Tessera Defense & Homeland Security Inc. 10-Q

Item 1. Financial Statements INDEX TO FINANCIAL STATEMENTS Page Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023 (unaudited) F-1-F-2 Condensed Consolidated Statements of Operations for the Nine and Three Months Ended September 30, 2024 and 2023 (unaudited) F-3 Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Shares and in Stockholders’ Equity for the Nine and Three Months ended September 30, 2024 and 2023 (unaudited) F-4-F-5 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023 (unaudited) F-6 Notes to Condensed Consolidated Financial Statements (unaudited) F-7-F-24 1 BIOMX INC. CONDENSED CONSOLIDATED BALANCE SHEETS (USD in thousands, except share and per share data) (unaudited) As of September 30, 2024 December 31, 2023 ASSETS Current assets Cash and cash equivalents 23,537 14,907 Restricted cash 1,114 957 Other current assets 3,665 1,768 Total current assets 28,316 17,632 Non-current assets Other assets 96 - Operating lease right-of-use assets 9,700 3,495 Property and equipment, net 6,581 3,902 In-process Research and development (“IPR&D”) assets 15,287 - Total non-current assets 31,664 7,397 59,980 25,029 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. F- 1 BIOMX INC. CONDENSED CONSOLIDATED BALANCE SHEETS (USD in thousands, except share and per share data) (unaudited) As of September 30, 2024 December 31, 2023 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Trade accounts payable 2,779 1,381 Current portion of lease liabilities 1,096 666 Other accounts payable 5,069 3,344 Current portion of long-term debt - 5,785 Total current liabilities 8,944 11,176 Non-current liabilities Contract liability - 1,976 Long-term debt, net of current portion - 5,402 Operating lease liabilities, net of current portion 8,651 3,239 Other liabilities 161 155 Private Placement Warrants 4,328 - Total non-current liabilities 13,140 10,772 Commitments and Contingencies (Note 7) Stockholders’ equity Preferred Stock, $ 0.0001 par value; Authorized – 1,000,000 shares as of September 30, 2024 and December 31, 2023. Issued and outstanding- 147,735 as of September 30, 2024. No shares issued and outstanding as of December 31, 2023. 18,645 - Common Stock, $ 0.0001 par value; Authorized – 750,000,000 shares as of September 30, 2024 and 120,000,000 shares as of December 31, 2023. Issued and outstanding- 18,176,602 shares as of September 30, 2024 and 4,723,320 shares as of December 31, 2023. (*) 6 3 Additional paid in capital 185,429 166,048 Accumulated deficit ( 166,184 ) ( 162,970 ) Total stockholders’ equity 37,896 3,081 59,980 25,029 (*) All share amounts have been retroactively adjusted to reflect a 1-for-10 reverse share split as discussed in Note 10A. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. F- 2 BIOMX INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD in thousands, except share and per share data) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Research and development (“R&D”) expenses, net 7,279 5,641 18,281 14,023 General and administrative expenses 3,248 2,154 8,756 6,053 Goodwill impairment 801 - 801 - Operating loss 11,328 7,795 27,838 20,076 Other income ( 84 ) ( 89 ) ( 2,189 ) ( 270 ) Interest expenses 5 574 868 1,884 Income from change in fair value of Private Placement Warrants ( 20,559 ) - ( 24,417 ) - Finance expense (income), net ( 332 ) ( 382 ) 1,104 ( 1,034 ) Loss (income) before tax ( 9,642 ) 7,898 3,204 20,656 Tax expenses - 8 10 22 Net loss (income) ( 9,642 ) 7,906 3,214 20,678 Basic loss (earnings) per share of Common Stock (*) ( 0.31 ) 1.30 0.32 4.29 Diluted loss (earnings) per share of Common Stock (*) ( 0.31 ) 1.30 2.45 4.29 Weighted average number of shares used in computing basic loss (earnings) per share of Common Stock 16,366,122 6,058,774 9,944,267 4,819,658 Weighted average number of shares used in computing diluted loss (earnings) per share of Common Stock 16,387,633 6,058,774 11,294,880 4,819,658 (*) All share amounts have been retroactively adjusted to reflect a 1-for-10 reverse share split as discussed in Note 10A. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. F- 3 BIOMX INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED SHARES AND IN STOCKHOLDERS’ EQUITY (CAPITAL DEFICIENCY) (USD in thousands, except share and per share data) (unaudited) Redeemable Convertible Preferred Shares Redeemable Convertible Preferred Shares Common Stock (****) Additional Paid-in Accumulated Total Stockholders’ Equity (Capital Shares Amount Shares Amount Shares Amount Capital Deficit Deficiency) Balance as of January 1, 2024 - - - - 4,723,320 3 166,048 ( 162,970 ) 3,081 Issuance of Common Stock, Merger Warrants and Redeemable Convertible Preferred Shares upon the APT acquisition, net of issuance cost (***) 40,470 12,561 - - 916,497 1 3,227 - 3,228 Exercise of Pre-Funded Warrants into shares of Common Stock (**) - - 477,827 * 5 - 5 Issuance of Common Stock under At the Market Sales Agreement, net of $ 1 issuance costs (**) - - 7,518 * 19 - 19 Stock-based compensation expenses - - - - 909 - 909 Issuance of Redeemable Convertible Preferred Shares upon March 2024 PIPE, net of issuance costs (**) 216,417 19,859 - - - - 541 541 Net loss - - - - ( 17,327 ) ( 17,327 ) Balance as of March 31, 2024 256,887 32,420 - - 6,125,162 4 170,749 ( 180,297 ) ( 9,544 ) Exercise of Pre-Funded Warrants into shares of Common Stock (**) - - 980,811 1 - - 1 Stock-based compensation expenses - - - 77 - 77 Reclassification of Redeemable convertible preferred Shares to equity ( 256,887 ) ( 32,420 ) 256,887 32,420 - - - - 32,420 Net income - - 4,471 4,471 Balance as of June 30, 2024 - - 256,887 32,420 7,105,973 5 170,826 ( 175,826 ) 27,425 Redeemable Convertible Preferred Shares conversion into shares of Common Stock ( 109,152 ) ( 13,775 ) 10,915,200 1 13,774 - Issuance of Common Stock upon restricted stock units (“RSU”) vesting - - 155,429 * - - * Stock-based compensation expenses - - - - 829 - 829 Net income - - - - - 9,642 9,642 Balance as of September 30, 2024 - - 147,735 18,645 18,176,602 6 185,429 ( 166,184 ) 37,896 (*) Less than $1. (**) See Note 10A. (***) See Note 1D. (****) All share amounts have been retroactively adjusted to reflect a 1-for-10 reverse share split as discussed in Note 10A. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. F- 4 BIOMX INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED SHARES AND IN STOCKHOLDERS’ EQUITY (CAPITAL DEFICIENCY) (USD in thousands, except share and per share data) (unaudited) Common Stock (***) Additional Paid-in Accumulated Total Stockholders’ Shares Amount Capital Deficit Equity Balance as of January 1, 2023 3,122,987 2 157,838 ( 136,801 ) 21,039 Issuance of Common Stock and warrants under February 2023 PIPE, net of $ 176 issuance costs (**) 319,950 * 1,293 - 1,293 Stock-based compensation expenses - - 175 - 175 Net loss - - - ( 6,361 ) ( 6,361 ) Balance as of March 31, 2023 3,442,937 2 159,306 ( 143,162 ) 16,146 Issuance of Common Stock and warrants under February 2023 PIPE, net of $ 157 issuance costs (**) 1,279,796 1 5,858 5,859 Stock-based compensation expenses - - 271 271 Net loss ( 6,411 ) ( 6,411 ) Balance as of June 30, 2023 4,722,733 3 165,435 ( 149,573 ) 15,865 Stock-based compensation expenses - - 195 - 195 Net loss - - - ( 7,906 ) ( 7,906 ) Balance as of September 30, 2023 4,722,733 3 165,630 ( 157,479 ) 8,154 (*) Less than $1. (**) See Note 10A. (***) All share amounts have been retroactively adjusted to reflect a 1-for-10 reverse share split as discussed in Note 10A. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. F- 5 BIOMX INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD in thousands, except share and per share data) (unaudited) For the Nine Months Ended September 30, 2024 2023 CASH FLOWS – OPERATING ACTIVITIES Net loss ( 3,214 ) ( 20,678 ) Adjustments required to reconcile cash flows used in operating activities: Depreciation and amortization 882 659 Stock-based compensation 1,083 641 Amortization of debt issuance costs - 453 Finance income, net ( 478 ) ( 293 ) Revaluation of contingent consideration 6 ( 40 ) Income from change in fair value of Private Placement Warrants ( 24,417 ) - Private Placement Warrants issuance cost 732 - Change in contract liability ( 1,976 ) - Loss from sale and disposal of fixed assets, net 145 - Goodwill impairment 801 - Changes in operating assets and liabilities: Other current and non-current assets ( 213 ) 679 Trade accounts payable ( 2,691 ) 241 Other accounts payable ( 1,169 ) 3,354 Net change in operating leases ( 181 ) ( 60 ) Net cash used in operating activities ( 30,690 ) ( 15,044 ) CASH FLOWS – INVESTING ACTIVITIES Cash and restricted cash acquired from the APT acquisition 663 - Proceeds from short-term deposits - 2,000 Proceeds from sale of property and equipment 72 - Purchases of property and equipment ( 19 ) ( 43 ) Net cash provided by investing activities 716 1,957 CASH FLOWS – FINANCING ACTIVITIES Issuance of Private Placement Warrants under March 2024 PIPE 28,745 - Issuance of Redeemable Convertible Preferred Shares under March 2024 PIPE 21,269 - March 2024 PIPE issuance costs ( 507 ) - Issuance costs from February 2023 PIPE - ( 333 ) Issuance of Common Stock and Warrants under February 2023 PIPE - 7,485 Pre-Funded Warrants exercise 6 - Issuance of Common Stock under Open Market Sales Agreement, net