeting of shareholders shall be the presence of at least two shareholders present in person, by proxy or by a written ballot, who hold at least 25% of the voting power of our shares (or if a higher percentage is required by law, such higher percentage) instead of 33 1/3% of the issued share capital required under the Nasdaq Listing Rules. If within half an hour from the time designated for the meeting a quorum is not present, them will stand adjourned to the same day in the following week, at the same time and place. If a quorum is not present at the adjourned meeting within half hour from the time designated for its start, the meeting shall take place with any number of participants. |
● | Periodic reports. As opposed to making periodic reports to shareholders and proxy solicitation materials available to shareholders in the manner specified by the Nasdaq Marketplace Rules, the Companies Law does not require us to distribute periodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders but to make such reports available through a public website. We will only mail such reports to shareholders upon request; and |
● | Compensation of officers. We follow Israeli law and practice with respect to the approval of officer compensation. While our compensation committee currently complies with the provisions of the Nasdaq Listing Rules relating to composition requirements and Israeli law generally requires that the compensation of the chief executive officer and all other executive officers be approved, or recommended to the board for approval, by the compensation committee (and in certain instances, shareholder approval is required), Israeli law includes relief from compensation committee approval in certain instances. For details regarding the approvals required under the Israeli Companies Law and regulation promulgated thereunder for the approval of compensation of the chief executive officer, all other executive officers and directors, see Item 6C “Directors, Senior Management and Employees— Board Practices — Approval of Related Party Transactions under Israeli Law — Disclosure of Personal Interests of an Office Holder and Approval of Certain Transactions”). |
ITEM 16H. MINE SAFETY DISCLOSURE |
ITEM 17. FINANCIAL STATEMENTS |
ITEM 18. FINANCIAL STATEMENTS |
ITEM 19. EXHIBITS. |
Exhibit No. | Exhibit Description | |
97.1#* | ||
101 | The following financial information from PainReform Ltd.’s Annual Report on Form 20-F for the year ended December 31, 2023, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Statement of Financial Position, (ii) Statements of Comprehensive Loss, (iii) Statements of Changes in Equity, (iv) Statements of Cash Flows and (iv) Notes to Financial Statements.* |
* | Filed herewith. |
# | Management contract or compensatory plan. |
PAINREFORM LTD. | |||
Date: February 29, 2024 | By: | /s/ Ilan Hadar | |
Ilan Hadar | |||
Chief Executive Officer |
Page | ||
F-2 | ||
(Firm Name: Kesselman & Kesselman / PCAOB ID No. 1309) | ||
F-3 | ||
F-4 | ||
F-5 | ||
F-6 - F-7 | ||
F-8 - F-27 |
As of December 31, | |||||||||||
Note | 2023 | 2022 | |||||||||
Assets | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 8,026 | $ | 4,096 | |||||||
Short term deposit | - | 6,085 | |||||||||
Restricted cash | 2f | 10 | 10 | ||||||||
Prepaid clinical trial expenses and deferred clinical trial costs | 6b | 1,514 | 1,728 | ||||||||
Prepaid expenses and other current assets | 3 | 249 | 365 | ||||||||
Total current assets | 9,799 | 12,284 | |||||||||
Non-current assets | |||||||||||
Operating lease right of use asset | 6a | 93 | |||||||||
Property and equipment, net | 38 | 44 | |||||||||
Total long-term assets | 131 | 44 | |||||||||
Total assets | $ | 9,930 | $ | 12,328 | |||||||
Liabilities and shareholders’ equity | |||||||||||
Trade payables | $ | 221 | $ | 209 | |||||||
Employees and related liabilities | 465 | 499 | |||||||||
Operating lease liability | 56 | ||||||||||
Accrued expenses | 4 | 1,668 | 356 | ||||||||
Total current liabilities | $ | 2,410 | $ | 1,064 | |||||||
Non-current liabilities: | |||||||||||
Operating lease liability | 30 | ||||||||||
Provision for unrecognized tax positions | 5f | 251 | 243 | ||||||||
Total non-current liabilities | 281 | 243 | |||||||||
Total liabilities | $ | 2,691 | $ | 1,307 | |||||||
Commitments | 6 | ||||||||||
Shareholders’ Equity: | 7 | ||||||||||
Ordinary shares, NIS 0.3 par value; Authorized: 5,000,000 and 2,666,667 shares as of December 31, 2023, and 2022, respectively; Issued and outstanding: 1,728,347 and 1,081,755 shares as of December 31, 2023, and 2022, respectively (*) | $ | 147 | $ | 94 | |||||||
Additional paid-in capital | 48,955 | 43,446 | |||||||||
Accumulated deficit | (41,863 | ) | (32,519 | ) | |||||||
Total shareholders’ equity | 7,239 | 11,021 | |||||||||
Total liabilities and shareholders’ equity | $ | 9,930 | $ | 12,328 |
For the Year Ended December 31, | |||||||||||||||
Note | 2023 | 2022 | 2021 | ||||||||||||
Operating expenses: | |||||||||||||||
Research and development expenses | 8a | $ | (6,035 | ) | $ | (4,422 | ) | $ | (2,860 | ) | |||||
General and administrative expenses | 8b | (3,549 | ) | (4,447 | ) | (4,348 | ) | ||||||||
Operating loss | (9,584 | ) | (8,869 | ) | (7,208 | ) | |||||||||
Financial income (expenses), net | 8c | 248 | 86 | (32 | ) | ||||||||||
Loss before taxes | (9,336 | ) | (8,783 | ) | (7,240 | ) | |||||||||
Income tax expenses | (8 | ) | (9 | ) | (6 | ) | |||||||||
Net loss and comprehensive loss | $ | (9,344 | ) | $ | (8,792 | ) | $ | (7,246 | ) | ||||||
Basic and diluted net loss per share | 2o | $ | (7.14 | ) | $ | (8.13 | ) | $ | (7.25 | ) | |||||
Weighted average number of Ordinary Share used in computing basic and diluted net loss per share (*) | 1,308,920 | 1,081,755 | 999,562 |
Ordinary shares(**) | Additional paid-in | Accumulated | Total shareholders’ | |||||||||||||||||
Number | Amount | capital | Deficit | equity | ||||||||||||||||
Balance as of January 1, 2021 | 894,142 | $ | 78 | $ | 33,023 | $ | (16,481 | ) | $ | 16,620 | ||||||||||
Share-based compensation to employees and directors | - | - | 812 | - | 812 | |||||||||||||||
Share-based compensation to service providers | - | - | 412 | - | 412 | |||||||||||||||
Shares and warrants issuance - Private Investment in Public Equity (“PIPE”), net | 130,435 | 12 | 5,542 | - | 5,554 | |||||||||||||||
Exercise of warrants | 41,967 | 4 | 1,926 | - | 1,930 | |||||||||||||||
Net loss and comprehensive loss | - | - | - | (7,246 | ) | (7,246 | ) | |||||||||||||
Balance as of December 31, 2021 | 1,066,544 | $ | 94 | $ | 41,715 | $ | (23,727 | ) | $ | 18,082 | ||||||||||
Share-based compensation to employees and directors | - | - | 1,389 | - | 1,389 | |||||||||||||||
Share-based compensation to service providers | - | - | 342 | - | 342 | |||||||||||||||
Share issuance to service providers | 15,211 | - | - | - | - | |||||||||||||||
Net loss and comprehensive loss | - | - | - | (8,792 | ) | (8,792 | ) | |||||||||||||
Balance as of December 31, 2022 | 1,081,755 | $ | 94 | $ | 43,446 | $ | (32,519 | ) | $ | 11,021 | ||||||||||
Share-based compensation to employees and directors | - | - | 804 | - | 804 | |||||||||||||||
Share issuance to service providers | 8,697 | * | - | - | * | |||||||||||||||
Issuance of common stock and pre-funded warrants upon private placement, net of underwriting commissions and other offering costs. (***) | 467,895 | 39 | 1,411 | - | 1,450 | |||||||||||||||
Issuance and exercise of common stock warrants upon private placement, net of underwriting commissions and other offering costs. (Note 7c) | 170,000 | 14 | 3,294 | 3,308 | ||||||||||||||||
