NOTE
1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION:
|
1)
|
Intec
Pharma Ltd. ("Intec") is engaged in the development of proprietary technology
which enables the gastric retention of certain drugs. The technology is intended to significantly
improve the efficiency of the drugs and substantially reduce their side-effects or the
effective doses.
|
Intec
is a limited liability public company incorporated in Israel.
Intec’s
ordinary shares are traded on the NASDAQ Capital Market ("NASDAQ").
In
September 2017, Intec incorporated a wholly-owned subsidiary in the United States of America in the State of Delaware - Intec
Pharma Inc. (the "Subsidiary", together with Intec - "the Company"). The Subsidiary was incorporated mainly
to provide Intec executive and management services, including business development, medical affairs and investor relationship
activities outside of Israel.
|
2)
|
The Company engages in research and development activities and has not yet generated revenues from operations. On July 22, 2019, the Company announced top-line results according to which its Phase III clinical trial for AP-CD/LD did not achieve its primary and secondary endpoints. Accordingly, there is no assurance that the Company’s operations will generate positive cash flows. As of September 30, 2020, the cumulative losses of the Company were approximately $200 million. Management expects that the Company will continue to incur losses from its operations, which will result in negative cash flows from operating activities.
|
The
Company believes that it has adequate cash to fund its ongoing activities into the first quarter of 2022. Its ability to
continue to execute its operating plan is dependent on its ability to obtain additional capital principally through entering
into collaborations, strategic alliances, or license agreements with third parties and/or raising capital from the public
and/or private investors and/or institutional investors. The negative outcome of the Phase III clinical trial that was
announced on July 22, 2019 and uncertainty regarding the Company's development programs is expected to adversely affect its
ability to obtain funding and there is no assurance that it will be successful in obtaining the level of financing needed for
its activities. If the Company is unsuccessful in securing sufficient financing, it may need to curtail or cease operations.
In addition, the COVID-19 pandemic, that has spread globally, has resulted in significant financial
market volatility and uncertainty in recent months. Many countries around the world, including in Israel and the United
States, have implemented significant governmental measures to control the spread of the virus, including temporary closure of
businesses, severe restrictions on travel and the movement of people, and other material limitations on the conduct of
business. The Company has implemented remote working and work place protocols for its employees in accordance with government
requirements. The implementation of measures to prevent the spread of coronavirus have resulted in disruptions to the
Company’s partnering efforts which depend, in part, on attendance at in-person meetings, industry conferences and other
events. It is still early to assess the full impact of the coronavirus outbreak and the extent to which the coronavirus
impacts the Company’s operations will depend on future developments, which are highly uncertain and cannot be predicted
with confidence, including the duration and severity of the outbreak, and the actions that may be required to contain the
coronavirus or treat its impact. As of the date of issuance of these condensed consolidated financial statements, the extent
to which the COVID-19 pandemic may materially impact the Company’s financial condition, liquidity, or results of
operations is uncertain.
INTEC PHARMA LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(Unaudited)
NOTE
1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION (continued):
Furthermore,
the estimation process required to prepare the Company’s consolidated financial statements required assumptions to be
made about future events and conditions and the impact of COVID-19 on the Company’s financial results, and while the
Company’s management believe such assumptions are reasonable, they are inherently subjective and uncertain. The
Company’s actual results could differ materially from those estimates. As a result of these uncertainties, there is
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 and do not include any adjustments
that might result from the outcome of this uncertainty.
|
3)
|
On September
3, 2019, the Company was notified by NASDAQ that it was not in compliance with the minimum bid price requirements for continued
listing on the NASDAQ. The notification provided that the Company had 180 calendar days, or until March 2, 2020, to regain compliance.
On March 3, 2020, the Company was notified that it is eligible for an additional 180 calendar day period, or until August
31, 2020, to regain compliance. As a result of tolling of compliance periods by NASDAQ, on April 17, 2020, the Company was notified
that the term to regain compliance was extended until November 13, 2020. To regain compliance, the bid price of the Company’s
ordinary shares must have a closing bid price of at least $1.00 per share for a minimum of 10 consecutive business days. Accordingly,
on July 15, 2020, the Company’s shareholders approved amendments to the Company’s articles of association to effect
a reverse share split of its ordinary shares at a ratio with the range from 1-for-5 to 1-for-25, to be effective at the ratio
and on a date to be determined by the board of directors in its sole discretion. The Company subsequently implemented a 1-for-20
reverse share split of its ordinary shares which was effective for NASDAQ marketplace purposes at the open of business on October
30, 2020, for more details see note 6. If the bid price of the Company’s ordinary shares is at least $1.00 per share for
at least 10 consecutive days following the effectiveness of the reverse share split, then the Company expects to regain compliance
with the minimum bid price requirement. Failure to meet these requirements could result in a delisting of the Company’s
ordinary shares which could negatively impact the Company’s ability to raise capital.
|
All share and per share amounts
in these unaudited condensed consolidated financial statements have been retroactively adjusted to reflect the reverse share split.
For more details see note 6.
The
unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with accounting
principles generally accepted in the United States of America ("US GAAP") and S-X Article 10 for interim financial
statements. Accordingly, they do not contain all information and notes required by US GAAP for annual financial statements. In
the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments, which
include normal recurring adjustments, necessary for a fair statement of the Company’s consolidated financial position as
of September 30, 2020, the consolidated results of operations, changes in equity for the three and nine-month periods ended September
30, 2020 and 2019 and cash flows for the nine-month periods ended September 30, 2020 and 2019.
These
unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company’s annual financial statements for the year ended December 31, 2019,
as filed in the 10-K on March 13, 2020. The condensed balance sheet data as of December 31, 2019 included in these unaudited
condensed consolidated financial statements was derived from the audited financial statements for the year ended December 31,
2019 but does not include all disclosures required by US GAAP for annual financial statements.
INTEC PHARMA LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(Unaudited)
NOTE
1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION (continued):
The
results for the nine-month period ended September 30, 2020 are not necessarily indicative of the results expected for the year
ending December 31, 2020.