of issuance costs 19 - Issuance cost from the APT acquisition ( 13 ) - Repayment of long-term debt ( 10,747 ) ( 2,929 ) Net cash provided by financing activities 38,772 4,223 Increase (decrease) in cash and cash equivalents and restricted cash 8,798 ( 8,864 ) Effect of exchange rate changes on cash and cash equivalents and restricted cash ( 11 ) ( 37 ) Cash and cash equivalents and restricted cash at the beginning of the period 15,864 32,294 Cash and cash equivalents and restricted cash at the end of the period 24,651 23,393 RECONCILIATION OF AMOUNTS ON CONSOLIDATED BALANCE SHEETS Cash and cash equivalents 23,537 22,450 Restricted cash 1,114 943 Total cash and cash equivalents and restricted cash 24,651 23,393 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest 1,437 1,455 Taxes paid 10 50 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Property and equipment purchases included in accounts payable and Trade payable 11 5 Issuance cost from March 2024 PIPE 1,685 - Issuance of Common Stock under the APT acquisition 3,041 - Issuance of Redeemable Convertible Preferred Shares under the APT acquisition 12,610 - Issuance of Merger Warrants under the APT acquisition 200 - Redeemable Convertible Preferred Shares conversion into shares of Common Stock 13,774 - The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. F- 6 BIOMX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (USD and NIS in thousands, except share and per share data) (unaudited) NOTE 1 – GENERAL A. General information BiomX Inc. (individually, and together with its subsidiaries, BiomX Ltd. (“BiomX Israel”), RondinX Ltd. and Adaptive Phage Therapeutics LLC, (“APT”), the “Company” or “BiomX”) was incorporated in 2017. The Company’s shares of Common Stock are traded on the NYSE American under the symbol PHGE. The Company’s units, consisting of one share of Common Stock and one warrant to purchase one-half of a share of Common Stock (“Units”), were traded on the NYSE American under the symbol PHGE.U until a mandatory unit separation of the units became effective on October 25, 2024. Certain warrants were quoted on OTC Pink under the symbol “PHGEW” and expired on October 28, 2024. BiomX is developing both natural and engineered phage cocktails designed to target and destroy harmful bacteria in chronic diseases, focusing its efforts, at this point, on cystic fibrosis and on diabetic foot osteomyelitis. BiomX discovers and validates proprietary bacterial targets and customizes phage compositions against these targets. The Company’s headquarters are located in Ness Ziona, Israel. On March 6, 2024, the Company entered into an agreement and plan of merger (the “Merger Agreement”) with APT and certain other parties, as a result of which APT became a wholly-owned subsidiary of the Company (the “Acquisition”), as further described below. Additionally, on March 15, 2024, concurrently with the consummation of the Acquisition, the Company consummated a private placement (the “March 2024 PIPE”) with certain investors pursuant to which such investors purchased an aggregate of 216,417 shares of the Company’s Series X non-voting convertible preferred share, par value $ 0.0001 per share (the “Redeemable Convertible Preferred Shares”), with each share of Redeemable Convertible Preferred Shares being convertible into 100 shares of the Company’s Common Stock, after giving effect to the Reverse Split (as defined below), and warrants (the “Private Placement Warrants”) to purchase up to an aggregate of 10,820,850 shares of the Company’s Common Stock, for aggregate gross proceeds of approximately $ 50,000 . See Note 1D for further information regarding the Acquisition and the conversion of the Redeemable Convertible Preferred Shares. On August 8, 2024, the Board of Directors approved a 1-for-10 reverse stock split of the Company’s shares of Common Stock (the “Reverse Split”), effective on August 26, 2024. See Note 10A for further information. B. The war with Hamas and Hezbollah On October 7, 2023, an unprecedented attack was launched against Israel by terrorists from the Hamas terrorist organization that infiltrated Israel’s southern border from the Gaza Strip and in other areas within the state of Israel attacking civilians and military targets while simultaneously launching extensive rocket attacks on the Israeli population. These attacks resulted in extensive deaths, injuries and kidnapping of civilians and soldiers. In response, the Security Cabinet of the State of Israel declared war against Hamas and a military campaign against these terrorist organizations commenced in parallel to their continued rocket and terror attacks. In addition, Hezbollah, an Islamist terrorist group that controls large portions of southern Lebanon, has attacked military and civilian targets in Northern Israel, to which Israel has responded. Moreover, Iran recently launched a direct attack on Israel involving hundreds of drones and missiles and has threatened to continue to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, the Houthi movement in Yemen and various rebel militia groups in Syria and Iraq. Such clashes may escalate in the future into a greater regional conflict. To date, the State of Israel continues to be at war with Hamas and Hezbollah and in an armed conflict with Iran and its rebel militia groups. BiomX headquarters are located in Ness Ziona, Israel; as well as most of its operations. In addition, most of the key employees and officers are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect its business. While a few employees of the Company were called to reserve duty in the Israel Defense Forces, the ongoing war with Hamas and Hezbollah has not, since its inception, materially impacted BiomX’s business or operations. Furthermore, BiomX does not expect any delays to its programs as a result of the situation. However, at this time, it is not possible to predict the intensity or duration of Israel’s war against Hamas and Hezbollah, nor predict how this war will ultimately affect BiomX business and operations or Israel’s economy in general. F- 7 BIOMX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (USD and NIS in thousands, except share and per share data) (unaudited) NOTE 1 – GENERAL (Cont.) C. Going concern As of September 30, 2024, the Company has an accumulated deficit of $166,184 and has incurred significant losses and negative cash flows from operations. These are expected to continue in the foreseeable future. The Company plans to continue to fund its ongoing operations, as well as other development activities relating to additional product candidates, through issuance of debt and/or equity securities, loans, and government grants. Management believes that its current funds are not sufficient to fund its operations for at least one year from the issuance date of these financial statements. Increased research and development, clinical, or operating expenses may require additional funding or expense postponement. The Company’s ability to raise capital is subject to market conditions and other aspects, which may affect the terms and availability of such funding. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The unaudited condensed consolidated financial statements have been prepared on a going concern basis and do not include any adjustments that may result from the outcome of such circumstances. D. Merger Agreement On March 6, 2024, the Company, entered into the Merger Agreement with BTX Merger Sub I, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (“First Merger Sub”), BTX Merger Sub II, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company (“Second Merger Sub”), and APT. Pursuant to the Merger Agreement, First Merger Sub merged with and into APT, with APT being the surviving corporation and becoming a wholly owned subsidiary of the Company (the “First Merger”). Immediately following the First Merger, APT merged with and into Second Merger Sub, pursuant to which Second Merger Sub was the surviving entity. APT was a U.S.