Chemomab Therapeutics Ltd. 10-Q

Item 1. FINANCIAL STATEMENTS Chemomab Therapeutics Ltd. and its subsidiaries Condensed Consolidated Interim Financial Statements As of September 30, 2022 (Unaudited) Chemomab Therapeutics Ltd. and its subsidiaries Unaudited Condensed Consolidated Interim Financial Statements as of September 30, 2022 Contents Page Condensed Consolidated Interim Balance Sheets 3 Condensed Consolidated Interim Statements of Operations 4 Condensed Consolidated Interim Statements of Changes in Equity 5-6 Condensed Consolidated Interim Statements of Cash Flow 7 Notes to the Condensed Consolidated Interim Financial Statements 8-12 2 Chemomab Therapeutics Ltd. and its subsidiaries Condensed Consolidated Balance Sheets In USD thousands (except share amounts) September 30, December 31, Note 2022 2021 Unaudited Audited Assets Current assets Cash and cash equivalents 10,741 15,186 Short term bank deposits 35,725 45,975 Other receivables and prepaid expenses 2,259 1,527 Total current assets 48,725 62,688 Non-current assets Long term prepaid expenses 776 908 Property and equipment, net 380 357 Restricted cash 77 55 Operating lease right-of-use assets 261 345 Total non-current assets 1,494 1,665 Total assets 50,219 64,353 Current liabilities Trade payables 1,247 1,336 Accrued expenses 2,577 555 Employee and related expenses 1,527 653 Operating lease liabilities 126 106 Total current liabilities 5,477 2,650 Non-current liabilities Operating lease liabilities - long term 118 237 Total non-current liabilities 118 237 Commitments and contingent liabilities Total liabilities 5,595 2,887 Shareholders' equity 1 Ordinary shares no par value - Authorized: 650,000,000 shares as of September 30, 2022 and as of December 31, 2021; - - Issued and outstanding: 229,015,402 ordinary shares as of September 30, 2022 and 228,090,300 as of December 31, 2021 - - Additional paid in capital 100,171 97,639 Accumulated deficit ( 55,547 ) ( 36,173 ) Total shareholders’ equity 44,624 61,466 Total liabilities and shareholders’ equity 50,219 64,353 The accompanying notes are an integral part of the condensed consolidated interim financial statements. 3 Chemomab Therapeutics Ltd. and its subsidiaries Condensed Consolidated Interim Statements of Operations (Unaudited) In USD thousands Three months Three months Nine months Nine months Ended Ended Ended Ended September 30 , September 30 , September 30 , September 30 , Note 2022 2021 2022 2021 Operating expenses Research and development 5,423 1,487 11,082 3,951 General and administrative 2,894 1,404 8,809 3,392 Total operating expenses 8,317 2,891 19,891 7,343 Financing expense (income), net ( 237 ) 77 27 99 Loss before taxes 8,080 2,968 19,918 7,442 Taxes on income (benefit) - - ( 544 ) - Net loss for the period 8,080 2,968 19,374 7,442 Basic and diluted loss per Ordinary Share (*) (**) 0.035 0.013 0.085 0.038 Weighted average number of Ordinary Shares outstanding, basic, and diluted (*) (**) 228,773,418 227,956,060 228,349,115 195,292,384 (*) Number of shares has been retroactively adjusted to reflect the share reverse split effected on March 16, 2021 (refer to Note 1B). (**) 20 Ordinary Shares are equal to 1 American Depositary Share (ADS). The accompanying notes are an integral part of the condensed consolidated interim financial statements. 4 Chemomab Therapeutics Ltd. and its subsidiaries Condensed Consolidated Interim Statements of Changes in Equity (Unaudited) In USD thousands (except share amounts) Ordinary Shares Additional paid in capital Accumulated Deficit Total Shareholders’ equity Number USD USD USD USD For the nine-month period ended on September 30, 2022 Balance as of January 1, 2022 228,090,300 - 97,639 ( 36,173 ) 61,466 Share-based compensation - - 874 - 874 Net loss for the period - - - ( 5,104 ) ( 5,104 ) Balance as of March 31, 2022 228,090,300 - 98,513 ( 41,277 ) 57,236 Share-based compensation - - 761 - 761 Exercise of options 542,820 - 29 - 29 Net loss for the period - - - ( 6,190 ) ( 6,190 ) Balance as of June 30, 2022 228,633,120 - 99,303 ( 47,467 ) 51,836 Share-based compensation - - 836 - 836 Exercise of options 382,282 - 32 - 32 Net loss for the period - - - ( 8,080 ) ( 8,080 ) Balance as of September 30, 2022 229,015,402 - 100,171 ( 55,547 ) 44,624 5 Chemomab Therapeutics Ltd. and its subsidiaries