Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of December 31, 2022, management carried out, under the supervision and with the participation of our principal executive officer and principal financial officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2022, our disclosure controls and procedures were effective.
Management’s Annual Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act). Our internal control system is designed to provide reasonable assurance to management and our board of directors regarding the preparation and fair presentation of published financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we have assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making our assessment of internal control over financial reporting, we used the criteria issued in the report Internal Control-Integrated Framework (2013) by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). We have concluded that our internal control over financial reporting was effective as of December 31, 2022 based on these criteria.
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the exemption from Section 404(b) of the Sarbanes-Oxley Act for non-accelerated filers provided by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Changes in Internal Control over Financial Reporting
During the fourth quarter of 2022, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
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Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2023 Annual Meeting of Stockholders.
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2023 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2023 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2023 Annual Meeting of Stockholders.
Item 14. Principal Accounting Fees and Services
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2023 Annual Meeting of Stockholders.
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PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)Financial Statements.
The following financial statements are filed as part of this report:
Report of Independent Registered Public Accounting Firm (PCAOB ID#1309)
F-2
Financial Statements:
Balance Sheets as of December 31, 2022 and 2021
F-3
Statements of Operations for the Years Ended December 31, 2022 and 202 1
F-4
Statements of Redeemable convertible preferred stock and Stockholders’ equity (deficit) for the Years Ended December 31, 2022 and 202 1
F-5
Statements of Cash Flows for the Years Ended December 31, 2022 and 202 1
F-6
Notes to Financial Statements
F-7 - F-24
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NUVECTIS PHARMA INC.
INDEX TO FINANCIAL STATEMENTS
U.S. DOLLARS
Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
( PCAOB name: Kesselman & Kesselman C.P.A.s and PCAOB ID: 1309 )
F-2
FINANCIAL STATEMENTS :
Balance Sheets
F-3
Statements of Operations
F-4
Statements of Redeemable convertible preferred stock and stockholders’ equity(deficit )
F-5
Statements of Cash Flows
F-6
Notes to the Financial Statements
F-7 - F-24
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
To the board of directors and shareholders of Nuvectis Pharma, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Nuvectis Pharma, Inc. (the "Company") as of December 31, 2022 and 2021, and the related statements of operations, changes in redeemable convertible preferred stock and stockholders’ equity (deficit) and cash flows for the years then ended, including the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the result of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Kesselman & Kesselman
Certified Public Accountants (Isr.)
A member firm of PricewaterhouseCoopers International Limited
Tel-Aviv, Israel
March 8, 2023
We have served as the Company’s auditor since 2021.
Kesselman & Kesselman, 146 Derech Menachem Begin St. Tel-Aviv 6492103, Israel,
P.O Box 7187 Tel-Aviv 6107120, Telephone: +972 -3- 7954555, Fax:+972 -3- 7954556, www.pwc.com/il
Kesselman & Kesselman is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity
F-2
Table of Contents
NUVECTIS PHARMA, INC.
BALANCE SHEETS
(USD in thousands, except per share and share amounts)
December 31,
2022
2021
Assets
CURRENT ASSETS:
Cash and cash equivalents
19,993
5,742
Other current assets
412
91
TOTAL CURRENT ASSETS
20,405
5,833
Deferred offering costs
—
824
TOTAL ASSETS
20,405
6,657
Liabilities, Redeemable Convertible Preferred Shares and Stockholders’ Equity (Deficit)
CURRENT LIABILITIES
Accounts payables
2,910
1,058
Payable offering costs
450
824
Accrued liabilities
445
395
Employee compensation and benefits
2,381
142
TOTAL CURRENT LIABILITIES
6,186
2,419
TOTAL LIABILITIES
6,186
2,419
COMMITMENTS AND CONTINGENCIES, see Note 3
REDEEMABLE CONVERTIBLE PREFERRED SHARES:
Convertible preferred A stock, $ 0.00001 par value – Zero and 6,630,000 shares authorized as of December 31, 2022 and December 31, 2021, respectively. As of December 31, 2022 all issued and outstanding preferred A stock was converted to common stock. As of December 31, 2021, 5,012,280 preferred A stock shares were issued and outstanding.
—
15,246
STOCKHOLDERS’ EQUITY (DEFICIT), see Note 4 :
Common Stock, $ 0.00001 par value – 60,000,000 and 12,870,000 shares authorized as of December 31, 2022 and December 31, 2021, respectively 14,642,483 and 4,505,514 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively
*
*
Additional paid in capital
46,204
1,892
Notes received for common shares
—
*
Accumulated deficit
( 31,985 )
( 12,900 )
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)
14,219
( 11,008 )
TOTAL LIABILITIES, REDEEMABLE COVERTIBLE PREFERRED SHARES AND STOCKHOLDERS’ EQUITY (DEFICIT)
20,405
6,657
* Represent amount lower than $1,000 USD.
The accompanying notes are an integral part of these financial statements.
F-3
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NUVECTIS PHARMA, INC.
STATEMENT OF OPERATIONS
(USD in thousands, except per share and share amounts)
For the year ended
For the year ended
December 31, 2022
December 31, 2021
OPERATING EXPENSES:
Research and development
13,227
9,545
General and administrative
6,007
3,349
OPERATING LOSS
( 19,234 )
( 12,894 )
Finance income
149
4
NET LOSS
( 19,085 )
( 12,890 )
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
( 19,085 )
( 12,890 )
BASIC AND DILUTED NET LOSS PER COMMON SHARE OUTSTANDING, see Note 6
( 1.51 )
( 3.02 )
Basic and diluted weighted average number of common shares outstanding
12,657,651
4,268,285
The accompanying notes are an integral part of these financial statements.
F-4
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NUVECTIS PHARMA, INC.
STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(USD in thousands, except share amounts)
Notes
Redeemable Convertible
received
Preferred Stock
Common Shares
from
Additional
Total
$0.00001 Par Value
$0.00001 Par Value
Common
Paid-In
Accumulated
Stockholders’
Shares
Amount
Shares
Amount
shares
Capital
Deficit
Equity (Deficit)
BALANCES AT DECEMBER 31, 2020
—
—
3,900,000
*
(*)
—
( 10 )
( 10 )
Issuance of Series A redeemable convertible preferred shares
5,012,280
15,246
Share-based payments
605,514
*
—
1,892
1,892
Net Loss
( 12,890 )
( 12,890 )
BALANCES AT DECEMBER 31, 2021
5,012,280
15,246
4,505,514
*
(*)
1,892
( 12,900 )
( 11,008 )
Conversion of Series A redeemable convertible preferred shares
( 5,012,280 )
( 15,246 )
5,012,280
*
—
15,246
—
15,246
Issuance of common stock upon initial public offering, net of offering costs of $ 2,892
3,200,000
*
*
13,108
—
13,108
Issuance of common stock, unexercised prefunded warrants and warrants in private placement, net of offering costs of $ 1,627
1,015,598
*
14,251
14,251
Exercise of prefunded warrants
909,091
*
—
—
Share-based payments
*
—
1,707
1,707
Net Loss
( 19,085 )
( 19,085 )
BALANCES AT DECEMBER 31, 2022
—
—
14,642,483
*
(*)
46,204
( 31,985 )
14,219
* Represent amount lower than $1,000 USD.