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES:
|
a.
|
Principles of consolidation
|
The
consolidated financial statements include the accounts of Intec and its Subsidiary. Intercompany balances and transactions have
been eliminated upon consolidation.
|
b.
|
Fair value measurement
|
Fair
value is based on the price that would be received from the sale of an asset or that would be paid to transfer a liability in
an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability
in fair value measurements, the guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs
used to measure fair value into three broad levels, which are described as follows:
Level
1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The
fair value hierarchy gives the highest priority to Level 1 inputs.
Level
2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.
Level
3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest
priority to Level 3 inputs.
In
determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the
use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value.
Loss
per share, basic and diluted, is computed on the basis of the net loss for the period divided by the weighted average number of
ordinary shares outstanding during the period. Diluted loss per share is based upon the weighted average number of ordinary shares
and of ordinary shares equivalents outstanding when dilutive. Ordinary share equivalents include outstanding stock options and
warrants which are included under the treasury stock method when dilutive.
The
following share options and warrants were excluded from the calculation of diluted loss per ordinary share because their effect
would have been anti-dilutive for the periods presented (share data):
|
|
|
Three months ended
September 30
|
|
|
Nine months ended
September 30
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Outstanding stock options
|
|
|
244,413
|
|
|
|
207,838
|
|
|
|
226,018
|
|
|
|
215,715
|
|
|
Warrants
|
|
|
1,121,811
|
|
|
|
-
|
|
|
|
899,835
|
|
|
|
-
|
|
INTEC PHARMA LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(Unaudited)
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES (continued):
|
d.
|
Research and development expenses, net
|
Research and development expenses, net for the three and nine-month
period ended September 30, 2019, are net of participation in research and development expenses in the amount of approximately $168
thousand and $983 thousand, respectively. For the nine-month period ended September 30, 2020, the Company had no participation
in research and development expenses.
NOTE
3 - COMMITMENTS AND CONTINGENT LIABILITIES:
|
a.
|
LTS
Process Development Agreement
|
In
December 2018, the Company entered into a Process Development Agreement for Manufacturing Services with Lohmann Therapie-Systeme
AG ("LTS") for the manufacture of AP-CD/LD (the “Agreement”). Under the Agreement, the Company will bear
the costs incurred by LTS to acquire the production equipment for AP-CD/LD (“Equipment”) which amounted to approximately
€6.8 million (approximately $7.8 million), and this amount will later be reimbursed to the Company by LTS in the form of
a reduction in the purchase price of the AP-CD/LD product. As of December 31, 2019, the Company paid in full all the consideration
and has recognized the Equipment as non-current other assets.
In
2019, the Company performed an impairment assessment on certain of its long-lived assets which resulted an impairment charge of
the Equipment in the amount of approximately $4.1 million. As of December 31, 2019, the fair value of the Equipment was approximately
$3.7 million.
The Agreement also contains several termination rights and as
of September 30, 2020, the Company has a liability in the amount of €2.0 million (approximately $2.3 million) for LTS’s
facility upgrading costs. This liability will be paid to LTS only if the Company decides not to continue with the project or commercialization
of AP-CD/LD.
In
December, 2019, two former directors and officers (the “plaintiffs”) filed a statement of claim with the Jerusalem
District Labor Court alleging breach of contract related to a purported vesting of certain options issued to the plaintiffs pursuant
to the execution of the LTS Agreement and further alleging payments due for unredeemed vacation days.
The
plaintiffs are seeking pecuniary damages of NIS 2.4 million (approximately $700 thousand) plus interest and linkage to the Israeli
CPI. In addition, the plaintiffs have filed motions to obtain liens on the Company’s assets to secure any future recovery.
That motion was withdrawn pursuant to the court’s recommendation at the conclusion of a hearing held on February 9, 2020.
The
Company records a provision in its financial statements to the extent that it concludes that a contingent liability is probable,
and the amount thereof is estimable.
The
Company together with its legal advisors believe that it has good defense arguments to the claims against it and filed a statement
of defense to the complaint on March 8, 2020 in which it rejected all of the plaintiffs’ claims. Accordingly, management
assessed the likelihood of damages and concluded that no provisions are needed to be recorded within the financial statements
regarding the matter disclosed in this note.
INTEC PHARMA LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(Unaudited)
NOTE
4 - SHARE CAPITAL:
|
a.
|
Changes
in share capital
|
|
1)
|
On
March 1, 2019, the Company entered into a Sales Agreement with Cowen which provides that,
upon the terms and subject to the conditions and limitations in the Sales Agreement,
the Company may elect from time to time, to offer and sell ordinary shares through an
“at-the-market” equity offering program through Cowen acting as sales agent.
The issuance and sale of ordinary shares by the Company under the offering program is
being made pursuant to the Company’s effective “shelf” registration
statement on Form S-3 filed with the SEC on March 1, 2019 and declared effective on March
28, 2019, as amended by a prospectus supplement filed on March 13, 2020. On May 4, 2020,
the Company terminated the prospectus supplement, but the sales agreement remains in
full force and effect.
|
During
January 2020, the Company sold 41,569 ordinary shares under the Sales Agreement at an average price of $10.50 per share for aggregate
net proceeds of approximately $421 thousand, net of issuance expenses of approximately $15 thousand.
|
2)
|
On February 3, 2020, the Company completed an underwritten public offering, pursuant to which the Company issued 764,000 ordinary shares, pre-funded warrants to purchase 48,500 ordinary shares and warrants to purchase 812,500 ordinary shares. Each pre-funded warrant was exercisable at an exercise price of $0.002 per share. All the pre-funded warrants were exercised following the closing of the offering. Each ordinary share and warrant or pre-funded warrant and warrant were sold together at a combined price of $8.00. Each warrant shall be exercisable at an exercise price of $8.00 per share and has a term of five years from the date of issuance. The Company has also concluded that the warrants are classified as equity, since it meets all criteria for equity classification. The total net proceeds were approximately $5.7 million, after deducting underwriting discounts, commissions and other offering expenses in the amount of $800 thousand. In June and July 2020, warrants to purchase 44,625 ordinary shares were exercised for consideration of $357 thousand. As of September 30, 2020, warrants to purchase 767,875 ordinary shares remained outstanding.