-based privately held, clinical-stage biotechnology company pioneering the development of phage-based therapies to combat bacterial infection. As a result of the Acquisition, the Company is expected to have a pipeline that includes two Phase 2 assets each aimed at treating serious infections with unmet medical needs. On March 15, 2024, the effective date of the Acquisition (the “Closing Date”), APT’s former stockholders were issued an aggregate of 916,497 shares of the Company’s Common Stock, 40,470 Redeemable Convertible Preferred Shares and Warrants to purchase up to an aggregate of 216,650 shares of the Company Common Stock (“Merger Warrants”). Each share of Redeemable Convertible Preferred Shares is convertible into an aggregate of 100 shares, after giving effect to the Reverse Split of Common Stock. The Merger Warrants will be exercisable at any time after the date of the receipt of BiomX stockholder approval at an exercise price of $ 50.00 per share and will expire on January 28, 2027 . In the event the Redeemable Convertible Preferred Shares are not converted by the earlier to occur of (i) the time that meeting of BiomX stockholders is ultimately concluded or (ii) five months after the initial issuance of the Redeemable Convertible Preferred Shares, the Company may be required to pay to each holder of the Redeemable Convertible Preferred Shares an amount in cash equal to the fair value of the Redeemable Convertible Preferred Shares. On July 9, 2024, the Company’s stockholders approved the conversion of the Redeemable Convertible Preferred Shares into shares of Common Stock and the issuance of shares of Common Stock upon the exercise of the Merger Warrants. The Redeemable Convertible Preferred Shares are entitled to receive dividends on shares of the Redeemable Convertible Preferred Shares equal to, on an as-if-converted-to Common-Stock basis, and in the same form as, dividends actually paid on shares of the Common Stock. Except as otherwise required by law or with respect to the Redeemable Convertible Preferred Shares protective provisions set forth in the Company’s Certificate of Designations, the Redeemable Convertible Preferred Shares does not have voting rights. At the Closing Date, the Redeemable Convertible Preferred Shares were classified as temporary equity in accordance with the provisions of ASC 480-10-S99, as they included clauses that could constitute redemption clauses that were subject to the Company’s stockholder approval and outside of the Company’s control. On June 17, 2024, the Company filed a definitive Proxy Statement on Schedule 14A with respect to a meeting of stockholders to approve, among other things, the conversion of the Redeemable Convertible Preferred Shares into shares of Common Stock. In addition, the majority of the Company’s stockholders signed a binding support agreement that contained their commitment to vote in favor or deliver a written consent regarding any stockholders’ matter in the stockholders’ meeting which took place on July 9, 2024. These circumstances led the Company to determine that the Redeemable Convertible Preferred Shares meet the definition of permanent equity as the Company is able to control the redemption. Therefore, the Redeemable Convertible Preferred Shares were reclassified as equity. On July 15, 2024, 109,152 Redeemable Convertible Preferred Shares that were issued under the Acquisition and the March 2024 PIPE were converted into 10,915,200 shares of the Company’s Common Stock according to beneficial ownership limitations set by certain investors. F- 8 BIOMX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (USD and NIS in thousands, except share and per share data) (unaudited) NOTE 1 – GENERAL (Cont.) The Merger Warrants are classified as equity, as they are indexed to the Company’s own shares and meet the classification requirements for stockholders’ equity classification under ASC 815-40. Concurrently with the consummation of the Acquisition, the Company entered into a securities purchase agreement with certain investors, for aggregate gross proceeds of $ 50,000 . See Note 10A for further information. Immediately following the Acquisition, and without taking into account the PIPE Preferred Shares and the Private Placement Warrants as defined and described in Note 10A, the Company’s stockholders prior to the Acquisition owned approximately 55 % of the Company and APT’s stockholders prior to the Acquisition owned approximately 45 % of the Company on a diluted basis. The Acquisition was accounted for in accordance with Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations,” using the acquisition method of accounting. The Company was identified as the accounting acquirer, based on the evaluation of the following facts and circumstances: ● Pursuant to the Merger Agreement, the post-Acquisition board of directors of the Company consisted of seven directors, out of which the Company designated four board seats, with the Company’s chair of the board prior to the Acquisition continuing in his position, i.e. the majority of the post-closing board was designated by the Company. ● The Chief Executive Officer and the majority of management roles are held by individuals who were affiliated with the Company prior to the Acquisition. The Acquisition-related transaction costs are accounted for as expenses in the period in which the costs are incurred. The Company incurred transaction costs of $ 874 during the nine months ended September 30, 2024, which were included in general and administrative expenses in the condensed consolidated statements of operations. Purchase Price Allocation The following sets forth the fair value of acquired identifiable assets and assumed liabilities of APT, after considering measurement period adjustment as described below, which includes adjustments to reflect the fair value of intangible assets acquired as of March 15, 2024: Amounts Cash and cash equivalents 509 Restricted cash 154 Other current assets 1,780 Property, plant and equipment 3,748 Operating lease right-of-use asset 7,953 IPR&D assets and Goodwill 16,088 Total assets 30,232 Trade accounts payable ( 3,667 ) Other accounts payable ( 2,895 ) Operating lease liability ( 7,819 ) Total liabilities ( 14,381 ) Total consideration 15,851 The fair value estimate for all identifiable assets and liabilities assumed is based on assumptions that market participants would use in pricing an asset, based on the most advantageous market for the asset (i.e., its highest and best use). The Company recognized intangible assets related to the Acquisition, which consist of IPR&D valued at $ 15,287 using the Multi-Period Excess Earnings Method valuation method and of goodwill valued at $ 501 . The goodwill is primarily attributed to the expected synergies from combining the operations of APT with the Company’s operations and to the assembled workforce of APT. The IPR&D is considered indefinite lived until the completion or abandonment of the associated research and development efforts. Upon successful completion of the project, IPR&D assets are reclassified to developed technology and amortized over their estimated useful lives F- 9 BIOMX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (USD and NIS in thousands, except share and per share data) (unaudited) NOTE 1 – GENERAL (Cont.) During the three months ended September 30, 2024, the Company made measurement period adjustment to the purchase price allocation, which resulted in an increase to goodwill of $ 300 . The increase resulted from a provision for a contingency not provided in the initial Purchase Price Allocation, following a term sheet for a settlement agreement between APT and Oyster Point Pharma, Inc. (“Oyster”) in connection with the Collaboration and Option Agreement signed in May 2021 as discussed in Note 7A. The fair value of assets acquired and liabilities assumed have been finalized. During the three months ended September 30, 2024, the Company recorded goodwill impairment in the amount of $ 801 . See note 12 for further information. These intangible assets are classified as Level 3 measurements within the fair value hierarchy. The following table summarizes the fair value of the consideration transferred to APT shareholders for the Acquisition: Amounts Common Stock 3,041 Redeemable Convertible Preferred Shares 12,610 Merger Warrants 200 15,851 The fair value of shares of Common Stock issued by the Company was determined using the Company’s closing trading price on the Closing Date adjusted by a discount for lack of marketability (“DLOM”) of 9.4 % as a registration statement was filed within 45 days. The fair value of Redeemable Convertible Preferred Shares was determined using the Company’s closing trading price on the Closing Date adjusted by a DLOM of 14.9 % as the conversion of the Redeemable Convertible Preferred Shares to shares of Common Stock was subject to the stockholder approval, which was obtained on July 9, 2024. The Company determined the fair value of the Merger Warrants using the Black-Scholes model as of the Closing Date. The main assumptions used are as follows: Underlying value of Common Stock ($) 0.37 Exercise price ($) 5.0 Expected volatility (%) 117.7 Expected terms (years) 2.87 Risk-free interest rate (%) 4.5 The actual APT net loss included in the Company’s condensed consolidated statements of operations for the nine months ended September 30, 2024, is as follows: September 30, 2024 Net loss attributable to APT 5,884 The unaudited pro forma financial information below summarizes the combined results of operations for BiomX Inc. (including its wholly owned subsidiaries, BiomX Ltd. and RondinX Ltd.) and APT. The unaudited pro forma financial information includes adjustments to reflect certain business combination effects, including: acquisition-related costs incurred by both parties and reversal of certain costs incurred by BiomX Inc. which would not have been incurred had the acquisition occurred on January 1, 2023. The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the Acquisition had taken place at the beginning of fiscal 2023. The following unaudited table provides certain pro forma financial information for the Company as if the Acquisition occurred on January 1, 2023: September 30, 2024* Net loss 2,698 * The pro forma amounts above are derived from historical numbers of the Company and APT. F- 10 BIOMX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (USD and NIS in thousands, except share and per share data) (unaudited) NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES A. Unaudited Condensed Financial Statements The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for condensed financial information. They do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair statement have been included (consisting only of normal recurring adjustments except as otherwise discussed). The financial information contained in this report should be read in conjunction with the annual financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, that the Company filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 4, 2024. The year-end balance sheet data was derived from the audited consolidated financial statements as of December 31, 2023. B. Principles of Consolidation The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany balances and transactions have been eliminated upon consolidation. C. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities in the financial statements and the amounts of expenses during the reported years. The most significant estimates in the Company’s financial statements relate to accruals for research and development expenses, valuation of stock-based compensation awards, purchase price allocation related to the Acquisition and the Private Placement Warrants fair value revaluation; estimates used in the IPR&D impairment assessment for calculating the fair value of the Company’s assets by using discounted cash flow incorporate the Company’s estimated post-tax weighted average cost of capital, amounts and timing of projected future cash flows that are influenced by the expected outcome of research and development activities, the probability of success and timing in gaining regulatory approval, size of the potential market and the Company’s specific market share. 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. The full extent to which Israel’s war with Hamas and Hezbollah may directly or indirectly impact the Company’s business, results of operations and financial condition will depend on future developments that are uncertain, as well as the economic impact on local, regional, national and international markets. D. Business Combination The Company allocates the fair value of consideration transferred in a business combination to the assets acquired, liabilities assumed based on their fair values at the acquisition date. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred. The excess of the fair value of the consideration transferred over the fair value of the assets acquired, liabilities assumed in the acquired business is recorded as goodwill. The fair value of the consideration transferred included equity securities. The allocation of the consideration transferred in certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition date. The cumulative impact of revisions during the measurement period is recognized in the reporting period in which the revisions are identified. The Company includes the results of operations of the businesses that it has acquired in its consolidated results prospectively from the respective dates of Acquisition. F- 11 BIOMX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (USD and NIS in thousands, except share and per share data) (unaudited) NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Cont.) E. Financial instruments When the Company issues freestanding instruments, it first analyzes the provisions of ASC 480, “Distinguishing Liabilities From Equity” (“ASC 480”) in order to determine whether the instrument should be classified as a liability, with subsequent changes in fair value recognized in the consolidated statements of operations in each period. If the instrument is not within the scope of ASC 480, the Company further analyzes the provisions of ASC 815-10 in order to determine whether the instrument is considered indexed to the entity’s own stock and qualifies for classification within equity. When the Company issues preferred shares, it first considers the provisions of ASC 480, in order to determine whether the preferred shares 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 reassesses the classification of a contract over its own equity under the guidance above at each balance sheet date. If classification changes as a result of events during the reporting period, the Company reclassifies the contract as of the date of the event that caused the reclassification. See Note 1D regarding the reclassification of the Redeemable Convertible Preferred Shares. When the Company issues warrants, it first considers the provisions of ASC 815-40, “Contracts in Entity’s Own Equity” (“ASC 815-40”) in order to determine whether the warrants should be classified as equity. Equity classification is permitted when warrants are indexed to the Company’s own shares and meet the classification requirements for stockholders’ equity classification under ASC 815-40. If the warrants are not within the scope of ASC 815-40, the Company accounts for the warrants in accordance with the guidance contained in Accounting Standards Codification 815 (“ASC 815”), “Derivatives and Hedging”, under which the warrants do not meet the criteria for equity treatment and must be recorded as derivative liabilities. Accordingly, the Company classifies the Private Placement Warrants as liabilities at their fair value and adjusts the warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until the warrants are exercised or expire, and any change in fair value is recognized in the condensed consolidated statements of operations. See Note 10A for further information regarding the Private Placement Warrants. F. Basic and diluted loss (earnings) per share Basic loss (earnings) per share is computed by dividing net loss (income) by the weighted average number of shares of Common Stock outstanding during the period, fully vested warrants with no exercise price for the Company’s Common Stock and fully vested Pre-Funded Warrants for the Company’s Common Stock at an exercise price of $ 0.001 per share, as the Company considers these shares to be exercised for little to no additional consideration. The calculation excludes shares of Common Stock purchased by the Company and held as treasury shares. Diluted loss (income) per share is computed by dividing net loss by the weighted average number of shares of Common Stock outstanding during the period, plus the number of shares of Common Stock that would have been outstanding if all potentially dilutive shares of Common Stock had been issued, using the treasury stock and if-converted method, in accordance with ASC 260-10, “Earnings per Share.” The Company computes net loss (income) per share using the two-class method required for participating securities. The two-class method requires income available to common stockholders for the period to be allocated between shares of Common Stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. The Company considers 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 Common Stock, on a pro-rata basis assuming conversion of all Redeemable Convertible Preferred Shares into shares of Common Stock. 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 participating securities. G. Intangible Assets Goodwill Goodwill reflects the excess of the consideration transferred at the business combination date over the fair values of the identifiable net assets acquired. Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. The primary items that generate goodwill include the value of the synergies between the acquired company and the Company and the acquired assembled workforce, neither of which qualifies for recognition as an intangible asset. ASC 350, “ Intangibles—Goodwill and Other” allows an entity to first assess qualitative factors to determine whether a quantitative goodwill impairment test is necessary. Further testing is only required if the entity determines, based on the qualitative assessment, that it is more likely than not that the fair value is less than its carrying amount. Otherwise, no further impairment testing is required. F- 12 BIOMX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (USD and NIS in thousands, except share and per share data) (unaudited) NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Cont.) The Company’s goodwill is tested for impairment at least on an annual basis, on the last day of the third quarter of the fiscal year and whenever events or changes in circumstances indicate the carrying value of a reporting unit may not be recoverable. When necessary, the Company records charges for impairments of goodwill for the amount by which the carrying amount of the respective reporting unit exceeds its fair value. However, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. During the three months ended September 30, 2024, the Company recorded goodwill impairment in the amount of $ 801 . See note 12 for further information. Intangible assets IPR&D assets acquired in a business combination are recognized at fair value as of the acquisition date and subsequently accounted for as indefinite-lived intangible assets until completion or abandonment of the associated R&D efforts. Indefinite-lived intangible assets are reviewed for impairment at least annually, on the last day of the third quarter of the fiscal year or whenever there is an indication that the asset may be impaired. H. Recent Accounting Standards Recently issued accounting pronouncements, not yet adopted In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). This guidance is intended to enhance the transparency and decision-usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to disclosure regarding rate reconciliation and income taxes paid both in the U.S. and in foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 on a prospective basis, with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements disclosures. In November 2023, the FASB issued ASU 2023-07 “Segment Reporting: Improvements to Reportable Segment Disclosures” (“ASU 2023-07”). This guidance expands public entities’ segment disclosures primarily by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets that are currently required annually. Public entities with a single reportable segment are required to provide the new disclosures and all the disclosures required under ASC 280, “Segment Reporting”. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments are required to be applied retrospectively to all prior periods presented in an entity’s financial statements. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements disclosures. NOTE 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS The Company accounts for financial instruments in accordance with ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below: Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2 – Quoted prices in non-active markets or in active markets for similar assets or liabilities, observable inputs other than quoted prices, and inputs that are not directly observable but are corroborated by observable market data. Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. There were no changes in the fair value hierarchy levelling during the nine months ended September 30, 2024 and year ended December 31, 2023. F- 13 BIOMX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (USD and NIS in thousands, except share and per share data) (unaudited) NOTE 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont.) The following table summarizes the fair value of our financial assets and liabilities that were accounted for at fair value on a recurring basis, by level within the fair value hierarchy: September 30, 2024 Level 1 Level 2 Level 3 Fair Value Assets: Cash equivalents: Money market funds 20,325 - - 20,325 Foreign exchange contracts receivable - 15 - 15 20,325 15 - 20,340 Liabilities: Contingent consideration - - 161 161 Private Placement Warrants - - 4,328 4,328 - - 4,489 4,489 December 31, 2023 Level 1 Level 2 Level 3 Fair Value Assets: Cash equivalents: Money market funds 11,377 - - 11,377 Foreign exchange contracts receivable 256 - 256 11,377 256 - 11,633 Liabilities: Contingent consideration - - 155 155 - - 155 155 The changes in the fair value of the Company’s Level 3 financial liabilities, which are measured on a recurring basis are as follows: Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023 Beginning balance - - Private Placement Warrants 28,745 - Change in fair value ( 24,417 ) - Ending balance 4,328 - Financial instruments with carrying values approximating fair value include cash and cash equivalents, restricted cash, short-term deposits, other current assets, trade accounts payable and other accounts payable, due to their short-term nature. F- 14 BIOMX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (USD and NIS in thousands, except share and per share data) (unaudited) NOTE 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont.) The Company determined the fair value of the liabilities for the contingent consideration based on a probability of discounted cash flow analysis. This fair value measurement is based on significant unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. The fair value of the contingent consideration is based on several factors, such as: the attainment of future clinical, developmental, regulatory, commercial and strategic milestones relating to product candidates for treatment of primary sclerosing cholangitis. The discount rate applied ranged from 3.84 % to 4.52 %. The contingent consideration is evaluated quarterly, or more frequently, if circumstances dictate. Changes in the fair value of contingent consideration are recorded in consolidated statements of operations. Significant changes in unobservable inputs, mainly the probability of success and cash flows projected, could result in material changes to the contingent consideration liability. Changes in contingent consideration for the nine and three months ended September 30, 2024 and September 30, 2023, resulted from the passage of time and discount rate revaluation. The Company uses foreign exchange contracts (mainly option and forward contracts) to hedge cash flows from currency exposure. These foreign exchange contracts are not designated as hedging instruments for accounting purposes. In connection with these foreign exchange contracts, the Company recognizes gains or losses that offset the revaluation of the cash flows also recorded under financial expenses (income), net in the condensed consolidated statements of operations. As of September 30, 2024, the Company had outstanding foreign exchange contracts for the exchange of USD to NIS in the amount of approximately $ 3,410 with a fair value asset of $ 15 . As of December 31, 2023, the Company had outstanding foreign exchange contracts for the exchange of USD to NIS in the amount of approximately $ 4,136 with a fair value asset of $ 256 . The Company determined the fair value of the liabilities for the Private Placement Warrants using the Black-Scholes model, a Level 3 measurement, within the fair value hierarchy. The main assumptions used are as follows: September 30, 2024 December 31, 2023 Underlying value of Common Stock ($) 1.02 - Exercise price ($) 2.31 - Expected volatility (%) 117.6 - Expected terms (years) 1.75 - Risk-free interest rate (%) 3.6 - F- 15 BIOMX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (USD and NIS in thousands, except share and per share data) (unaudited) NOTE 4 – OTHER CURRENT ASSETS September 30, 2024 December 31, 2023 Government institutions 84 66 Prepaid insurance 1,165 505 Other prepaid expenses 574 128 Grants receivable 950 574 Other 892 495 Other current assets 3,665 1,768 NOTE 5 – OTHER ACCOUNTS PAYABLE September 30, 2024 December 31, 2023 Employees and related institutions 956 1,852 Accrued expenses 3,421 1,289 Government institutions 622 175 Prepaid sublease income - 28 Severance related to former employees of APT 70 - 5,069 3,344 NOTE 6 – LEASES On August 9, 2019, APT entered into a lease agreement (the “Lease Agreement”) with ARE-708 Quince Orchard, LLC (the “Landlord”), for office and lab spaces in Gaithersburg, Maryland starting on September 1, 2019. Over the course of years, APT and the Landlord amended the Lease Agreement in order to expand the square footage and to extend the lease period until November 28, 2034. The agreement included 49,625 square feet of area. The monthly lease payments under the lease agreement were approximately $ 255 . On March 5, 2024, in connection with the Acquisition, APT and the Landlord, signed an amendment to the lease agreement. Pursuant to the amendment, the leased area will be decreased to 25,894 square feet (the “Remaining Area”), effective as of December 31, 2024. Following the amendment, the revised monthly lease payments are approximately $ 134 . In exchange, APT was required to pay a relinquished premises fee in an amount equal to $ 1,500 within 10 business days following March 15, 2024 (the “Amendment Effective Date”). In addition, the Company issued the Landlord warrants (the “Landlord Warrants”) to purchase up to an aggregate of 25,000 shares of the Company’s Common Stock at an exercise price of $ 50.00 per share. The Landlord Warrants became exercisable from the date of the receipt of BiomX stockholder approval, which was obtained on July 9, 2024, and will expire on January 28, 2027. The amendment also included a one-time option to early terminate the lease agreement on February 28, 2029 with respect to the Remaining Area under certain terms. The execution of the early termination will require APT to pay a termination fee of $ 3,000 . APT accounted for the decreased leased area and the termination option as a modification as it continues to use the area for a period of time after the termination. The modification occurred before the Acquisition as APT signed the amendment before the Closing Date but was contingent upon the Acquisition. The operating lease right-of-use assets and operating lease liabilities contemplate the termination option. Lease expenses recorded in the condensed statements of operations were $ 2,543 and $ 995 for the nine and three months ended September 30, 2024, respectively, and $ 488 and $ 161 for the nine and three months ended September 30, 2023, respectively. F- 16 BIOMX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (USD and NIS in thousands, except share and per share data) (unaudited) NOTE 7 – COMMITMENTS AND CONTINGENCIES A. In May 2021, APT entered into a Collaboration and Option Agreement (the “Oyster Agreement”) with Oyster, a wholly owned subsidiary of Viatris Inc., to collaborate on the use of APT’s proprietary phage technology for the treatment of certain ophthalmic diseases. Upon execution of the Agreement, Oyster paid an upfront payment of $ 500 to APT, a portion of which APT claims it has spent