BRAINSWAY LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2017
U.S. DOLLARS IN THOUSANDS
INDEX
Auditors' Report - Internal Control over Financial Reporting
Auditors' Report - Annual Financial Statements
Consolidated Statements of Financial Position
Consolidated Statements of Profit or Loss and Other Comprehensive Income
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Page
2 - 3
4
5
6
7
8
Notes to Consolidated Financial Statements
9 - 61
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Kost Forer Gabbay & Kasierer
144 Menachem Begin Road, Building A
Tel-Aviv 6492102, Israel
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
AUDITORS' REPORT
To the Shareholders of
BRAINSWAY LTD.
Regarding the Audit of Components of Internal Control over Financial Reporting
Pursuant to Section 9b(c) to the Israeli Securities Regulations (Periodic and Immediate Reports), 1970
We have audited the components of internal control over financial reporting of Brainsway Ltd. and its
subsidiaries (collectively, "the Company") as of December 31, 2017. Control components were determined as
explained in the following paragraph. The Company's board of directors and management are responsible for
maintaining effective internal control over financial reporting, and for their assessment of the effectiveness of
the components of internal control over financial reporting included in the accompanying periodic report for
said date. Our responsibility is to express an opinion on the Company's components of internal control over
financial reporting based on our audit.
The components of internal control over financial reporting audited by us were determined in conformity
with Auditing Standard 104 of the Institute of Certified Public Accountants in Israel, "Audit of Components
of Internal Control over Financial Reporting" as amended ("Auditing Standard 104"). These components
consist of: (1) entity level controls, including financial reporting preparation and closing process controls
which include controls related to warrants, options and liabilities, and information technology general controls;
(2) controls over treasurership (3) controls over the revenue recognition process; (4) controls over the property,
plant and equipment process (collectively, "the audited control components").
We conducted our audit in accordance with Auditing Standard 104. That Standard requires that we plan
and perform the audit to identify the audited control components and obtain reasonable assurance about
whether these control components have been effectively maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting, identifying the audited control
components, assessing the risk that a material weakness exists regarding the audited control components and
testing and evaluating the design and operating effectiveness of the audited control components based on the
assessed risk. Our audit of these control components also included performing such other procedures as we
considered necessary in the circumstances. Our audit only addressed the audited control components, as
opposed to internal control over all the material processes in connection with financial reporting and, therefore,
our opinion addresses solely the audited control components. Moreover, our audit did not address any
reciprocal effects between the audited control components and unaudited ones and, accordingly, our opinion
does not take into account any such possible effects. We believe that our audit provides a reasonable basis for
our opinion within the context described above.
- 2 -
Kost Forer Gabbay & Kasierer
144 Menachem Begin Road, Building A
Tel-Aviv 6492102, Israel
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
Because of its inherent limitations, internal control over financial reporting as a whole, and specifically
the components therein, may not prevent or detect 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.
In our opinion, the Company effectively maintained, in all material respects, the audited control
components as of December 31, 2017.
We have also audited, in accordance with generally accepted auditing standards in Israel, the
consolidated financial statements of the Company as of December 31, 2017 and 2016 and for each of the three
years in the period ended December 31, 2017 and our report dated March 18, 2018 expressed an unqualified
opinion thereon.
Tel-Aviv, Israel
March 18, 2018
KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
- 3 -
Kost Forer Gabbay & Kasierer
144 Menachem Begin Road, Building A
Tel-Aviv 6492102, Israel
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
AUDITORS' REPORT
To the Shareholders of
BRAINSWAY LTD.
We have audited the accompanying consolidated statements of financial position of Brainsway Ltd.
("the Company") as of December 31, 2017 and 2016, and the related consolidated statements of profit or loss
and other comprehensive income, changes in equity and cash flows for each of the three years in the period
ended December 31, 2017. These financial statements are the responsibility of the Company's board of
directors and management. Our responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing standards in Israel, including
those prescribed by the Auditors' Regulations (Auditor's Mode of Performance), 1973. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by the board of directors and management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company and its subsidiaries as of December 31, 2017
and 2016, and their results of operations, changes in equity and their cash flows for each of the three years in
the period ended December 31, 2017, in conformity with International Financial Reporting Standards ("IFRS")
and with the provisions of the Israeli Securities Regulations (Annual Financial Statements), 2010.
We have also audited, in accordance with Auditing Standard 104 of the Institute of Certified Public
Accountants in Israel, "Audit of Components of Internal Control over Financial Reporting", the Company's
components of internal control over financial reporting as of December 31, 2017 and our report dated
March 18, 2018 expressed an unqualified opinion on the effective existence of those components.
Tel-Aviv, Israel
March 18, 2018
KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
- 4 -
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Short-term deposits
Trade receivables, net
Other accounts receivable
NON-CURRENT ASSETS:
Restricted deposit
Long-term leasing deposits
Property, plant and equipment, net
Intangible assets
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Trade payables
Other accounts payable
Deferred revenues
Liability in respect of research and development grants
NON-CURRENT LIABILITIES:
Loan from bank
Deferred revenues and other liabilities
Liability in respect of research and development grants
Share options
EQUITY:
Share capital
Share premium
Reserve for transaction with controlling shareholder
Share-based payment
Adjustments arising from translating financial statements from
functional currency to presentation currency
Accumulated deficit
Note
5
6
7
8
14b, 18j
9
10
12
13
18d
14c
14b
18g, 18i
14c
14b
19
20
BRAINSWAY LTD.
December 31,
2017
2016
U.S. dollars in thousands
14,509
50
2,419
909
17,887
2,009
25
7,091
18
9,143
9,174
585
2,492
859
13,110
-
24
6,821
9
6,854
27,030
19,964
1,631
1,803
2,448
251
6,133
2,727
309
5,028
112
8,176
171
65,034
917
3,889
(2,188)
(55,102)
12,721
27,030
810
1,436
1,861
288
4,395
-
374
4,908
-
5,282
149
56,585
917
2,872
(2,188)
(48,048)
10,287
19,964
The accompanying notes are an integral part of the consolidated financial statements.
March 18, 2018
Date of approval of the
financial statements
Dr. David Zchut
Chairman of the Board
Yaakov Michelin
CEO and Director
Hadar Levi
CFO
- 5 -
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
BRAINSWAY LTD.
Revenues
Cost of revenues
Gross profit
Research and development expenses, net
Selling and marketing expenses
General and administrative expenses
Operating loss
Finance income
Finance expenses
Loss before tax
Tax expenses
Loss
Other comprehensive loss (net of tax effect):
Amounts that will not be reclassified
subsequently to profit or loss:
Adjustments arising from translating financial
statements from functional currency to
presentation currency
2017
Year ended December 31,
2016
U.S. dollars in thousands
(except per share data)
2015
11,145
2,595
11,524
2,427
8,550
5,343
6,331
3,487
6,611
(186)
460
9,097
3,792
5,180
2,194
2,069
(186)
514
6,800
1,466
5,334
4,103
3,281
2,455
4,505
(636)
218
Note
21a
21b
21c
21d
21e
21f
21f
6,885
2,397
4,087
17b
169
-
-
7,054
2,397
4,087
-
-
121
Total comprehensive loss
7,054
2,397
4,208
Basic loss per share (in dollars)
22
(0.48)
(0.17)
(0.28)
Diluted loss per share (in dollars)
(0.48)
(0.17)
(0.28)
The accompanying notes are an integral part of the consolidated financial statements.
- 6 -
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Reserve for
transaction
with
controlling
shareholder
Reserve for
share-based
payment
transactions
Share
capital
Share
premium
BRAINSWAY LTD.
Adjustments
arising from
translating
financial
statements
from
functional
currency to
presentation
currency
Accumulated
deficit
Total
equity
U.S. dollars in thousands
Balance at January 1, 2015
146
55,695
917
2,450
(2,067)
(41,564)
15,577
Total comprehensive loss
Forfeiture and expiration of
share options
Exercise of share options
Cost of share-based payment
Balance at December 31,
2015
Total comprehensive loss
Forfeiture and expiration of
share options
Exercise of share options
Cost of share-based payment
Balance at December 31,
2016
Total comprehensive loss
Issue of shares, net *)
Forfeiture and expiration of
share options
Cost of share-based payment
Balance at December 31,
2017
-
-
1
-
-
103
218
-
-
-
-
-
-
(121)
(4,087)
(4,208)
(247)
(120)
1,571
-
-
-
-
-
-
(144)
99
1,571
147
56,016
917
3,654
(2,188)
(45,651)
12,895
-
-
2
-
-
313
256
-
-
-
-
-
-
(2,081)
(79)
1,378
-
-
-
-
(2,397)
(2,397)
-
-
-
(1,768)
179
1,378
149
56,585
917
2,872
(2,188)
(48,048)
10,287
-
22
-
-
-
8,423
26
-
-
-
-
-
(44)
1,061
-
-
-
(7,054)
-
-
(7,054)
8,445
(18)
1,061
171
65,034
917
3,889
(2,188)
(55,102)
12,721
*)
Net of issue expenses of $ 133 thousand.
The accompanying notes are an integral part of the consolidated financial statements.
- 7 -
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Loss
Adjustments to reconcile loss to net cash used in operating activities:
Adjustments to the profit or loss items:
Capital loss (gain)
Depreciation and amortization
Finance expenses (income), net
Cost of share-based payment
Tax expenses
Changes in asset and liability items:
Increase in trade receivables
Decrease (increase) in other accounts receivable
Increase (decrease) in trade payable
Increase in other accounts payable
Increase (decrease) in deferred revenues
Cash paid and received during the year for:
Interest received
Taxes paid
BRAINSWAY LTD.
2017
Year ended December 31,
2016
U.S. dollars in thousands
2015
(7,054)
(2,397)
(4,087)
-
1,072
274
1,028
169
2,543
(21)
113
310
163
523
1,088
12
(56)
(44)
6
649
328
(420)
-
563
(499)
56
137
208
(482)
(580)
12
-
12
(1)
611
(418)
1,416
-
1,608
(1,162)
(409)
(437)
51
(133)
(2,090)
17
-
17
Net cash used in operating activities
(3,467)
(2,402)
(4,552)
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment
Purchase of property, plant and equipment and intangible assets
Investment in restricted deposit
Sale of short-term investments, net
Investment in (withdrawal of) long-term deposits, net
Net cash used in investing activities
Cash flows from financing activities:
Receipt of loan from bank, net **)
Receipt of Government grants
Repayment of liability in respect of Government grants
Exercise of share options
Issue of share options to bank
Proceeds from issue of securities, net *)
Net cash provided by financing activities
-
(985)
(2,000)
535
(1)
(2,451)
2,702
186
(375)
-
150
8,445
11,108
Exchange differences and commissions on balances of cash and cash equivalents
145
Adjustments arising from translating financial statements from functional
currency to presentation currency
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
(a)
Significant non-cash transactions:
-
5,335
9,174
14,509
5
(408)
-
-
10
(393)
-
717
(326)
179
-
-
570
44
-
(2,181)
11,355
9,174
2
(2,270)
-
495
(5)
(1,778)
-
577
(162)
99
-
-
514
(91)
1
(5,906)
17,261
11,355
Purchase of property, plant and equipment on current suppliers' credit
469
-
295
Net of issue expenses of $ 133 thousand.
Net of transaction costs of $ 148 thousand.
*)
*)
The accompanying notes are an integral part of the consolidated financial statements.
- 8 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 1:- GENERAL
a.
A general description of the Company and its activity:
Brainsway Ltd. ("the Company") was formed on November 7, 2006 with the purpose of
holding 100% of the rights to shares of Brainsway Inc.
b.
c.
d.
e.
Brainsway Inc. ("Inc") was formed in March 2003 in Delaware, US. In August 2003, Inc
formed a wholly owned sub-subsidiary, Moach R&D Services Ltd., which is engaged in
research, development, production and marketing of a non-invasive medical device for
treatment of a wide range of brain disorders ("Moach"). As of December 31, 2017, pursuant
to an investment agreement entered between the parties on December 31, 2012 and revised
in 2014, Moach is 54.13% held by the Company and 45.87% by Inc.
In November 2014, Inc formed a wholly owned subsidiary, Brainsway USA Inc. in
Delaware, US with the purpose of developing an independent array of marketing, support
and logistics services in the US. The company started its operation in January 2015.
On January 9, 2013, the US Food and Drug Administration ("FDA") approved the
Company's Deep TMS device for the treatment of depression in patients. The Group earns
revenues from the sale and lease of devices since the end of 2009.
The Company had negative cash flows from operating activities and operating loss of
approximately $ 3.5 million and $ 6.6 million for the year ended December 31, 2017,
respectively. In August 2017, the Company entered into an agreement for the receipt of a
bank credit facility in the amount of up to $ 6 million. In October 2017, the Company
withdraw an amount of $ 3 million from said credit facility (for further details regarding
the credit terms, see Note 14e). The Company's management and Board believe that the
Company will have the required financial sources to finance its business activity according
to its plans in the foreseeable future.
f.
Definitions:
In these financial statements:
The Company
- Brainsway Ltd.