Net loss and comprehensive loss | - | - | - | (9,344 | ) | (9,344 | ) | |||||||||||||
Balance as of December 31, 2023 | 1,728,347 | $ | 147 | $ | 48,955 | $ | (41,863 | ) | $ | 7,239 |
For the Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Cash flows from operating activities | ||||||||||||
Net loss | $ | (9,344 | ) | $ | (8,792 | ) | $ | (7,246 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
Depreciation | 15 | 15 | 7 | |||||||||
Exchange rate differences on cash, cash equivalents and restricted cash | (2 | ) | - | - | ||||||||
Share-based compensation to employees and directors | 804 | 1,389 | 812 | |||||||||
Net change in operating lease asset and liability | (9 | ) | - | - | ||||||||
Share-based compensation to service providers | - | 342 | 412 | |||||||||
Warrant issuance costs | 368 | - | - | |||||||||
Interest income (expenses) | 85 | (85 | ) | - | ||||||||
Change in warrant liability valuation | (1,726 | ) | - | - | ||||||||
Loss from inducement offer letter agreement (Note 7c) | 1,502 | - | - | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
Prepaid expenses and other current assets | 330 | 356 | (348 | ) | ||||||||
Trade payables | 12 | 73 | (585 | ) | ||||||||
Employees, related liabilities and accrued expenses | 1,286 | 243 | 395 | |||||||||
Net cash used in operating activities | (6,679 | ) | (6,459 | ) | (6,553 | ) | ||||||
Cash flows from investing activities | ||||||||||||
Purchase of property and equipment | (9 | ) | (6 | ) | (50 | ) | ||||||
Proceeds from short term deposits | 7,000 | |||||||||||
Purchase of short-term deposit | (1,000 | ) | (6,000 | ) | - | |||||||
Net cash provided by (used in) investing activities | 5,991 | (6,006 | ) | (50 | ) | |||||||
Cash flows from financing activities | ||||||||||||
Proceeds from exercise/issuance of warrants | 2,511 | - | 1,930 | |||||||||
Proceeds from inducement offer letter agreement (Note 7c) | 1,334 | |||||||||||
Issuance costs | (932 | ) | - | (446 | ) | |||||||
Proceeds from Issuance of shares and pre-funded warrants | 1,703 | |||||||||||
Proceeds from issuance of ordinary shares under Private Investment in Public Equity | - | - | 6,000 | |||||||||
Net cash provided by financing activities | 4,616 | - | 7,484 | |||||||||
Effect of Exchange rate changes on cash, cash equivalents and restricted cash | 2 | - | - | |||||||||
Net increase (decrease) in cash, cash equivalents and restricted cash | 3,930 | (12,465 | ) | 881 | ||||||||
Cash, cash equivalents and restricted cash at the beginning of the year | 4,106 | 16,571 | 15,690 | |||||||||
Cash, cash equivalents and restricted cash at the end of the year | $ | 8,036 | $ | 4,106 | $ | 16,571 |
December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Cash and cash equivalents | $ | 8,026 | $ | 4,096 | $ | 16,537 | ||||||
Restricted cash | 10 | 10 | 34 | |||||||||
Total cash, cash equivalents, and restricted cash | $ | 8,036 | $ | 4,106 | $ | 16,571 | ||||||
Supplemental cash flow information: | ||||||||||||
Acquisition of right-of-use assets by means of lease liabilities | $ | 113 | $ | - | $ | - |
U.S. dollars in thousands, except share and per share data
NOTE 1:- | GENERAL |
a. | PainReform Ltd. (“the Company”) was incorporated and started business operations in November 2007. The Company is a clinical stage specialty pharmaceutical company focused on the reformulation of established therapeutics. The Company’s proprietary extended-release drug-delivery system is designed to provide an extended period of post-surgical pain relief without the need for repeated dose administration while reducing the potential need for the use of opiates. |
b. | Liquidity Since its inception, the Company has devoted substantially all its efforts to research and development, clinical trials, and capital raising activities. The Company is still in its development and clinical stage and has not yet generated revenues. The Company has incurred significant losses and negative cash flows from operations and incurred losses of $9,344, $8,792 and $7,246 for the years ended December 31, 2023, 2022 and 2021, respectively. During the years ended December 31, 2023, 2022 and 2021, the Company had negative operating cash outflows of $6,679, $6,459, and $6,553, respectively. As of December 31, 2023, the Company’s accumulated deficit was $41,863. The Company has funded its operations to date primarily through equity financing and has cash on hand (including restricted cash) of $8,036 as of December 31, 2023. In July 2023, the Company consummated two registered direct offerings of its ordinary shares and simultaneous private placements of warrants to purchase its ordinary shares, resulting in aggregate gross proceeds of $4.2 million and net proceeds of $3.6 million (Note 7c). In December 2023, the Company consummated a warrant exercise transaction. As part of the transaction, the Company agreed to the exercise of outstanding warrants to purchase up to an aggregate of 467,896 ordinary shares, having an exercise price of $9.00 per ordinary share, issued by the Company in July 2023, at a reduced exercise price of $2.85 per ordinary share. The warrant exercise resulted in aggregate gross proceeds of $1.3 million. In addition, the Investor received 935,792 new warrants with an exercise price of $2.85 (Note 7c). The Company expects to continue incurring losses, and negative cash flows from operations until its product, PRF-110, reaches commercial profitability. As a result of the initiation of the Company's Phase III clinical trial in March 2023, along with its current cash position, the Company does not have sufficient resources to fund operations until the end of its phase III study, nor to continue as a going concern for at least one year from the issuance date of these financial statements. Management's plans include continued raising capital through sale of additional equity securities, debt or capital inflows from strategic partnerships. There are no assurances, however, that the Company will successfully obtain the level of financing needed for its operations. If the Company is unsuccessful in raising capital, it may need to reduce activities, curtail, or abandon some or all of its operations, which could materially harm the Company’s business, financial condition and results of operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business and do not include any adjustments that might result from the outcome of this uncertainty. |
c. | In June 2023, the Company effected a reverse share split of its shares at the ratio of 1-for-10, such that each ten (10) ordinary shares, par value NIS 0.03 per share, were consolidated into one (1) ordinary share, par value NIS 0.30. As a result of rounding of fractional shares as part of the reverse share split, 18,338 ordinary shares were added, bringing the Company’s total outstanding shares on a post-split basis to 1,090,452. All related share and per share data have been retroactively applied to the financial statements and their related notes for all periods presented. |
PAINREFORM LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 1:- | GENERAL (Cont.) |