in the course of performing its obligations under the Oyster Agreement. In April 2022 and September 2023, APT received letters from Oyster and Viatris Inc. raising concerns about APT’s actions, including allegations that APT had breached the Oyster Agreement. APT and Oyster have agreed to settle their dispute related to the Oyster Agreement, including the allegations described in the letters, and to terminate the Oyster Agreement under a term sheet (the “Term Sheet”). Under the terms of the Term Sheet, APT and Oyster will sign a final settlement agreement, which will include a payment of $ 300 from APT to Oyster. As of September 30, 2024, the final settlement agreement had not yet been signed. The Company has recorded a provision of $ 300 as other accounts payable in the condensed consolidated balance sheets. B. In August 2021, the Israeli Innovation Authority (“IIA”) approved an application that supports upgrading the Company’s manufacturing capabilities for an aggregate budget of NIS 5,737 (approximately $ 1,778 ). The IIA committed to fund 50 % of the approved budget. The program was for the period beginning July 2021 through June 2022. The program does not bear royalties. Through September 30, 2024, the Company received NIS 1,912 (approximately $ 577 ) from the IIA with respect to this program. In March 2022, the IIA approved an application for a total budget of NIS 13,004 (approximately $ 4,094 ) in relation to the Company’s cystic fibrosis product candidate. The IIA committed to fund 30 % of the approved budget. The program was for the period beginning January 2022 through December 2022. Through September 30, 2024, the Company received NIS 1,365 (approximately $ 395 ) from the IIA with respect to this program. In March 2023, the IIA approved an application for a total budget of NIS 11,283 (approximately $ 3,164 ) in relation to the Company’s cystic fibrosis product candidate. The IIA committed to fund 30 % of the approved budget. The program was for the period beginning January 2023 through December 2023. Through September 30, 2024, the Company received NIS 2,783 (approximately $ 768 ) from the IIA with respect to this program. According to the agreement with the IIA, excluding the August 2021 program, BiomX Israel will pay royalties of 3 % to 3.5 % of future sales up to an amount equal to the accumulated grant received including annual interest of LIBOR linked to the USD. Starting January 2024, the IIA has notified that the interest has changed to the 12-month Secured Overnight Financing Rate (“SOFR”) as published on the first trading day of each calendar year. BiomX Israel may be required to pay additional royalties upon the occurrence of certain events as determined by the IIA, that are within the control of BiomX Israel. No such events have occurred or were probable of occurrence as of the balance sheet date with respect to these royalties. Repayment of the grant is contingent upon the successful completion of the BiomX Israel’s R&D programs and generating sales. BiomX Israel has no obligation to repay these grants if the R&D program fails, is unsuccessful or aborted or if no sales are generated. The Company had not yet generated sales as of September 30, 2024; therefore, no liability was recorded in these condensed consolidated financial statements. IIA grants are recorded as a reduction of R&D expenses, net. Through September 30, 2024, total grants approved from the IIA aggregated to approximately $ 9,353 (NIS 32,068 ). Through September 30, 2024, the Company had received an aggregate amount of $ 8,003 (NIS 27,423 ) in the form of grants from the IIA. Total grants subject to royalties’ payments aggregated to approximately $ 7,413 . As of September 30, 2024, BiomX Israel had a contingent obligation to the IIA in the amount of approximately $ 8,250 including annual interest of SOFR applicable to dollar deposits. F- 17 BIOMX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (USD and NIS in thousands, except share and per share data) (unaudited) NOTE 7 – COMMITMENTS AND CONTINGENCIES (Cont.) C. On June 23, 2022, BiomX Israel entered into a research collaboration agreement with Boehringer Ingelheim International GmbH (“BI”) for a collaboration to identify biomarkers for Inflammatory Bowel Disease. Under the agreement, BiomX Israel is eligible to receive fees totaling $ 1,411 to cover costs to be incurred by BiomX Israel in conducting the research plan under the collaboration. The fees were paid in four installments according to certain activities under the agreement. In December 2023, the Company completed its obligations with respect to this agreement and the last installment of $ 211 was received on January 18, 2024. The consideration was recorded as a reduction of R&D expenses, net in the condensed consolidated statements of operations according to the input model method on a cost-to-cost basis. NOTE 8 - U.S. GOVERNMENT CONTRACTS AND GRANTS In 2019, APT entered into a Base Agreement and Research Project Award (collectively, the “Agreement”) with the U.S. Army Medical Research Acquisition Activity (“USAMRAA”) and the U.S. Army Medical Research & Development Command (“USAMRDC”) to advance personalized phage therapy from niche to broad use. Awards under the Agreement are intended to lay the groundwork for rapid advancement of personalized phage therapy to commercialization for the variety of clinical indications and bacterial pathogens representing un-met needs with a focus on infections with significant military relevance. The competitive award was granted by USAMRAA and USAMRDC in collaboration with the Medical Technology Enterprise Consortium (“MTEC”), a 501(c)(3) biomedical technology consortium working in partnership with the U.S. Department of Defense. Since Agreement inception, APT entered into certain modifications to the Agreement to include additional activities and perform pre-clinical activities to advance the Diabetic Foot Osteomyelitis (“DFO”) clinical program. Under the Agreement, MTEC reimburses APT for approved costs as incurred that are based upon the achievement of certain milestones up to a contract value of $ 36,214 . In September 2024, the Agreement was amended to extend the period of performance to continue and complete the pre-clinical activities for the DFO clinical program, which increased the total contract value to $ 39,081 . In conjunction with this Agreement, APT is subject to an assessment fee of an amount equal up to 3 % of the total funded value of the research project award which should be paid by the Company upon signing the agreement or the modifications. For the period between the Acquisition and September 30, 2024, the Company received grants of $ 2,895 from MTEC with respect to the cost reimbursement contract. During the nine and three months ended September 30, 2024, the Company recorded $ 1,802 and $ 849 as a reduction of R&D expenses, net, respectively. The remainder of the consideration the Company is entitled to receive is recorded as other current assets in the condensed consolidated financial statements. See Note 14B for information regarding grants received subsequent to the financial statement date. NOTE 9 – LONG-TERM DEBT On August 16, 2021 (the “Closing Date”), the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Hercules Capital, Inc. (“Hercules”), with respect to a venture debt facility. Under the Loan Agreement, $ 15,000 was advanced to the Company on the date the Loan Agreement was executed. The Company was required to make interest only payments through March 1, 2023, and started to then repay the principal balance and interest in equal monthly installments through September 1, 2025. The Loan Agreement provided that the Company could prepay advances under the Loan Agreement, in whole or in part, at any time subject to a prepayment charge equal to 1.0 % after 24 months but prior to 36 months following the Closing Date. Upon prepayment or repayment of all or any of the term loans under the Term Loan Facility, the Company was required to pay an end of term charge (“End of Term Charge”) equal to 6.55 % of the total aggregate amount of the term loans being prepaid or repaid. On March 19, 2024, the Company prepaid the entire balance under the Term Loan Facility in a total of $ 10,428 . The prepayment included the End of Term Charge of $ 983 and accrued interest of $ 69 . The Company received from Hercules a waiver regarding the prepayment charge that should have been 1 % out of the prepaid principal amount that equals to $ 94 . Interest expense relating to the term loan, which is included in interest expense in the condensed statements of operations was $ 850 for the nine months ended September 30, 2024. No interest expense was recognized in connection with the term loan for the three months ended September 30, 2024. Interest expense for the nine and three months ended September 30, 2023, was $ 1,884 and $ 574 , respectively. F- 18 BIOMX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (USD and NIS in thousands, except share and per share data) (unaudited) NOTE 10 – STOCKHOLDERS EQUITY A. Share Capital: Reverse Stock Split: On July 9, 2024, the Company’s stockholders approved a reverse stock split at a ratio within a range of 1-for-5 and 1-for-10 at such time as the Board of Directors shall determine, in its sole discretion, at any