Condensed Consolidated Interim Statements of Changes in Equity (Unaudited) In USD thousands (except share amounts) Ordinary Shares (*) Additional paid in capital Accumulated Deficit Total Shareholders’ equity Number USD USD USD USD For the nine-month period ended on September 30, 2021 Balance as of January 1, 2021 (*) 9,274,838 - 34,497 ( 23,695 ) 10,802 Share-based compensation - - 43 - 43 Effect of reverse capitalization transaction 152,299,702 - 2,476 - 2,476 Issuance of shares and warrants, net of issuance costs 52,385,400 - 43,547 - 43,547 Net loss for the period - - - ( 1,704 ) ( 1,704 ) Balance as of March 31, 2021 213,959,940 - 80,563 ( 25,399 ) 55,164 Share-based compensation - - 527 - 527 Issuance of shares, net of issuance costs 13,996,120 - 15,118 - 15,118 Net loss for the period - - - ( 2,770 ) ( 2,770 ) Balance as of June 30, 2021 227,956,060 - 96,208 ( 28,169 ) 68,039 Share-based compensation - - 441 - 441 Net loss for the period - - - ( 2,968 ) ( 2,968 ) Balance as of September 30, 2021 227,956,060 - 96,649 ( 31,137 ) 65,512 (*) Number of shares has been retroactively adjusted to reflect the share reverse split effected on March 16, 2021 (refer to Note 1B). The accompanying notes are an integral part of the condensed consolidated interim financial statements. 6 Chemomab Therapeutics Ltd. and its subsidiaries Condensed Consolidated Interim Statements of Cash flows (Unaudited) In USD thousands Nine months Nine months ended Ended September 30, September 30, 2022 2021 Cash flows from operating activities Net loss for the period ( 19,374 ) ( 7,442 ) Adjustments for operating activities: Depreciation 44 23 Change in other receivables and prepaid expenses ( 600 ) ( 2,145 ) Change in operating lease liability ( 15 ) - Change in trade payables ( 89 ) 321 Change in accrued expenses 2,022 ( 1,261 ) Change in employees and related expenses 874 13 Share-based compensation 2,471 1,011 4,707 ( 2,038 ) Net cash used in operating activities ( 14,667 ) ( 9,480 ) Cash flows from investing activities Increase in deposits - ( 26,500 ) Decrease in deposits 10,250 - Sale of asset held for sale - 1,000 Purchase of property and equipment ( 67 ) ( 105 ) Net cash provided by (used in) investing activities 10,183 ( 25,605 ) Cash flows from financing activities Cash acquired in reverse recapitalization - 2,427 Exercise of options 61 - Issuance of shares, net of issuance costs - 15,181 Issuance of shares and warrants, net of issuance costs - 43,547 Net cash provided by financing activities 61 61,155 Change in cash, cash equivalents and restricted cash ( 4,423 ) 26,070 Cash, cash equivalents and restricted cash at beginning of period 15,241 11,727 Cash, cash equivalents and restricted cash at end of period 10,818 37,797 Supplemental disclosure of non-cash investing and financing activities: Liabilities assumed, net of non-cash assets received in reverse merger - 49 Accrued share issuance expenses - 63 The accompanying notes are an integral part of the condensed consolidated interim financial statements. 7 CHEMOMAB THERAPEUTICS LTD AND ITS SUBSIDIARIES (FORMERLY ANCHIANO THERAPEUTICS LTD.) NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS Note 1 - General. A. Chemomab Therapeutics Ltd. (the “Company") is an Israeli -based company incorporated under the laws of the State of Israel in September 2011. The Company’s registered office is located in Kiryat Atidim, Tel Aviv, Israel. The Company is a clinical-stage biotech company discovering and developing innovative therapeutics for conditions with high-unmet medical need that involve inflammation and fibrosis. B. On March 16, 2021, the Company, then known as Anchiano Therapeutics Ltd. (“Anchiano”), completed its merger with Chemomab Ltd., a privately-held Israeli limited company (“Chemomab Ltd.”). Pursuant to the Agreement and Plan of Merger (the “Merger Agreement”) dated as of December 14, 2020, by and among Anchiano, CMB Acquisition Ltd., an Israeli limited company and wholly-owned subsidiary of Anchiano (“Merger Sub”), and Chemomab Ltd., Merger Sub merged with and into Chemomab Ltd., with Chemomab Ltd. being the surviving entity and becoming a wholly owned subsidiary of Anchiano (the “Merger”). Upon consummation of the Merger, the Company changed its name from “Anchiano Therapeutics Ltd.” to “Chemomab