Kamada Ltd.

Annual / Quarterly Financial Statement • Nov 10, 2016

KAMADA LTD.

CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2016

TABLE OF CONTENTS

	Page
Consolidated Balance Sheets	2
Consolidated Statements of Comprehensive Income (loss)	3
Consolidated Statements of Changes in Equity	4-6
Consolidated Statements of Cash Flows	7-8
Notes to the Consolidated Financial Statements	9-12

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CONSOLIDATED BALANCE SHEETS

	As of September 30,	As of December 31,
	2016	2015
	Unaudited	2015	Audited
Current Assets
Cash and cash equivalents	\$ 6,476	\$ 5,787	\$ 5,047
Short-term investments	20,722	36,473	23,259
Trade receivables, net	14,501	14,847	23,071
Other accounts receivables	4,022	3,112	2,881
Inventories	28,086	26,811	26,336
	73,807	87,030	80,594
Non-Current Assets
Property, plant and equipment, net	20,720	21,303	21,309
Other long-term assets	71	97	89
	20,791	21,400	21,398
	94,598	108,430	101,992
Current Liabilities
Current maturities of loans and convertible debentures	416	7,710	37
Trade payables	8,916	16,833	16,917
Other accounts payables Deferred revenues	4,744 4,858	3,866 1,822	4,064 1,921
	18,934	30,231	22,939
Non-Current Liabilities
Loans	1,502	-	151
Employee benefit liabilities, net	798	613	787
Deferred revenues	4,693	6,469	5,608
	6,993	7,082	6,546
Shareholder's Equity Ordinary shares of NIS 1 par value:
Authorized - 60,000,000 ordinary shares; Issued and
outstanding – 36,418,766 and 36,418,741 shares at
September 30, 2016 and 2015, respectively.	9,320	9,320	9,320
Share premium	162,649	161,091	162,238
Conversion option in convertible debentures	-	1,147	-
Capital reserve due to translation to presentation currency	(3,490)	(3,490)	(3,490)
Capital reserve from hedges	52	(49)	(1)
Capital reserve from available for sale financial assets	87	121	73
Capital reserve from share-based payments	9,768	8,777	9,157
Capital reserve from employee benefits	(59)	(81)	(59)
Accumulated deficit	(109,656)	(105,719)	(104,731)
	68,671	71,117	72,507
	\$ 94,598	\$ 108,430	\$ 101,992

Consolidated Statements of Comprehensive Income (loss)

		Nine months period ended September 30,				Three months period ended September 30,				Year ended December 31
		2016		2015		2016		2015		2015
				Unaudited						Audited
	In thousands (except for per-share data)
Revenues from proprietary products	\$	38,270	\$	25,434	\$	15,044	\$	9,553	\$	42,952
Revenues from distribution		14,966		18,811		4,329		6,516		26,954
Total revenues		53,236		44,245		19,373		16,069		69,906
Cost of revenues from proprietary products		23,843		19,819		9,433		6,889		30,468
Cost of revenues from distribution		12,711		16,686		3,664		5,472		23,640
Total cost of revenues		36,554		36,505		13,097		12,361		54,108
Gross profit		16,682		7,740		6,276		3,708		15,798
Research and development expenses		12,024		12,105		4,415		5,047		16,530
Selling and marketing expenses		2,557		2,693		866		950		3,652
General and administrative expenses		5,688		5,159		2,014		1,722		7,040
Operating loss		(3,587)		(12,217)		(1,019)		(4,011)		(11,424)
Financial income Income (expense) in respect of currency		388		363		90		63		463
exchange and derivatives instruments, net		(132)		420		(73)		(341)		625
Financial expense		(106)		(824)		(39)		(333)		(934)
Loss before taxes on income		(3,437)		(12,258)		(1,041)		(4,622)		(11,270)
Taxes on income		1,488		-		-		-		-
Loss		(4,925)		(12,258)		(1,041)		(4,622)		(11,270)
Other Comprehensive Income (loss): Items that may be reclassified to profit or loss in subsequent periods:
Gain (loss) on available for sale financial assets		14		111		(32)		72		63
Profit (loss) on cash flow hedges		124		21		44		(173)		71
Net amounts transferred to the statement of profit or loss for cash flow hedges		(71)		46		(1)		(10)		44
Items that will not be reclassified to profit or loss in subsequent periods: Actuarial net gain of defined benefit plans		-		-		-		-		22
				\$
Total comprehensive loss	\$	(4,858)		(12,080)	\$	(1,030)	\$	(4,733)	\$	(11,070)
Loss per share attributable to equity holders of the Company:
Basic loss per share	\$	(0.14)	\$	(0.34)	\$	(0.03)	\$	(0.13)	\$	(0.31)
Diluted loss per share	\$	(0.14)	\$	(0.34)	\$	(0.03)	\$	(0.13)	\$	(0.31)