The accompanying notes are an integral part of these financial statements.
F-5
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NUVECTIS PHARMA, INC.
STATEMENTS OF CASH FLOWS
(USD in thousands, except per share and share amounts)
December 31,
December 31,
2022
2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
( 19,085 )
( 12,890 )
Adjustments to reconcile loss to net cash used in operating activities:
Cost of share-based payments
1,707
1,892
Changes in operating assets and liabilities:
Increase in other current assets
( 321 )
( 91 )
Increase in accounts payable and accrued liabilities
4,140
1,585
Net cash used in operating activities
( 13,559 )
( 9,504 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash provided by (used in) investing activities
—
—
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of redeemable convertible preferred shares
—
15,246
Proceeds from issuance of common stock upon initial public offering
16,000
—
Issuance costs related to initial public offering
( 2,551 )
—
Proceeds from issuance of common stock and pre-funded warrants in private placement
15,879
—
Issuance costs related to private placement
( 1,518 )
—
Net cash provided by financing activities
27,810
15,246
INCREASE IN CASH AND CASH EQUIVALENTS
14,251
5,742
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
5,742
—
CASH AND CASH EQUIVALENTS AT END OF PERIOD
19,993
5,742
Supplemental noncash disclosure of investing and financing activities:
Unpaid deferred offering costs
450
824
Issuance of common shares in return for note receivable
—
*
* Represent amount lower than $1,000 USD.
The accompanying notes are an integral part of these financial statements.
F-6
Table of Contents
NUVECTIS PHARMA, INC.
Notes to the Financial Statements
NOTE 1 – GENERAL:
a.
Nuvectis Pharma Inc. (formerly Centry Pharma Inc.) (the “Company”) was incorporated under the laws of the State of Delaware on July 27, 2020 and commenced its principal operations in May 2021. The Company’s principal executive offices are located at Fort Lee in the state of New Jersey.
The Company is a biopharmaceutical company focused on the development of novel targeted small molecule therapeutics for the treatment of cancer in genetically defined patient populations. The Company’s precision medicine approach translates key scientific insights relating to the oncogenic drivers and pathway addiction of cancer into potential potent and highly selective anticancer drugs.
b.
In May 2021, the Company entered into a worldwide, exclusive license agreement with the CRT Pioneer Fund (“CRT”) (see note 5a).
c.
In May 2021, the Company’s board of directors approved and declared a 100 :1 stock split of common and preferred shares. In addition, on October 23, 2021 the Company’s Board of Directors approved a 39 :1 stock split of common stock. All the share and per share amounts reflected in these financial statements and the notes thereto have been adjusted, on a retroactive basis, to reflect these share splits (see note 6).
d.
In August 2021, the Company entered into a worldwide, exclusive license agreement with the University of Edinburgh, Scotland for the Company’s second drug candidate (see note 5a).
e.
Initial Public Offering
On February 8, 2022, the Company completed an initial public offering (“IPO”) in which it sold 3,200,000 shares of common stock at $ 5.00 per share and received net proceeds of $ 13.6 million, after underwriting discounts and commissions, of $ 1.1 million and expenses of $ 1.8 million.
In connection with the closing of the IPO, 5,012,280 shares of Series A redeemable convertible preferred stock, automatically converted into an equal number of shares of common stock.
The Company’s shares began trading on the NASDAQ under symbol “NVCT” (see note 2r and 6b)
f.
Liquidity
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred net operating losses since its inception and had an accumulated deficit of $ 32 million as of December 31, 2022. The Company had cash and cash equivalents of $ 20 million as of December 31, 2022 and has not generated positive cash flows from operations. To date, the Company has been able to fund its operations primarily through the issuance and sale of common stock and redeemable convertible preferred shares.
On July 29, 2022, the Company completed a private placement in which it received approximately $ 14.3 million in net proceeds, after deducting placement agent fees and other offering expenses (see Note 6c).
Based on management’s cash flow projections, the Company believes that the Company’s currently available cash and cash equivalents as of December 31, 2022 is sufficient to fund the Company’s planned operations for a period greater than 12 months from the issuance of these financial statements. The Company will need to raise additional capital in order to complete the clinical trials aimed at developing the product candidates until obtaining its regulation and marketing approvals. There can be no assurances that the Company will be able to secure such additional financing if at all, or at terms that are satisfactory
F-7
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NUVECTIS PHARMA, INC.
Notes to the Financial Statements (continued)
to the Company, and that it will be sufficient to meet its needs. In the event the Company is not successful in obtaining sufficient funding, this could force the Company to delay, limit, or reduce our products’ development, clinical trials, commercialization efforts or other operations, or even close down or liquidate.
g.
Coronavirus Pandemic
The uncertainty to which the COVID-19 pandemic impacts the Company’s business, affects management’s judgment and assumptions relating to accounting estimates in a variety of areas that depend on these estimates and assumptions. Management believes this uncertainty is immaterial to the business.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES:
a.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and stated in U.S. dollars. The significant accounting policies used in the preparation of the financial statements are as follows:
b.
Segment Reporting
The Company has one operating segment. An operating segment is defined as a component that engages in business activities whose operating results are reviewed by the chief operating decision maker for the purpose of assessing performance and allocating resources and for which discrete financial information is available.
c.
Use of Estimates in the Preparation of Financial Statements
The preparation of the Company’s financial statements requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses in the Company’s financial statements and accompanying notes. The most significant estimates in the Company’s financial statements relate to accruals for research and development expenses, valuation of equity awards, and valuation allowances for deferred tax assets. These estimates and assumptions are based on current facts, future expectations, and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates.
d.
Functional and Presentation Currency
The U.S. dollar (“dollar”) is the currency of the primary economic environment in which the operations of the Company are conducted and expects to continue to operate in the foreseeable future. Accordingly, the functional currency of the Company is the dollar.
F-8
Table of Contents
NUVECTIS PHARMA, INC.
Notes to the Financial Statements (continued)
e.