time before July 9, 2025. On August 8, 2024, the Board of Directors approved a 1-for-10 Reverse Stock Split of the Company’s shares of Common Stock (the “Reverse Stock Split”). On August 20, 2024, the Company filed the Certificate of Amendment with the Delaware Secretary of State to effect the Reverse Stock Split, which became effective on August 26, 2024 (the “Effective Date”). The Company’s Common Stock began trading on a Reverse Stock Split adjusted basis on the NYSE American at the opening of the markets on the Effective Date. As a result of the Reverse Stock Split, the number of shares of Common Stock outstanding was reduced from 178,958,447 shares to 18,021,173 shares. No fractional shares of Common Stock or Units were issued in connection with the Reverse Stock Split. Stockholders of the Company who otherwise were entitled to receive fractional shares or Units, because they held a number of shares or Units, as applicable, not evenly divisible by the Reverse Stock Split ratio were automatically entitled to receive an additional fraction of a share of the Common Stock or Unit, as applicable, to round up to the next whole share. As a result, 125,328 shares of Common Stock were issued. The Reverse Stock Split did not change the par value of the Common Stock nor the authorized number of shares of Common Stock, preferred stock or any series of preferred stock. Unless otherwise indicated, all amounts of issued and outstanding stock contained in the accompanying condensed consolidated financial statements have been adjusted to reflect the 1-for-10 Reverse Stock Split for all prior periods presented. Proportional adjustments were also made to shares underlying outstanding equity awards, warrants and Redeemable Convertible Preferred Shares, and to the number of shares issued and issuable under the Company’s stock incentive plans and certain existing agreements. Authorized shares of common stock: On July 9, 2024, the Company’s stockholders approved increasing the number of authorized shares of Common Stock from 120,000,000 shares, par value $ 0.0001 per share, to 750,000,000 shares, par value $ 0.0001 per share. Preferred Stock: The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $ 0.0001 per share with such designation, rights and preferences as may be determined from time to time by the Company’s Board of Directors (the “Board”). On March 15, 2024, the Company issued 40,470 and 216,417 Redeemable Convertible Preferred Shares, par value $ 0.0001 per share, as part of the Acquisition and the March 2024 PIPE, respectively. On July 15, 2024, 109,152 Redeemable Convertible Preferred Shares were converted into 10,915,200 shares of the Company’s Common Stock. F- 19 BIOMX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (USD and NIS in thousands, except share and per share data) (unaudited) NOTE 10 – STOCKHOLDERS EQUITY (Cont.) Private Investment in Public Equity: On February 22, 2023, the Company entered into a Securities Purchase Agreement to issue and sell an aggregate of 1,599,746 shares of its Common Stock and 1,461,072 pre-funded warrants (the “Pre-Funded Warrants”) at a price of $ 2.45 per share and $ 2.44 per Pre-Funded Warrant in a private placement (the “February 2023 PIPE”). The net proceeds from the PIPE were approximately $ 7,152 , after deducting issuance costs of $ 333 . During the nine months ended September 30, 2024, 533,031 Pre-Funded Warrants were exercised into 533,031 shares of Common Stock for total consideration of $ 6 at an exercise price of $ 0.01 per share of Common Stock, and 928,041 Pre-Funded Warrants were exercised into 925,607 shares of Common Stock through cashless mechanism with no consideration. As of September 30, 2024, there are no outstanding Pre-Funded Warrants. On March 15, 2024, in connection with the Acquisition, the Company issued to APT’s former stockholders 916,497 shares of the Company’s Common Stock, 40,470 Redeemable Convertible Preferred Shares and Merger Warrants to purchase up to an aggregate of 216,650 shares of the Company Common Stock. See Note 1D for further information. Concurrently with the consummation of the Acquisition as described in Note 1D, the Company entered into the March 2024 PIPE, pursuant to which such investors purchased an aggregate of 216,417 Redeemable Convertible Preferred Shares (“PIPE Preferred Shares”) and Private Placement Warrants to purchase up to an aggregate of 10,820,850 shares of the Company’s Common Stock, at a combined price of $ 231.10 per share. The PIPE Preferred Shares and the Private Placement Warrants were issued in a private placement pursuant to an exemption from registration requirements under the Securities Act for aggregate gross proceeds of $ 50,000 . Each Private Placement Warrant’s exercise price equals to $ 2.31 , subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, became exercisable from the date of the receipt of BiomX stockholder approval, which was obtained on July 9, 2024, and will expire on July 9, 2026. Under certain circumstances, the Company may be required to pay to each holder of the Private Placement Warrants (i) an amount in cash equal to the holder’s total purchase price for the shares of Common Stock purchased (the “Buy-In Price”) or credit such holder’s balance account with the Depository Trust Company (“DTC”) for such shares of Common Stock shall terminate, or (ii) promptly honor its obligation to deliver to such holder a certificate or certificates representing such shares of Common Stock or credit such holder’s balance account with DTC, as applicable, and pay cash to such holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) Weighted Average Price (as defined in the Private Placement Warrant) on the trading day immediately preceding the exercise date. The Company accounted for the Private Placement Warrants as liabilities as the Private Placement Warrants are not considered indexed to the entity’s own stock based on the provision of ASC 815. The Private Placement Warrants will be measured at fair value at inception and in subsequent reporting periods with changes in fair value recognized in the condensed consolidated statements. The terms of the PIPE Preferred Shares are substantially the same as those of the Redeemable Convertible Preferred Shares issued under the Acquisition and were accounted for as temporary equity at the issuance date and were reclassified as equity. See Note 1D for further information. On July 15, 2024, 109,152 Redeemable Convertible Preferred Shares that were issued under the Acquisition and the March 2024 PIPE were converted into 10,915,200 shares of the Company’s Common Stock according to beneficial ownership limitations set by certain investors. In connection therewith, the Company issued warrants to purchase shares of the Company’s Common Stock to the Placement Agents (the “Agents Warrants”). See Note 10B for further information. The Company allocated the total consideration from the issuance of the 2024 March PIPE first to the fair value of the Private Placement Warrants and then to the PIPE Preferred Shares. The Company had transaction costs of approximately $ 3,317 out of which $ 1,273 is Stock-Based Compensation due to issuance of the Agents Warrants. The transaction costs were allocated in the same manner as the consideration. Issuance costs which were allocated to the PIPE Preferred Shares were $ 1,410 and deducted from Redeemable Convertible Preferred Shares, and issuance costs that were allocated to the Private Placement Warrants were $ 1,907 and were expensed immediately. At-the-Market Sales Agreement: In December 2023, pursuant to a registration statement on Form S-3 declared effective by the SEC on January 2, 2024, the Company entered an At the Market Offering Agreement with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to which the Company may issue and sell shares of Common Stock having an aggregate offering price of up to $ 7,500 from time to time through Wainwright. During the nine months ended September 30, 2024, the Company sold 7,518 shares of Common Stock under this agreement, at an average price of $ 2.71 per share, raising aggregate net proceeds of approximately $ 19 , after deducting an aggregate commission of $ 1 . F- 20 BIOMX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (USD and NIS in thousands, except share and per share data) (unaudited) NOTE 10 – STOCKHOLDERS EQUITY (Cont.) Warrants: As of September 30, 2024, the Company had the following outstanding warrants to purchase Common Stock issued to stockholders: Warrant Issuance Date Expiration Date Exercise Price Per Share Number of Shares of Common Stock Underlying Warrants Public Warrants IPO (December 13, 2018) October 28, 2024 115.00 350,000 2021 Registered Direct Offering Warrants SPA (July 28, 2021) January 28, 2027 50.00 281,251 Merger Warrants March 15, 2024 January 28, 2027 50.00 216,650 Private Placement Warrants March 15, 2024 July 9, 2026 2.31 10,820,850 Agents Warrants March 15, 2024 July 9, 2026 2.31 952,381 12,621,132 B. Stock-based Compensation: On March 15, 2024, the Company issued Agents Warrants to purchase up to an aggregate of 952,381 shares of the Company’s Common Stock to the Placement Agents in connection with the March 2024 PIPE. The exercise price of the Agents Warrants is $ 2.31 per share and they became exercisable at any time after