The Group
- The Company and its investees, as indicated in this Note.
Subsidiaries
- Companies that are controlled by the Company (as defined in
IFRS 10) and whose accounts are consolidated with those of
the Company.
Related parties
- As defined in IAS 24.
Interested parties and
- As defined in the Israeli Securities Regulations (Annual
controlling shareholder
Financial Statements), 2010.
Dollar
- US dollar.
- 9 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies have been applied consistently in the financial statements for
all periods presented, unless otherwise stated.
a.
Basis of presentation of the financial statements:
These financial statements have been prepared in accordance with International Financial
Reporting Standards ("IFRS"). Furthermore, the financial statements have been prepared
in conformity with the provisions of the Israeli Securities Regulations (Annual Financial
Statements), 2010.
The Company's financial statements have been prepared on a cost basis, except for: certain
financial instruments which are presented at fair value through profit or loss.
The Company has elected to present the profit or loss items using the function of expense
method.
b.
The operating cycle:
The Company's operating cycle is one year.
c.
Consolidated financial statements:
The consolidated financial statements comprise the financial statements of companies that
are controlled by the Company (subsidiaries). Control is achieved when the Company has
power over the investee, is exposed or has rights to variable returns from its involvement
with the investee and has the ability to affect those returns through its power over the
investee. In assessing control, the effect of potential voting rights is considered only if they
are substantive. The consolidation of the financial statements commences on the date on
which control is obtained and ends when such control ceases.
The financial statements of the Company and of the subsidiaries are prepared as of the same
dates and periods. The accounting policies in the financial statements of the subsidiaries
have been applied consistently and uniformly with those applied in the financial statements
of the Company. Significant intragroup balances and transactions and gains or losses
resulting from transactions between the Company and the subsidiaries are eliminated in
full in the consolidated financial statements.
d.
Functional currency, presentation currency and foreign currency:
1.
Functional currency and presentation currency:
The presentation currency of the financial statements is the US dollar.
The functional currency is the currency that best reflects the economic environment
in which the Company operates and conducts its transactions, is separately
determined for each Group entity and is used to measure its financial position and
operating results. The Group determines the functional currency of each Group
entity.
- 10 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Until September 30, 2015, the functional currency and presentation currency of
Brainsway Ltd., Inc and Moach was the NIS. Since October 1, 2015, the US dollar
constitutes the functional currency of Brainsway Ltd., Inc and Moach due to the
focusing on the US market as well as commencement of significant activity of the
US subsidiary commenced in the US and since it is expected that revenue will
continue to be nominated in US dollars.
Considering the above, since October 1, 2015, the functional currency of the
Company and its subsidiaries was changed prospectively from NIS to US dollars.
Also, since that date the Company changed the presentation currency in the financial
statements to US dollar. This change was made retroactively. Comparative data were
restated so now they are all presented in the new presentation currency (the US
dollar). The effect of the change in the presentation currency on prior periods was
recorded in capital reserve from translation into the presentation currency in the
statement of comprehensive income.
2.
Transactions, assets and liabilities in foreign currency:
Transactions denominated in foreign currency are recorded upon initial recognition
at the exchange rate at the date of the transaction. After initial recognition, monetary
assets and liabilities denominated in foreign currency are translated at each reporting
date into the functional currency at the exchange rate at that date. Exchange rate
differences are recognized in profit or loss. Non-monetary assets and liabilities
denominated in foreign currency and measured at cost are translated at the exchange
rate at the date of the transaction. Non-monetary assets and liabilities denominated
in foreign currency and measured at fair value are translated into the functional
currency using the exchange rate prevailing at the date when the fair value was
determined.
e.
Cash equivalents:
Cash equivalents are considered as highly liquid investments, including unrestricted short-
term bank deposits with an original maturity of three months or less from the date of
investment or with a maturity of more than three months, but which are redeemable on
demand without penalty and which form part of the Group's cash management.
f.
Short-term deposits:
Short-term bank deposits are deposits with an original maturity of more than three months
from the date of investment and which do not meet the definition of cash equivalents. The
deposits are presented according to their terms of deposit.
- 11 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
g.
Allowance for doubtful accounts:
The allowance for doubtful accounts is determined in respect of specific trade receivables
whose collection, in the opinion of the Company's management, is doubtful. The Company
did not recognize an allowance in respect of groups of customers that are collectively
assessed for impairment since it did not identify any groups of customers which bear similar
credit risks. Impaired receivables are derecognized when they are assessed as uncollectible.
h.
Revenue recognition:
Revenues are recognized in profit or loss when the revenues can be measured reliably, it is
probable that the economic benefits associated with the transaction will flow to the
Company and the costs incurred or to be incurred in respect of the transaction can be
measured reliably. Revenues are measured at the fair value of the consideration less any
trade discounts and volume rebates.
Following are the specific revenue recognition criteria which must be met before revenue
is recognized:
Revenues from sale of devices:
Revenues from sale of goods are recognized when all the significant risks and rewards of
ownership of the goods have passed to the buyer and the seller no longer retains continuing
managerial involvement. The delivery date is usually the date on which ownership passes.
Revenues from lease of devices:
Rental income is recognized on a straight-line basis over the lease term.
i.
Government grants:
Government grants are recognized when there is reasonable assurance that the grants will
be received and the Company will comply with all attached conditions.
Government grants received from the Israel Innovation Authority are recognized upon
receipt as a liability if future economic benefits are expected from the research project that
will result in royalty-bearing sales.
A liability for the loan is first measured at fair value using a discount rate that reflects a
market rate of interest. The difference between the amount of the grant received and the
fair value of the liability is accounted for as a Government grant and recognized as a
reduction of research and development expenses. After initial recognition, the liability is
measured at amortized cost using the effective interest method. Royalty payments are
treated as a reduction of the liability.
If no economic benefits are expected from the research activity, the grant receipts are
recognized as a reduction of the related research and development expenses. In that event,
the royalty obligation is treated as a contingent liability in accordance with IAS 37.
- 12 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
In each reporting date, the Company evaluates whether there is reasonable assurance that
the liability recognized, in whole or in part, will not be repaid based on the best estimate of
future sales and using the original effective interest method and, if so, the appropriate
amount of the liability is derecognized against a corresponding reduction in research and
development expenses.
Grants received from the Chief Scientist prior to January 1, 2009, which are recognized as
a liability, are accounted for as forgivable loans in accordance with IAS 20, based on the
original terms of the loan.
Amounts paid as royalties are recognized as settlement of the liability.
j.
Leases:
The criteria for classifying leases as finance or operating leases depend on the substance of
the agreements and are made at the inception of the lease in accordance with the following
principles as set out in IAS 17.
The Group as lessee:
Finance leases:
A lease that transfers all the risks and rewards incidental to ownership of the leased asset
to the Group is classified as a finance lease. At the commencement of the lease term, the
leased asset is measured at the lower of the fair value of the leased asset or the present value
of the minimum lease payments.
The leased asset is depreciated over the shorter of its useful life and the lease term.
Operating leases:
Leases in which substantially all the risks and rewards of ownership of the leased asset are
not transferred are classified as operating leases. Lease payments are recognized as an
expense in profit or loss on a straight-line basis over the lease term.
The Group as lessor:
Finance leases:
In finance leases, all the risks and rewards incidental to ownership of the leased asset are
transferred to the lessee. The leased asset is derecognized and recognized as a financial
asset, "receivables for finance lease", at the present value of the lease payments. After initial
recognition, the lease payments are apportioned between finance income and collection of
the receivable for the lease. The financial asset, "receivables for finance lease", is tested for
impairment and derecognized as prescribed in IAS 39.
- 13 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Operating leases:
Leases in which substantially all the risks and rewards incidental to ownership of the leased
asset are not transferred to the lessee are classified as operating leases. Rental income is
recognized in profit or loss on a straight-line basis over the lease term. Initial direct costs
incurred in respect of the lease agreement are added to the carrying amount of the leased
asset and recognized as an expense over the lease term on the same basis as the rental
income. Contingent rent is recognized as income in the statement of profit or loss when the
Company is entitled to receive such income.
k.
Taxes on income:
Current or deferred taxes are recognized in profit or loss, except to the extent that they
relate to items which are recognized in other comprehensive income or equity.
1.
Current taxes:
The current tax liability is measured using the tax rates and tax laws that have been
enacted or substantively enacted by the reporting date as well as adjustments
required in connection with the tax liability in respect of previous years.
2.
Deferred taxes:
Deferred taxes are computed in respect of temporary differences between the
carrying amounts in the financial statements and the amounts attributed for tax
purposes.
Deferred taxes are measured at the tax rate that is expected to apply when the asset
is realized or the liability is settled, based on tax laws that have been enacted or
substantively enacted by the reporting date.
Deferred tax assets are reviewed at each reporting date and reduced to the extent that
it is not probable that they will be utilized. Temporary differences for which deferred
tax assets had not been recognized are reviewed at each reporting date and a
respective deferred tax asset is recognized to the extent that their utilization is
probable.
Taxes that would apply in the event of the disposal of investments in investees have
not been taken into account in computing deferred taxes, as long as the disposal of
the investments in investees is not probable in the foreseeable future. Also, deferred
taxes that would apply in the event of distribution of earnings by investees as
dividends have not been taken into account in computing deferred taxes, since the
distribution of dividends does not involve an additional tax liability or since it is the
Company's policy not to initiate distribution of dividends from a subsidiary that
would trigger an additional tax liability.
- 14 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Deferred taxes are offset if there is a legally enforceable right to offset a current tax
asset against a current tax liability and the deferred taxes relate to the same taxpayer
and the same taxation authority.
l.
Property, plant and equipment:
Items of property, plant and equipment are measured at cost, including direct acquisition
costs, less accumulated depreciation and excluding day-to-day servicing expenses.
The cost of self-constructed assets includes the cost of materials, direct labor and share-
based payment as well as any costs directly attributable to bringing the asset to the location
and condition necessary for it to be capable of operating in the manner intended by
management.
Depreciation is calculated on a straight-line basis over the useful life of the assets at annual
rates as follows:
%
Mainly %
Laboratory equipment
Motor vehicles
Computers
Office furniture and equipment
Leased equipment
Leasehold improvements
15
15
33
6 - 15
14 - 15
see below
7
15
Leasehold improvements are depreciated on a straight-line basis over the shorter of the
lease term (including the extension option held by the Group and intended to be exercised)
and the expected life of the improvement.
The useful life, depreciation method and residual value of an asset are reviewed at least
each year-end and any changes are accounted for prospectively as a change in accounting
estimate. Depreciation of an asset ceases at the earlier of the date that the asset is classified
as held for sale and the date that the asset is derecognized.
Impairment of leased equipment is recognized in cost of sales. For the year ended
December 31, 2017, impairment of $ 225 thousand was recorded.
m.
Intangible assets:
Separately acquired intangible assets are measured on initial recognition at cost including
direct acquisition costs. Intangible assets acquired in a business combination are measured
at fair value at the acquisition date. Expenditures relating to internally generated intangible
assets, excluding capitalized development costs, are recognized in profit or loss when
incurred.
- 15 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Intangible assets with a finite useful life are amortized over their useful life and reviewed
for impairment whenever there is an indication that the asset may be impaired. The
amortization period and the amortization method for an intangible asset are reviewed at
least at each year end.
The useful life of intangible assets is as follows:
Computer software license
License
Research and development expenditures:
%
3
18
Research and development expenditures are recognized in profit or loss when incurred. An
intangible asset arising from a development project or from an internal development is
recognized if the Company can demonstrate the technical feasibility of completing the
intangible asset so that it will be available for use or sale; the Company's intention to
complete the intangible asset and use or sell it; the Company's ability to use or sell the
intangible asset; how the intangible asset will generate future economic benefits; the
availability of adequate technical, financial and other resources to complete the intangible
asset; and the Company's ability to measure reliably the expenditure attributable to the
intangible asset during its development.
The Company does not recognize an intangible asset as above because it does not meet the
above criteria.
Software:
The Group's assets include computer systems comprising hardware and software. Software
forming an integral part of the hardware to the extent that the hardware cannot function
without the programs installed on it is classified as property, plant and equipment. In
contrast, stand-alone software that adds functionality to the hardware is classified as an
intangible asset.
License:
The Company has an exclusive license to develop, manufacture, make use of, market, sell
and import products and processes to be developed in the framework of the license
agreement detailed in Note 18i.
n.
Impairment of non-financial assets:
The Company evaluates the need to record an impairment of non-financial assets whenever
events or changes in circumstances indicate that the carrying amount is not recoverable.
- 16 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
If the carrying amount of non-financial assets exceeds their recoverable amount, the assets
are reduced to their recoverable amount. The recoverable amount is the higher of fair value
less costs of sale and value in use. In measuring value in use, the expected cash flows are
discounted using a pre-tax discount rate that reflects the risks specific to the asset.
The recoverable amount of an asset that does not generate independent cash flows is
determined for the cash-generating unit to which the asset belongs. Impairment losses are
recognized in profit or loss.