d. | In May 2023, the Company announced that its supplier of the active pharmaceutical ingredient, or API, had received a deficiency notice from the FDA related to the supplier’s Drug Master File, or DMF. The DMF is the file on record with the FDA representing the manufacturing process and facility to produce the API. As a result, the second part of the Company’s first Phase 3 trial was delayed and re-commenced once the required information was provided by the supplier to the FDA and the deficiency notice was resolved, which occurred in September 2023. None of the issues raised were related to the Company’s PRF-110 product. Following the FDA review process of the DMF the Company received a notification from the FDA in September 2023 and an official letter in November 2023, allowing the use of the API manufactured by the DMF holder and an approval to proceed with the clinical trial. In October 2023, the Company reactivated the clinical study and enrolled the first patients in the second part of the Phase 3 trial with the Company’s contract research organization, which will include up to 415 patients in the double-blind study multiple clinical sites in the U.S., measuring pain reduction by PRF-110 over 72 hours compared with a placebo and Naropin® (ropivacaine). |
e. | U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Israel and Hamas and the conflict between Russia and Ukraine. Although the length and impact of these ongoing military conflicts is highly unpredictable, they could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets. Additionally, Russia’s prior annexation of Crimea, recent recognition of two separatist republics in the Donetsk and Luhansk regions of Ukraine and subsequent military interventions in Ukraine have led to sanctions and other penalties being levied by the United States, European Union and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic, and the so-called Luhansk People’s Republic, including agreement to remove certain Russian financial institutions from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) payment system. Additional potential sanctions and penalties have also been proposed and/or threatened. Russian military actions and the resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult for us to obtain additional funds. Any of the abovementioned factors could affect our business, prospects, financial condition, and operating results. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict. |
f. | On October 7, 2023, an unprecedented attack was launched against Israel, which thrust Israel into a state of war. The Company is continuing the development of its product and progressing with the clinical trials taking place out of Israel. At this time, the Company's management does not expect this situation to have a material impact on its operations or its business results. |
PAINREFORM LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 1:- | GENERAL (Cont.) |
g. | The Company reports its financial results in U.S. dollars. A portion of research and development and general and administrative expenses of our Israeli operations are incurred in New Israeli Shekel ("NIS"). As a result, the Company is exposed to exchange rate risks that may materially and adversely affect our financial results. If the NIS appreciates against the U.S. dollar, or if the value of the NIS decline against the U.S. dollar, at a time when the rate of inflation in the cost of Israeli goods and services exceed the rate of decline in the relative value of the NIS, then the U.S. dollar-denominated cost of our operations in Israel would increase and our results of operations could be materially and adversely affected. Inflation in Israel compounds the adverse impact of a devaluation of the NIS against the U.S. dollar by further increasing the amount of our Israeli expenses. Israeli inflation may also (in the future) outweigh the positive effect of any appreciation of the U.S. dollar relative to the NIS, if, and to the extent that, it outpaces such appreciation or precedes such appreciation. The Israeli rate of inflation did not have a material adverse effect on our financial condition during 2023 ,2022 and 2021. Given our general lack of currency hedging arrangements to protect us from fluctuations in the exchange rates of the NIS in relation to the U.S. dollar (and/or from inflation of such non-U.S. currencies), the Company may be exposed to material adverse effects from such movements. the Company cannot predict any future trends in the rate of inflation in Israel or the rate of devaluation (if any) of the U.S. dollar against the NIS. |
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES |
a. | Basis of presentation: The financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The significant accounting policies described below have been applied consistently in relation to all the periods presented, unless otherwise stated. |
b. | Use of estimate in preparation of financial statements: The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company evaluates on an ongoing basis its assumptions. Estimates are primarily used for, but not limited to, valuation of share-based compensation, clinical trial accrual expenses, and valuation allowances. The Company’s management believes that the estimates, judgments, and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of expenses during the reporting periods. Actual results could differ from those estimates. |
PAINREFORM LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
c. | Financial statements in United States dollars: The Company’s functional currency is the U.S. dollar (“dollar” or “$”) since the dollar is the currency of the primary economic environment in which the Company has operated and expects to continue to operate in the foreseeable future. Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Balances in non-U.S. dollar currencies are translated into U.S. dollars using historical and current exchange rates for non-monetary and monetary balances, respectively. For non-U.S. dollar transactions and other items in the statements of income (indicated below), the following exchange rates are used: (i) for transactions - exchange rates at transaction dates or average exchange rates; and (ii) for other items (derived from non-monetary balance sheet items such as depreciation) - historical exchange rates. Currency transaction gains and losses are presented in financial income or expenses, as appropriate. |
d. | Cash and cash equivalents: Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less at acquisition. |
e. | Short term deposit: Bank deposits with original maturity dates of more than three months but at balance sheet date are less than one year are included in short-term deposits. The fair value of bank deposits approximates the carrying value since they bear interest at rates close to the prevailing market rates. |
f. | Restricted cash: As of December 31, 2023 and 2022, the Company’s restricted cash consisted of immaterial bank deposits that were denominated in NIS. Restricted deposits are presented at cost including accrued interest. These bank deposits are used as securities for the Company's credit cards. |
g. | Fair Value Measurements: The carrying values of Company’s financial assets and liabilities, including cash and cash equivalents, restricted cash, other current assets, trade payables and other accounts payable approximate their fair value due to the short-term maturity of these instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. Assets and liabilities recorded at fair value in the financial statements are categorized as follows: Level 1 - Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date; Level 2 - Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable inputs for similar assets or liabilities. These include quoted prices for identical or similar assets or liabilities in active markets and quoted prices for identical or similar assets of liabilities in markets that are not active; Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. As of December 31, 2023, and 2022 no assets or liabilities are measured at their fair value. |