the date of the receipt of BiomX stockholder approval, which was obtained on July 9, 2024, and will expire on July 9, 2026. The Company accounted for the Agents Warrants under the scope of ASC 718-10 “Stock-Based Payment”, (“ASC 718-10”), and treated them as issuance costs of the March 2024 PIPE as the Company considers these Warrants as consideration for receipt of Private Placement Services. The Company determined the fair value of the Agents Warrants using the Black-Scholes model as of March 5, 2024. The main assumptions used are as follows: Underlying value of Common Stock ($) 2.31 Exercise price ($) 2.31 Expected volatility (%) 100.6 Expected terms (years) 2.32 Risk-free interest rate (%) 4.4 On July 9, 2024, the Company’s stockholders approved increasing the number of shares of Common Stock under the Company’s 2019 Omnibus Long-Term Incentive Plan (the “2019 Plan”) to be equal to 15 % of the total number of fully-diluted shares of Common Stock outstanding as of the approval date, or 7,800,000 shares. On September 16, 2024, the Company granted 155,429 RSUs to four senior officers and one service provider. The RSUs were fully vested and issued on the grant date and are not subject to continued service to the Company. The RSUs’ fair value is the Company’s stock closing price as of the grant date, which was $ 0.99 . As of September 30, 2024, the Company has no unvested RSUs. On July 11, 2024, the Board of Directors approved the grant of 1,567,795 options to 51 employees, six senior officers and seven directors under the 2019 Plan, without consideration. Options were granted at an exercise price of $ 3.63 per share with a vesting period of four years. Directors and senior officers are entitled to full acceleration of their unvested options upon the occurrence of both a change in control of the Company and the end of their engagement with the Company. F- 21 BIOMX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (USD and NIS in thousands, except share and per share data) (unaudited) NOTE 10 – STOCKHOLDERS EQUITY (Cont.) A summary of options granted to purchase the Company’s Common Stock under the Company’s share option plans is as follows: For the Nine Months Ended September 30, 2024 Number of Options Weighted Average Exercise Price Aggregate Intrinsic Value Outstanding at the beginning of period 528,112 5.41 72 Granted 1,567,795 3.63 Forfeited ( 26,808 ) 3.96 Expired ( 6,449 ) 4.58 Exercised - - Outstanding at the end of period 2,062,650 4.08 22 Exercisable at the end of period 351,109 5.79 Weighted average remaining contractual life of outstanding options – years as of September 30, 2024 8.85 Warrants: As of September 30, 2024, the Company had the following outstanding compensation related warrants to purchase Common Stock: Warrant Issuance Date Expiration Date Exercise Price Per Share Number of Shares of Common Stock Underlying Warrants Private Warrants issued to scientific founders November 27, 2017 - - 298 Landlord Warrants* March 15, 2024 January 28, 2027 50.00 25,000 25,298 (*) See Note 6. The following table sets forth the total stock-based payment expenses resulting from options granted, included in the statements of operations: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Research and development expenses, net 273 31 336 202 General and administrative 556 164 747 439 829 195 1,083 641 F- 22 BIOMX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (USD and NIS in thousands, except share and per share data) (unaudited) NOTE 11 – BASIC AND DILUTED LOSS (EARNINGS) PER SHARE Basic loss (earnings) per share is computed on the basis of the net loss (income) for the period divided by the weighted average number of shares of Common Stock outstanding during the period, fully vested warrants with no exercise price for the Company’s Common Stock and fully vested Pre-Funded Warrants for the Company’s Common Stock at an exercise price of $ 0.001 per share, as the Company considers these shares to be exercised for little to no additional consideration. Diluted loss per share is based upon the weighted average number of shares of Common Stock and of potential shares of Common Stock outstanding when dilutive. Potential shares of Common Stock equivalents include outstanding stock options and warrants, which are included under the treasury stock method when dilutive. The calculation of diluted loss per share for the nine and three months ended September 30, 2024 and September 30, 2023, does not include the shares underlying the following financial instruments because their effect would be anti-dilutive: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Options 2,041,139 591,034 2,062,650 591,034 Warrants 12,646,132 921,251 1,825,281 921,251 Contingent shares 200,000 400,000 200,000 400,000 Redeemable Convertible Preferred Shares 14,773,500 - 14,773,500 - The following table presents the computation of basic and diluted loss (earnings) per share: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Basic loss (earnings) per share of common stock Numerator: Net loss (income) ( 9,642 ) 7,906 3,214 20,678 Amount allocated to Redeemable Convertible Preferred Shares ( 4,575 ) - - - Net loss (income) attributable to shares of common stock ( 5,067 ) 7,906 3,214 20,678 Denominator: Number of shares of common stock outstanding 16,365,824 4,597,403 9,943,968 3,951,624 Number of shares upon Pre-Funded Warrants exercise - 1,461,073 - 867,736 Number of shares upon Fully vested Warrants exercise 298 298 298 298 Total weighted-average number of shares of common stock, shares upon Pre-Funded Warrants and Fully vested Warrants exercise used in computing basic loss (earnings) per share 16,366,122 6,058,774 9,944,267 4,819,658 Basic loss (earnings) per share of common stock ( 0.31 ) 1.30 0.32 4.29 Diluted net loss per share of common stock Numerator: Net loss (income) ( 9,642 ) 7,906 3,214 20,678 Change in fair value of Private Placement Warrants - - 24,417 - Diluted net loss ( 9,642 ) 7,906 27,631 20,678 Denominator: Weighted-average number of shares of common stock outstanding 16,366,122 6,058,774 9,944,267 4,819,658 Private Placement Warrants - - 1,350,613 - Options 21,511 - - - Total weighted-average number of shares of common stock outstanding, after giving effect to dilutive securities 16,387,633 6,058,774 11,294,880 4,819,658 Diluted net loss per share of common stock ( 0.31 ) 1.30 2.45 4.29 F- 23 BIOMX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (USD and NIS in thousands, except share and per share data) (unaudited) NOTE 12 – GOODWILL Following the APT Acquisition, the Company recognized goodwill valued at $ 801 after adjustment made during the measurement period as described in Note 1D above. In the third quarter of 2024, the Company experienced a decline in its stock price resulting in its market capitalization being less than the Company’s stockholders’ equity. Thus, the Company performed quantitative assessments of the Company’s goodwill. The assessments utilizes the Company’s market capitalization plus an appropriate control premium. Market capitalization is determined by multiplying the outstanding number of shares of Common Stock by the Company’s stock price. The control premium is determined by utilizing publicly available data from studies for similar transactions of public companies. As a result of this assessment, the Company recorded a goodwill impairment of $ 801 during the three and nine months ended September 30, 2024. NOTE 13 – EVENTS DURING THE PERIOD In October 2021, the Company entered into a Stock Purchase Agreement with a subsidiary of Maruho Co. Ltd., (“Maruho”), pursuant to which the Company issued to Maruho shares of Common Stock of the Company and granted Maruho a right of first offer to license its atopic dermatitis product candidate, BX005, in Japan. The right of first offer was supposed to commence following the availability of results from the Phase 1/2 study which were expected in 2022. Part of the consideration paid under the agreements, equal to the grant date fair value of the shares issued to Maruho was attributed to the issuance of shares. The remainder of $ 1,976 was attributed to a contract liability, to be recognized as other income, at a point in time, once the clinical trials related to the product candidate are completed. In April 2024, following the Acquisition, the Company decided to pause the development of BX005. As a result, the parties agreed that the right of first offer to license BX005 is no longer applicable. As a result, the Company reversed the full amount of the contract liability and recognized $ 1,976 as Other Income in the condensed consolidated statements of operations. NOTE 14 – SUBSEQUENT EVENTS a. On October 15, 2024, the Company announced that effective October 25, 2024, the Company’s Units will be mandatorily separated and the Units will no longer trade on the NYSE American. In the separation, Unit-holders received shares of Common Stock and warrants underlying their units, which warrants expired on October 28, 2024. The Common Stock continues to trade on the NYSE American under the symbol “PHGE” with the other existing shares of the Company’s Common Stock. b. On October 17, 2024, the Company received a payment of $ 600 from MTEC in connection with the Agreement for reimbursement of approved costs. See Note 8 for further information. F- 24