|
|
3)
|
On May 6, 2020, the Company completed a registered direct offering, pursuant to which the Company sold and issued to certain institutional investors 814,598 ordinary shares at a purchase price per share of $6.138. In addition, in a concurrent private placement, the Company also sold and issued to the purchasers in the offering unregistered warrants to purchase 407,299 ordinary shares. Each warrant shall be exercisable at an exercise price of $4.90 per share and has a term of five and one-half years from the date of issuance. The Company has also concluded that the warrants are classified as equity, since it meets all criteria for equity classification. The total net proceeds were approximately $4.5 million, after deducting placement agent and other offering expenses in the amount of approximately $500 thousand. In July 2020, warrants to purchase 84,073 ordinary shares were exercised for consideration of approximately $412 thousand. As of September 30, 2020, warrants to purchase 323,226 ordinary shares remained outstanding.
|
|
4)
|
On July 15, 2020, the Company increased its authorized share capital from 5,000,000 ordinary shares to 17,500,000 ordinary shares.
|
INTEC PHARMA LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(Unaudited)
NOTE
4 - SHARE CAPITAL (continued):
|
5)
|
On August 10, 2020, the Company completed a registered direct
offering, pursuant to which the Company sold and issued to Aspire Capital Fund LLC (“Aspire Capital”), 356,250 ordinary
shares at a purchase price per share of $7.022. In addition, the Company also sold and issued to Aspire Capital pre-funded warrants
to purchase 356,250 ordinary shares at a purchase price per share of $6.822. Each pre-funded warrant shall be exercisable at an
exercise price of $0.20 per share. The pre-funded warrants are exercisable immediately and may be exercised at any time until all
of the pre-funded warrants are exercised in full. The Company has also concluded that the pre-funded warrants are classified as
equity, since it meets all criteria for equity classification. The total net proceeds were approximately $4.6 million, after deducting
commitment fee and other offering expenses in the amount of approximately $330 thousand. As of September 30, 2020, no pre-funded
warrants were exercised.
|
|
6)
|
The Company implemented a 1-for-20 reverse share split of its
outstanding ordinary shares that was effective for NASDAQ purposes at the open of business on October 30, 2020. All share and per
share amounts in these unaudited condensed consolidated financial statements have been retroactively adjusted to reflect the reverse
share split. For more details see note 6.
|
|
b.
|
Share-based
compensation:
|
|
1)
|
In January 2016, the Company's board of directors approved a new option plan (the "2015 Plan"). Originally, the maximum number of ordinary shares reserved for issuance under the 2015 Plan was 35,000 ordinary shares for grants to directors, employees and consultants. In July 2016, an increase of 35,000 ordinary shares was approved by the board of directors.
|
In
December 2017, June 2018 and December 2019, an increase of 105,000, 50,000 and 50,000 ordinary shares, respectively, was approved
by the Company’s shareholders at a general meeting of shareholders. In July 2020, the Company’s shareholders approved
a further increase of 175,000 ordinary shares.
As
of September 30, 2020, 165,738 shares remain available for grant under the Plan.
In
the nine months ended September 30, 2020 and 2019, the Company granted options as follows:
|
|
|
Nine months ended September 30, 2020
|
|
|
|
|
Number of options granted
|
|
|
Exercise price
|
|
|
Vesting period
|
|
|
Expiration
|
|
|
Employees
|
|
|
47,250
|
|
|
|
$6.15-$8.57
|
|
|
|
3 years
|
|
|
|
7 years
|
|
|
|
|
|
37,750
|
|
|
$
|
6.43
|
|
|
|
1.29 years
|
|
|
|
7 years
|
|
|
Directors
|
|
|
10,000
|
|
|
$
|
6.15
|
|
|
|
3 years
|
|
|
|
7 years
|
|
|
|
|
Nine months ended September 30, 2019
|
|
|
|
|
Number of options granted
|
|
|
Exercise price range
|
|
|
Vesting period range
|
|
|
Expiration
|
|
|
Employees
|
|
|
73,250
|
|
|
|
$8.94-$152.80
|
|
|
|
3 years
|
|
|
|
7 years
|
|
|
Directors
|
|
|
6,000
|
|
|
|
$97.20
|
|
|
|
3 years
|
|
|
|
7 years
|
|
The
fair value of options granted to employees and directors during the nine months ended September 30, 2020, and 2019 was $416 thousand
and $4.4 million, respectively.
INTEC PHARMA LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(Unaudited)
NOTE
4 - SHARE CAPITAL (continued):
The
fair value of options granted to employees and directors on the date of grant was computed using the Black-Scholes model. The
underlying data used for computing the fair value of the options are as follows:
|
|
|
Nine
months ended September 30
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Value of ordinary
share
|
|
|
$5.60-$6.20
|
|
|
|
$23.00-$149.20
|
|
|
Dividend
yield
|
|
|
0%
|
|
|
|
0%
|
|
|
Expected
volatility
|
|
|
102.58%-110.4%
|
|
|
|
53.32%-97.81%
|
|
|
Risk-free
interest rate
|
|
|
0.28%-1.42%
|
|
|
|
1.75%-2.57%
|
|
|
Expected
term
|
|
|
5 years
|
|
|
|
5 years
|
|
|
2)
|
The
following table illustrates the effect of share-based compensation on the statements
of operations:
|
|
|
|
Three
months ended
September 30
|
|
|
Nine
months ended
September 30
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
U.S.
dollars in thousands
|
|
|
U.S.