Functional and Presentation Currency
Adjustments arising from foreign currency transactions between the purchase and the settlement dates are reflected in the statements of operations as a component of financial income (expense). For non-dollar transactions and other items in the statements of operations (indicated below), the following exchange rates are used: (i) for transactions — exchange rates at transaction dates or average rates; and (ii) for other items (derived from non-monetary balance sheet items such as depreciation) — historical exchange rates.
The Company did not recognize net foreign currency transaction gains or losses in the years ended December 31, 2022 and December 31, 2021.
f.
Cash and Cash Equivalents
The Company considers as cash equivalents all highly liquid investments, which include short-term bank deposits that are not restricted as to withdrawal or use, with maturities of three months or less at the date acquired.
g.
Concentrations of Credit Risk
The Company is subject to credit risk from holding its cash and cash equivalents at one commercial bank. The Company limits its exposure to credit losses by investing in money market accounts which are included in cash and cash equivalents through a U.S. bank with high credit ratings. Cash may consist of deposits held with banks that may at times exceed federally insured limits, however, exposure to credit risk in the event of default by the financial institution is limited to the extent of amounts recorded on the balance sheets. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.
h.
Leases
In accordance with Accounting Standards Codification (“ASC”) 842, Leases, the Company defines a short-term lease if a lease has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise. At the inception of the lease and as of December 31, 2022, the Company determined all leases were classified as short-term. Short-term leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term in general and administrative. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The operating lease costs for 2022 and 2021 were $ 13 thousand and $ 11 thousand, respectively.
i.
Research and Development Expenses
Research and development expenses include costs directly attributable to the conduct of research and development programs, including licensing fees, cost of salaries, share-based compensation expenses, payroll taxes and other employee benefits, subcontractors, materials used for research and development activities, and professional services. All costs associated with research and development are expensed as incurred.
F-9
Table of Contents
NUVECTIS PHARMA, INC.
Notes to the Financial Statements (continued)
j.
General and Administrative
General and administrative expenses consist primarily of personnel-related expenses, including employee salaries, bonuses, benefits, and share-based compensation, and recruiting costs for personnel in executive, finance, and other administrative functions. Other significant general and administrative expenses include legal fees relating to intellectual property and corporate matters, professional fees for accounting, tax and consulting services, insurance costs, and travel expenses. General and administrative costs are expensed as incurred.
k.
Loss Contingencies
Certain conditions may exist as of the date of the financial statements, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.
Management applies the guidance in ASC 450-20-25 when assessing losses resulting from contingencies. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability is recorded as accrued expenses in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material are disclosed. As of December 31, 2022, and December 31, 2021, no contingent liabilities have been recognized.
l.
Share-Based Compensation
The Company accounts for employees’, directors’ and service providers’ share-based payment awards classified as equity awards using the grant-date fair value method. The fair value of share-based payment transactions is recognized as an expense over the requisite service period. The equity awards could come in the form of options, warrants and RSUs.
The Company elected to recognize compensation costs for awards using the accelerated method based on the multiple-option award approach.
The Company has elected to recognize forfeitures as they occur.
For stock options containing a market condition, the market conditions are required to be considered when calculating the grant date fair value. ASC 718 requires selection of a valuation technique that best fits the circumstances of an award. (see note 7). In order to reflect the substantive characteristics of the market condition option award, a Monte Carlo simulation valuation model was used to calculate the grant date fair value of such stock options. Expense for the market condition stock options is recognized over the derived service period as determined through the Monte Carlo simulation model.
m.
Comprehensive Loss
Comprehensive loss includes no items other than net loss.
F-10
Table of Contents
NUVECTIS PHARMA, INC.
Notes to the Financial Statements (continued)
n.
Income Taxes
1)
Deferred taxes
The Company accounts for income taxes in accordance with ASC 740, “Income Taxes” (hereafter – “ASC 740”). ASC 740 prescribes that Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is recognized to the extent that it is more likely than not that the deferred taxes will not be realized in the foreseeable future.
Given the Company’s losses, the Company concluded it is more likely than not the deferred tax assets will not be realized and has provided a full valuation allowance with respect to its deferred tax assets.
2)
Uncertainty in income taxes
The Company accounts for uncertain tax positions in accordance with ASC 740-10. The Company follows a two-step approach in recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the available evidence indicates that it is more likely than not that the position will be sustained based on technical merits. If this threshold is met, the second step is to measure the tax position as the largest amount that has more than a 50% likelihood of being realized upon ultimate settlement. The Company does not have any provision for uncertain tax positions.
o.
Net Loss Per Share
The Company’s basic net loss per share is calculated by dividing net loss attributable to ordinary shareholders by the weighted-average number of ordinary shares outstanding for the period, without consideration of potentially dilutive securities. The diluted net loss per share is calculated by giving effect to all potentially dilutive securities outstanding for the period using the treasury share method or the if-converted method based on the nature of such securities. Diluted net loss per share is the same as basic net loss per share in periods when the effects of potentially dilutive shares of ordinary shares are anti-dilutive.
The Company computes net loss per share using the two-class method required for participating securities. The two-class method requires income available to ordinary shareholders for the period to be allocated between ordinary shares and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. The Company considered its redeemable convertible preferred shares to be participating securities as the holders of the redeemable convertible preferred shares would be entitled to dividends that would be distributed to the holders of ordinary shares on a pro-rata basis assuming conversion of all redeemable convertible preferred shares into ordinary shares. These participating securities do not contractually require the holders of such shares to participate in the Company’s losses. As such, net loss for the periods presented was not allocated to the Company’s preferred shares.
F-11
Table of Contents
NUVECTIS PHARMA, INC.
Notes to the Financial Statements (continued)
The following potentially dilutive securities were excluded from the calculation of diluted net loss per Ordinary Share because their effect would have been anti-dilutive for the years presented:
For the year ended
For the year ended
December 31,
December 31,
2022
2021
Common shares issuable in relation to:
Warrants*
344,894
81,003
Options*
311,590
226,590
RSU*
548,237
241,137
Redeemable convertible preferred shares
—
5,012,280
*- Adjusted to reflect stock splits, see note 6a.
p.
Fair Value Measurement
The Company follows authoritative accounting guidance, which among other things, defines fair value, establishes a consistent framework for measuring fair value, and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (at exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The three levels of inputs that may be used to measure fair value include:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. The Company’s Level 1 assets consist of money market funds.
Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity. 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.
The money market accounts included in cash and cash equivalents are considered Level 1.
During the years ended December 31, 2022 and 2021, respectively, there were no transfers between fair value measure levels. The Company had no financial assets and liabilities measured at fair value as of December 31, 2022 and 2021, respectively. Other financial instruments consist mainly of cash and cash equivalents, other current assets, accounts payable and accrued liabilities. The fair value of these financial instruments approximates their carrying values.
F-12
Table of Contents
NUVECTIS PHARMA, INC.