An impairment loss of an asset is reversed only if there have been changes in the estimates
used to determine the asset's recoverable amount since the last impairment loss was
recognized. Reversal of an impairment loss, as above, shall not be increased above the
lower of the carrying amount that would have been determined (net of depreciation or
amortization) had no impairment loss been recognized for the asset in prior years and its
recoverable amount. The reversal of impairment loss of an asset presented at cost is
recognized in profit or loss.
o.
Financial instruments:
1.
Financial assets:
Financial assets within the scope of IAS 39 are initially recognized at fair value plus
direct transaction costs, except for financial assets measured at fair value through
profit or loss in respect of which transaction costs are recorded in profit or loss.
After initial recognition, the accounting treatment of financial assets is based on their
classification as follows:
Loans and receivables:
Loans and receivables are investments with fixed or determinable payments that are
not quoted in an active market. After initial recognition, loans are measured based
on their terms at cost plus direct transaction costs using the effective interest method
and less any impairment losses. Short-term borrowings are measured based on their
terms, normally at face value.
2.
Financial liabilities:
Financial liabilities within the scope of IAS 39 are initially recognized at fair value.
Loans and other liabilities measured at amortized cost are presented less direct
transaction costs. After initial recognition, the accounting treatment of financial
liabilities is based on their classification as follows:
a)
Financial liabilities at amortized cost:
After initial recognition, loans and other liabilities are measured based on their
terms at cost less direct transaction costs using the effective interest method.
- 17 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
b)
Financial liabilities at fair value through profit or loss:
Financial liabilities at fair value through profit or loss include financial
liabilities designated upon initial recognition as at fair value through profit or
loss.
A liability may be designated upon initial recognition at fair value through
profit or loss, subject to the provisions of IAS 39.
3.
Offsetting financial instruments:
Financial assets and financial liabilities are offset and the net amount is presented in
the statement of financial position if there is a legally enforceable right to set off the
recognized amounts and there is an intention either to settle on a net basis or to realize
the asset and settle the liability simultaneously. The right of set-off must be legally
enforceable not only during the ordinary course of business of the parties to the
contract but also in the event of bankruptcy or insolvency of one of the parties. In
order for the right of set-off to be currently available, it must not be contingent on a
future event, there may not be periods during which the right is not available, or there
may not be any events that will cause the right to expire.
4.
Embedded derivatives:
The Group assesses the existence of an embedded derivative and whether it is
required to be separated from a host contract when the Group first becomes party to
the contract. Reassessment of the need to separate an embedded derivative only
occurs if there is a change in the terms of the contract that significantly modifies the
cash flows that would otherwise be required.
5.
Issue of a unit of securities:
The issue of a unit of securities involves the allocation of the proceeds received
(before issue expenses) to the securities issued in the unit based on the following
order: financial derivatives and other financial instruments measured at fair value in
each period. Then fair value is determined for financial liabilities that are measured
at amortized cost. The proceeds allocated to equity instruments are determined to be
the residual amount. Issue costs are allocated to each component pro rata to the
amounts determined for each component in the unit.
- 18 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
6.
Derecognition of financial instruments:
a)
Financial assets:
A financial asset is derecognized when the contractual rights to the cash flows
from the financial asset expire or the Company has transferred its contractual
rights to receive cash flows from the financial asset or assumes an obligation
to pay the cash flows in full without material delay to a third party and has
transferred substantially all the risks and rewards of the asset, or has neither
transferred nor retained substantially all the risks and rewards of the asset, but
has transferred control of the asset.
b)
Financial liabilities:
A financial liability is derecognized when it is extinguished, that is when the
obligation is discharged or cancelled or expires. A financial liability is
extinguished when the debtor (the Group) discharges the liability by paying
in cash, other financial assets, goods or services; or is legally released from
the liability.
7.
Impairment of financial assets:
The Group assesses at each reporting date whether there is any objective evidence
of impairment of a financial asset or group of financial assets as follows.
Financial assets carried at amortized cost:
Objective evidence of impairment exists when one or more events that have occurred
after initial recognition of the asset have a negative impact on the estimated future
cash flows. The amount of the loss recorded in profit or loss is measured as the
difference between the asset's carrying amount and the present value of estimated
future cash flows (excluding future credit losses that have not yet been incurred)
discounted at the financial asset's original effective interest rate. If the financial asset
has a variable interest rate, the discount rate is the current effective interest rate. In a
subsequent period, the amount of the impairment loss is reversed if the recovery of
the asset can be related objectively to an event occurring after the impairment was
recognized. The amount of the reversal, up to the amount of any previous
impairment, is recorded in profit or loss.
p.
Fair value measurement:
Fair value is the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date.
Fair value measurement is based on the assumption that the transaction will take place in
the asset's or the liability's principal market, or in the absence of a principal market, in the
most advantageous market.
- 19 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The fair value of an asset or a liability is measured using the assumptions that market
participants would use when pricing the asset or liability, assuming that market participants
act in their economic best interest.
Fair value measurement of a non-financial asset takes into account a market participant's
ability to generate economic benefits by using the asset in its highest and best use or by
selling it to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for
which sufficient data are available to measure fair value, maximizing the use of relevant
observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities measured at fair value or for which fair value is disclosed are
categorized into levels within the fair value hierarchy based on the lowest level input that
is significant to the entire fair value measurement:
Level 1
- quoted prices (unadjusted) in active markets for identical assets or
liabilities.
Level 2
- inputs other than quoted prices included within Level 1 that are observable
either directly or indirectly.
Level 3
- inputs that are not based on observable market data (valuation techniques
which use inputs that are not based on observable market data).
q.
Provisions:
A provision in accordance with IAS 37 is recognized when the Group has a present
obligation (legal or constructive) as a result of a past event, it is probable that an outflow
of resources embodying economic benefits will be required to settle the obligation and a
reliable estimate can be made of the amount of the obligation.
r.
Employee benefit liabilities:
The Group has several employee benefit plans:
1.
Short-term employee benefits:
Short-term employee benefits are benefits that are expected to be settled wholly
before twelve months after the end of the annual reporting period in which the
employees render the related services. These benefits include salaries, paid annual
leave, paid sick leave, recreation and social security contributions and are recognized
as expenses as the services are rendered. A liability in respect of a cash bonus or a
profit-sharing plan is recognized when the Company has a legal or constructive
obligation to make such payment as a result of past service rendered by an employee
and a reliable estimate of the amount can be made.
- 20 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
2.
Post-employment benefits:
The plans are normally financed by contributions to insurance companies and
classified as defined contribution plans or as defined benefit plans.
The Group has defined contribution plans pursuant to section 14 to the Severance
Pay Law under which the Group pays fixed contributions and will have no legal or
constructive obligation to pay further contributions if the fund does not hold
sufficient amounts to pay all employee benefits relating to employee service in the
current and prior periods.
Contributions to the defined contribution plan in respect of severance or retirement
pay are recognized as an expense when contributed concurrently with performance
of the employee's services and no additional provision is required in the financial
statements. See also Note 16.
s.
Share-based payment transactions:
The Company's employees and other service providers are entitled to remuneration in the
form of equity-settled share-based payment.
Equity-settled transactions:
The cost of equity-settled transactions with employees is measured at the fair value of the
equity instruments granted at grant date. The fair value is determined using an acceptable
option pricing model.
The cost of equity-settled transactions is recognized in profit or loss together with a
corresponding increase in equity during the period which the performance and/or service
conditions are to be satisfied ending on the date on which the relevant employees become
entitled to the award ("the vesting period"). The cumulative expense recognized for equity-
settled transactions at the end of each reporting date until the vesting date reflects the extent
to which the vesting period has expired and the Group's best estimate of the number of
equity instruments that will ultimately vest.
No expense is recognized for awards that do not ultimately vest.
t.
Loss per share:
Loss per share is calculated by dividing the loss attributable to equity holders of the
Company by the weighted number of Ordinary shares outstanding during the period.
Basic loss per share includes only shares that are outstanding during the period.
- 21 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Potential Ordinary shares are included in the computation of diluted loss per share when
their effect decreases loss per share from continuing operations. Potential Ordinary shares
that are converted during the period are included in diluted loss per share only until the
conversion date and from that date in basic loss per share. The Company's share of losses
of investees is included based on its share of loss per share of the investees multiplied by
the number of shares held by the Company.
NOTE 3:- SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS
USED IN THE PREPARATION OF THE FINANCIAL STATEMENTS
In the process of applying the significant accounting policies in the financial statements, the
Group has made the following judgments which have the most significant effect on the amounts
recognized in the financial statements:
a.
Judgments:
-
Classification of leases:
In order to determine whether to classify a lease as a finance lease or an operating
lease, the Company evaluates whether the lease transfers substantially all the risks
and benefits incidental to ownership of the asset. In this respect, the Company
evaluates such criteria as the existence of a bargain purchase option, the lease term
in relation to the economic life of the asset and the present value of the minimum
lease payments in relation to the fair value of the asset.
b.
Estimates and assumptions:
The preparation of the financial statements requires management to make estimates and
assumptions that have an effect on the application of the accounting policies and on the
reported amounts of assets, liabilities, revenues and expenses. Changes in accounting
estimates are reported in the period of the change in estimate.
The key assumptions made in the financial statements concerning uncertainties at the
reporting date and the critical estimates computed by the Group that may result in a material
adjustment to the carrying amounts of assets and liabilities within the next financial year
are discussed below.
-
Grants from the Israel Innovation Authority:
Government grants received from the Israel Innovation Authority at the Ministry of
Economy and Industry are recognized as a liability if future economic benefits are
expected from the research and development activity that will result in royalty-
bearing sales. There is uncertainty regarding the estimated future cash flows and
discount rate used to measure the amount of the liability.
- 22 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 3:- SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS
USED IN THE PREPARATION OF THE FINANCIAL STATEMENTS (Cont.)
-
Liability in respect of options to investors:
The liability in respect of options to investors is a financial instrument presented at
fair value through profit or loss.
-
Determining the fair value of share-based payment transactions:
The fair value of share-based payment transactions is determined upon initial
recognition by an acceptable option pricing model. The model is based on share price
and exercise price and assumptions regarding expected volatility, life of share option,
dividend and risk-free interest rate.
NOTE 4:- DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR
ADOPTION
a.
IFRS 9, "Financial Instruments":
In July 2014, the IASB issued the final and complete version of IFRS 9, "Financial
Instruments" ("IFRS 9"), which replaces IAS 39, "Financial Instruments: Recognition and
Measurement". IFRS 9 addresses all three aspects of financial instruments: classification
and measurement, impairment and hedge accounting.
According to IFRS 9, all financial assets are measured at fair value upon initial recognition.
In subsequent periods, debt instruments are measured at amortized cost only if both of the
following conditions are met:
-
-
the asset is held within a business model whose objective is to hold assets in order
to collect the contractual cash flows.
the contractual terms of the financial asset give rise on specified dates to cash flows
that are solely payments of principal and interest on the principal amount
outstanding.
Subsequent measurement of all other debt instruments and financial assets should be at fair
value. IFRS 9 establishes a distinction between debt instruments to be measured at fair
value through profit or loss and debt instruments to be measured at fair value through other
comprehensive income.
Financial assets that are equity instruments should be measured in subsequent periods at
fair value and the changes recognized in profit or loss or in other comprehensive income
(loss), in accordance with the election by the Company on an instrument-by-instrument
basis. If equity instruments are held for trading, they should be measured at fair value
through profit or loss.
- 23 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 4:- DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR
ADOPTION (Cont.)
IFRS 9 introduces a three-stage model for measuring impairment of financial debt
instruments that are not measured at fair value through profit or loss based on the expected
credit loss method. Each stage determines the basis of measurement of expected credit
losses based on the changes in the debt instrument's credit risk. The model also grants a
relief for financial assets with short credit terms, such as trade receivables.
According to IFRS 9, the provisions of IAS 39 will continue to apply to derecognition and
to financial liabilities for which the fair value option has not been elected.
According to IFRS 9, changes in the fair value of financial liabilities measured at fair value
which are attributable to the change in credit risk should be presented in other
comprehensive income. All other changes in fair value should be presented in profit or loss.
IFRS 9 also prescribes new hedge accounting requirements but allows entities to continue
adopting the provisions of IAS 39 regarding hedge accounting. IFRS 9 expands the
disclosure requirements of an entity's risk management activities.
IFRS 9 is to be applied for annual periods beginning on January 1, 2018.
After having evaluated the implications of the adoption of IFRS 9, the Company estimates
that its adoption is not expected to have a material impact on the Company's financial
statements.
b.
IFRS 15, "Revenue from Contracts with Customers":
IFRS 15 ("IFRS 15") was issued by the IASB in May 2014.
IFRS 15 replaces IAS 18, "Revenue", IAS 11, "Construction Contracts", IFRIC 13,
"Customer Loyalty Programs", IFRIC 15, "Agreements for the Construction of Real
Estate", IFRIC 18, "Transfers of Assets from Customers" and SIC-31, "Revenue - Barter
Transactions Involving Advertising Services".
IFRS 15 introduces a five-step model that will apply to revenue earned from contracts with
customers:
Step 1: Identify the contract with a customer, including reference to contract combination
and accounting for contract modifications.