PAINREFORM LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
h. | Property and equipment, net: Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets at the following rates: |
% | ||||
Computers, software and electronic equipment | 33 | |||
Furniture and office equipment | 7 |
i. | Research and development expenses: Research and development costs include costs of payroll and related expenses of employees, subcontractors and consultants and other costs related to the Company's operation of its planned clinical trials. Research and development expenses are charged to the statements of comprehensive loss as incurred. Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. The Company outsources its clinical trial activities utilizing external entities such as clinical research organizations, independent clinical investigators, and other third-party service providers to assist the Company with the execution of its clinical trials. Clinical trial expenses are charged to research and development expense as incurred. The Company accrues for expenses resulting from obligations under contracts with its clinical research organization (CRO). The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which services are provided. The Company’s objective is to reflect the appropriate trial expense in the financial statements by matching the appropriate expenses with the period in which services and efforts are expended. In the event advance payments are made to a CRO, the payments are recorded as prepaid clinical trial expenses and deferred clinical trial costs, which will be recognized as expenses as services are rendered. |
j. | Employee severance benefits: The Company is required to make severance payments upon dismissal of an Israeli employee or upon termination of employment in certain circumstances. In accordance with the current employment terms with all of its employees (Section 14 of the Israeli Severance Pay Law, 1963) located in Israel, the Company makes regular deposits with certain insurance companies for accounts controlled by each applicable employee in order to secure the employee’s full retirement benefit and severance obligation. The Company is relieved from any severance pay liability with respect to each such employee after it makes the payments on behalf of the employee. The liability accrued in respect of these employees and the amounts funded, as of the respective agreement dates, are not reflected on the Company’s balance sheet, as the amounts funded are not under the control and management of the Company and the pension or severance pay risks have been irrevocably transferred to the applicable insurance companies. The amounts of severance payment expenses were $73, $60 and $58 for the years ended December 31, 2023, 2022 and 2021, respectively. |
k. | Legal and other contingencies: Certain conditions may exist as of the date of the financial statements, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities, if any, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s management evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. Management applies the guidance in ASC 450-20, “Loss Contingencies” when assessing losses resulting from contingencies. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be reasonable estimated, then the estimated liability is recorded as accrued expenses in the Company’s financial statements. Legal costs incurred in connection with loss contingencies are expensed as incurred. |
PAINREFORM LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
l. | Income taxes: The Company accounts for income taxes using the asset and liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value if it is more likely than not that a portion or all the deferred tax assets will not be realized, based on the weight of available positive and negative evidence. As of December 31, 2023, and 2022, the Company had a full valuation allowance on its deferred tax assets. The Company implements a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax positions as the largest amount that is more than 50% (cumulative basis) likely to be realized upon ultimate settlement. As of December 31, 2023 and 2022, the total gross amount of provision for unrecognized tax positions was $251 and $243, respectively (Note 5f). The Company recognizes interest and penalties, if any, related to unrecognized tax positions in tax expenses and exchange differences in financial expense. |
m. | Concentrations of credit risk: Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and restricted cash. Cash and cash equivalents and restricted cash are invested in a major bank in Israel and the United States. Management believes that the banks that hold the Company’s cash, cash equivalent and restricted cash are financially sound and, accordingly, minimal credit risk exists with respect to this cash, cash equivalent and restricted cash. |
n. | Dependence on a single supplier risk: The Company relies, and expects to continue to rely, on a single supplier to manufacture supplies and raw materials for its clinical trial. This clinical trial could be adversely affected by a significant interruption in these manufacturing services or the availability of raw materials. |
PAINREFORM LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
o. | Derivative warrant liability Financial equity instruments that do not meet the US GAAP criteria for equity classification are classified as a liability at fair value and are adjusted to fair value at each reporting period. Changes in fair value are recognized in the Company’s statements of comprehensive loss in accordance with ASC 815, “Accounting for Derivative Financial Instruments”. |
p. | Basic and diluted loss per share: Basic loss per share is computed on the basis of the net loss for the period divided by the weighted average number of Ordinary Shares and vested Ordinary Shares issuable for little or no further consideration outstanding during the period. Diluted loss per share is based upon the weighted average number of ordinary shares and of potential Ordinary Shares outstanding when dilutive. Potential Ordinary Shares include outstanding stock options, restricted shares and warrants, which are included under the treasury stock method when dilutive. For the years ended December 31, 2023, 2022 and 2021, all outstanding share options, restricted shares, and warrants have been excluded from the calculation of the diluted net loss per share as all such securities are anti-dilutive for all years presented. |
The loss and the weighted average number of shares used in computing basic and diluted net loss per share is as follows: |
Year ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Numerator: | ||||||||||||
Net loss applicable to shareholders of ordinary shares | $ | (9,344 | ) | $ | (8,792 | ) | $ | (7,246 | ) | |||
Denominator: | ||||||||||||
Shares of Ordinary Share and restricted shares used in computing basic and diluted net loss per share (*) | 1,308,920 | 1,081,755 | 999,562 | |||||||||
Net loss per share of ordinary share, basic and diluted | $ | (7.14 | ) | $ | (8.13 | ) | $ | (7.25 | ) |
(*) All share amounts have been retroactively adjusted to reflect a 1-for-10 reverse share split (Note 1c).