Notes to the Financial Statements (continued)
q.
Deferred Offering Costs
Deferred offering costs consist of legal and other costs incurred in connection with the formation and preparation for the Initial Public Offering (“IPO”) or the Private Investment in Public Entity (“PIPE”). These costs, along with underwriting fees were charged to additional paid-in capital upon the completion of the IPO or PIPE. The deferred offering costs were offset against the proceeds received upon the completion of the IPO or PIPE. Deferred offering costs are recorded under other non-current assets on the accompanying balance sheets.
r.
Redeemable Convertible Preferred Shares
When the Company issues convertible preferred shares, it considers the provisions of ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) in order to determine whether the preferred share should be classified as a liability. If the instrument is not within the scope of ASC 480, the Company further analyzes the instrument’s characteristics in order to determine whether it should be classified within temporary equity (mezzanine) or within permanent equity in accordance with the provisions of ASC 480-10-S99. The Company’s redeemable convertible preferred shares are not mandatorily or currently redeemable. However, they include a liquidation or deemed liquidation events that would constitute a redemption event that is outside of the Company’s control. As such, all shares of redeemable preferred shares have been presented outside of permanent equity. Upon the consummation of the IPO, all of the Company's preferred stocks were converted into common stock and reclassified from temporary equity, into permanent equity.
s.
Warrants
The Company determines the accounting classification of warrants that are issued, as either liability or equity, by first assessing whether the warrants meet liability classification in accordance with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, (“ASC 480-10”), and then in accordance with ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity (“ASC 815-40”). Under ASC 480-10, warrants are considered liability-classified if the warrants are mandatorily redeemable, obligate the issuer to settle the warrants or the underlying shares by paying cash or other assets, or must or may require settlement by issuing variable number of shares.
If the warrants do not meet liability classification under ASC 480-10, the Company assesses the requirements under ASC 815-40, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. If the warrants do not require liability classification under ASC 815-40, in order to conclude equity classification, the Company assesses whether the warrants are indexed to its common stock and whether the warrants are classified as equity under ASC 815-40 or other applicable GAAP. After all relevant assessments are made, the Company concludes whether the warrants are classified as liability or equity. Liability-classified warrants are required to be accounted for at fair value both on the date of issuance and on subsequent accounting period ending dates, with all changes in fair value after the issuance date recorded as a component of other income (expense), net in the statements of operations. Equity-classified warrants are accounted for at consideration received on the issuance date with no changes in fair value recognized after the issuance date. As of December 31, 2022, all of the Company’s outstanding warrants are equity-classified warrants. See Note 6d.
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NUVECTIS PHARMA, INC.
Notes to the Financial Statements (continued)
t.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13 “Financial Instruments—Credit Losses—Measurement of Credit Losses on Financial Instruments.” This guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance will be effective for Emerging Growth Companies (EGCs, as defined by the SEC) for the fiscal year beginning on January 1, 2023, including interim periods within that year. No significant impact on the Company’s financial statements.
In August 2020, the FASB issued Accounting Standard Update No. 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This guidance is effective for public business entities except for smaller reporting companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. For all other entities, the standard will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2020-06 on January 1, 2022, using the modified retrospective method, and such adoption did not impact the Company’s financial position, results of operations, cash flows or net loss per share.
u.
Recently Issued Accounting Pronouncements Not Yet Adopted
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.
NOTE 3 – RESEARCH AND DEVELOPMENT EXPENSES:
Research and development expenses consisted of the following (in thousands):
For the year ended
For the year ended
December 31,
December 31,
2022
2021
Employee compensation and benefits
4,648
1,164
Clinical expense
3,714
670
License fee
2,297
7,111
Manufacturing
2,170
424
Professional services and other
398
176
Total research and development expenses
13,227
9,545
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NUVECTIS PHARMA, INC.
Notes to the Financial Statements (continued)
NOTE 4 – GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses consisted of the following (in thousands):
For the year ended
For the year ended
December 31,
December 31,
2022
2021
Professional and consulting services
2,381
2,574
Employee compensation and benefits
1,756
414
Insurance
1,183
—
Other
687
361
Total general and administrative expenses
6,007
3,349
NOTE 5 – COMMITMENTS AND CONTINGENCIES:
a.
License agreement
CRT Pioneer Fund License Agreement
In May 2021, the Company entered into a worldwide, exclusive license agreement with the CRT Pioneer Fund for CP800 and any of its derivatives, (collectively, the “CP800 Program”). CP800 is a small molecule drug candidate that the Company believes can be applied to a broad range of cancers. Prior to licensing by the Company, CRT was the commercial owner of the CP800 Program, which it acquired from the Institute of Cancer Research in London, UK (“ICR”). The ICR is a world-renowned research institute focused on the discovery and preclinical development of cancer therapeutics pursuant to the license agreement, the Company has an obligation to pay success-based milestones and royalties to CRT, as follows: 1) pre-approval milestone payments of up to approximately $ 26.5 million including an upfront nonrefundable payment of $ 3.5 million and $ 1.0 million in patient recruitment milestones which has already been paid; 2) regulatory approval and commercial sales milestones of up $ 178 million (in addition to the above $ 26.5 million); and 3) mid-single digit to 10 % royalties on a tiered basis on net sales.
In addition, in connection with the licensing agreement, the Company will provide ICR with up to an additional $ 500,000 in research and development support over the next 18 months to conduct additional scientific research and preclinical testing for certain indications that the Company selects in connection with the CP800 Program. According to the license agreement the Company has also exclusive license to intellectual property rights developed in the collaboration, to research, develop and commercialize products resulting from the collaboration. On March 31, 2022, the Company and ICR revised the agreement for research and development support to a total of $ 865,000 (to allow for additional research activities). $ 0.3 million and zero of expense of the research and development support was recognized during the year ended December 31, 2022 and 2021, respectively. The expense from the revised agreement will be recognized over eighteen months beginning at the date of the revised agreement. As of December 31, 2022, there are nine months remaining for this expense to be recognized.
License Term
The license will remain in effect in each territory subject to the license and will continue until the Company’s obligation to pay royalties in such territory has expired. The royalty term for each licensed product in each country commences with the first commercial sale of the applicable licensed product in
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NUVECTIS PHARMA, INC.
Notes to the Financial Statements (continued)
the applicable country and ends on the expiration of the last to expire of any patent specified by the license (with the key composition of matters patent expiring October 2034) or the expiration of any extended exclusivity period in the relevant country. CRT may earlier terminate the license if the Company, or any of our affiliates or sub-licensees, challenge or seek to challenge the validity of any of the licensed patents or upon a change of control in which the Company becomes controlled by a Tobacco Party, as such term is defined in the license. Either party may terminate the license upon material breach by the other party, and upon the appointment of a receiver or upon a winding-up order or similar or equivalent action.