Step 2: Identify the separate performance obligations in the contract
Step 3: Determine the transaction price, including reference to variable consideration,
financing components that are significant to the contract, non-cash consideration and any
consideration payable to the customer.
- 24 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 4:- DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR
ADOPTION (Cont.)
Step 4: Allocate the transaction price to the separate performance obligations on a relative
stand-alone selling price basis using observable information, if it is available, or using
estimates and assessments.
Step 5: Recognize revenue when a performance obligation is satisfied, either at a point in
time or over time.
IFRS 15 is to be applied retrospectively for annual periods beginning on January 1, 2018.
After having evaluated the implications of the adoption of IFRS 15, the Company estimates
that its adoption is not expected to have a material impact on the Company's financial
statements.
c.
IFRS 16, "Leases":
In January 2016, the IASB issued IFRS 16, "Leases" ("IFRS 16"). According to the new
Standard, a lease is a contract, or part of a contract, that conveys the right to use an asset
for a period of time in exchange for consideration.
The key effects of IFRS 16 are as follows:
Lessees are required to recognize an asset and a corresponding liability in the
statement of financial position in respect of all leases (except in certain cases) similar
to the accounting treatment of finance leases according to the existing IAS 17,
"Leases".
Lessees are required to initially recognize a lease liability for the obligation to make
lease payments and a corresponding right-of-use asset. Lessees will also recognize
interest and depreciation expense separately.
Variable lease payments that are not dependent on changes in the Consumer Price
Index ("CPI") or interest rates, but are based on performance or use are recognized
as an expense by the lessees as incurred and recognized as income by the lessors as
earned.
In the event of change in variable lease payments that are CPI-linked, lessees are
required to remeasure the lease liability and the effect of the remeasurement is an
adjustment to the carrying amount of the right-of-use asset.
The accounting treatment by lessors remains substantially unchanged, namely
classification of a lease as a finance lease or an operating lease.
IFRS 16 is effective for annual periods beginning on or after January 1, 2019. Early
adoption is permitted. At this stage, the Company does not intend to early adopt IFRS 16.
- 25 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 4:- DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR
ADOPTION (Cont.)
IFRS 16 permits lessees to use one of the following approaches:
1.
Full retrospective approach - according to this approach, the effect of the adoption
of IFRS 16 at the beginning of the earliest period presented will be carried to equity.
Also, the Company will restate the comparative figures in its financial statements.
The remaining liability at the date of the initial application of IFRS 16 under this
approach is measured at the rate implicit in the lease. If that rate cannot be readily
determined, the lessee shall use their incremental borrowing rate.
2. Modified retrospective approach - this approach does not require restatement of
comparative data. The balance of the liability as of the date of first-time adoption of
IFRS 16 will be calculated using the existing discount rate on the date of first-time
adoption. As for the outstanding right-of-use asset, the Company may apply one of
the two following alternatives to account for each lease separately:
Recognizing an asset in the amount of the recognized liability, with certain
adjustments.
Recognizing an asset as if the asset had always been measured according to
the provisions of IFRS 16.
Any difference arising on the date of first-time adoption of IFRS 16 as a result of the
modified retrospective approach will be carried to equity.
At this stage, the Company is evaluating the different alternatives of the retrospective
adoption of IFRS 16 and their potential implications on the financial statements,
particularly on certain financial ratios and financial covenants.
d.
IFRIC 23, "Uncertainty over Income Tax Treatments":
In June 2017, the IASB issued IFRIC 23, "Uncertainty over Income Tax Treatments" ("the
Interpretation"). The Interpretation clarifies the rules of recognition and measurement of
assets or liabilities in accordance with the provisions of IAS 12, "Income Taxes", in
situations of uncertainty involving income taxes. The Interpretation provides guidance on
considering whether some tax treatments should be considered collectively, examination
by the tax authorities, measurement to reflect uncertainty involving income taxes in the
financial statements and accounting for changes in facts and circumstances underlying the
uncertainty.
- 26 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 4:- DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR
ADOPTION (Cont.)
The Interpretation is to be applied in financial statements for annual periods beginning on
January 1, 2019. Early adoption is permitted. Upon initial adoption, the Company will
apply the Interpretation using one of two approaches:
1.
Full retrospective adoption, without restating comparative data, by recording the
cumulative effect through the date of initial adoption in the opening balance of
retained earnings.
2.
Full retrospective adoption including restatement of comparative data.
The Company does not expect the Interpretation to have any material impact on the
financial statements.
NOTE 5:- CASH AND CASH EQUIVALENTS
Cash for immediate withdrawal
Cash equivalents - short-term deposits (1)
December 31,
2017
2016
U.S. dollars in thousands
7,386
7,123
14,509
8,974
200
9,174
(1)
Short-term deposits at banks are for periods of one week and three months, depending on
the requirements of the Company. The deposits earn interest at the respective term of the
deposits (NIS – 0.09% per year; dollar - 1.28% per year).
As of December 31, 2017, the Group had $ 3,000 thousand in unused credit facilities, see
Note 14b.
- 27 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 6:- SHORT-TERM DEPOSITS
Bank deposits (1)
December 31,
2016
2017
U.S. dollars in thousands
50
585
(1)
Short-term deposits at banks are for periods of one year, depending on the requirements of
the Company. The deposits earn interest at the respective term of the deposits (dollar -
0.35% per year).
NOTE 7:- TRADE RECEIVABLES, NET
Open accounts (1)
Credit cards
Less - allowance for doubtful accounts
Trade receivables, net
December 31,
2017
2016
U.S. dollars in thousands
2,707
-
(288)
2,419
2,703
23
(234)
2,492
(1) Trade receivables are generally on 90 day credit terms after the date of the transaction.
Certain customers may spread the payments over months by using credit card payment
transactions.
An analysis of past due but not impaired trade receivables (allowance for doubtful accounts),
trade receivables, net, with reference to the reporting date:
Past due trade receivables with aging of
Neither
past due
nor
impaired
December 31, 2017
1,198
December 31, 2016
1,843
< 30
days
323
190
30 - 60
days
60 - 90
days
U.S. dollars in thousands
90 - 120
days
> 120
days
Total
258
131
77
46
153
219
410
2,419
63
2,492
As of December 31, 2017, the Company has debts more than 90 days past due but not impaired
(allowance for doubtful accounts) in the total of approximately $ 563 thousand, of which an
amount of approximately $ 417 thousand was paid between the reporting date and the date of the
approval of the financial statements. The Company expects to collect the entire amount of these
debts.
- 28 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 8:- OTHER ACCOUNTS RECEIVABLE
Government ministries
Accrued income - Israel Innovation Authority
Prepaid expenses and other
Loans to employees
Supplies
Advances to suppliers
December 31,
2016
2017
U.S. dollars in thousands
394
113
83
26
271
22
909
291
107
55
22
380
4
859
Office
furniture
and
equipment
Motor
vehicles
U.S. dollars in thousands
Computers
Leasehold
improvements Total
1
-
-
1
1
-
-
1
293
18
-
311
216
49
-
265
75
-
-
75
33
5
-
38
52
-
-
52
52
-
-
52
8,424
2,739
(2,384)
8,779
1,603
757
(672)
1,688
3,440
3,553
15
*) -
46
37
*) -
7,091
NOTE 9:- PROPERTY, PLANT AND EQUIPMENT
2017
Leased
equipment
Equipment
for lease
Laboratory
equipment
Cost:
Balance at January 1, 2017
Additions during the year
Disposals during the year
4,093
1,957
(1,423)
3,750
764
(961)
160
-
-
Balance at December 31,
2017
Accumulated depreciation:
Balance at January 1, 2017
Additions during the year
Disposals during the year
Balance at December 31,
2017
Depreciated cost at
December 31, 2017
4,627
3,553
160
1,179
680
(672)
1,187
-
-
-
-
122
23
-
145
*)
Represents less than $ 1 thousand.
- 29 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 9:- PROPERTY, PLANT AND EQUIPMENT (Cont.)
2016
Cost:
Leased
equipment
Equipment
for lease
Laboratory
equipment
Office
furniture
and
equipment
Motor
vehicles
U.S. dollars in thousands
Computers
Leasehold
improvements Total
Balance at January 1, 2016
Additions during the year
Disposals during the year
3,656
1,029
(592)
4,251
1,416
(1,917)
160
-
-
25
-
(24)
269
24
-
Balance at December 31,
2016
Accumulated depreciation:
Balance at January 1, 2016
Additions during the year
Disposals during the year
Balance at December 31,
2016
Depreciated cost at
December 31, 2016
4,093
3,750
160
1
293
813
584
(218)
1,179
-
-
-
-
99
23
-
11
2
(12)
162
54
-
122
1
216
2,914
3,750
38
*) -
77
42
*) -
6,821
74
1
-
75
28
5
-
33
52
-
-
52
45
7
-
52
8,487
2,470
(2,533)
8,424
1,158
675
(230)
1,603
*)
Represents less than $ 1 thousand.
NOTE 10:- INTANGIBLE ASSETS
Composition:
Computer software:
Cost
Less - accumulated amortization
Licenses
Cost
Less - accumulated amortization
December 31,
2016
2017
U.S. dollars in thousands
152
(137)
15
9
(6)
3
18
136
(131)
5
9
(5)
4
9
- 30 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 11:- FAIR VALUE MEASUREMENT
The following table presents the fair value measurement hierarchy for the Group's assets and
liabilities.
Quantitative disclosures of the fair value measurement hierarchy of the Group's assets and
liabilities as of December 31, 2017:
Valuation
date
Level 1
Fair value hierarchy
Level 3
Level 2
U.S. dollars in thousands
Total
Liabilities measured at fair value:
Liability in respect of options
31.12.2017
-
112
-
112
NOTE 12:- TRADE PAYABLES
Open accounts
December 31,
2017
2016
U.S. dollars in thousands
1,631
810
Trade payables are non-interest bearing and are normally settled on up to 90-day terms.
NOTE 13:- OTHER ACCOUNTS PAYABLE
Employees and payroll accruals
Accrued expenses
Reserve for tax
Liabilities to related parties (1)
(1) A current non-interest bearing account.
December 31,
2017
2016
U.S. dollars in thousands
918
665
128
92
772
541
-
123
1,803
1,436
- 31 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 14:- NON-CURRENT LIABILITIES
a.
Composition:
Loan from bank (b)
Share options (b)
Liability in respect of research and development
grants (c)
Deferred revenues and other liabilities (d)
b.
Loan from bank:
December 31,
2017
2016
U.S. dollars in thousands
2,727
112
5,028
309
8,176
-
-
4,908
374
5,282
On August 17, 2017, the Company entered into an agreement for the receipt of a bank credit
facility in the amount of up to $ 6 million. An amount of $ 3 million could be withdrawn
until October 15, 2017 ("the first facility") bearing 3-months Libor interest rate plus 6%.
The remaining credit facility ("the second facility") may be withdrawn from October 15,
2017 to March 15, 2018 bearing 3-months Libor interest rate plus 6.75%. The interest on
the loans is payable on a quarterly basis and the loan principal is repayable in 8 equal
consecutive quarterly installments where the first installment is at the end of 18 and 12
months from the date of withdrawal of the loans from the first and second facilities,
respectively. Also, according to the credit agreement, the Company will allocate the bank
unquoted options to purchase its shares for the total exercise price of up to $ 600 thousand.
The options are exercisable for a period of 5 years from the date of any allocation at an
exercise price of $ 5.02 per share in cash or under a cashless exercise mechanism. The
Company undertook to allocate to the bank options for the purchase of shares in the amount
of up to $ 300 thousand as a condition for the provision of the first facility. The remaining
options will be allocated on the date of withdrawal of each loan from the second facility,
so that the exercise amount will constitute 10% of the loan actually withdrawn from the
second facility. The Company is entitled to make an early repayment of all or part of the
loans. In such a case, the Company will pay the bank an early repayment fee as detailed in
the loan agreement.
On October 3, 2017, the Company allocated the bank 59,761 options as a condition for
receiving the first facility and the entire first facility amount was withdrawn.
The fair value of the options on the date when the first facility amount was withdrawn was
estimated at $ 150 thousand and the balance was attributed to the loan. Transaction costs
of $ 156 thousand were allocated proportionally to the fair value of the options and loans.
The options were classified as a financial liability and measured at fair value through profit
or loss. As of December 31, 2017, the fair value of the options was estimated at $ 112
thousand.
- 32 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 14:- NON-CURRENT LIABILITIES
As part of the credit agreement, and as a condition for using the first and second facilities,
the Company and the other Group companies undertook to provide the bank fixed and
floating charges on all their assets, including property, money (including money received
from borrower's clients), goodwill, intellectual property, rights and assets of any kind. In
addition, the Company and the US investees undertook to sign a guarantee letter, unlimited
in amount, to secure the loans that will be provided by virtue of the credit agreement. Also,
a senior fixed charge, unlimited in amount, was provided on a specific deposit in which an
amount of not less than $ 2,000 thousand would be deposited ("the deposited amount"). It
was agreed that if by March 16, 2018, the amount of loans actually withdrawal is less than
$ 6,000 thousand, the deposited amount would be placed at one-third of the actual amount
of loans on that date.