PAINREFORM LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
q. | Share-based compensation: Share-based compensation to employees and consultants is accounted for in accordance with ASC 718, “Compensation - Share Compensation” (“ASC 718”), which requires estimation of the fair value of share-based payment awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service period using the straight-line method. The Company has elected to recognize forfeitures, as incurred. The Company grants share-equivalents (“Share Based Compensation”) to its employees, officers, directors, and non-employees in consideration for services rendered (Note 7). The Company accounts for Share-Based Compensation awards classified as equity awards using the grant-date fair value method. The fair value at grant-date of the issued equity award is recognized as an expense on a straight-line basis over the requisite service period. The fair value of each share option granted is estimated using the Black-Scholes option pricing model, which requires a number of assumptions, of which the most significant are the expected share price, volatility, and the expected option term. Expected volatility was calculated based on comparable public companies in the same industry. The expected share option term is calculated for share options granted using the “simplified” method when the required conditions are met. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. The expected dividend yield assumption is based on the Company’s historical experience and expectation of no future dividend pay outs. The Company has historically not paid cash dividends and has no foreseeable plans to pay cash dividends in the future. The Company elected to recognize Share-Based Compensation cost for awards with only service conditions that have a graded vesting schedule using the straight-line method based on the multiple-option award approach. |
r. | Deferred offering costs The Company capitalizes certain legal and other third-party fees that are directly related to the Company’s in-process equity financings until such financings are consummated. After the consummation of such equity financings, these costs are recorded as a reduction of the respective gross proceeds. Should a planned equity financing be abandoned, terminated, or significantly delayed, the deferred offering costs are written off to operating expenses. As of December 31, 2023 and 2022, there were no deferred offering costs. |
s. | Segment Reporting The Company has one operating and reportable segment. An operating segment is defined as a component that engages in business activities whose operating results are reviewed by the chief operating decision maker, who is the Company’s Chief Executive Officer, for the purpose of assessing performance and allocating resources and for which discrete financial information is available. |
t. | Leases In accordance with Accounting Standards Codification (“ASC”) 842, Leases, the Company determines whether an arrangement is or contains a lease at the inception of the arrangement and whether such a lease is classified as a financing lease or operating lease at the commencement date of the lease. Leases consist real estate property that are classified as operating leases with rental payment linked to the index. The Company recorded right of use (“ROU”) asset and a lease liability of the Company obligation to make the lease payments. The ROU asset and the liability are included in non-current assets, current liabilities and non-current liabilities on the balance sheet. Operating lease ROU and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term, which may include options to extend or terminate the lease, when it is reasonably certain at the commencement date whether the Company will or will not exercise the option to renew or terminate the lease. In previous periods the Company elected the short-term lease recognition exemption for all leases with a term shorter than 12 months period. This means that for those leases, the Company did not recognize ROU assets or lease liabilities but recognizes lease expenses over the lease term on a straight-line basis (Note 6a). |
PAINREFORM LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
u. | Recently Issued Accounting Pronouncements Not Yet Adopted In November 2023, the FASB issued ASU No. 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU improves reportable segments disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The ASU also require that a public entity that has a single reportable segment to provide all the disclosures required by the amendments and all existing segment disclosures in Topic 280. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating this guidance to determine the impact it may have on its financial statements related disclosure. |
NOTE 3:- | PREPAID EXPENSES AND OTHER CURRENT ASSETS |
December 31, | ||||||||
2023 | 2022 | |||||||
Receivables from governmental authorities | $ | 45 | $ | 55 | ||||
Prepaid expenses | 204 | 310 | ||||||
$ | 249 | $ | 365 |
NOTE 4:- | ACCRUED EXPENSES |
December 31, | ||||||||
2023 | 2022 | |||||||
Directors’ fees | $ | 34 | $ | 33 | ||||
Manufacturing and trials expenses | 1,486 | 168 | ||||||
Advisors and legal expenses | 148 | 155 | ||||||
$ | 1,668 | $ | 356 |
PAINREFORM LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 5:- | TAXES ON INCOME |
a. | Tax rates applicable to the Company: Taxable income of the Company is subject to the Israeli Corporate tax rate which was 23% for the years ended December 31, 2023, 2022 and 2021. |
b. | Net operating loss carry forward: As of December 31, 2023, and 2022, the Company had net operating loss carry forwards for Israeli income tax purposes of approximately $24,774 and $19,695, respectively. Net operating loss carry forwards in Israel may be carried forward indefinitely and offset against future taxable income. |
c. | As of December 31, 2023, the Company had final tax assessments for tax years prior to and including the tax year ended December 31, 2018. |
d. | Deferred income taxes: Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows: |
December 31, | ||||||||
2023 | 2022 | |||||||
Net operating loss carry forward | $ | 5,698 | $ | 4,530 | ||||
Research and development expenses | 1,179 | 812 | ||||||
Other | 48 | 34 | ||||||
Less: Valuation allowance | (6,925 | ) | (5,376 | ) | ||||
Net deferred tax asset | $ | - | $ | - |
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible and net operating losses are utilized. Based on consideration of these factors, the Company recorded a full valuation allowance on December 31, 2023, and 2022. |
PAINREFORM LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 5:- | TAXES ON INCOME (Cont.) |