For the year ended December 31, 2022, the Company paid $ 1.0 million in license fees associated with the achievement of certain milestones. For the year ended December 31, 2021, the Company paid the upfront payment of $ 3.5 million. During the years ended December 31, 2022 and 2021, respectively, these expenses were recorded as research and development expenses. Any potential future research support, milestone or royalty payment amounts have not been accrued at December 31, 2022 and 2021 due to the uncertainty related to the achievement of these events, milestones or commitments to additional research.
University of Edinburgh License Agreement
In August 2021, the Company entered into a worldwide, exclusive license agreement with the University Court of the University of Edinburgh (“Edinburgh” or “University” or “Parties” or “UoE”) for the second drug candidate.
The Company is obligated to pay success-based milestones and royalties to the UoE, as follows: (1) pre-approval milestone payments of up to approximately $ 49.5 million including an upfront nonrefundable payment of $ 3.5 million which has already been paid and $ 0.5 million on the first anniversary of the effective date of this agreement. (2) regulatory approval and commercial sales milestones of up $ 279.5 million. (3) mid- single digit to 8 % royalties on a tiered basis on net sales; and 2.5 % of the gross amount of each of the Company’s future fund raisings up to a cumulative total of $ 3.0 million.
In collaboration with Edinburgh, the Company wishes to generate preclinical data to support Investigational New Drug (IND) submission and inform patient selection/enrichment strategies. The aim of the development collaboration formed between the Parties under this Agreement is to progress the development of the Licensed Technology, which is licensed under the License Agreement) according to the Work Plan. The Company has agreed to provide funding to Edinburgh to support such collaboration.
The Parties wish to enter into this Agreement to set out the terms for the provision of such funding by the company and the terms of the development collaboration formed between the Parties. In consideration of the obligations of Edinburgh, the Company shall pay the Project Costs in the amount of $ 772,000 , payable over 18 months. As of December 31, 2022, UoE’s research and development as described above has not yet begun and therefore no expenses were recorded in the financial statements.
License Term
The royalty term for each licensed product in each country is the period commencing with the first commercial sale of the applicable licensed product in the applicable country and ending on the expiration of the last to expire of any patent specified by the license (statutory expiration for the NXP900 patent family is April 2036), or the expiration of any extended exclusivity period in the relevant country. The Company may terminate the license if the Company determines that it is not scientifically or commercially viable to research, develop, or commercialize the licensed products which are the subject
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NUVECTIS PHARMA, INC.
Notes to the Financial Statements (continued)
of the license agreement. UoE may terminate the agreement if the Company: (i) ceases to carry on the business regarding the treatment, prevention and/or diagnosis of human diseases; (ii) discontinues the development of the licensed products which are the subject of the license; (iii) disposes of our assets or business in whole or in material part; (iv) challenges the validity, ownership, or enforceability of the exclusively licensed technology; (v) contests the secret or substantial nature of certain know-how subject to the license; or (vi) breaches certain diligence obligations or fails to pay any amount due under the license within a specified time frame.
As of December 31, 2022, the Company paid $ 0.5 million related to the one-year anniversary milestone and $ 0.4 million associated with the IPO. As of December 31, 2022 the Company recorded a liability of $ 0.4 million associated with the private placement. As of December 31, 2021, the Company paid the upfront payment of $ 3.5 million. During the years ended December 31, 2022 and 2021, respectively, these expenses were recorded as research and development expenses. Any potential future research support, milestone or royalty payment amounts have not been accrued at December 31, 2022 and 2021 due to the uncertainty related to the achievement of these events, milestones or commitments to additional research.
.
b.
Related Party Transactions
As for related party transactions, see note 10.
c.
Contingencies
As of December 31, 2022, and as of December 31, 2021, no contingent liabilities have been recognized.
NOTE 6 – REDEEMABLE CONVERTIBLE PREFERRED SHARES AND SHAREHOLDERS’ DEFICIT:
a. In May 2021, the Company’s board of directors approved and declared a 100 :1 stock split of common shares with a par value of $ 0.00001 and preferred shares, with a par value of $ 0.00001 . In addition, the Company increased the number of authorized common shares from 3,900,000 to 12,870,000 and preferred shares from 40,000 to 170,000 . In addition, on October 23, 2021, the Company’s Board of Directors approved a 39 :1 stock split. As a result of the above splits, all shares, options and warrants exercisable into common shares and restricted stock units, exercise prices and income or loss per share amounts have been adjusted on a retroactive basis for all periods presented to reflect such stock splits.
On February 3, 2022, the Company amended its certificate of incorporation such that the total number of shares of all classes of capital stock authorized to be issued was increased to 65,000,000 , with 5,000,000 shares designated as preferred stock with a par value of $ 0.00001 , and 60,000,000 shares designated as common stock with a par value of $ 0.00001 .
On February 8, 2022, the Company completed an IPO in which it sold 3,200,000 shares of common stock at $ 5.00 per share and received net proceeds of $ 13.6 million, after underwriting discounts and commissions, of $ 1.1 million and expenses of $ 1.8 million.
Additionally, on February 8, 2022, in connection with the closing of the IPO, 5,012,280 shares of Series A redeemable convertible preferred stock, respectively, automatically converted into an equal number of shares of common stock. There were no shares of convertible preferred stock outstanding as of December 31, 2022.
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NUVECTIS PHARMA, INC.
Notes to the Financial Statements (continued)
b.
Redeemable Convertible Preferred Shares
During June and July 2021, the Company entered into an investment agreement with its founders and certain new investors to issue 128,520 redeemable convertible preferred shares (“Preferred Stock”) in a total amount of approximately $ 15.3 million in which $ 1.73 million were invested by related parties on the same terms as all investors in the Preferred Stock.
Conversion Rights —
Trigger Events — Upon either (a) the closing of a Deemed Liquidation Event, (b) an initial public offering the Corporation’s securities on a major public stock exchange (including, without limitation and for illustration purposes, the Nasdaq Stock Market’s National Market or the New York Stock Exchange) resulting in at least $ 15,000,000 of proceeds to the Corporation, or (c) the vote or written consent of the majority of the Preferred Stockholders (the time of such closing or the date and time specified or the time of the event specified in such vote or written consent is referred to herein as the “Mandatory Conversion Time”), then (i) all outstanding shares of Preferred Stock shall automatically be converted into shares of Common Stock, at the then effective conversion rate as calculated as follows — each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing the Original Issue Price ($ 119.0476 ) by the Conversion Price ($ 3.05 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization or event with respect to the applicable Preferred Stock). Such initial Conversion Price, and the rate at which shares of Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as detailed in the Company’s Certified of Incorporation in effect at the time of conversion (as of December 31, 2021 the conversion is $ 3.05 per share) (ii) such shares may not be reissued by the Corporation.