Therapeutics Ltd.” and the business conducted by Chemomab Ltd. became primarily the business conducted by the Company. For accounting purposes, Chemomab Ltd. is considered to have acquired Anchiano based upon the terms of the Merger as well as other factors including: (i) Chemomab Ltd.'s former shareholders owned approximately 90 % of the combined Company’s outstanding ordinary shares immediately following the closing of the Merger and (ii) Chemomab Ltd. management holds key management positions of the combined Company. The Merger has been accounted for as an asset acquisition (reverse recapitalization transaction) rather than a business combination, as the assets acquired and the liabilities assumed by Chemomab Ltd. do not meet the definition of a business under accounting principles generally accepted in the United States (“U.S. GAAP”). The net assets acquired in connection with the Merger were recorded at their estimated acquisition date fair market value as of March 16, 2021, the date of completion of the Merger. Immediately prior to the effective date of the Merger, all preferred shares of Chemomab Ltd. were converted into ordinary shares of Chemomab Ltd. on a one-for-one basis. In connection with the Merger, and following the effective time of the Merger, the Company effected a reverse share split of the Company’s ordinary shares at a ratio of 4 : 1 (the “Reverse Split”) and increased the number of ordinary shares underlying each American Depositary Share ("ADS") from 5 to 20. At the effective time of the Merger, each Chemomab Ltd. ordinary share outstanding immediately prior to the effective time of the Merger automatically converted into the right to receive approximately 12.86 ADSs, each representing 20 Anchiano ordinary shares, plus a warrant to purchase ADSs that may become exercisable only under certain circumstances. The exchange ratio was calculated by a formula that was determined through arms-length negotiations between the Company and Chemomab Ltd. The combined Company assumed all of the outstanding options of Chemomab Ltd., vested and unvested, under the Chemomab Share Incentive Plan (the “2015 Plan”), with such options representing the right to purchase a number of ADSs equal to approximately 12.86 multiplied by the number of Chemomab Ltd. ordinary shares previously represented by such options. 8 CHEMOMAB THERAPEUTICS LTD AND ITS SUBSIDIARIES (FORMERLY ANCHIANO THERAPEUTICS LTD) NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS Note 1 - General. (Cont.) The accompanying unaudited condensed consolidated financial statements and notes to the unaudited condensed consolidated financial statements give retroactive effect to the exchange ratio and the Reverse Split for all periods presented. The equity structure reflects the legal acquirer's equity structure. The balance sheet has been adjusted to reflect the par value of the outstanding shares of the legal acquirer, including the number of shares issued in the Merger. Any difference is recognized as an adjustment to the additional paid in capital. Immediately after completion of the Merger, on March 16, 2021, the Company had 8,078,727 ADS issued and outstanding ( 9,003,357 on a fully diluted basis). In addition, immediately after the Merger, Chemomab Ltd. former shareholders owned approximately 90 % of the number of issued and outstanding ordinary shares of the Company and the shareholders of the Company immediately prior to the Merger owned approximately 10 % of the number of issued and outstanding ordinary shares of the Company (all on a fully diluted basis). 1 On March 16, 2021, immediately prior to the effectiveness of the Merger, Anchiano had 65,675,904 ordinary shares outstanding (prior to the effect of the Reverse Split) and a market capitalization of $ 58.7 million. The estimated fair value of the net assets of Anchiano on March 16, 2021, prior to the Merger, was approximately $ 2.5 million. The fair value of ordinary shares on the Merger closing date, prior to the Merger, was above the fair value of the Company’s net assets. As the Company’s net assets were predominantly composed of cash offset against current liabilities, the fair value of the Company’s net assets as of March 16, 2021, prior to the Merger, is considered to be the best indicator of the fair value