e. | Reconciliation of theoretical tax expenses to actual expenses The primary difference between the statutory tax rate of the Company and the effective rate results virtually from the changes in valuation allowance in respect of carry forward tax losses, share based compensation expenses and research and development expenses due to the uncertainty of the realization of such tax benefits. |
f. | Uncertain tax positions: A reconciliation of the opening and closing amounts of total unrecognized tax benefits is as follows: |
December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Opening balance | $ | 243 | $ | 234 | $ | 220 | ||||||
Tax positions taken in the current year | - | - | ||||||||||
Interest and Exchange rate differences | 8 | 9 | 14 | |||||||||
Closing balance | $ | 251 | $ | 243 | $ | 234 |
The balance of total unrecognized tax position, which, if recognized, would affect the effective tax rate in the Company’s statements of comprehensive loss. The Company recognizes interest and penalties, if any, related to unrecognized tax positions in tax expenses and exchange differences in income tax expense. The accrued interest and exchange difference related to uncertain tax positions and the expenses recognized during the years ended December 31, 2023, 2022 and 2021 was $ 8, $9, $14 respectively. |
PAINREFORM LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 6:- | COMMITMENTS: |
a. | On July 26, 2021, the Company engaged in a rental agreement for its principal offices at Tel Aviv, Israel for a 12 months period. On August 1, 2022 the Company extended the rental agreement for an additional 12-month period. On August 1, 2023, the Company signed a new lease agreement ("the New lease agreement") for its principal offices for a period of one year, or until July 31, 2024, with additional option on behalf of the Company for a period of one year until July 31, 2025, that the Company’s management expects to be exercised. According to the Company's accounting policy, in regard to the New lease agreement, the Company recognized ROU assets and lease liabilities. The rent of the office is $5 per month, linked to the consumer price index. If the Company exercises its right to extend the lease for the additional year, the rent will increase by 5%. The annual rent expenses in 2023 was $66. Cash paid for amounts included in the measurement of lease liabilities $33. The weighted average remaining lease term is 1.5 years. The weighted average discount rate was 8.5%. |
b. | On November 13, 2020, and December 3, 2020, the Company entered into a Master Clinical Research Organization Agreement (the “First Agreement”) and a Master Clinical Trial Agreement (the “Second Agreement”) with Lotus Clinical Research (“Lotus”) as the Company’s clinical research organization. According to the agreements Lotus will serve as the clinical research organization for the Company’s planned Phase 3 trials of PRF-110, which began in March 2023 and to take place during the years 2023 - 2024. The Company and the CRO negotiated and signed the updated terms of the First Agreement and the Second Agreement and mutually agreed to update the total milestone completion payment to $5.9 million and to update the payment for the actual number of evaluable subjects to $9.9 million, total $15.8. As of December 31, 2023, the Company accounted for the amounts of $1,514 as prepaid clinical trial expense and recognized expenses of $4.1 million and $1.1 million as clinical trials expenses in 2023 and 2022, respectively. |
PAINREFORM LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 7:- | SHAREHOLDERS’ EQUITY |
a. | Ordinary shares: The Ordinary Shares confer upon their holders the right to participate and vote in general shareholder meetings of the Company and to share in the distribution of dividends, if any, declared by the Company, and rights to receive a distribution of assets upon liquidation. |
b. | Share activity: | |
On March 11, 2021, the Company issued to certain institutional investors (the “Purchasers”) 130,345 Ordinary Shares and warrants to purchase up to an aggregate of 65,217 ordinary shares at a combined purchase price of $46.0 per Ordinary Share and accompanying warrant in a Private Investment in Public Equity (“Private placement”) pursuant to a securities purchase agreement. The private placement resulted in gross proceeds of approximately $6,000. The Company received net amount of $5,554 less issuance costs. On July 22, 2021, as a result of an exercise of warrants to purchase 41,967 shares held by one of the Purchasers, the Company received gross proceeds of $1,930. In connection with the private placement, the Company also entered into a Registration Rights Agreement, dated as of March 8, 2021, with the Purchasers (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, the Company filed a registration statement (the “Registration Statement”), with the SEC to register the resale of the ordinary shares and the Ordinary Shares issuable upon exercise of the warrants. The Registration Statement was declared effective on April 9, 2021. The Company paid the placement agents of the private placement a cash placement fee equal to $390 and an expense reimbursement of $40. The Company also issued to the placement agents warrants to purchase 5,217 Ordinary Shares, at an exercise price of $50.6 per ordinary share and a term expiring on March 10, 2026. The Company paid a total of approximately $500 in placement agent fees and other expenses. |
PAINREFORM LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 7:- | SHAREHOLDERS’ EQUITY (Cont.) |
| c. | Warrants and warrants units: |
The following table summarizes the warrants and warrants units outstanding as of December 31, 2023: |
Type | Issuance Date | Number of warrants | Exercise price(**) | Exercisable through |
August 2019 warrants | August 22, 2019 | 205,268 | $67.2(*) | August 22, 2024 |
December 2019 warrants | December 9, 2019 | 148,106 | $67.2(*) | December 8, 2024 |
Warrants to underwriters | September 3, 2020 | 125,000 | $100.00 | September 1, 2025 |
Warrants to underwriters | October 5, 2020 | 375,000 | $88.0 | September 3, 2025 |
IPO warrants | September 3, 2020 | 2,812,170 | $88.0 | September 3, 2025 |
PIPE warrants | March 11, 2021 | 232,500 | $46.0 | September 10, 2026 |
Warrants to PIPE placement agent | March 11,2021 | 52,173 | $50.6 | March 8, 2026 |
December 2023 warrants | December 28,2023 | 935,792 | $2.85 | December 28,2028 |
December 2023 warrants | December 28,2023 | 32,753 | $3.56 | December 28,2028 |
TOTAL | 4,918,762 |
PAINREFORM LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 7:- | SHAREHOLDERS’ EQUITY (Cont.) |
d. | Share-based compensation: |
1. | The 2008 Plan |
On August 7, 2008, the Board of Directors approved the adoption of the 2008 Share Option Plan (the “2008 Plan”). The 2008 Plan has expired, and no additional grants may be made. |