During February 2022 the company completed the IPO and the convertible preferred stock were converted to common shares.
c.
Rights of the Company’s common shares
The holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of the stockholders. The holders of our common stock do not have any cumulative voting rights. Holders of our common stock are entitled to receive ratably any dividends declared by our board of directors out of funds legally available for that purpose, subject to any preferential dividend rights of any outstanding preferred stock. The Company’s common stock has no preemptive rights, conversion rights or other subscription rights or redemption or sinking fund provisions.
In the event of our liquidation, dissolution or winding up, holders of the Company common stock will be entitled to share ratably in all assets remaining after payment of all debts and other liabilities and any liquidation preference of any outstanding preferred stock.
As of December 31, 2022, no dividends have been declared.
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NUVECTIS PHARMA, INC.
Notes to the Financial Statements (continued)
d.
Private Placement in Public Entity
On July 29, 2022, the Company closed a private placement offering (the “July Private Placement”), pursuant to the terms and conditions of a Securities Purchase Agreement (the “Agreement”), dated July 27, 2022. In connection with the July Private Placement, the Company issued 1,015,598 shares of common stock (the “Shares”), pre-funded warrants (the “Pre-Funded Warrants”) to purchase an aggregate of 909,091 shares of common stock and preferred investment options (the “Preferred Investment Options”) to purchase up to an aggregate of 1,924,689 shares of common stock. The purchase price of each Share and each Pre-Funded Warrant was the $ 8.25 . The purchaser received one Preferred Investment Option for no consideration, with each Share or Pre-Funded Warrant purchased. The aggregate net cash proceeds to the Company from the July Private Placement were approximately $ 14.3 million, after deducting placement agent fees and other offering expenses. The Pre-Funded Warrants had an exercise price of $ 0.001 per share, were exercisable on or after August 24, 2022, and are exercisable until the Pre-Funded Warrants were exercised in full. Pre-Funded Warrants totaling 909,091 were exercised during the year ended December 31, 2022, and as such the Company issued 909,091 shares of common stock on that date. The Preferred Investment Options are exercisable at any time on or after January 23, 2023 through January 29, 2026, at an exercise price of $ 9.65 per share, subject to certain adjustments as defined in the Agreement. The Company agreed to pay the placement agent a fee and management fee equal to 7.0 % and 1.0 %, respectively, of the aggregate gross proceeds from the July Private Placement. In addition, the Company issued warrants to the placement agent to purchase up to 115,481 shares of common stock. The placement agent warrants are in substantially the same form as the Preferred Investment Options, except that the exercise price is $ 10.31 . The Preferred Investment Options, the Pre-Funded Warrants, and the placement agent warrants are collectively referred to as the “Private Placement Warrants”.
The Company evaluated the terms of the Private Placement Warrants and determined that they should be classified as equity instruments based upon accounting guidance provided in ASC 480 and ASC 815-40. Since the Company determined that the Private Placement Warrants were equity-classified, the Company recorded the proceeds from the July Private Placement, net of issuance costs, within common stock at par value and the balance of the net proceeds to additional paid in capital. As of December 31, 2022, the outstanding Preferred Investment Options, and the placement agent warrants were not exercisable.
In connection with the July Private Placement, the Company entered into a Registration Rights Agreement with the certain purchasers defined therein, dated July 27, 2022 (the “July Registration Rights Agreement”). The July Registration Rights Agreement required the Company to file a registration statement covering the resale of all of the securities with the Securities and Exchange Commission (the “SEC”). The Company filed a registration statement on Form S-1 with the SEC on August 15, 2022. The registration statement on Form S-1 was declared effective on August 24, 2022.
NOTE 7 – SHARE BASED PAYMENTS
a.
Share Based Payments
In May 2021, the Company’s board of directors approved issuance of common shares in a total amount of 605,514 each with par value of $ 0.00001 per share including amount of 238,914 to service providers and an amount of 366,600 to the Company founders at an estimated value of approximately $ 1.4 million. These common shares are fully vested on the grant date. The fair value of common shares was evaluated
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NUVECTIS PHARMA, INC.
Notes to the Financial Statements (continued)
at the grant date using hybrid pricing model with a combination of the Black-Scholes Option Pricing Model (OPM) and the P-WERM model for various possible scenarios. For the various scenarios modeled, volatility is based on a combination of historical volatilities of companies in comparable stages as well as companies in the industry by statistical analysis of daily share pricing model. The risk-free interest rate assumption is based on observed interest rates appropriate for the time period until a liquidity event occurs. The expected term represents the period of time until a liquidity event occurs.
The following table summarizes assumptions used for the OPM model at the grant date:
Risk-free interest rate
0.79
%
Expected dividend yield
—
Expected term (in years)
4.9
Expected volatility
107
%
In February 2022, the Company granted to. the underwriter of the IPO, 128,000 fully vested warrants upon the IPO, exercisable into common stock with an exercise price of $ 6.25 per share for 5 years after the grant date. The 128,000 fully vested warrants have an estimated value (based on Black-Scholes model) of approximately $ 458,000 and were recognized as a reduction from gross proceeds of the IPO. No warrants have been exercised as of December 31, 2022.
The following table summarizes assumptions used for the Black-Scholes model at the grant date:
Risk-free interest rate
1.78
%
Common share price
$
5.00
Expected dividend yield
—
Expected term (in years)
5
Expected volatility
99
%
In July 2022, the Company granted to the private placement agent of July Private Placement, 115,481 warrants which become exercisable any time between January 23, 2023 and January 29, 2026, exercisable into common stock with an exercise price of $ 10.31 per share. The 115,481 warrants have an estimated value (based on Black-Scholes model) of approximately $ 618,000 . No warrants have been exercised as of December 31, 2022.
The following table summarizes assumptions used for the Black-Scholes model at the grant date:
Risk-free interest rate
2.86
%
Common share price
$
9.26
Expected dividend yield
0
Expected term (in years)
3.5
Expected volatility
86.06
%
Volatility was estimated based on the historic volatility of comparable public companies.
b.
2021 Incentive Plan
In May 2021, the Company’s board of directors approved an equity incentive plan (hereafter — “2021 Plan”), in which the Company has reserved a total amount of 408,486 common shares for issuance in connection with the Option Agreement. In February 2022, the Company’s board of directors approved an increase to total shares under the incentive plan to 1,500,000 .
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NUVECTIS PHARMA, INC.