For information regarding the amendment to the agreement signed on February 12, 2018,
see Note 24b below.
c.
Government grants:
Moach received from the Israeli Government participation grants in research and
development and, in return, it is obligated to pay royalties amounting to 3.5% of sales of
products from such research and development support up to an amount equal to 100% of
total grants received.
As of December 31, 2017, the maximum royalties payable by the company in the future in
respect of active project equal an amount of approximately $ 12,561 thousand, including
exchange differences and interest at the Libor rate. Through December 31, 2017, royalties
paid amounted to $ 968 thousand.
d.
Other long-term liabilities are for payment of royalties pursuant to a license agreement. See
Note 18j.
e.
Financial covenants:
in connection with a loan from bank, the withdrawal of the loan and the credit facility are
conditional on the Company meeting the following financial covenants: (1) total customer
debt and the cash balance will not be less than $ 4 million provided that the total cash,
including the restricted deposit, is not less than $ 2 million; (2) minimum rental fees
expected to be received from all signed rental contracts of the Company during a period of
4 years commencing from the calendar year in which the trial date occurs shall be no less
than $ 15 million (cumulative); (3) minimum rental fees expected to be received from all
signed rental contracts of the Company during a period 4 years commencing from the
calendar year in which the trial date occurs offset by amounts that may not be received
from customers for early termination of the rental contract, shall be no less than $ 7.5
million and (4) total short-term and long-term financial credit shall not exceed $ 6 million.
As of December 31, 2017, the Company is meeting the abovementioned financial
covenants.
- 33 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 15:- FINANCIAL INSTRUMENTS
a.
Classification of financial assets and financial liabilities:
The financial assets and financial liabilities in the statement of financial position are
classified by groups of financial instruments pursuant to IAS 39:
Financial assets:
Cash and cash equivalents
Other
Total current
Total non-current
Financial liabilities:
Long-term loan from bank
Trade payables
Other accounts payable
Other
December 31,
2017
2016
U.S. dollars in thousands
14,509
3,002
17,511
2,009
2,727
1,631
1,803
5
6,166
9,174
3,497
12,671
-
-
810
1,436
6
2,252
Financial liabilities in respect of options - at fair
value through profit or loss
112
-
Total other financial liabilities - in respect of
liability to the Israel Innovation Authority
Total current
Total non-current
b.
Financial risks factors:
5,279
3,685
7,872
5,196
2,534
4,914
The Group's activities expose it to various financial risks such as market risks (foreign
currency risk, interest risk), credit risk and liquidity risk. The Group's comprehensive risk
management plan focuses on activities that reduce to a minimum any possible adverse
effects on the Group's financial performance.
The Company's CFO oversees the management of these risks in accordance with the
policies approved by the Board.
- 34 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 15:- FINANCIAL INSTRUMENTS (Cont.)
1. Market risks:
Foreign currency risk:
The currency exposure arises from current accounts and deposits that are mainly
managed in NIS and from liability in respect of employees and payroll accruals that
are paid for in NIS.
2.
Credit risk:
Credit risk is the risk that a counterparty will not meet its obligations as a customer
or under a financial instrument leading to a loss to the Group. The Group is exposed
to credit risk from its operating activity (primarily trade receivables).
3.
Liquidity risk:
The Group monitors its risk to a shortage of cash using quarterly budget tools.
The table below presents the maturity profile of the Group's financial liabilities based
on contractual undiscounted payments:
December 31, 2017
Trade payables
Payables
Loan from bank
Long-term liabilities
Liability in respect of
research and
development grants
Less than
one year
1 to 2
years
3 to 4
2 to 3
years
years
U.S. dollars in thousands
4 to 5
years
> 5
years Total
1,631
1,803
219
2
-
-
963
2
-
-
1,624
2
-
-
771
-
-
-
-
-
-
-
-
-
1,631
1,803
3,577
6
504
782
1,470
1,855
2,380
6,207
13,198
4,159
1,747
3,096
2,626
2,380
6,207
20,215
December 31, 2016
Trade payables
Payables
Long-term liabilities
Liability in respect of
research and
development grants
Less than
one year
1 to 2
years
3 to 4
2 to 3
years
years
U.S. dollars in thousands
4 to 5
years
> 5
years Total
810
1,436
2
-
-
2
-
-
2
-
-
2
-
-
2
-
-
-
810
1,436
10
137
283
509
2,875
3,415
6,002
13,221
2,385
285
511
2,877
3,417
6,002
15,477
- 35 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 15:- FINANCIAL INSTRUMENTS (Cont.)
c.
Fair value:
The carrying amount of cash and cash equivalents, short-term deposits, trade receivables,
other accounts receivable, trade payables, other accounts payable, options, long-term
liabilities and Scientist's grants approximate their fair value.
Financial liabilities measured at fair value:
December 31, 2017
Opening balance at January 1, 2017
Recognition of financial liability in respect of
options
Amounts transferred to the statement of
comprehensive income as net finance income
for the year
Closing balance at December 31, 2017
Level 2
U.S. dollars
in thousands
-
150
(38)
112
During 2017, there were no transfers between Level 1 to Level 3 for fair value
measurements of financial instruments however there were transfers into Level 2 for fair
value measurements of financial instruments.
d.
Sensitivity tests relating to changes in foreign currency:
Sensitivity test to changes in the NIS exchange
rate:
Gain (loss) from the change:
Increase of 5% in exchange rate
Decrease of 5% in exchange rate
Sensitivity test to changes in the Euro exchange
rate:
Gain (loss) from the change:
Increase of 5% in exchange rate
Decrease of 5% in exchange rate
December 31,
2016
2017
U.S. dollars in thousands
405
(405)
103
(103)
27
(27)
44
(44)
- 36 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 15:- FINANCIAL INSTRUMENTS (Cont.)
Sensitivity test to changes in the Yen exchange
rate:
Gain (loss) from the change:
Increase of 5% in exchange rate
Decrease of 5% in exchange rate
December 31,
2016
2017
U.S. dollars in thousands
44
(44)
43
(43)
As of December 31, 2017, the Company has excess of financial assets over financial
liabilities in foreign currency (NIS in relation to US dollar) of $ 8,126 thousand.
As of December 31, 2017, the Company has excess of financial assets over financial
liabilities in foreign currency (Euro in relation to US dollar) of $ 539 thousand.
As of December 31, 2017, the Company has excess of financial assets over financial
liabilities in foreign currency (Yen in relation to US dollar) of $ 888 thousand.
Sensitivity tests and principal work assumptions:
The selected changes in the relevant risk variables were determined based on management's
estimate as to reasonable possible changes in these risk variables.
The Company has performed sensitivity tests of principal market risk factors that are liable
to affect its reported operating results or financial position. The sensitivity tests present the
profit or loss in respect of each financial instrument for the relevant risk variable chosen
for that instrument as of each reporting date. The test of risk factors was determined based
on the materiality of the exposure of the operating results or financial condition of each risk
with reference to the functional currency and assuming that all the other variables are
constant.
NOTE 16:- EMPLOYEE BENEFIT ASSETS AND LIABILITIES
Employee benefits consist of short-term benefits, post-employment benefits and other long-term
benefits.
a.
Post-employment benefits:
According to the labor laws and Severance Pay Law in Israel, the Company is required to
pay compensation to an employee upon dismissal or retirement or to make current
contributions in defined contribution plans pursuant to section 14 to the Severance Pay
Law, as specified below. The Company's liability is accounted for as a benefit after the
completion of employment.
- 37 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 16:- EMPLOYEE BENEFIT ASSETS AND LIABILITIES (Cont.)
The computation of the Company's employee benefit liability is made in accordance with
a valid employment contract based on the employee's salary and employment term which
establish the entitlement to receive the compensation. Post-employment benefits are
normally financed by contributions classified as defined benefit plans or as defined
contribution plans as detailed below.
b.
Defined contribution plans:
Section 14 to the Severance Pay Law, 1963 applies to all of the Company's employees
pursuant to which the fixed contributions paid by the Group into pension funds and/or
policies of insurance companies release the Group from any additional liability to
employees for whom said contributions were made. These contributions and contributions
for benefits represent defined contribution plans.
2017
Year ended December 31,
2016
U.S. dollars in thousands
2015
Expenses in respect of defined
contribution plans
263
190
184
NOTE 17:- TAXES ON INCOME
a.
Tax laws applicable to the Company and Moach:
Income Tax (Inflationary Adjustments) Law, 1985:
According to the law, until 2007, the results for tax purposes were adjusted for the changes
in the Israeli CPI.
In February 2008, the "Knesset" (Israeli parliament) passed an amendment to the Income
Tax (Inflationary Adjustments) Law, 1985, which limits the scope of the law starting 2008
and thereafter. Since 2008, the results for tax purposes are measured in nominal values,
excluding certain adjustments for changes in the Israeli CPI carried out in the period up to
December 31, 2007. Adjustments relating to capital gains such as for sale of property
(betterment) and securities continue to apply until disposal. Since 2008, the amendment to
the law includes, among others, the cancellation of the inflationary additions and
deductions and the additional deduction for depreciation (in respect of depreciable assets
purchased after the 2007 tax year).
The Law for the Encouragement of Capital Investments, 1959:
Moach elected year 2012 as year of election. According to the Law, and subject to receiving
the above approval, Moach will be entitled to various tax benefits by virtue of the
"beneficiary enterprise" status, as implied by this Law.
- 38 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 17:- TAXES ON INCOME (Cont.)
Alternative track:
Under this track, Moach is tax exempt in the first ten years of the benefit period and subject
to tax at the reduced rate of 10%-25% for a period of five / eight years (if the benefit period
qualifying for tax exemption is two years) or one year / four years (if the benefit period
qualifying for tax exemption is six years) for the remaining benefit period (dependent on
the level of foreign investment).
In respect of programs approved prior to the enactment of Amendment No. 60 to the Law,
the benefit period starts with the first year the approved enterprise earns taxable income,
provided that 12 years have not passed since the enterprise began operating and 14 years
have not passed since the approval was granted.
Following the enactment of Amendment No. 60 to the Law, subsequent to April 1, 2005,
companies under the tax benefits track are no longer required to obtain a letter of approval
from the Investment Center but rather must make a notification of the year of election for
the beneficiary enterprise status and are required, among others, to make a minimum
qualifying investment. This condition requires an investment in the acquisition of
productive assets such as machinery and equipment which must be carried out within three
years. The minimum qualifying investment required for setting up a "new plant" is NIS 300
thousand, linked to the Israeli CPI in accordance with the guidelines of the Israeli Tax
Authority. As for plant "expansion", the minimum qualifying investment is the higher of
NIS 300 thousand, linked as stated above, and an amount equivalent to the "qualifying
percentage" of the value of the productive assets. In this context, productive assets that are
used by the plant but not owned by it will also be viewed as productive assets.
The qualifying percentage of the value of the productive assets is as follows:
The value of productive
assets before the expansion
(NIS in millions)
The new investment required as a
percentage of the value of
productive assets
Up to NIS 140
NIS 140 - NIS 500
More than NIS 500
12%
7%
5%
Income qualifying for tax benefits under the alternative track is the taxable income of a
company that has met certain conditions as determined by the Law ("a beneficiary
company") and which is derived from an industrial enterprise. If a dividend is distributed
out of tax exempt profits, as above, Moach will become liable for tax at the rate applicable
to its profits from the beneficiary enterprise in the year in which the income was earned, as
if it was not under the alternative track. Moach's policy is not to distribute such a dividend.
As for beneficiary enterprises in the context of Amendment No. 60 to the Law, the basic
condition for receiving the benefits under this track is that the enterprise contributes to the
country's economic growth and makes a competitive contribution to the Gross Domestic
Product ("a competitive enterprise").
- 39 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 17:- TAXES ON INCOME (Cont.)
In order for industrial enterprises to comply with this condition, in each tax year during the
benefit period, one of the following conditions must be met:
1.
2.
3.
The industrial enterprise's main field of activity is biotechnology or nanotechnology
as approved by the Head of the Administration of Industrial Research and
Development, prior to the approval of the relevant program.
The industrial enterprise's sales revenues in a specific market during the tax year do
not exceed 75% of its total sales for that tax year. A "market" is defined as a separate
country or customs territory.
At least 25% of the industrial enterprise's overall revenues during the tax year were
generated from the enterprise's sales in a specific market with a population of at least
14 million.
Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment
68):
In January 2011, the Law for Economic Policy for 2011 and 2012 (Legislative
Amendments), 2011 was published which prescribes, among others, amendments to the
Law for the Encouragement of Capital Investments, 1959 ("the Law"). The amendment
became effective as of January 1, 2011. According to the amendment, the benefit tracks in
the Law were modified and a flat tax rate applies to the Company's entire preferred income
under its status as a preferred company with a preferred enterprise. Commencing from the
2011 tax year, the Company can elect (without possibility of reversal) to apply the
amendment in a certain tax year and from that year and thereafter, it will be subject to the
amended tax rates, as detailed below.
Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment
71):
In August 2013, the Law for Changing National Priorities (Legislative Amendments for
Achieving Budget Targets for 2013 and 2014), 2013 which includes Amendment 71 to the
Law for the Encouragement of Capital Investments ("the amendment") was published.
According to the amendment, the tax rate on preferred income from a preferred enterprise
in 2014 and thereafter will be 16% (in development area A - 9%). As for the changes in tax
rates resulting from Amendment 73, see below.
Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment
73):
In December 2016, the Economic Efficiency Law (Legislative Amendments for Applying
the Economic Policy for the 2017 and 2018 Budget Years), 2016 which includes
Amendment 73 to the Law for the Encouragement of Capital Investments ("the
amendment") was published. According to the amendment, a preferred enterprise located
in development area A will be subject to a tax rate of 7.5% instead of 9% effective from
January 1, 2017 and thereafter (the tax rate applicable to preferred enterprises located in
other areas remains at 16%).
- 40 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 17:- TAXES ON INCOME (Cont.)
The amendment also prescribes special tax tracks for technological enterprises, which
became effective in 2017, as follows:
Technological preferred enterprise - an enterprise for which total consolidated revenues of
its parent company and all subsidiaries are less than NIS 10 billion. A technological
preferred enterprise, as defined in the Law, which is located in the center of Israel will be
subject to tax at a rate of 12% on profits deriving from intellectual property (in development
area A - 7.5%).
Special technological preferred enterprise - an enterprise for which total consolidated
revenues of its parent company and all subsidiaries exceed NIS 10 billion. Such enterprise
will be subject to tax at a rate of 6% on profits deriving from intellectual property,
regardless of the enterprise's geographical location.
Any dividends distributed to a "foreign company", as defined in the Law, deriving from
income from the technological enterprises will be subject to tax at a rate of 4%.
The Law for the Encouragement of Industry (Taxation), 1969:
Moach has the status of an "industrial company", as defined by this law. According to this
status and by virtue of regulations published thereunder, the Company is entitled to claim
a deduction of accelerated depreciation on equipment used in industrial activities, as
determined in the regulations issued under the Inflationary Law. The Company is also
entitled to amortize a patent or rights to use a patent or intellectual property that are used
in the enterprise's development or advancement, to deduct issuance expenses for shares
listed for trading and to file consolidated report under certain conditions.
b.
Tax rates applicable to the Company and subsidiaries:
1.
In December 2016, the Economic Efficiency Law (Legislative Amendments for
Applying the Economic Policy for the 2017 and 2018 Budget Years), 2017 was
approved, which reduces the corporate income tax rate to 24% (instead of 25%)
effective from January 1, 2017 and to 23% effective from January 1, 2018.
The Israeli corporate income tax rate was 24% in 2017, 25% in 2016 and 26.5% in
2015.
A company is taxable on its real capital gains at the corporate income tax rate in the
year of sale
- 41 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 17:- TAXES ON INCOME (Cont.)
In August 2013, the Law for Changing National Priorities (Legislative Amendments
for Achieving Budget Targets for 2013 and 2014), 2013 ("the Budget Law") was
published. The Law includes, among others, provisions for the taxation of
revaluation gains effective from August 1, 2013. The provisions regarding
revaluation gains will become effective only after the publication of regulations
defining what should be considered as "retained earnings not subject to corporate
tax" and regulations that set forth provisions for avoiding double taxation of foreign
assets. As of the date of approval of these financial statements, these regulations have
not been published.
2.
The principal tax rate applicable to Brainsway USA and Inc whose place of
incorporation is outside Israel is:
A company incorporated in the US - weighted tax at the rate of about 35%-40%
(Federal tax, State tax and City tax of the city where the company operates).
The main differences between the statutory corporate tax rate and the effective tax
rate are carryforward losses in Israel in respect of which no deferred taxes were
recorded and current tax expenses in respect of the income of Brainsway USA and
Inc.
c.
Tax assessments:
The Company received final tax assessments through the 2011 tax year. The subsidiary,
Moach, received final tax assessments through 2012. The subsidiary, Inc, received final tax
assessments through the 2013 tax year.
d.
Carryforward losses for tax purposes:
Carryforward losses - the Group:
Carryforward operating tax losses of the Group as of December 31, 2017 total
approximately $ 3 million in Brainsway Ltd. and approximately $ 43 million in Moach.
Under the tax laws in the US, carryforward tax losses in the subsidiary may be carried
forward and offset against taxable income during a period of up to 20 years and may be
subject to limitation due to the "change in ownership" in the company. The scope of
changes in the company's ownership may limit the maximal amount of carryforward losses
that could be offset in a specific tax year. Brainsway USA and Inc had no carryforward
losses as of December 31, 2017.
e.
Deferred taxes:
As it is not probable that taxable income will be available in the next years, deferred taxes
were not recognized for the above carryforward losses.
- 42 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 18:- CONTINGENT LIABILITIES, COMMITMENTS AND CHARGES
a.
b.
c.
d.
As for liabilities in respect of payment of royalties to the Chief Scientist, see Note 14c.
The Company engaged with medical centers and academic institutions for performing
clinical trials. In part of the agreements the Company has undertaken to pay royalties
amounting between 0.75% and 1.5% of revenues in the field of the trial if a patent in the
field of the trial is created during the research. The Company is entitled to terminate the
engagements subject to giving an advance notice and there is no additional cost to the
Company for the cancellation.
During 2009-2017, the Company entered into several distribution agreements for the Deep
TMS device with third parties regarding different territories around the world. According
to these distribution agreements, the third parties are granted the exclusive right to market,
distribute, lease and/or sale, use and promote sales in the different territories up to a 15-
year period. The Company will supply the devices to the distributors and they will act on
their account to install, train and maintain the devices in the territory they operate. The
different distributors are committed to minimum quantities as in the agreements.
In September 2013, the Company entered into a distribution agreement in Japan with
Century Medical Inc., a member of the Itochu concern, which specializes in the import and
distribution of medical devices and equipment in Japan. According to the agreement, the
distributor is granted the exclusive right to market the Company's Deep TMS device for
the treatment of major depression in patients in Japan for a 10-year period after the required
regulatory approvals for marketing the device in Japan are obtained. If the distributor meets
the minimum quantities which it has committed during the contractual term, the agreement
will be extended by additional 5 years. The distributor is granted a right of first offer to
distribute the Company's device in Japan without further codification.
In return for receiving the exclusive right to the Company's device for the treatment of
major depression in patients in Japan, the distributor undertook to pay the Company
distribution fees in the total of 190 million Yen (approximately $ 1.7 million) in two
payments as follows: 100 million Yen (approximately $ 0.9 million) within 10 business
days after the date of closing the agreement and the balance of 90 million Yen
(approximately $ 0.8 million) are payable after the authorities in Japan grant their approval
to market the Company's device in Japan.
In each year of the agreement in which the distributor meets the predetermined revenue
target, 10% of the distribution fees are returned to the distributor. As of December 31, 2013,
the first amount of $ 0.9 million was received from the distributor (this entire amount is
presented as an advance in the item deferred revenues). The distributor will pay the
Company for any treatment made with the Company's device (pay-per-use) but in no case
below the pre-determined annual amount. The agreement prescribes conditions in which
the Company or the distributor can cancel the agreement, including the authorities' demand
to make a clinical trial and non-compliance with the requirement to purchase minimum
predetermined quantities.
- 43 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 18:- CONTINGENT LIABILITIES, COMMITMENTS AND CHARGES (Cont.)
e.
f.
The agreement sets a minimum payment threshold to the Company that is examined every
few years throughout the contractual term. If the distributor does not qualify for the
minimum payment threshold at the end of each period, the Company will be entitled to
terminate the distribution agreement, unless the parties reach another agreement between
them. The agreement further determines that the distributor will act on its account to receive
the regulatory approvals that are required to market the Company's device for the treatment
of depression in patients in Japan and to receive an insurance coverage in the price range
established in the agreement.
As of the date of the approval of the financial statements, the distributor in Japan is
operating with full cooperation from the Company vis-a-vis the local regulatory authorities
to reach an agreement regarding a regulatory track that finally (subject to compliance and
fulfillment of targets set) will allow the Company to obtain the regulatory approvals to start
marketing its devices in the territory. On January 22, 2018, the distributor in Japan applied
to the PMDA, which is responsible for all import and export licenses of pharmaceuticals
and medical equipment to Japan, for approval of marketing and selling the Company's
devices in Japan.
During 2013-2017, the Company entered into agreement to perform multicenter trials in
bipolar disorder, smoking, post-traumatic stress disorder (PTSD) and a comparison trail of
the H1-H7 coils with different medical centers around the world. As of December 31, 2017,
the Company's management estimated that the anticipated remaining expenses in respect
of these trials would total approximately $ 6 million.
On August 25, 2013, the Company received the approval of the MAGNET committee at
the Office of Chief Scientist at the Israel Innovation Authority for the BSMT tool (brain
stimulate and monitor tool). The tool was approved, as of that date, for a period of three
years, which was extended up to five years, in the framework of which the Company was
approved work plans with participation rate of up to 66% which the MAGNET
administration will give the Company as non-royalty bearing grant.
In the first three years of the plan, the Company received grants amounting to
approximately NIS 6.3 million.
On October 27, 2016, the MAGNET committee at the Office of Chief Scientist at the Israel
Innovation Authority approved an annual work plan for the fourth year with the budget of
approximately NIS 2.3 million, of which 55% (approximately NIS 1.3 million) the
MAGNET administration will give the Company as a grant. This plan has not yet received
a final report and the amount of the grant is not final.
On September 28, 2017, the MAGNET committee at the Office of Chief Scientist at the
Israel Innovation Authority approved an annual work plan for the fifth year with the budget
of approximately NIS 2.1 million. During February 2018, the Company's appeal on the
grant in the amount of approximately NIS 65 thousand was approved and the work plan
was placed at approximately NIS 2.2 million, out of which 55% (approximately NIS 1.2
million) the MAGNET administration will give the Company as a grant. This plan is
expected to be implemented by September 30, 2018.
- 44 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 18:- CONTINGENT LIABILITIES, COMMITMENTS AND CHARGES (Cont.)
g.
In March 2014, the Company entered into an exclusive marketing and distribution
agreement for the Deep TMS device with a third party in Israel for a maximum period of
15 years subject to meeting minimum sales targets as set in the agreement. In April 2014,
the distributor paid the Company a one-time exclusivity fee in the amount of NIS 1 million.
Also, it was agreed with the distributor on a minimum monthly payment for any leased
device and an additional payment based on the number of treatments made with the device
beyond the minimum monthly payment.
In September 2017, an addendum to the agreement was signed, extending the term of the
agreement to 15 years from the date of signing the addendum, setting a minimum annual
payment subject to its compliance with certain conditions detailed in the amendment to the
agreement. As part of the amendment, the distributor must meet the order and installation
target of 12 new devices each year, up to a cumulative total of 50 devices. In addition, if
its income from a single device exceeds the predetermined amount, the Company will be
entitled to 10%-20% of its revenues from that device based on the lease year of the device.
In accordance with the terms of the amendment to the agreement and on the date of signing,
the distributor made a first order of five devices.
h.
Commitments:
Operating lease commitment:
The Group has entered into operating leases on vehicles. These leases have an average life
of three years, with no renewal option included in the contract.
Future minimum lease payable under non-cancellable operating leases as of December 31
are as follows:
First year
Second year
Third year
2017
2016
U.S. dollars in thousands
110
47
5
162
105
70
16
191
1. Moach has a rent agreement from March 2011 according to which Moach rents
offices in consideration of monthly rentals of approximately NIS 96 thousand, linked
to the Israeli CPI of January 2011. The rent is binding until September 30, 2014. The
rent has terms of renewal until September 30, 2017, subject to giving a notice to the
lessor of at least 4 months before the end of the rent. Moach exercised the option.
This agreement was extended until September 30, 2022, at monthly rentals of
approximately NIS 99 thousand, linked to the Israeli CPI of May 2017. The
agreement gives an early termination option on September 30, 2020 in consideration
of a predetermined compensation with a six-month notice before the date of the early
termination.
- 45 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 18:- CONTINGENT LIABILITIES, COMMITMENTS AND CHARGES (Cont.)
In addition, Moach has a rent agreement from July 2015 according to which Moach
rents a warehouse in consideration of monthly rentals of approximately NIS 8
thousand. The rent is binding until July 31, 2017. The rent has terms of renewal until
July 31, 2019 and 2021.
The options may be automatically exercised unless Moach notifies of its intent not
to exercise the options until six months before the end of the last rent period. In 2017,
Moach exercised the first option.
2.
Since April 2016, USA Inc has a rent agreement which became binding on April 5,
2016, according to which USA Inc rents offices in the US for a five-year and four-
month period until July 31, 2021 in consideration of monthly rentals of
approximately $ 4 thousand. The rent increases every year by 2%. The agreement
cannot end before it expires.
Future minimum rentals payable under non-cancellable rent agreements of Moach
and USA Inc as of December 31 are as follows:
First year
Second year
Third year
Fourth year
Fifth year
i.
License agreements:
2017
2016
U.S. dollars in thousands
425
414
343
32
-
1,214
301
53
54
55
32
495
1.