2. | The 2019 Plan |
On July 2, 2019, the Board of Directors approved the adoption of the 2019 Plan. Under the 2019 Plan, the Company may grant its officers, directors, employees and consultants share options of the Company. Each share option granted shall be exercisable at such times and terms and conditions as the Board of Directors may specify in the applicable share option agreement, provided that no share option will be granted with a term in excess of 10 years. Upon the adoption of the 2019 Plan, the Company reserved for issuance 97,148 ordinary shares. On February 23, 2021, the shareholders of the Company approved the grant of options to purchase an aggregate of 30,000 Ordinary Shares to three current board members, the Chairman of the board of directors and to the Chief Technology Officer (who is also a director). Each was granted with options to purchase 6,000 Ordinary Shares of the Company. The options are exercisable to acquire one Ordinary Share of the Company at an exercise price of $45.0 per share. The options vest on a quarterly basis over thirty-six months, so that 1/12 of the options shall vest on the last day of each three-month period, provided that on such date each of the serving directors and Chief Technology Officer, shall serve in such capacity. The options will expire after ten years from their grant date. In April 2022, the Company’s board of directors approved the grant of options to purchase 16,446 Ordinary Shares of the Company to employees. The options were granted under the Company’s 2019 plan. The fair value of share options granted was estimated using the Black Scholes option-pricing model. The options vest over a four-year period, 4/16 of the options shall vest following the lapse of a period of twelve months commencing at the date of grant. The remaining 12/16 of the options shall vest on quarterly basis, so that 1/16 of the options shall vest on the expiry of each quarter. The weighted average grant date fair value per option was $8.90 with an exercise price of $10.60. |
PAINREFORM LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 7:- | SHAREHOLDERS’ EQUITY (Cont.) |
2. | The 2019 Plan (Cont.) |
Modification of share-based compensation On November 23, 2022 (“the commencement date”), the Company’s board of directors approved: (1) the cancellation of certain outstanding options granted to employees in September 2019 (which were fully vested), November 2020, January 2021, May 2021 and April 2022, and the grant of a greater number of replacement options thereof under the new terms with a lower exercise price of US $5.70 and a shorter vesting period (except for September 2019's grant). (2) The grant of 2,127 options to a new employee on the same terms of the replacement options granted to the rest of the Company's employees, as described (the "Modification"). The New Options vest and become exercisable under the following schedule: 50% of the shares covered by the options are immediately vesting on the commencement date determined by the administrator (and in the absence of such determination, the date on which such options were granted), and 6.25% of the shares covered by the options at the end of each subsequent three-month period thereafter over the course of the following three years. The Modification was considered as a Type I modification. The total incremental fair value of these options amounted to $165. An amount of 50% of the incremental fair value were vested immediately at the commencement date and an amount of $83 was recognized immediately, and the remaining incremental fair value will be recognized over the remaining vesting period through December 31, 2024. In addition, the unrecognized compensation cost as of the date of the Modification was recognized over the vesting period of the new options. As a result, an amount of 50% of the unrecognized compensation cost of the cancelled options were vested immediately in the amount of $454, and the remaining unrecognized compensation cost are recognized over the remaining vesting period and until December 31, 2024. As a result of the Modification, (A) 66,764 options were cancelled, comprised of (i) 5,117 options that had been granted in September 2019, at an exercise price of $33.4, (ii) 26,730 options that had been granted in November 2020, at an exercise price of $57.4, (iii) 13,365 options granted in January 2021, at an exercise price of $57.4, and (iv) 5,107 options granted in May 2021, at an exercise price of $30.1, and (ii) 16,446 options that had been granted in April 2022 at an exercise price of $10.6 (the “Cancelled Options”), and (B) 98,877 new options had been granted (including 2,127 option granted to a new employee) (the “New Options”). The intrinsic value of share options outstanding and exercisable as of December 31, 2023 was $2. On June 8, 2023, the Company’s shareholders approved the grant of options to purchase an aggregate of 54,000 shares to two current board members, and to the chairman of the board of directors. Each recipient received a grant of options to purchase 18,000 ordinary shares of the Company, at an exercise price of $5.89 per share. Fifty percent of the options vested upon grant, with the remaining shares vesting on a quarterly basis over three years so that 7,500 Options shall vest on the expiry of each quarter thereafter, provided that on such date each of the serving directors, shall serve in such capacity. The options expire after ten years from their grant date. The Company determined the valuation of the options with these assumptions: average expected term 5.36 years, average risk-free interest rate of 3.85%, volatility of 90.43%, zero dividend yield is expected. The grant-date fair value was $3.20 for each option. The valuation of the option on the grant date was $174. |
PAINREFORM LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 7:- | SHAREHOLDERS’ EQUITY (Cont.) |
As of December 31, 2023, the Company had 49,720 unvested options. The total unrecognized compensation cost of employee and directors’ options as of December 31, 2023, is $383. The intrinsic value of share options outstanding as of December 31, 2023 was $2 The intrinsic value of share options exercisable as of December 31, 2022 was $9. |
3. | The following tables summarizes information about options granted to employees and directors: The 2008 Plan Share options outstanding and exercisable to employees and directors under the 2008 Plan are as follows: |
Number of options | Weighted average exercise price | Weighted average remaining contractual life | ||||||||||
USD | ||||||||||||
Options outstanding at beginning of year | 15,388 | $ | 2.40 | 1.25 | ||||||||
Changes during the year: | ||||||||||||