dollars in thousands
|
|
|
Research
and development expenses, net
|
|
$
|
136
|
|
|
$
|
371
|
|
|
$
|
495
|
|
|
$
|
1,538
|
|
|
General
and administrative expenses
|
|
|
200
|
|
|
|
416
|
|
|
|
697
|
|
|
|
1,210
|
|
|
|
|
$
|
336
|
|
|
$
|
787
|
|
|
$
|
1,192
|
|
|
$
|
2,748
|
|
NOTE
5 - ACCOUNTS PAYBLE AND ACCRUALS - OTHER:
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
U.S. dollars in thousands
|
|
|
Expenses payable
|
|
$
|
2,704
|
|
|
$
|
2,838
|
|
|
Salary and related expenses, including social security and other taxes
|
|
|
518
|
|
|
|
1,277
|
|
|
Current operating lease liabilities
|
|
|
558
|
|
|
|
544
|
|
|
Accrual for vacation days and recreation pay for employees
|
|
|
217
|
|
|
|
154
|
|
|
Other
|
|
|
22
|
|
|
|
22
|
|
|
|
|
$
|
4,019
|
|
|
$
|
4,835
|
|
NOTE
6 - EVENT SUBSEQUENT TO SEPTEMBER 30, 2020
The Company implemented a 1-for-20 reverse share split of its
outstanding ordinary shares that was effective for NASDAQ purposes at the open of business on October 30, 2020. As a result of
the reverse share split, every 20 outstanding ordinary shares was combined into one ordinary share. All fractional shares created
by the reverse share split were rounded up to the nearest whole share. The number of authorized shares was proportionately reduced
from 350,000,000 ordinary shares to 17,500,000 ordinary shares. The reverse share split decreased the Company’s outstanding
ordinary shares from 78,964,492 shares to 3,948,226 shares as of that date. All share and per share amounts in these
unaudited condensed consolidated financial statements has been retroactively adjusted to reflect the reverse share split.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following discussion and analysis provides information that we believe to be relevant to an assessment and understanding of our
results of operations and financial condition for the periods described. This discussion should be read together with our condensed
consolidated interim financial statements and the notes to the financial statements, which are included in this Quarterly Report
on Form 10-Q. This information should also be read in conjunction with the information contained in our Annual Report on Form
10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on March 13, 2020, including the
consolidated annual financial statements as of December 31, 2019 and their accompanying notes included therein. We have prepared
our condensed consolidated interim financial statements in accordance with U.S. GAAP.
This
Quarterly Report on Form 10-Q of Intec Pharma Ltd. contains forward-looking statements about our expectations, beliefs and intentions.
Forward-looking statements can be identified by the use of forward-looking words such as “believe”, “expect”,
“intend”, “plan”, “may”, “should”, “could”, “might”, “seek”,
“target”, “will”, “project”, “forecast”, “continue” or “anticipate”
or their negatives or variations of these words or other comparable words or by the fact that these statements do not relate strictly
to historical matters. These forward-looking statements are based on assumptions and assessments made in light of management’s
experience and perception of historical trends, current conditions, expected future developments and other factors believed to
be appropriate. Forward-looking statements in Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on
Form 10-Q, and we undertake no duty to update or revise any such statements, whether as a result of new information, future events
or otherwise. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties,
many of which are outside of our control. Many factors could cause our actual activities or results to differ materially from
the activities and results anticipated in forward-looking statements, including, but not limited to, the following: our limited
operating history and history of operating losses, our ability to continue as a going concern, our ability to obtain additional
financing, the impact of the outbreak of coronavirus on our operations, our ability to successfully operate our business or execute
our business plan, the timing and cost of our clinical trials, the completion and receiving favorable results in our clinical
trials, our ability to obtain and maintain regulatory approval of our product candidates, our ability to protect and maintain
our intellectual property and licensing arrangements, our ability to develop, manufacture and commercialize our product candidates,
the risk of product liability claims, the availability of reimbursement, and the influence of extensive and costly government
regulation. More detailed information about the risks and uncertainties affecting us is contained under the heading “Risk
Factors” included in our most recent Annual Report on Form 10-K filed with the SEC on March 13, 2020, and in other filings
that we have made and may make with the Securities and Exchange Commission in the future.
All
references to “we,” “us,” “our,” “Intec”, “the Company” and “our
Company” in this Quarterly Report on Form 10-Q are to Intec Pharma Ltd. and its U.S. subsidiary Intec Pharma Inc., unless
the context otherwise requires.
Unless
otherwise indicated, all information in this Quarterly Report on Form 10-Q gives effect to a 1-for-20 reverse share split of our
ordinary shares that became effective on October 30, 2020, and all references to ordinary shares outstanding and per share amounts
give effect to the reverse share split.
Overview
We are a clinical stage biopharmaceutical company focused on
developing drugs based on our proprietary Accordion Pill platform technology, which we refer to as the Accordion Pill. Our Accordion
Pill is an oral drug delivery system that is designed to improve the efficacy and safety of existing drugs and drugs in development
by utilizing an efficient gastric retention, or, GR and specific release mechanism. Our product pipeline currently includes several
product candidates in various stages. Our most advanced product candidate, Accordion Pill Carbidopa/Levodopa, or, AP-CD/LD, is
being developed for the indication of treatment of Parkinson’s disease symptoms in advanced Parkinson’s disease patients.
In
July 2019, we announced top-line results from our pivotal Phase III clinical for AP-CD/LD for the treatment of advanced Parkinson’s
disease known as the ACCORDANCE study in which the ACCORDANCE study did not meet its target endpoints. While AP-CD/LD provided
treatment for Parkinson’s disease symptoms, it did not demonstrate statistically superiority over immediate release CD/LD
on the primary endpoint of OFF time reduction under the conditions established in the protocol. Treatment-emergent adverse effects
observed with AP-CD/LD were generally consistent with the known safety profile of CD/LD formulations and no new safety issues
were observed throughout the double-blinded study, during the gastroscopy safety sub-study or the 12-month open-label extension
study. From our review of the data, we have observed a meaningful reduction in OFF time in certain subsets of patients. We have
completed the analysis of the full data set and we are currently seeking to partner AP-CD/LD as the basis for the strategy for
AP-CD/LD moving forward.