and, therefore, the estimated preliminary purchase consideration. The following table summarizes the net assets acquired based on their estimated fair values as of March 16, 2021, immediately prior to completion of the Merger (in thousands): Cash and cash equivalents $ 2,427 Asset held for sale 1,000 Prepaid and other assets 236 Accrued liabilities ( 1,187 ) Net acquired assets $ 2,476 C. In connection with the Merger, on March 15, 2021, Anchiano entered into Securities Purchase Agreements with certain purchasers for the issuance and sale by Anchiano in a private placement (the “Private Placement”) of approximately $ 45.5 million of its ADSs and accompanying warrants to purchase ADSs. The warrants have an exercise price of approximately $ 17.35 per ADS, expire five years from the date of issuance, and if exercised in full, will provide additional proceeds to the Company of approximately $ 4.5 million. The Private Placement closed on March 22, 2021. 9 CHEMOMAB THERAPEUTICS LTD AND ITS SUBSIDIARIES (FORMERLY ANCHIANO THERAPEUTICS LTD) NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS Note 1 - General. (Cont.) D. Pursuant to an Asset Purchase and Assignment Agreement dated as of March 16, 2021, as amended on March 31, 2021, between the Company’s wholly owned subsidiary, Anchiano Therapeutics, Inc., a Delaware corporation (“Anchiano Delaware”) and Kestrel Therapeutics, Inc., a Delaware corporation (“Kestrel”), Anchiano Delaware agreed to sell to Kestrel all of the its rights and obligations in its business to the extent related to the research, development and commercialization of the Compounds and Products (as such terms are defined in the Collaboration and License Agreement entered into as of September 13, 2019, by and between ADT Pharmaceuticals, LLC and Anchiano Delaware), also known as the pan-RAS and PDE10/β-catenin programs. In consideration of the sale and transfer of the Compounds and Products, Kestrel paid the Company a total of $ 1.0 million. E. On April 30, 2021, the Company entered into an At the Market Offering Agreement (the "ATM Agreement") with Cantor Fitzgerald & Co., ("Cantor"). According to the ATM Agreement, the Company may offer and sell, from time to time, its ADSs having an aggregate offering price of up to $ 75.0 million through Cantor pursuant to the ATM Agreement. From April 30, 2021 through September 30, 2022, the Company sold 699,806 ADSs at an average price of $ 22.75 per ADS under the ATM Agreement, resulting in gross proceeds of approximately $ 15.9 million. The offer and sale of ADSs under the ATM Agreement has been registered under the Company’s effective registration statement on Form S-3 (File No. 333-255658), together with a prospectus forming a part thereof, filed with the SEC under the Securities Act of 1933, as amended (the “Securities Act”). Sales, if any, of ADS pursuant to the ATM Agreement may be made in any transactions that are deemed to be “at the market” offerings as defined in Rule 415(a)(4) under the Securities Act. The Company is not obligated to sell any ADSs under the ATM Agreement. On April 25, 2022, the Company filed with the SEC a prospectus supplement to the above-mentioned registration statement for the issuance and sale of up to $ 18,125,000 of the Company's ADSs under the ATM Agreement, which is within the $ 75 million maximum permitted under the ATM Agreement. F. Since January 2020, the COVID-19 outbreak has dramatically expanded into a worldwide pandemic creating macro-economic uncertainty and disruption in the business and financial markets. Many countries around the world, including Israel, have been taking measures designated to limit the continued spread of the Coronavirus, including the closure of workplaces, restricting travel, prohibiting assembling, closing international borders and quarantining populated areas. The Company's clinical trial sites have been affected by the COVID-19 pandemic, and as a result, commencement of the enrollment of Company’s clinical trials of CM-101 in PSC was delayed and the enrollment rate has been affected as well. As a result, the Company extended patients recruiting to additional territories with significant recruitment potential. In addition, after enrollment in these trials, patients may drop out of the Company's trials because of the COVID-19 possible implications. Based on management’s assessment, the extent to which the coronavirus will further impact 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. The Company is carefully monitoring the restrictions due to the COVID-19 outbreak and will adjust activities accordingly. 