Notes to the Financial Statements (continued)
The 2021 Plan provides for a variety of stock-based compensation awards, including stock options, restricted stock unit awards, or other stock. Under the 2021 Plan, the Company generally grants stock-based awards with service-based vesting conditions only. Options and restricted stock unit awards granted typically vest over a three-year period, but may be granted with different vesting terms.
Mr. Ron Bentsur, Dr. Enrique Poradosu and Mr. Shay Shemesh will be eligible for fully vested shares of common stock equal to 1 %, 0.5 % and 0.5 %, respectively, of the then fully diluted share count when the Company reaches an average capitalization over a 30 -day period of $ 350 million or higher. As of December 31, 2022, the market capitalization has not been achieved.
The following table summarizes the Company’s stock option activity for the year ended December 31, 2022, for the 2021 Incentive Plan:
Weighted
Number of
Weighted average
average
Aggregated
shares under
Exercise price per
remaining
Intrinsic value
option
Option
life
(in thousands)
Balance, December 31, 2021
226,590
3.05
9.07
492
Granted
85,000
7.25
Exercised
—
—
Forfeited
—
—
Outstanding – December 31, 2022
311,590
4.20
8.79
1,042
Exercisable – December 31, 2022
75,582
3.05
8.60
Expected to vest – December 31, 2022
311,590
4.20
8.79
1,042
As of December 31, 2022, there was $ 0.6 million of unrecognized stock-based compensation expense related to unvested stock options that is expected to be recognized over a weighted-average period of 1.82 years, excluding warrants which vest upon completion of an IPO or PIPE.
The fair value of each option granted is estimated using the Black-Scholes option pricing method. The volatility is based on a combination of historical volatilities of companies in comparable stages as well as companies in the industry by statistical analysis of daily share pricing model. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected term of the options granted in dollar terms. The expected term of the options granted represents the period of time that the granted options are expected to remain outstanding based on common practice in the industry.
Common share price is calculated using the model described. The following table summarizes the Black-Scholes assumptions used at the grant date:
Year Ended
Grant Dates May –
December 2022
November 2021
Risk-free interest rate
2.39 % - 2.88 %
0.80 % - 1.37 %
Expected dividend yield
—
—
Common share price
$ 7.02 - $ 11.99
$ 2.28 - $ 2.97
Expected term (in years)
10
5 – 10
Expected volatility
89.36 %
88 % – 107 %
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NUVECTIS PHARMA, INC.
Notes to the Financial Statements (continued)
Restricted stock Units
Restricted stock units (RSUs) have been granted to employees and directors. The value of an RSU award is based on the Company’s stock price on the date of grant using hybrid pricing model with a combination of the Black-Scholes Option Pricing Model (OPM) and the P-WERM model for various possible scenarios. The shares underlying the RSU awards are not issued until the RSUs vest. Upon vesting, each RSU converts into one share of the Company’s common stock. The Company has granted RSUs pursuant to the 2021 plan.
On April 1, 2022, the Company issued 120,000 RSUs to Mr. Ron Bentsur and 60,000 RSUs each to Dr. Enrique Poradosu and Mr. Shay Shemesh. All RSUs granted to these founders of the Company vest over three years with 1/3 vesting on each anniversary of the date of the grant. The fair value of these RSUs was determined to be $ 1.7 million.
The following table summarizes the Company’s restricted stock unit activity for the year ended December 31, 2021, as described above from the 2021 Incentive Plan:
Number of
Weighted
Weighted average
Aggregated
shares under
average grant
contractual term
Intrinsic value
option
date fair value
(in years)
(in thousands)
Balance, December 31, 2021
47,580
2.49
2.72
114
Granted
307,100
7.63
Vested
( 15,873 )
3.05
Outstanding – December 31, 2022
338,807
7.15
2.22
2,541
Expected to vest – December 31, 2022
338,807
7.15
2.22
2,541
As of December 31, 2022, there was $ 1.3 million of total unrecognized compensation cost related to RSUs that is expected to be recognized over a weighted average period of 2.2 years.
The total fair value of RSUs vested for the year ended December 31, 2022, was $ 48 thousand.
On July 27, 2021, Mr. Ron Bentsur, Dr. Enrique Poradosu, and Mr. Shay Shemesh were granted 96,759 RSUs, 48,399 RSUs and 48,399 RSUs, respectively, which were not part of the Incentive Plan and excluded from the table above. On July 1, 2022 and December 13, 2022, the vesting of these grants was extended to January 1, 2023 and June 30, 2022, respectively.
c.
Share compensation expense
For the period ended December 31, 2022, the Company recognized expenses of $ 0.8 million as part of the general and administrative expenses and $ 0.9 million as part of the research and development expenses.
For the period ended December 31, 2021, the Company recognized expenses of $ 1.0 million as part of the general and administrative expenses and $ 0.9 million as part of the research and development expenses.
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NUVECTIS PHARMA, INC.
Notes to the Financial Statements (continued)
NOTE 8 – NET LOSS PER SHARE:
a.
Basic
Basic net loss per share is calculated by dividing the net loss attributable to the Company’s stockholders by the weighted average number of common shares outstanding.
For the year ended
For the year ended
December 31, 2022
December 31, 2021
in thousand U.S. dollars except per share and share amounts
Loss attributable to common stockholders
( 19,085 )
( 12,890 )
Basic and diluted net loss per common share
( 1.51 )
( 3.02 )
Weighted average of common share outstanding
12,657,651
4,268,285
Basic loss per share is calculated by dividing the result attributable to equity holders of the Company by the weighted average number of Ordinary Shares in issue during the year.
b.
Diluted
As of December 31, 2022 and December 31, 2021, the Company excluded potentially dilutive securities from the calculation of diluted net loss per Ordinary Share because their effects would have been anti-dilutive (see note 2n).
NOTE 9 – INCOME TAXES:
a.
The Company has not recorded an income tax benefit for the years ended December 31, 2022 and 2021, respectively. The Company has incurred net pre-tax losses in the United States only for all periods presented. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the carrying amounts of existing assets and liabilities in the financial statements and their respective tax bases using tax rates expected to be in effect during the years in which the basis differences reverse.
b.
Tax Rates:
Income of the Company is taxed according to the federal tax laws in the US and the relevant state laws. The U.S tax rate in 2022 and 2021 is 26.9 % comprising U.S statutory tax rates of 21 % and state tax rate of 5.9 %. For the years ended December 31, 2022 and 2021, the Company’s effective tax rate is below the federal statutory income tax rate of 21 % primarily due to state income taxes, net of federal benefit and the Company’s position to establish a full valuation allowance on its deferred tax assets.
c.
Corporate Taxation in the U.S.
The applicable corporate tax rate for the Company is 21 %.