In July 2003, Inc signed a license agreement with NIH - The National Institute of
Health (The American National Institute of Health) ("NIH") according to which the
Company was granted an exclusive license to develop, manufacture, make use of,
market, sell and import products and processes to be developed in the framework of
the license agreement. In return, Inc is committed to pay NIH royalties at fixed
annual amounts of $ 2 thousand from January 1, 2004. In respect of milestones, Inc
will pay $ 10 thousand within 30 days after the approval of the Food and Drug
Administration (FDA) is received. Also, Inc will have to pay in the future royalties
in respect of net sales, as defined in the agreement, amounting 3% of total net sales
in the aggregate of $ 10,000 thousand and 2% of net sales beyond this amount. The
balance of current provision for royalties as of December 31, 2017 was
approximately $ 132 thousand.
- 46 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 18:- CONTINGENT LIABILITIES, COMMITMENTS AND CHARGES (Cont.)
If Inc enters into a sub-license agreement, it is committed to pay royalties amounting
8% of the market value of the consideration received for the grant of the sub-license.
Also, Inc is committed to pay to other inventor royalties amounting 0.045% of net
sales and 1.2% of revenues from sub-licenses.
The agreement is binding until the patent rights expire in October 2021. NIH is
entitled to terminate the agreement early if Inc does not comply with the conditions
of the agreement.
2.
In June 2005, Inc signed a research and development agreement with Yeda Research
and Development Company Ltd. ("Yeda"), according to which Yeda gave the
subsidiary an exclusive license to use any research result for research, development,
marketing and manufacturing of products in consideration of royalty payment as
follows: $ 25 thousand when the patent related to the research is approved, royalties
of 1.5% on cumulative sales of up to $ 10,000 thousand and 1% on cumulative sales
of more than $ 10,000 thousand, royalties of 4% of amounts payable to Inc for grant
of commercial sub-licenses, minimal annual royalties of $ 1 thousand from the end
of the research period and one-time sum of $ 5 thousand when commercial marketing
approval in the US or Europe is obtained. If the products use only the research results
without applying patents registered by NIH, the consideration may double the
abovementioned. The balance of current provision for royalties as of December 31,
2017 was approximately $ 66 thousand.
Royalties are payable at the later of 15 years after the first commercial sale or the
patent life (20 years through October 2021). This agreement expires at the later of
the expiration of the last patent, 15 years after Inc starts to sell products integrating
the patent and after a period of 20 years during which no sales are made.
The license agreement with Yeda is subject to modifications in the license agreement
with NIH (see 1 above) and will be cancelled upon the cancellation of this agreement.
On March 23, 2010, the parties signed an addendum to the agreement in the
framework of which it is agreed and clarified that the agreement with Yeda from
2005 applies to certain patents and, accordingly, the Company is committed to pay
royalties on sale of such patent-based products, according to the provisions of the
agreement. This addendum further determines that the Company will pay reduced
royalties of 1% on sales of Deep TMS device for the treatment of depression in
patients plus $ 50,000 upon the achievement of sales target of $ 10 million of all
products included in the agreement.
- 47 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 18:- CONTINGENT LIABILITIES, COMMITMENTS AND CHARGES (Cont.)
j.
Charges:
As part of the credit agreement, as stated in Note 14b, and as a condition for using the first
and second facilities, the Company and the other Group companies undertook to provide
the bank with fixed and floating charges on all their assets, including property, money
(including money received from borrower's clients), goodwill, intellectual property, rights
and assets of any kind. In addition, the Company and the US investees undertook to sign a
guarantee letter, unlimited in amount, to secure the loans that will be provided by virtue of
the credit agreement. Also, a senior fixed charge, unlimited in amount, was provided on a
specific deposit in which an amount of not less than $ 2,000 thousand would be deposited
("the deposited amount"). It was agreed that if by March 16, 2018, the amount of loans
actually withdrawal is less than $ 6,000 thousand, the deposited amount would be placed
at one-third of the actual amount of loans on that date.
For information regarding the amendment to the agreement signed on February 12, 2018,
see Note 24b below.
NOTE 19:- EQUITY
a.
Composition of share capital:
December 31, 2017
December 31, 2016
Authorized
Issued and
outstanding Authorized
Number of shares
Issued and
outstanding
Ordinary shares of NIS 0.04
par value each
25,000,000
16,640,446
25,000,000
14,715,784
b. Movement in share capital:
Issued and outstanding capital:
Number of
shares
NIS
par value
Balance at January 1, 2016
14,491,034
146,483
Exercise of options
224,750
2,349
Balance at December 31, 2016
14,715,784
148,832
Issue of shares
1,924,662
22,065
Balance at December 31, 2017
16,640,446
170,897
- 48 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 19:- EQUITY (Cont.)
c.
Rights attached to shares:
Ordinary shares confer their holders rights to receive dividends in cash and in Company's
shares, right to nominate the Company's directors and rights to participate in distribution
of dividends upon liquidation in proportion to their holdings. Also, Ordinary shareholders
have one vote at the shareholders' meeting such that each share confers one vote to its
holder.
d.
On April 26, 2012, the Company entered into an investment agreement according to which
it raised from several investors approximately $ 4 million in consideration of the issuance
of 532,382 Ordinary shares of NIS 0.04 par value and 532,382 options, of which 51,672
options were allocated to the managing underwriters. On June 11, 2012, the transaction was
closed. Half of the options (or all in the event of a "merger" as defined in the agreement)
may be exercised by the investors in a cashless exercise.
e.
f.
On November 6, 2012, the Company entered into an investment agreement according to
which it raised from a strategic investor in the pharm industry $ 1 million in consideration
of the issuance of 112,406 Ordinary shares of NIS 0.04 par value each and 134,887
unquoted options each may be exercised into one Ordinary share of NIS 0.04 par value. On
June 10, 2016, the options expired. Total finance income in respect of the options for the
years ended December 31, 2016 and 2015 were $ 618 thousand and $ 56 thousand,
respectively.
On April 10, 2014, the Company published a shelf prospectus. On March 28, 2016, the
validity of the shelf prospectus was extended to April 10, 2017.
On December 11, 2017, the Company entered into a private placement agreement with a
group of investors according to which the investors will invest a total of NIS 29,928
thousand in the Company in consideration of the allocation of 1,924,662 Ordinary shares
of the Company of NIS 0.04 par value each. On December 21, 2017, after receipt of the
stock exchange's approval and payment of the consideration, the Company allocated these
shares. Issuance expenses amounted to $ 133 thousand.
It should be noted that if the Company wishes to raise capital during the twelve months
after the closing date, by way of a public offering or private placement of shares and/or
securities convertible into shares ("the additional offering") and if the effective price per
share in the additional offering is less than the share price according to this private
placement then, subject to the stock exchange's approval for their listing, the investors will
be entitled to receive additional Ordinary shares in respect of the remaining allocated shares
in exchange for 30 agorot per Ordinary share in such number that the price per share in
respect of the total quantity allocated to each optionee in the framework of this private
placement and following the additional allocation will be equal to the effective price in the
additional offering, proportionate to the number of allocated shares. For the purpose of
calculating the adjustment, the effective price according to this private placement will be
adjusted for distribution (as defined in the Companies Law), rights issue, split or
consolidation of capital and issuance of bonus shares. All changes are taken into account
in the computation of the effective price in the additional offering.
- 49 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 19:- EQUITY (Cont.)
g.
Options:
In 2017, 12,983 and 8,017 options that had been granted to employees who terminated their
employment at the Company in 2017, were forfeited and expired, respectively.
h.
Capital management in the Company:
The Company's capital management objectives are to preserve the Group's ability to
ensure business continuity thereby creating a return for the shareholders, investors and
other interested parties.
The Company is not under any minimal equity requirements nor is it required to attain a
certain level of capital return.
NOTE 20:- SHARE-BASED PAYMENT
a.
The expense recognized in the financial statements:
The expense recognized in the financial statements for services received is shown in the
following table:
2017
Year ended December 31,
2016
U.S. dollars in thousands
2015
Equity-settled share-based payment
plans to employees, directors and
consultants
1,028
(420)
1,416
The share-based payment transactions that the Company granted to its employees are
described below. There have been no modifications or cancellations to any of the employee
benefit plans in 2015-2017.
On December 22, 2014, the Company's Board approved to allocate 110,808 options to a
consultant and an employee of the sub-subsidiary, Brainsway USA Inc., that may be
exercised into 110,808 Ordinary shares of NIS 0.04 par value for the exercise increment of
NIS 43 per any share option as follows (1) 100,800 options to the consultant will vest in
equal parts over three years on a monthly basis starting January 1, 2015. The exercise
period for options that will vest until December 31, 2015 ends on December 31, 2017; the
exercise period for options that will vest until December 31, 2016 ends on December 31,
2018 and the exercise period for options that will vest until December 31, 2017 ends on
December 31, 2019 (2) 10,008 options to the employee will vest in equal parts on a monthly
basis from January 1, 2015 to December 31, 2015 and may be exercised until December 31,
2017.
- 50 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 20:- SHARE-BASED PAYMENT TRANSACTIONS (Cont.)
The options were allocated to the optionees on March 22, 2015. The grant date fair value
of the options using the binomial model was determined at approximately NIS 1.2 million.
The inputs used for the fair value measurement of the options at the grant date: expected
volatility of the share prices of 43.53%-53.41%, risk-free interest rate of 0.06%-0.82%,
share price of NIS 36.95, exercise coefficient of 2.3-2.8 and expected dividend of 0.
On August 30, 2015, 4,170 options that had been granted to an employee who terminated
employment at the Company were forfeited and on November 29, 2015, the remaining
5,838 options expired. On January 1, 2016, 67,200 options that had been granted to a
consultant who terminated employment at the Company on December 31, 2015 were
forfeited and on April 1, 2016, the remaining 33,600 options expired.
On November 23, 2015, the general meeting approved to allocate to a director in the
Company, Mr. Yaakov Michelin, 37,597 options that may be exercised into 37,597
Ordinary shares of NIS 0.04 par value for the exercise increment of NIS 27.97 per any
share option as follows: the options vest over four years; 1/12 of the number of options vest
after 15 months of the date of allocation and 1/12 of the number of options vest after each
subsequent three months. The options are exercisable over a period of 10 years. The grant
date fair value of the options using the binomial model was determined at approximately
$ 117 thousand.
On November 23, 2015, after the approval of the general meeting, a director, president and
the CEO of the Company, Dr. Guy Ezekiel, was allocated 1,318,191 options that may be
exercised into 1,318,191 Ordinary shares of NIS 0.04 par value for the exercise increment
of NIS 33.58 per any share option as follows: the options vest over four years; 1/4 of the
number of options vest after 12 months of June 15, 2015 and 1/16 of the number of options
vest after each subsequent three months. The options are exercisable over a period of 8
years. The grant date fair value of the options using the binomial model was determined at
approximately $ 3.6 million.
The inputs used for the fair value measurement of the options at the grant date: expected
volatility of the share prices of 43.08%-59.40%, risk-free interest rate of 0.12%-2.16%,
share price of NIS 25.80, exercise coefficient of 2.8 and expected dividend of 0.
On May 30, 2016, following cessation to hold office as director, 1,318,191 options
exercisable into 1,318,191 Ordinary shares of NIS 0.04 par value that had been given to
him on November 23, 2015 were forfeited. The total effect on the comprehensive income
for the year ended December 31, 2016 was approximately $ 1,112 thousand of which
amounts of $ 445 thousand, $ 119 thousand and $ 548 thousand were included in research
and development expenses, selling and marketing expenses and general and administrative
expenses, respectively.
- 51 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 20:- SHARE-BASED PAYMENT TRANSACTIONS (Cont.)
On December 8, 2015, the Company's Board approved to allocate 888,100 options to
employees of the subsidiary, Moach R&D Services Ltd., and employees and a consultant
of the sub-subsidiary, Brainsway USA Inc., that may be exercised into 888,100 Ordinary
shares of NIS 0.04 par value for the exercise increment of NIS 25.99 and NIS 31.19 per
any of the 384,100 and 504,000 options, respectively, as follows: the options vest over four
years; 1/12 of the number of options vest after 15 months of the date of allocation and 1/12
of the number of options vest after each subsequent three months. The options are
exercisable over a period of 10 years. The grant date fair value of the options using the
binomial model was determined at approximately $ 2.3 million.
The inputs used for the fair value measurement of the options at the grant date: expected
volatility of the share prices of 41.89%-59.33%, risk-free interest rate of 0.23%-2.37%,
share price of NIS 25.19, exercise coefficient of 2.3 and expected dividend of 0.
On April 1, 2017, Mr. Yaakov Michelin, a director, started his tenure as the Company's
CEO. On that date, he was allocated 566,262 options that may be exercised into 566,262
Ordinary shares of NIS 0.04 par value for the exercise increment of NIS 19.97 per any
option as follows: the options vest over four years; 1/4 of the number of options vest after
12 months of the date of allocation (April 1, 2017) and 1/16 of the number of options vest
after each subsequent 3 months. The options are exercisable over a period of 8 years. The
grant date fair value of the options using the binomial model was determined at
approximately $ 1.1 million. The inputs used for the fair value measurement of the options
at the grant date: expected volatility of the share prices of 44.69%-51.09%, risk-free interest
rate of 0.17%-1.94%, share price of NIS 16.37, exercise coefficient of 2.8 and expected
dividend of 0.