Previously,
we successfully completed a Phase II clinical trial for AP-CD/LD for the treatment of Parkinson’s disease symptoms in advanced
Parkinson’s disease patients and in February 2019, we announced that AP-CD/LD met the primary endpoint in a pharmacokinetic,
or PK study, comparing the AP-CD/LD 50/500mg dosed three times daily, the most common dose used in our ACCORDANCE study, to 1.5
tablets of CD/LD immediate release (Sinemet™) 25/100 dosed five times per day in Parkinson’s disease patients.
We
have invested in the commercial scale manufacture of AP-CD/LD, for which we are in partnership with LTS Lohmann Therapie-Systeme
AG (LTS) in Andernach, Germany. In October 2019, we completed the qualification studies for the commercial scale manufacture of
the Accordion Pill and we have initiated the validation and stability studies of certain batches which are expected to serve as
the clinical material for the next Phase 3 clinical trial plan. We have suspended further validation and stability studies and
we intend to initiate the validation and stability studies of the remaining batches upon partnering the AP-CD/LD program.
In
addition, we have initiated a clinical development program for our Accordion Pill platform with the two primary cannabinoids contained
in cannabis sativa, which we refer to as AP-Cannabinoids. We are formulating and testing CBD and THC for the treatment of various
pain indications. AP-Cannabinoids are designed to extend the absorption phase of CBD and THC, with the goal of more consistent
levels for an improved therapeutic effect, which may address several major drawbacks of current methods of treatment, such as
short duration of effect, delayed onset, variability of exposure, variability of the administered dose and adverse events that
correlate with peak levels. In March 2017, we initiated a Phase I single-center, single-dose, randomized, three-way crossover
clinical trial in Israel to compare the safety, tolerability and PK of AP-THC/CBD with Sativex®, an oral buccal spray containing
CBD and THC that is commercially available outside of the United States. Initial results demonstrated that the Accordion Pill
platform is well suited to safely deliver CBD and THC with significant improvements in exposure compared with Sativex®. In
December 2018, we initiated a PK study of AP-THC and the results of the study demonstrate that the custom designed AP delivery
system in the AP-THC PK study did not meet our expectations. We are continuing to advance the AP-Cannabinoids clinical development
program and we are seeking to launch a PK study with the optimized AP-THC in December 2020.
While
the ACCORDANCE results were not what we expected, we continue to believe in the potential of the Accordion Pill platform. In December
2018, we reported that we successfully developed an Accordion Pill for a Novartis proprietary compound that met the required in
vitro specifications set forth in a feasibility agreement with Novartis. In 2019 we completed the human PK study and its results
demonstrated that the AP met the technical requirements set forth by Novartis. In December 2019, Novartis, following an internal
and revised commercial strategic assessment, advised us that this program no longer meets Novartis’ mid to long-term strategic
goals. Novartis paid us $1.5 million on conclusion of the program. We restructured our clinical manufacturing planned to support
this program in order to reduce costs.
In
May 2019, we reported entering into a research collaboration agreement with Merck for the development of a custom-designed AP
for one of Merck’s proprietary compounds. We met the required in vitro specifications for that compound but do not anticipate
an in-vivo study. In October 2020, we entered into a new research collaboration agreement with Merck for another compound. Details
of the new agreement are confidential.
We
continue to advance discussions with other potential pharmaceutical partners for the development of new custom-designed APs. We
believe the data from our ACCORDANCE trial enhances those discussions as it validates the AP platform and provides long-term safety
data.
In
late 2019, a novel strain of COVID-19, also known as coronavirus, was reported in Wuhan, China. While initially the outbreak was
largely concentrated in China, it has now spread to countries across the globe, including in Israel and the United States. Many
countries around the world, including in Israel and the United States, have implemented significant governmental measures to control
the spread of the virus, including temporary closure of businesses, severe restrictions on travel and the movement of people,
and other material limitations on the conduct of business. We implemented remote working and work place protocols for our employees
in accordance with government requirements. The implementation of measures to prevent the spread of coronavirus have resulted
in disruptions to our partnering efforts which depend, in part, on attendance at in-person meetings, industry conferences and
other events. It is still early to assess the full impact of the coronavirus outbreak and the extent to which the coronavirus
impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence,
including the duration and severity of the outbreak, and the actions that may be required to contain the coronavirus or treat
its impact.
Results
of Operations
The
table below provides our results of operations for the periods indicated.
|
|
Three months ended
September 30
|
|
|
Nine months ended
September 30
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(dollars in thousands)
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses, net
|
|
$
|
(2,112
|
)
|
|
$
|
(8,448
|
)
|
|
$
|
(5,411
|
)
|
|
$
|
(24,850
|
)
|
General and administrative expenses
|
|
|
(1,529
|
)
|
|
|
(2,157
|
)
|
|
|
(4,874
|
)
|
|
|
(6,491
|
)
|
Impairment of long-lived assets
|
|
|
-
|
|
|
|
(9,759
|
)
|
|
|
-
|
|
|
|
(9,759
|
)
|
Operating loss
|
|
|
(3,641
|
)
|
|
|
(20,364
|
)
|
|
|
(10,285
|
)
|
|
|
(41,100
|
)
|
Financial income (expenses), net
|
|
|
(57
|
)
|
|
|
14
|
|
|
|
(123
|
)
|
|
|
157
|
|
Loss before income tax
|
|
|
(3,698
|
)
|
|
|
(20,350
|
)
|
|
|
(10,408
|
)
|
|
|
(40,943
|
)
|
Tax benefit (Income tax)
|
|
|
(42
|
)
|
|
|
(28
|
)
|
|
|
(149
|
)
|
|
|
(100
|
)
|
Net loss
|
|
$
|
(3,740
|
)
|
|
$
|
(20,378
|
)
|
|
$
|
(10,557
|
)
|
|
$
|
(41,043
|
)
|
Three
and Nine Months Ended September 30, 2020 Compared to Three and Nine Months Ended September 30, 2019
Research
and Development Expenses, Net
Our
research and development expenses, net, for the three months ended September 30, 2020 amounted to approximately $2.1 million,
a decrease of approximately $6.3 million, or 75%, compared to approximately $8.4 million for the three months ended September
30, 2019. Our research and development expenses, net, for the nine months ended September 30, 2020 amounted to approximately $5.4
million, a decrease of approximately $19.5 million, or 80%, compared to approximately $24.9 million for the nine months ended
September 30, 2019. The decrease for the three and nine-month periods was primarily due to the completion of our ACCORDANCE study
and Open Label Extension study during 2019, a decrease in expenses related to the scale up activities of the commercial scale
manufacturing line, a decrease in payroll and related expenses, mostly due to reduction in headcount, and a decrease in share-based
compensation.
