The following Management's Discussion and Analysis of Financial Condition and
Results of Operations is intended to provide information necessary to understand
our audited consolidated financial statements for the fiscal years ended
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Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with accounting
principles generally accepted in the
Use of estimates
The accompanying Consolidated Financial Statements are prepared in accordance
with accounting principles generally accepted in
Financial statements in
The functional currency of the Company is the
Cash and Cash equivalents
Cash equivalents are short-term highly liquid investments that are readily convertible to cash when originally purchased with maturities of three months or less.
Property, plant and equipment, net
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets at a 33% annual rates.
Severance pay
Certain of the Company's employees have subscribed to Section 14 of
39 Other Intangible Assets
Identifiable intangible assets are stated at cost, net of accumulated amortization. Patents are being amortized on the straight-line method over useful lives.
Derivative Financial Instruments
Management evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. For option based simple derivative financial instruments, the Company uses an option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.
Fair value of financial instruments
As defined in ASC 820 "Fair Value Measurements" ("ASC 820"), fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).
The following table summarizes fair value measurements by level at
December 31, 2022 Level 1 Level 2 Level 3 Total In U.S. dollars Assets None - - - - Liabilities Convertible Loans - - 2,257,000 2,257,000 Warrants 24,000 24,000
Concentrations of credit risk
The financial instruments include cash, accounts receivable, accounts payable,
accrued expenses, loans payable, due to officers and derivative financial
instruments. Balances in various cash accounts may at times exceed federally
insured limits. We have not experienced any losses in such accounts. Cash and
cash equivalents are invested in major banks in
40 Convertible Debt
For convertible debt that does not contain an embedded derivative that requires bifurcation, the conversion feature is evaluated to determine if the rate of conversion is below market value and should be categorized as a beneficial conversion feature ("BCF"). A BCF related to debt is recorded by the Company as a debt discount and with the offset recorded to equity. The related convertible debt is recorded net of the discount for the BCF. The discount is amortized as additional interest expense over the term of the debt with the resulting debt discount being accreted over the term of the note.
The Fair Value Measurement Option
We have elected the fair value measurement option for convertible debt with embedded derivatives that require bifurcation, and record the entire hybrid financing instrument at fair value under the guidance of ASC 815, Derivatives and Hedging ("ASC 815"). The Company reports interest expense, including accrued interest, related to this convertible debt under the fair value option, within the change in fair value of convertible notes and derivatives in the accompanying consolidated statement of operations.
Research and development costs
Research and development consist of costs incurred in the process of developing product improvements or new products, and are expensed to the statement of operations as incurred. As of now the company does not capitalize any of its research and development costs.
General and administrative expenses
General and administrative expenses consists of all corporate overhead costs incurred by the Company.
Stock-Based Compensation
We account for stock-based compensation in accordance with ASC 718, Stock Compensation ("ASC 718"). ASC 718, which requires that the cost resulting from all share-based transactions be recorded in the financial statements over the respective service periods. It establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based measurement in accounting for share-based payment transactions with employees. The statement also establishes fair value as the measurement objective for transactions in which an entity acquires goods or services from non-employees in share-based payment transactions. The Company utilizes the straight-line method allocating the cost over the service period.
Income taxes
The Company accounts for income taxes in accordance with Accounting Standards Codification Topic 740, "Accounting for Income Taxes" ("ASC 740"), using the liability method whereby deferred tax assets and liability account balances are determined based on the differences between financial reporting and the tax basis for 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 accounts for uncertain tax provisions in accordance with ASC 740-10-05, "Accounting for Uncertainty in Income Taxes." The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
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Basic and Diluted Net Income (Loss) per Share:
The Company computes net income (loss) per share in accordance with ASC 260, "Earnings per Share" which requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury stock method, and
Convertible preferred stock, using the if-converted method. In computing diluted
EPS, the average stock price for the period is used in determining the number of
shares assumed to be purchased from the exercise of stock options or warrants.
Diluted EPS includes all dilutive potential common shares if their effect is
anti-dilutive. For the period ending
Recently Issued Accounting Pronouncements
On
In
In
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Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying consolidated financial statements.
Key Financial Terms and Metrics
The following discussion summarizes the key factors our management believes are necessary for an understanding of our consolidated financial statements.
Revenues
We have not generated any revenues from product sales to date.
Research and Development Expenses
The process of researching and developing our product candidates is lengthy, unpredictable, and subject to many risks. We expect to continue incurring substantial expenses for the next several years as we continue to develop our product candidates. We are unable, with any certainty, to estimate either the costs or the timelines in which those expenses will be incurred. The design and development of our devices will consume a large proportion of our current, as well as projected, resources.