On December 3, 2017, the general meeting approved to allocate to a director in the
Company, Mrs. Keren Sarid, 27,500 options that may be exercised into 27,500 Ordinary
shares of NIS 0.04 par value for the exercise increment of NIS 21.372 per any option as
follows: the options vest over four years; 1/12 of the number of options vest after 15 months
of the date of allocation and 1/12 of the number of options vest after each subsequent 3
months. The options are exercisable over a period of 10 years. The grant date fair value of
the options using the binomial model was determined at approximately $ 54 thousand. The
inputs used for the fair value measurement of the options at the grant date: expected
volatility of the share prices of 40.58%-56.77%, risk-free interest rate of 0.11%-2.00%,
share price of NIS 16.90, exercise coefficient of 2.8 and expected dividend of 0.
- 52 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 20:- SHARE-BASED PAYMENT TRANSACTIONS (Cont.)
b. Movement during the year:
The following table lists the number of options, the weighted average exercise price of
options and modification in employees and service providers option plans during the
current year:
2017
2016
Number of
options
Weighted
average
exercise
price
$
Number of
options
Weighted
average
exercise
price
$
Options outstanding at beginning
of year
1,148,297
31.18
3,738,413
12.34
Options exercised, expired or
forfeited during the year
Options granted during the year
Options outstanding at end of
(21,000)
593,762
26.81
20.03
(2,590,116)
-
22.48
-
year
1,721,059
27.39
1,148,297
31.18
Options exercisable at end of
year
599,357
33.58
426,400
35.59
The binomial model is applied when estimating the grant date fair value of options to
employees.
The weighted average remaining contractual life for the options outstanding as of
December 31, 2017 was about 6 years (2016 - about 6 years).
The range of exercise prices for options outstanding as of December 31, 2017 was
NIS 19.97-NIS 59.13 (2016 - NIS 13-NIS 59.13).
- 53 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 21:- ADDITIONAL INFORMATION TO THE STATEMENTS OF COMPREHENSIVE
INCOME ITEMS
a.
Additional information on revenues:
Revenues reported in the financial statements for each group of similar products and
services:
2017
Year ended December 31,
2016
U.S. dollars in thousands
2015
Revenues from lease *)
Revenues from sale
6,654
4,491
5,327
6,197
11,145
11,524
4,299
2,501
6,800
*)
The Company's revenues from lease for the year ended December 31, 2016 include
revenues of $ 475 thousand from payment for termination of agreements for ordering
the Company's devices in Brazil.
Geographic information:
Revenues reported in the financial statements derive from the Company's country of
domicile (Israel) and foreign countries based on the location of the customers, are as
follows:
2017
Year ended December 31,
2016
U.S. dollars in thousands
2015
Israel
Foreign countries *)
180
10,965
441
11,083
11,145
11,524
244
6,556
6,800
*)
In 2017, the Company earned about 89% of its revenues in the US, about 8% in
Europe.
In 2016, the Company earned about 79% of its revenues in the US, about 10% in
South America and about 7% in Europe.
In 2015, the Company earned about 76% of its revenues in the US and about 14% in
Europe.
- 54 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 21:- ADDITIONAL INFORMATION TO THE STATEMENTS OF COMPREHENSIVE
INCOME ITEMS (Cont.)
2017
Year ended December 31,
2016
U.S. dollars in thousands
2015
b.
Cost of revenues:
Cost of lease
Cost of sales
c.
Research and development expenses,
net:
Salaries and related benefits
Subcontractors
Laboratory materials
Patents
Other
Travel abroad
Share-based payment
Depreciation
Support by Government grants
d.
Selling and marketing expenses:
Salaries and related expenses
Distribution commissions
Sales promotion and other
Travel and travel abroad
Share-based payment
e.
General and administrative expenses:
Salaries and related expenses
Professional fees and office expenses
Depreciation
Travel abroad
Allowance for doubtful accounts and
bad debts
Share-based payment
- 55 -
1,483
1,112
2,595
2,954
1,584
453
134
357
35
180
35
(394)
1,004
1,423
2,427
2,053
1,885
402
104
273
70
(214)
35
(816)
844
622
1,466
2,408
1,402
463
131
497
40
617
32
(1,487)
5,343
3,792
4,103
3,597
138
1,690
777
129
6,331
1,179
1,002
20
64
503
719
3,293
460
746
670
11
5,180
1,125
756
49
104
377
(217)
1,120
324
1,269
336
232
3,281
930
676
30
82
170
567
3,487
2,194
2,455
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 21:- ADDITIONAL INFORMATION TO THE STATEMENTS OF COMPREHENSIVE
INCOME ITEMS (Cont.)
2017
Year ended December 31,
2016
U.S. dollars in thousands
2015
f.
Finance income and expenses:
Finance income:
Interest income on bank deposits
Finance income on options
Exchange differences
Finance expenses:
Finance expenses from liability in
respect of Government grants
Exchange differences
Interest on loan from bank
Bank commissions
22
38
126
186
273
53
87
47
460
12
56
118
186
404
49
-
61
514
18
618
-
636
98
83
-
37
218
NOTE 22:- LOSS PER SHARE
Number of shares and loss used in the computation of loss per share:
2017
Year ended December 31,
2016
2015
Loss
attributable
to equity
holders of
the
Company
U.S. dollars
in
thousands
Weighted
number of
shares
In
thousands
Loss
attributable
to equity
holders of
the
Company
U.S. dollars
in
thousands
Weighted
number of
shares
In
thousands
Loss
attributable
to equity
holders of
the
Company
U.S. dollars
in
thousands
Weighted
number of
shares
In
thousands
Used in the computation of basic
loss
14,769
7,054
14,507
2,397
14,463
4,087
Used in the computation of
diluted loss
14,769
7,092
14,507
2,454
14,463
4,087
To compute diluted loss per share, convertible securities have not been taken into account since
their conversion has anti-dilutive effect.
- 56 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 23:- TRANSACTIONS AND BALANCES WITH INTERESTED AND RELATED PARTIES
a.
Balances with interested and related parties:
Composition:
As of December 31, 2017
Key
management
personnel *)
Other
interested and
related
parties
U.S. dollars in thousands
Other accounts payable
55
37
As of December 31, 2016
Key
management
personnel *)
Other
interested and
related
parties
U.S. dollars in thousands
Other accounts payable
48
75
*)
Some of the key management personnel are interested parties by virtue of holdings.
b.
Benefits to interested and related parties:
2017
Year ended December 31,
2016
U.S. dollars in thousands
2015
Salary and related benefits to those
employed by the Company or on its
behalf
Directors' fee to those not employed by
the Company or on its behalf
Number of individuals to whom the
salary and benefits relate:
Related and interested parties
employed by the Company or on its
behalf
Directors not employed by the
Company
1,322
1,137
1,548
98
137
80
9
7
16
9
9
18
11
8
19
- 57 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 23:- TRANSACTIONS AND BALANCES WITH INTERESTED AND RELATED PARTIES
(Cont.)
c.
Benefits to key management personnel *):
2017
Year ended December 31,
2016
U.S. dollars in thousands
2015
Short-term employee benefits
Share-based payment
42
798
20
377
31
1,202
*)
Some of the key management personnel are interested parties by virtue of holdings.
d.
Purchases from related parties:
2017
Year ended December 31,
2016
U.S. dollars in thousands
2015
Purchases from related parties
-
-
9
e.
Transactions with interested and related parties:
Year ended December 31, 2017
Sales to subsidiary
Research and development expenses
General and administrative expenses
Key
management
personnel *)
Other
interested and
related
parties
U.S. dollars in thousands
-
947
1,212
2,159
2,873
-
99
2,972
*)
Some of the key management personnel are interested parties by virtue of holdings.
- 58 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 23:- TRANSACTIONS AND BALANCES WITH INTERESTED AND RELATED PARTIES
(Cont.)
Year ended December 31, 2016
Sales to subsidiary
Research and development expenses
Marketing expenses
General and administrative expenses
Year ended December 31, 2015
Costs of property, plant and equipment
Sales to subsidiary
Research and development expenses
Marketing expenses
General and administrative expenses
Key
management
personnel *)
Other
interested and
related
parties
U.S. dollars in thousands
-
743
100
691
1,534
2,120
-
-
137
2,257
Key
management
personnel *)
Other
interested and
related
parties
U.S. dollars in thousands
-
-
897
235
1,569
2,701
9
285
-
-
80
374
*)
Some of the key management personnel are interested parties by virtue of holdings.
f.
g.
On May 30, 2016, Dr. Guy Ezekiel, the former CEO and director in the Company, ceased
his role. As a result of forfeiture of options allocated in the fourth quarter of 2015, the
Company's expenses to related parties decreased in 2016, of which amounts of $ 445
thousand, $ 119 thousand and $ 548 thousand were included in research and development
expenses, selling and marketing expenses and general and administrative expenses,
respectively, for the year ended December 31, 2016.
On January 8, 2017, the Company informed on the appointment of a new CEO for the
Company, Mr. Yaakov Michelin, who started his tenure on April 1, 2017. On February 12,
2017, the general meeting approved his conditions of employment which consist of, besides
monthly payment, the following bonuses: (1) an annual bonus based on the Company's
remuneration policy according to the decision of the Company's Board; (2) bonuses of
NIS 1 million to be granted based on target achievements as outlined in his agreement. As
of the date of the approval of the financial statements, the Company's management cannot
predict when these goals will be achieved and, accordingly, no expense was recognized in
the financial statements for the year ended December 31, 2017.
- 59 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 23:- TRANSACTIONS AND BALANCES WITH INTERESTED AND RELATED PARTIES
(Cont.)
In addition, with the commencement of his tenure, Mr. Michelin was allocated 566,262
options to purchase 566,262 Ordinary shares of the Company of NIS 0.04 par value each
for the exercise price of NIS 19.97 which, as of January 5, 2017, the date on which the
Board approved the employment conditions, represented 3.6% of the Company's issued
and outstanding capital on a fully diluted basis. The price was determined according to the
average closing market price of the share during 30 days before the Board's resolution. The
options vest and become exercisable over four years starting from the date of allocation at
dates as outlined in his agreement.
For information regarding the value of options allocated to Mr. Michelin, see Note 20
above.
h.
On December 3, 2017, the general meeting approved to allocate to a director in the
Company, Mrs. Keren Sarid, 27,500 options that may be exercised into 27,500 Ordinary
shares of NIS 0.04 par value for the exercise increment of NIS 21.372 per any option.
For information regarding the value of options allocated to Mrs. Sarid, see Note 20 above.
NOTE 24:- EVENTS AFTER THE REPORTING DATE
a.
b.
c.
During 2018, until the date of the approval of the financial statements, 6,667 options that
had been granted to an employee whose employment in the Company was terminated in
2018 expired.
On February 12, 2018, an amendment to the credit facility agreement with Bank Mizrahi,
as stated in Note 14b above, was signed, according to which loans under the second facility
could be withdrawn until March 15, 2019 (instead of until March 15, 2018) and the annual
interest rate on each loan given in the framework of the second facility will be lowered to
3-months Libor plus 6%. The other terms of the facility agreement and the second facility
remain unchanged.
In December 2017, the Company received the approval of the MAGNET committee of the
Israel Innovation Authority for a plan with the budget of NIS 1.1 million, of which 66%
(approximately NIS 0.7 million) is expected to be given to the Company as a grant.
Accordingly, on February 22, 2018, Inc and Yeda signed an additional addendum to the
agreement ("the fifth addendum"), according to which Inc received the right to perform a
test on another invention based on a patent in connection with research in the field of
circular electric which is owned by Yeda and for which Yeda received funding from the
Israel Innovation Authority under the MAGNET plan. In the fifth addendum it was agreed
that if Inc finds said invention compatible with its needs, Inc will have the right to integrate
said invention and the associated intellectual property, owned by Yeda, under the
agreement, and thereby making it part of the license in the agreement ("the right").
- 60 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BRAINSWAY LTD.
NOTE 24:- EVENTS AFTER THE REPORTING DATE (Cont.)
The right is valid until the earlier of December 31, 2018 and 30 days after the completion
of all the milestones that have been agreed upon by the parties. However, under certain
circumstances in which the milestones are not completed by December 31, 2018, the expiry
date of the right will be postponed until June 30, 2019.
If the Company exercises the option granted to it under the fifth addendum, then in respect
of products based on the use of the invention and know-how that is the subject of the fifth
addendum, royalties on net sales will be paid to Yeda at increased rates of 1.6%-2% on top
of the royalties described in Note 18i(2) above and, in certain cases, at a flat rate of 2%
and, in respect of products under the fifth addendum that are not based on patents or
research results for which the license was granted according to the original agreement
(excluding the fifth addendum), royalties on net sales will be at the rate of 5%.
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