General
and Administrative Expenses
Our
general and administrative expenses for the three months ended September 30, 2020 amounted to approximately $1.5 million, a decrease
of approximately $700,000, or 32%, compared to approximately $2.2 million for the three months ended September 30, 2019. Our general
and administrative expenses for the nine months ended September 30, 2020 amounted to approximately $4.9 million, a decrease of
approximately $1.6 million, or 25%, compared to approximately $6.5 million for the nine months ended September 30, 2019. The decrease
for the three and nine-month periods was primarily related to a decrease in payroll and related expenses, including reduction
in headcount, a decrease in share-based compensation and reduction in associated expenses.
Operating
Loss
As
a result of the foregoing, for the three months ended September 30, 2020 our operating loss was approximately $3.6 million, a
decrease of approximately $16.8 million, or 82%, compared to our operating loss for the three months ended September 30, 2019
of approximately $20.4 million. For the nine months ended September 30, 2020 our operating loss was approximately $10.3 million,
a decrease of approximately $30.8 million, or 75%, compared to our operating loss for the nine months ended September 30, 2019
of approximately $41.1 million. The decrease for the three and nine-month periods was due to a decrease in research and development
expenses, net and general and administrative expenses, as detailed above. In addition, for the three and nine months ended September
30, 2019, we recorded an impairment charge of approximately $9.8 million of our Production Line and Equipment, net, from the liability
described in note 3a to the condensed consolidated financial statements, together "AP-CD/LD Assets, net", which represents
the excess carrying value compared to the fair value of the AP-CD/LD Assets, net.
Financial
Income (expenses), Net
For
the three months ended September 30, 2020, we had financial expenses from foreign currency exchange expenses in the amount of
approximately $62,000 and bank fees, offset by financial income from interest on cash and cash equivalents in the amount of approximately
$9,000. For the three months ended September 30, 2019, we had financial income from interest on cash and cash equivalents in the
amount of approximately $44,000 offset by financial expenses from foreign currency exchange expenses in the amount of approximately
$28,000 and bank fees.
For
the nine months ended September 30, 2020, we had financial expenses from foreign currency exchange expenses in the amount of approximately
$151,000 and bank fees, offset by financial income from interest on cash and cash equivalents in the amount of approximately $36,000
and financial income from change in fair value of marketable securities in the amount of approximately $2,000. For the nine months
ended September 30, 2019, we had financial income from interest on cash and cash equivalents in the amount of approximately $326,000
offset by financial expenses from foreign currency exchange expenses in the amount of approximately $156,000 and bank fees.
Income
tax
For
the three and nine months ended September 30, 2020 and 2019, we have not generated taxable income in Israel. However, for the
three months ended September 30, 2020 and 2019, we incurred tax expenses in our U.S. subsidiary in the amount of $42,000 and $28,000,
respectively, and for the nine months ended September 30, 2020 and 2019 we incurred tax expenses in our U.S. subsidiary in the
amount of $149,000 and $100,000, respectively.
Net
Loss
Based
on the foregoing, for the three months ended September 30, 2020 our net loss was approximately $3.7 million, a decrease of approximately
$16.7 million, or 82%, compared to net loss for the three months ended September 30, 2019 of approximately $20.4 million. For
the nine months ended September 30, 2020 our net loss was approximately $10.6 million, a decrease of approximately $30.4 million,
or 74%, compared to our net loss for the nine months ended September 30, 2019 of approximately $41.0 million. The decrease for
the three and nine-month periods was mainly due to a decrease in research and development expenses, net, general and administrative
expenses and the impairment charge incurred in 2019, as detailed above.
Liquidity
and Resources
Since
our inception, we have funded our operations primarily through public and private offerings (in Israel and in the U.S.) of our
equity securities, grants from the IIA and other grants from organizations such as the Michael J. Fox Foundation, and payments
received under the feasibility and related agreements we have entered into with multinational pharmaceutical companies, pursuant
to which we are entitled to full coverage of our development costs with regard to the projects specified in those agreements.
As
of September 30, 2020, we had cash and cash equivalents of approximately $17.1 million. As of December 31, 2019, we had cash and
cash equivalents and marketable securities of approximately $10.1 million. In February 2020, we completed an underwritten public
offering, pursuant to which we issued 764,000 ordinary shares, pre-funded warrants to purchase 48,500 ordinary shares and warrants
to purchase 812,500 ordinary shares. Each pre-funded warrant was exercisable at an exercise price of $0.002 per share. All the
pre-funded warrants were exercised following the closing of the offering. Each ordinary share and warrant or pre-funded warrant
and warrant were sold together at a combined price of $8.00. Each warrant is exercisable at an exercise price of $8.00 per share
and has a term of five years from the date of issuance. The total net proceeds were approximately $5.7 million, after deducting
underwriting discounts, commissions and other offering expenses in the amount of approximately $800,000. In addition, in May 2020,
we completed a registered direct offering with certain institutional investors pursuant to which we sold 814,598 ordinary shares
and in a concurrent private placement, we issued to the investors in the offering warrants to purchase up to 407,299 ordinary
shares. The warrants are immediately exercisable and expire five and one-half years from issuance at an exercise price of $4.90
per share, subject to adjustment as set forth therein. The total net proceeds were approximately $4.5 million, after deducting
placement agent and other offering expenses in the amount of approximately $500,000. In August 2020, we completed a further registered
direct offering with Aspire Capital Fund, LLC, or Aspire Capital, pursuant to which we sold 356,250 ordinary shares at a purchase
price of $7.022 per share and pre-funded warrants to purchase 356,250 ordinary shares at a purchase price of $6.822 per warrant
to Aspire Capital. The pre-funded warrants have an exercise price of $0.20 per share and are exercisable until exercised in full.