As of December 31, 2022, the Company has an accumulated tax loss carryforward of approximately $ 23.0 million (as of December 31, 2021, $ 9.3 million). Under U.S. tax laws, subject to certain limitations, carryforward tax losses originating in tax years beginning after January 1, 2018, have no expiration date, but they are limited to 80% of the company’s taxable income in any given tax year.
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NUVECTIS PHARMA, INC.
Notes to the Financial Statements (continued)
d.
Tax Assessments
The Company has not been taxed since its inception.
e.
Deferred Taxes
The tax effect of temporary differences and carryforwards that give rise to significant portions of the deferred tax assets and liabilities are presented below:
As of
As of
December 31, 2022
December 31, 2021
(in thousands USD)
(in thousands USD)
Deferred tax asset:
Net operating loss carry forward
6,120
2,500
Share Compensation
969
510
Research and Development credits
52
26
Accruals and reserves
1,432
435
Total deferred tax assets
8,573
3,471
Valuation allowance
( 8,573 )
( 3,471 )
Deferred tax assets recognized
—
—
As the achievement of required future taxable income is not likely, the Company recorded a full valuation allowance. The following table presents a reconciliation of the beginning and ending valuation allowance:
As of
As of
December 31, 2022
December 31, 2021
(in thousands USD)
(in thousands USD)
Balance at beginning of the year
3,471
10
Additions to valuation allowance
5,102
3,461
Release of valuation allowance
—
—
Balance at end of the year
8,573
3,471
NOTE 10 – RELATED PARTY TRANSACTIONS:
a.
As for related party transactions regarding equity grants, see note 7.
NOTE 11 – SUBSEQUENT EVENTS:
a. On January 12, 2023, the Company issued 210,000 RSUs to Mr. Ron Bentsur and 115,000 RSUs each to Dr. Enrique Poradosu and Mr. Shay Shemesh.
b. On February 14, 2023, 105,920 warrants granted in February 2022 in association with the underwriter agreement associated with the Company’s IPO were exercised. Gross proceeds from the exercise of these warrants were approximately $ 660 thousand.
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NUVECTIS PHARMA, INC.
Notes to the Financial Statements (continued)
c. On February 14, 2023, a certain investor exercised 4,000 Preferred Investment Options granted in July 2022 in association with the Securities Purchase Agreement. Gross proceeds from the exercise of these options were approximately $ 39 thousand.
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(b)Exhibits.
Exhibit No.
Description
3.1
Second Amended and Restated Certificate of Incorporation of Nuvectis Pharma, Inc., filed as exhibit 3.1 to the Form 8-K filed on February 4, 2022 and incorporated herein by reference.
3.2
Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of Nuvectis Pharma, Inc., filed as exhibit 3.3 to the Form 8-K filed on February 4, 2022 and incorporated herein by reference.
3.3
Amended and Restated Bylaws of Nuvectis Pharma, Inc., filed as exhibit 3.2 to the Form 8-K filed on February 4, 2022 and incorporated herein by reference.
4.1
Form of Common Stock Certificate, filed as exhibit 4.1 to the Form S-1/A, filed on October 21, 2021 and incorporated herein by reference.
4.2
Form of Warrant, filed as exhibit 4.2 to the Form S-1/A filed on October 28, 2021 and incorporated herein by reference.
4.3
Form of Underwriter’s Warrant, filed as exhibit 4.2 to the Form S-1/A filed on January 18, 2022 and incorporated herein by reference.
4.4
Form of Preferred Investment Option, filed as exhibit 10.2 to the Form 8-K filed on July 29, 2022 and incorporated herein by reference.
4.5
Form of Pre-Funded Warrant, filed as exhibit 10.3 to the Form 8-K filed on July 29, 2022 and incorporated herein by reference.
4.6
Description of Securities of Nuvectis Pharma, Inc. *
10.1
2021 Global Equity Incentive Plan, filed as exhibit 10.1 to the Form S-1/A filed on October 6, 2021 and incorporated herein by reference.
10.2
Executive Employment Agreement with Ron Bentsur, filed as exhibit 10.2 to the Form S-1/A filed on October 6, 2021 and incorporated herein by reference. #
10.3
Executive Employment Agreement with Enrique Poradosu, filed as exhibit 10.3 to the Form S-1/A filed on October 6, 2021 and incorporated herein by reference. #
10.4
Executive Employment Agreement with Shay Shemesh, filed as exhibit 10.4 to the Form S-1/A filed on October 6, 2021 and incorporated herein by reference. #
10.5
License Agreement between Nuvectis Pharma, Inc. and CRT Pioneer Fund LP dated May 19, 2021, filed as exhibit 10.5 to the Form S-1/A filed on October 6, 2021 and incorporated herein by reference. **
10.6
License Agreement between Nuvectis Pharma, Inc. and The University Court of the University of Edinburgh, dated August 26, 2021, filed as exhibit 10.6 to the Form S-1/A filed on October 6, 2021 and incorporated herein by reference. **
21.1
List of subsidiaries of Nuvectis Pharma, Inc. *
23.1
Consent of Independent Registered Public Accounting Firm
24.1
Power of Attorney (included on signature page). *
31.1
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
31.2
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32.1
Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
32.2
Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
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101.INS*
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH*
Inline XBRL Taxonomy Schema Linkbase Document
101.CAL*
Inline XBRL Taxonomy Calculation Linkbase Document
101.DEF*
Inline XBRL Taxonomy Definition Linkbase Document
101.LAB*
Inline XBRL Taxonomy Labels Linkbase Document
101.PRE*
Inline XBRL Taxonomy Presentation Linkbase Document
104
Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
*
Filed herewith.
**
Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10) of Regulation S-K.
#
Management Compensation Arrangement.
Item 16. Form 10-K Summary
The Company has elected not to provide summary information.
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Signatures
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Fort Lee, State of New Jersey, on this 8th day of March 2023.
Nuvectis Pharma, Inc.
By:
/s/ Ron Bentsur
Name: Ron Bentsur
Title: Chairman, Chief Executive Officer and President
POWER OF ATTORNEY
We, the undersigned directors and/or executive officers of Nuvectis Pharma, Inc., hereby severally constitute and appoint Ron Bentsur, acting singly, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her in any and all capacities, to sign this report and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing necessary or appropriate to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby approving, ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Ron Bentsur
Chairman, Chief Executive Officer and President
Ron Bentsur
(Principal Executive Officer)
March 8, 2023
/s/ Michael J Carson
Vice President of Finance
Michael J Carson
(Principal Financial and Accounting Officer)
March 8, 2023
/s/ Kenneth Hoberman
Kenneth Hoberman
Director
March 8, 2023
/s/ James F. Olivero III
James F. Oliviero III
Director
March 8, 2023
/s/ Matthew L. Kaplan
Matthew L. Kaplan
Director
March 8, 2023
70
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.