10 CHEMOMAB THERAPEUTICS LTD AND ITS SUBSIDIARIES (FORMERLY ANCHIANO THERAPEUTICS LTD) NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS Note 1 - General. (Cont.) On March 27, 2020 and December 27, 2020, the President of the United States signed and enacted into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the Consolidated Appropriations Act, 2021 (CAA). Among other provisions, the CARES Act and the CAA provide relief to U.S. federal corporate taxpayers through temporary adjustments to net operating loss rules, changes to limitations on interest expense deductibility, and the acceleration of available refunds for minimum tax credit carryforwards. The CARES Act also includes provisions for a carryback of any net operating loss (NOL) arising in a taxable year beginning after December 31, 2017, and before January 1, 2021, to each of the five taxable years preceding the taxable year in which the loss arises (carryback period). Chemomab Therapeutics Inc., a wholly owned subsidiary of the Company, filed an application with the US Internal Revenue Service to carryback net operating losses. The Company expects to receive the refund by the end of 2022. Note 2 - Basis of Presentation and Significant Accounting Policies A. Basis of Preparation The condensed interim consolidated financial statements included in this quarterly report are unaudited. These financial statements have been prepared in accordance with U.S. GAAP and applicable rules and regulations of the SEC regarding interim financial reporting and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for a fair statement of the Company’s financial position as of September 30, 2022, and its results of operations for the three and nine months ended September 30, 2022, and 2021, changes in shareholders’ equity for the nine months ended September 30, 2022 and 2021, and cash flows for the nine months ended September 30, 2022 and 2021. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other future annual or interim period. These financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC. The Company’s significant accounting policies are disclosed in the audited financial statements for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K. Since the date of such financial statements, there have been no changes to the Company’s significant accounting policies. B. Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. 11 CHEMOMAB THERAPEUTICS LTD AND ITS SUBSIDIARIES (FORMERLY ANCHIANO THERAPEUTICS LTD) NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS Note 3 – Contingencies During 2022, the Israeli tax authority ("ITA”) notified the Company that it had initiated a routine VAT audit to include tax years 2017 through 2020. The ITA raised several claims, mainly in respect with the recoverability of VAT with respect to Merger Agreement related expenses and the classification of the Company as a holding company. On July 2022, the ITA proposed a settlement, which the Company rejected. As a result, the ITA issued an assessment. The Company plans to appeal the ITA’s assessment. The Company has recorded a provision which is inherently subjective due to the inherent uncertainty of these matters and the judicial process. Therefore, the outcome may differ from the estimated liability recorded by the Company during the period. Note 4 – Transaction with related parties On September 19, 2022 the Company entered into a share purchase agreement (the “Repurchase Arrangement”) with Chemomab's two Co-Founders (the "Co-Founders") whereby the Company agreed, subject to the requisite court approval required under Section 303(a) of the Israeli Companies Law, 5759-1999 (the “Companies Law”), to repurchase up to an aggregate of $ 2,500,000 worth of American Depositary Receipts (the “ADSs”) of the Company (each representing twenty (20) ordinary shares, no par value, of the Company) owned by the Co-Founders. These repurchases will be made at market price. As of November 10, 2022, court approval had not yet been obtained. 12