The total net proceeds were approximately $4.6 million, after deducting offering expenses.
Net
cash used in operating activities was approximately $8.9 million for the nine months ended September 30, 2020 compared with net
cash used in operating activities of approximately $23.9 million for the nine months ended September 30, 2019. This decrease resulted
primarily from a decrease in our research and development activities in the amount of approximately $19.4 million, offset by changes
in operating asset and liability items of approximately $4.1 million.
We
had positive cash flow from investing activities of approximately $756,000 for the nine months ended September 30, 2020 compared
to negative cash flow from investing activities of approximately $2.5 million for the nine months ended September 30, 2019. This
change resulted primarily from an investment in the establishment of the commercial scale manufacturing line in the amount of
approximately $2.3 million in the nine months ended September 30, 2019 and an increase in purchase of property and equipment in
the amount of approximately $775,000.
Net cash provided by financing activities for the nine months
ended September 30, 2020 was approximately $15.9 million, which was provided primarily by the proceeds from our registered direct
offering in August 2020 that resulted in net proceeds of approximately $4.6 million, proceeds from our registered direct offering
in May 2020 that resulted in net proceeds of approximately $4.5 million and proceeds from our underwritten public offering in February
2020 that resulted in net proceeds of approximately $5.7 million. Net cash provided by financing activities for the nine months
ended September 30, 2019 was approximately $2.2 million, which was provided by funds received from the sale of our ordinary shares
under our “at-the-market” equity offering program and proceeds from the exercise of options by employees.
At-the-Market
Equity Offering Program
Pursuant
to that certain Sales Agreement, dated March 1, 2019, or the Sales Agreement, by and between us and Cowen and Company, LLC, we
may elect from time to time, to offer and sell ordinary shares through an “at the market offering” as defined in Rule
415(a)(4), or the ATM Offering, promulgated under the Securities Act having an aggregate offering price of up to $75,000,000.
Under a prospectus supplement dated March 28, 2019, we sold an aggregate of 138,794 ordinary shares for gross proceeds of $2.6
million. On March 13, 2020, we updated the aggregate amount that may be issued and sold under the ATM Offering and filed a prospectus
supplement pursuant to which we may offer and sell, from time to time, ordinary shares having an aggregate offering price of up
to $9.8 million. From March 13, 2020 to May 4, 2020, we did not issue or sell any of our ordinary shares under the ATM Offering.
On May 4, 2020, we terminated the prospectus supplement dated March 13, 2020, but the Sales Agreement remains in full force and
effect.
Aspire
Capital Financing Arrangement
On
December 2, 2019, we entered into a purchase agreement, or the Purchase Agreement, with Aspire Capital pursuant to which provides
that, upon the terms and conditions set forth therein, Aspire Capital is committed to purchase up to an aggregate of $10.0 million
of our ordinary shares over the 30-month term of the Purchase Agreement. Concurrently with entering into the Purchase Agreement,
we also entered into a registration rights agreement with Aspire Capital, or the Registration Rights Agreement, in which we agreed
to file with the SEC one or more registration statements, as necessary, and to the extent permissible and subject to certain exceptions,
to register for sale under the Securities Act for the sale of our ordinary shares that have been and may be issued to Aspire Capital
under the Purchase Agreement.
We
filed with the SEC a prospectus supplement to our effective shelf registration statement on Form S-3 (File No. 333-230016) registering
all of the ordinary shares that may be offered to Aspire Capital from time to time. Under the Purchase Agreement, on any trading
day selected by us, we have the right, in our sole discretion, to present Aspire Capital with a purchase notice, each, a Purchase
Notice, directing Aspire Capital (as principal) to purchase up to 10,000 of our ordinary shares in an amount no greater than $500,000
per business day, up to $10.0 million of our ordinary shares in the aggregate at a per share price, or the Purchase Price, equal
to the lesser of:
|
●
|
the
lowest sale price of our ordinary shares on the purchase date; or
|
|
●
|
the
arithmetic average of the three (3) lowest closing sale prices for our ordinary shares during the ten (10) consecutive trading
days ending on the trading day immediately preceding the purchase date.
|
We
and Aspire Capital also may mutually agree to increase the dollar amount to greater than $500,000 and the number of ordinary shares
that may be sold to as much as an additional 100,000 ordinary shares per business day, respectively.
In
addition, on any date on which we submit a Purchase Notice to Aspire Capital in an amount equal to at least 10,000 ordinary shares,
we also have the right, in our sole discretion, to present Aspire Capital with a volume-weighted average price purchase notice,
each, a VWAP Purchase Notice, directing Aspire Capital to purchase an amount of ordinary shares equal to up to 30% of the aggregate
of our ordinary shares traded on our principal market on the next trading day, or the VWAP Purchase Date, subject to a maximum
number of 12,500 ordinary shares. The purchase price per share pursuant to such VWAP Purchase Notice is generally 97% of the volume-weighted
average price for our ordinary shares traded on our principal market on the VWAP Purchase Date.
The
Purchase Price will be adjusted for any reorganization, recapitalization, non-cash dividend, share split, or other similar transaction
occurring during the period(s) used to compute the Purchase Price. We may deliver multiple Purchase Notices and VWAP Purchase
Notices to Aspire Capital from time to time during the term of the Purchase Agreement, so long as the most recent purchase has
been completed.
The Purchase Agreement provides that we and Aspire Capital shall
not effect any sales under the Purchase Agreement on any purchase date where the closing sale price of our ordinary shares is less
than $0.25. There are no trading volume requirements or restrictions under the Purchase Agreement, and we will control the timing
and amount of sales of our ordinary shares to Aspire Capital. Aspire Capital has no right to require any sales by us, but is obligated
to make purchases from us as directed by us in accordance with the Purchase Agreement. There are no limitations on use of proceeds,
financial or business covenants, restrictions on future funding, rights of first refusal, participation rights, penalties or liquidated
damages in the Purchase Agreement. In consideration for entering into the Purchase Agreement, concurrently with the execution of
the Purchase Agreement, we issued to Aspire Capital the Commitment Shares. The Purchase Agreement may be terminated by us at any
time, at its discretion, without any cost to us. Aspire Capital has agreed that neither we nor any of our agents, representatives
and affiliates shall engage in any direct or indirect short-selling or hedging of our ordinary shares during any time prior to
the termination of the Purchase Agreement. Any proceeds from us received under the Purchase Agreement are expected to be used to
fund our research and development activities, for working capital and for general corporate purposes.