Options granted | - | - | - | |||||||||
Options exercised | - | - | - | |||||||||
Options forfeited | - | - | - | |||||||||
Options outstanding at end of year | 15,388 | $ | 2.40 | 0.25 | ||||||||
Options exercisable at end of year | 15,388 | $ | 2.40 | 0.25 |
The 2019 Plan Share options outstanding and exercisable to employees and directors under the 2019 Plan are as follows: |
Number of options | Weighted average exercise price | Weighted average remaining contractual life | ||||||||||
USD | ||||||||||||
Options outstanding at beginning of year | 133,994 | $ | 14.40 | 9.39 | ||||||||
Changes during the year: | ||||||||||||
Options granted | 54,000 | 5.89 | 9.44 | |||||||||
Options cancelled | - | - | - | |||||||||
Options exercised | - | - | - | |||||||||
Options forfeited | - | - | - | |||||||||
Options outstanding at end of year | 187,994 | $ | 11.94 | 8.69 | ||||||||
Options exercisable at end of year | 138,274 | $ | 13.44 | 8.56 |
PAINREFORM LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 7:- | SHAREHOLDERS’ EQUITY (Cont.) |
| 4. | The following table sets forth the assumptions that were used in determining the fair value of options granted to employees in 2019 plan for the years ended on December 31, 2023, 2022 and 2021: |
2023 | 2022* | 2021* | ||||||||||
Expected term (years) | 5.00-6.41 | 5.28-6.07 | 5.86-6.11 | |||||||||
Risk-free interest rates | 3.82%-3.87 | % | 2.69%-3.88 | % | 0.52%-1.13 | % | ||||||
Volatility | 90.43 | % | 79.3%-82.6 | % | 69.67%-78.99 | % | ||||||
Dividend yield | - | - | - | |||||||||
Exercise price | $ | 5.89 | $ | 5.70-10.60 | $ | 30.13-57.38 |
| * The assumptions presented above are the original assumptions used to determine the options fair value at the date of the grants. The assumptions used to determine the incremental value of the options at the modification date are as presented at the Company's options valuation. The Company recognized $731, $1,104 and $713 during the years ended December 31, 2023, 2022 and 2021, respectively, as share-based compensation expenses which was included in general and administrative expenses, and $73, $285 and $99 during the years ended December 31, 2023, 2022 and 2021, respectively, as share-based compensation expense which was included in research and development expenses. |
5. | In August 2020, the Company signed a public relation service agreement (the “Service Agreement”) with Crescendo Communications, LLC (“Crescendo”), for a period of two years, commencing immediately after the IPO closing date, and in consideration for 3.75% of the Company's share capital fully diluted Pre-IPO. On August 23, 2020, the Company's Board of Directors approved the Service Agreement with Crescendo and the grant of 15,211 restricted Company's Ordinary Shares ("the first grant"). The Company recognized no expenses during the year ended December 31, 2023 and recognized $275 and $412 during the year ended December 31, 2022, and 2021, respectively, as share-based compensation expenses with respect to the first grant. In April 2022 the foregoing shares were issued. In May 2022, following discussions between the Company and Crescendo regarding the number of shares to which they are entitled, the Company's board of Directors approved the grant of an additional 8,697 of the Company's Ordinary shares, par value NIS 0.3 each to Crescendo ("the second grant"). In February 2023, the Company granted to Crescendo the second grant. During 2022, the Company has recognized $67 as share-based compensation expenses in connection with the second grant, no expense was recognized during the year ended December 31, 2023. |
PAINREFORM LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 8:- | SELECTED STATEMENTS OF OPERATIONS DATA |
a. | Research and development expenses: |
Year ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Subcontractors and consultants | $ | 1,001 | $ | 2,228 | $ | 1,654 | ||||||
Payroll and related expenses | 699 | 766 | 719 | |||||||||
Share-based compensation expense | 73 | 285 | 99 | |||||||||
Clinical trials expenses | 4,262 | 1,121 | 357 | |||||||||
Other expenses | - | 22 | 31 | |||||||||
$ | 6,035 | $ | 4,422 | $ | 2,860 |
b. | General and administrative expenses: |
Year ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Professional services | $ | 1,209 | $ | 1,489 | $ | 1,697 | ||||||
Payroll and related expenses | 877 | 780 | 688 | |||||||||
D&O insurance | 394 | 653 | 935 | |||||||||
Rent and office maintenance | 191 | 249 | 210 | |||||||||
Share-based compensation expense | 731 | 1,104 | 713 | |||||||||
Other expenses | 147 | 172 | 105 | |||||||||
$ | 3,549 | $ | 4,447 | $ | 4,348 |
c. | Other financial income (expenses), net: |
Year ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Interest income | 406 | 160 | - | |||||||||
Issuance expenses | (368 | ) | - | - | ||||||||
Bank fees | (16 | ) | (13 | ) | (10 | ) | ||||||
Loss from Inducement offer letter agreement (Note 7c) | (1,502 | ) | - | |||||||||
Change in fair value of derivative warrant liability (Note7c) | 1,726 | - | - | |||||||||
Exchange rate differences | $ | 2 | (61 | ) | $ | (22 | ) | |||||
Total other financial expenses, net | $ | 248 | 86 | $ | (32 | ) |
PAINREFORM LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 9:- | RELATED PARTIES BALANCES AND TRANSACTIONS |
a. | On January 26, 2020, the Company’s Board of Directors approved a one-time immediate payment of $150 and a payment of $37.5 on a quarterly basis (for such time as the service engagement continues) to the Chairman of the Board of Directors contingent upon shareholder approval, which was granted on July 6, 2020 and successful completion of Company’s IPO which closed on September 3, 2020. |
b. | On February 23, 2021, the shareholders of the Company approved the grant of options to purchase an aggregate of 30,000 Ordinary Shares to three board members, the Chairman of the board of directors and to its Chief Technology Officer (who also serves as a director). |
c. | On June 8, 2023, the Company’s shareholders approved the grant of options to purchase an aggregate of 54,000 shares to two current board members, and to the chairman of the board of directors. The valuation of the option on the grant date was $174. (Note 7d2) |
Balances with related parties: |
Year ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Employees accrued salaries and bonuses | $ | 324 | $ | 359 | $ | 356 | ||||||
Directors accrued fees expenses | 33 | 33 | 82 | |||||||||
$ | 357 | $ | 392 | $ | 438 |
Transactions with related parties: |
Year ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Amounts charged to: | ||||||||||||
Research and development expenses | $ | 528 | $ | 702 | $ | 151 | ||||||
General and administrative expenses | $ | 1,676 | $ | 2,091 | $ | 2,155 |
F - 27