Our research and development costs include costs are comprised of:
? internal recurring costs, such as personnel-related costs (salaries, employee benefits, equity compensation and other costs), materials and supplies, facilities and maintenance costs attributable to research and development functions; and
? fees paid to external parties who provide us with contract services, such as programing, preclinical testing, manufacturing and related testing and clinical trial activities.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, employee benefits, equity compensation, and other personnel-related costs associated with executive, administrative and other support staff. Other significant general and administrative expenses include the costs associated with professional fees for accounting, auditing, insurance costs, consulting and legal services, along with facility and maintenance costs attributable to general and administrative functions.
Financial Expenses
Financial expenses consist primarily impact of exchange rate derived from re-measurement of monetary balance sheet items denominated in non-dollar currencies. Other financial expenses include bank's fees and interest on long term loans. Financial income derives mainly from change in derivative value of convertible loans.
Comparison of the Year Ended
Our financial results for the year ended
Year Ended December 31, 2022 December 31, 2021 Operating Expenses Research and Development $ 129,000 $ 81,000 General and Administrative $ 2,017,000 $ 632,000 Financing expenses (income) $ (858,000 ) $ 6,000 Loss for the year $ 1,304,000 $ 3,179,000 43
Revenues. We have not recorded any revenues to date.
Research and Development Expenses, Research and development expenses increased
from
General and Administrative Expenses. General and administrative expenses
increased from
Loss. Loss for the twelve months ended
Liquidity and Capital Resources
From inception and through the date of the Acquisition, we have funded our operations from a combination of loans and sales of equity instruments.
As of
On
The company has experienced operating losses since its inception and had a total
accumulated deficit of
The following table provides a summary of operating, investing, and financing cash flows for the years endedDecember 31, 2022 and 2021 respectively (in thousands): For the year ended December 31, 2022 December 31, 2021 US Dollars (In thousands) Net cash used in operating activities$ 595,000 $ 168,000 Net cash used in investment activities (income) - ($ 167,000 ) Net cash provided by Financing Activities$ 442,000 $ 196,000 44
We need to raise additional operating capital in order to realize our business
plan. Management believes that funds on hand, will enable us to fund our
operations and capital expenditure requirements through
Our accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date of these consolidated financial statements. However, the Company has incurred substantial losses. Our current liabilities exceed our current assets and available cash is not sufficient to fund the expected future operations. The Company is raising additional capital through debt and equity securities in order to continue the funding of its operations. However, there is no assurance that the Company can raise enough funds or generate sufficient revenues to pay its obligations as they become due, which raises substantial doubt about our ability to continue as a going concern. No adjustments have been made to the carrying value of assets or liabilities as a result of this uncertainty.
We cannot be sure that future funding will be available to us on acceptable terms, or at all. Due to often volatile nature of the financial markets, equity and debt financing may be difficult to obtain.
We may seek to raise any necessary additional capital through a combination of private or public equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. To the extent that we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights, future revenue streams, or product candidates or to grant licenses on terms that may not be favorable to us. If we raise additional capital through private or public equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders' rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
Going Concern
Our financial statements have been prepared assuming that we will continue as a
going concern and, accordingly, do not include adjustments relating to the
recoverability and realization of assets and classification of liabilities that
might be necessary should we be unable to continue in operation. We have a
stockholders' deficit of
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Smaller Reporting Company Status
Currently, we qualify as a smaller reporting company.
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As a smaller reporting company, we are eligible and have taken advantage of certain exemptions from various reporting requirements that are not available to public reporting companies that do not qualify for this classification, including, but not limited to:
? An opportunity for reduced disclosure obligations regarding executive compensation in our periodic and annual reports, including without limitation exemption from the requirement to provide a compensation discussion and analysis describing compensation practices and procedures,
? An opportunity for reduced financial statement disclosure in registration statements and in annual reports on Form 10-K, which only requires two years of audited financial statements rather than the three years of audited financial statements that are required for other public companies,
? An opportunity for reduced audit and other compliance expenses as we are not subject to the requirement to obtain an auditor's report on internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002, and
? An opportunity to utilize the non-accelerated filer time-line requirements
beginning with our annual report for the year ending
For as long as we continue to be a smaller reporting company, we expect that we will take advantage of both the reduced internal control audit requirements and the disclosure obligations available to us as a result of this classification.
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