The
Purchase Agreement provides that the number of ordinary shares that may be sold pursuant to the Purchase Agreement will be limited
to 350,120 ordinary shares, or the Exchange Cap, which represents 19.99% of our outstanding ordinary shares on December 2, 2019,
unless shareholder approval or an exception pursuant to the rules of the Nasdaq Capital Market is obtained to issue more than
19.99%. This limitation will not apply if, at any time the Exchange Cap is reached and at all times thereafter, the average price
paid for all ordinary shares issued under the Purchase Agreement is equal to or greater than $9.7956, which is the price equal
to the closing sale price of our ordinary shares immediately preceding the execution of the Purchase Agreement. We are not required
or permitted to issue any ordinary shares under the Purchase Agreement if such issuance would breach its obligations under the
rules or regulations of the Nasdaq Capital Market or other applicable law (including, without limitation, the Israeli Companies
Law – 1999, as amended, or the Israeli Companies Law). We may, in our sole discretion, determine whether to obtain shareholder
approval to issue more than 19.99% of our outstanding ordinary shares hereunder if such issuance would require shareholder approval
under the rules or regulations of the Nasdaq Capital Market or the Israeli Companies Law.
Current
Outlook
We believe that we have adequate cash to fund our ongoing activities
into the first quarter of 2022. Our ability to continue to execute our operating plan is dependent on our ability to obtain additional
capital principally through license agreements with third parties and capital raising from the public, private investors and institutional
investors, such as through the public offering that we completed in February 2020 raising a total of $5.7 million, net, the registered
direct offering and concurrent private placement that we completed in May 2020 raising a total of approximately $4.5 million, net,
and the registered direct offering that we completed in August 2020 raising a total of approximately $4.6 million, net. We may
also engage with a partner in order to share the costs associated with the development and manufacturing of our product candidates.
We are closely monitoring ongoing developments in connection with the COVID-19 pandemic, which has resulted in disruptions to our
partnering efforts and may negatively impact our commercial prospects and our ability to raise capital. As of the date of issuance
of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact our financial
condition, liquidity, or results of operations is uncertain. Furthermore, the estimation process required to prepare our consolidated
financial statements required assumptions to be made about future event and conditions and the impact of COVID-19 in our financial
results, and while we believe such assumptions are reasonable, they are inherently subjective and uncertain. Our actual results
could differ materially from those estimates. As a result of these uncertainties, there is substantial doubt about our ability
to continue as a going concern. For more information, see note 1(a)(2) in our condensed consolidated financial statements for the
nine months ended September 30, 2020.
Developing
drugs, conducting clinical trials, obtaining commercial manufacturing capabilities and commercializing products is expensive and
we will need to raise substantial additional funds to achieve our strategic objectives. We will require significant additional
financing in the future to fund our operations, including if and when we progress into additional clinical trials of our product
candidates, obtain regulatory approval for one or more of our product candidates, obtain commercial manufacturing capabilities
and commercialize one or more of our product candidates. Our future capital requirements will depend on many factors, including,
but not limited to:
|
●
|
the
progress and costs of our clinical trials and other research and development activities;
|
|
●
|
the
scope, prioritization and number of our clinical trials and other research and development programs;
|
|
●
|
the
amount of revenues and contributions we receive under future licensing, collaboration, development and commercialization arrangements
with respect to our product candidates;
|
|
●
|
the impact of the COVID-19 pandemic;
|
|
●
|
the
costs of the development and expansion of our operational infrastructure;
|
|
●
|
the
costs and timing of obtaining regulatory approval for one or more of our product candidates;
|
|
●
|
the
ability of us, or our collaborators, to achieve development milestones, marketing approval and other events or developments
under our potential future licensing agreements;
|
|
●
|
the
costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;
|
|
●
|
the
costs and timing of securing manufacturing arrangements for clinical or commercial production;
|
|
●
|
the
costs of contracting with third parties to provide sales and marketing capabilities for us or establishing such capabilities
ourselves;
|
|
●
|
the
costs of acquiring or undertaking development and commercialization efforts for any future products, product candidates or
technology;
|
|
●
|
the
magnitude of our general and administrative expenses;
|
|
|
|
|
●
|
market
conditions; and
|
|
●
|
any
cost that we may incur under future in- and out-licensing arrangements relating to one or more of our product candidates.
|
Until
we can generate significant recurring revenues, we expect to satisfy our future cash needs through capital raising or by out-licensing
applications of one or more of our product candidates. We cannot be certain that additional funding will be available to us on
acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of or eliminate research
or development plans for, or commercialization efforts with respect to, one or more of our product candidates and make necessary
change to our operations to reduce the level of our expenditures in line with available resources.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors.
Critical
Accounting Policies
This
discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements,
which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us
to make estimates that affect the reported amounts of our assets, liabilities and expenses. Significant accounting policies employed
by us, including the use of estimates, are presented in the notes to the consolidated financial statements included elsewhere
in our Annual Report on Form 10-K for the year ended December 31, 2019. We periodically evaluate our estimates, which are based
on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Critical accounting
policies are those that are most important to the portrayal of our financial condition and results of operations and require our
subjective or complex judgments, resulting in the need to make estimates about the effect of matters that are inherently uncertain.
If actual performance should differ from historical experience or if the underlying assumptions were to change, our financial
condition and results of operations may be materially impacted.
Our
critical accounting policies and estimates are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019. There
have been no material changes to those policies during the nine months ended September 30, 2020.
Recently
Issued Accounting Pronouncements
None.