Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
We are exposed to a variety
of risks, including changes in interest rates, foreign currency exchange rates, changes in the value of our marketable securities and
inflation.
As of August 31, 2021, we
had $77.2 million in cash and cash equivalents, $36 million in short term and long term bank deposits and $12.5 million in marketable
securities.
We aim to preserve our financial
assets, maintain adequate liquidity and maximize return while minimizing exposure to market risks. Such policy further provides that we
should hold most of our current assets in bank deposits. As of today, the currency of our financial assets is mainly in U.S. dollars.
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Marketable securities
We own 1,701,357 common shares
of D.N.A, 117,000 ordinary shares of Entera which are presented in our financial statements as marketable
securities. Marketable securities are presented at fair value and their realization is subject to certain limitations if sold through
the market, and we are therefore exposed to market risk. There is no assurance that at the time of sale of the marketable securities the
price per share will be the same or higher, nor that we will be able to sell all of the securities at once given the volume of securities
we hold. Entera shares are traded on Nasdaq in U.S. dollars, while D.N.A shares are traded on the Tel Aviv Stock Exchange and the D.N.A
shares’ price is denominated in NIS. We are also exposed to changes in the market price of the Entera and D.N.A shares, as well
as to exchange rates fluctuations in the NIS currency compared to the U.S. dollar with respect to the D.N.A shares.
Interest Rate Risk
We invest a major portion
of our cash surplus in bank deposits in banks in Israel. Since the bank deposits typically carry fixed interest rates, financial income
over the holding period is not sensitive to changes in interest rates, but only the fair value of these instruments. However, our interest
gains from future deposits may decline in the future as a result of changes in the financial markets. In any event, given the historic
low levels of the interest rate, we estimate that a further decline in the interest rate we are receiving will not result in a material
adverse effect to our business.
Foreign Currency Exchange Risk and Inflation
A significant portion of
our expenditures, including salaries, clinical research expenses, consultants’ fees and office expenses relate to our operations
in Israel. The cost of those Israeli operations, as expressed in U.S. dollars, is influenced by the extent to which any increase in the
rate of inflation in Israel is not offset (or is offset on a lagging basis) by a devaluation of the NIS in relation to the U.S. dollar.
If the U.S. dollar declines in value in relation to the NIS, it will become more expensive for us to fund our operations in Israel. In
addition, as of August 31, 2021, we own net balances in NIS of approximately $1,287,000. Assuming a 10% appreciation of the NIS against
the U.S. dollar, we would experience exchange rate gain of approximately $143,000, while assuming a 10% devaluation of the NIS against
the U.S. dollar, we would experience an exchange rate loss of approximately $117,000.
The exchange rate of the
U.S. dollar to the NIS, based on exchange rates published by the Bank of Israel, was as follows:
Year Ended
August 31,
2021
2020
2019
Average rate for period
3.292
3.490
3.623
Rate at period-end
3.207
3.362
3.535
We do not use any currency
hedging transactions of options or forwards to decrease the risk of financial exposure from fluctuations in the exchange rate of the U.S.
dollar against the NIS.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.
See Item 15 of this Annual
Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.