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

	Share Capital		Share premium			Capital reserve from available for sale financial assets	Capital reserve due to translation to presentation currency	Capital reserve from hedges		Capital reserve from share based payments	Capital reserve from employee benefits	Accumulated deficit	Total equity
								Unaudited
								In thousands
Balance as of January 1, 2016
(audited)	\$	9,320	\$	162,238	\$	73	\$ (3,490)	\$	(1) \$	9,157 \$	(59)	\$ (104,731)	\$	72,507
Loss		-		-		-	-		-	-	-	(4,925)		(4,925)
Other comprehensive income		-		-		14	-		53	-	-	-		67
Total comprehensive income (loss)		-		-		14	-		53	-	-	(4,925)		(4,858)
Exercise of options into shares, net		*		*		-	-		-	*	-	-		*
Forfeiture of options		-		411		-	-		-	(411)	-	-		-
Cost of share-based payment		-		-		-	-		-	1,022	-	-		1,022
Balance as of September 30, 2016	\$	9,320	\$	162,649	\$	87	\$ (3,490)		\$ 52 \$	9,768	\$ (59)	\$ (109,656)	\$	68,671

		Share Capital	Share premium		Conversion option in convertible debentures		Capital reserve from available for sale financial assets		Capital reserve due to translation to presentation currency		Capital reserve from hedges	Capital reserve from share-based payments			Capital reserve from employee benefits	Accumulated deficit		Total equity
									Unaudited
	In thousands
Balance as of January 1, 2015 Loss	\$	9,208 -	\$ 158,417 -	\$	1,147 -	\$	10 -	\$	(3,490) \$ -		(116) -	\$	8,783 -	\$	(81) -	\$ (93,461) (12,258)	\$	80,417 (12,258)
Other comprehensive income		-	-		-		111		-		67		-		-	-		178
Total comprehensive income (loss)		-	-		-		111		-		67		-		-	(12,258)		(12,080)
Exercise of options into shares, net		112	2,674		-		-		-		-		(1,533)		-	-		1,253
Cost of share-based payment		-	-		-		-		-		-		1,527		-	-		1,527
Balance as of September 30, 2015	\$	9,320	\$ 161,091	\$	1,147	\$	121	\$	(3,490)	\$	(49)		\$ 8,777	\$	(81)	\$ (105,719)	\$	71,117

*Represent an amount less than 1 thousands

	Share Capital		Share premium		Capital reserve from available for sale financial assets	Capital reserve due to translation to presentation currency	Capital reserve from hedges		Capital reserve from share-based payments		Capital reserve from employee benefits		Accumulated deficit	Total equity
								Unaudited
								In thousands
Balance as of July 1, 2016	\$	9,320	\$	162,649	\$ 119	\$ (3,490)	\$	9	\$	9,455	\$	(59)	\$ (108,615)		69,388
Loss		-		-	-	-		-		-		-	(1,043)		(1,043)
Other comprehensive income (loss)		-		-	(32)	-		43		-		-	-		11
Total comprehensive income (loss)		-		-	(32)	-		43		-		-	(1,043)		(1,030)
Exercise of options into shares, net		*		*	-	-		-		-		-	-		*
Cost of share-based payment		-		-	-	-		-		313		-	-		313
Balance as of September 30, 2016	\$	9,320	\$	162,649	\$ 87	\$ (3,490)	\$	52	\$	9,768	\$	(59)	\$ (109,656)	\$	68,671

	Share Capital																Share premium		Conversion option in convertible debentures		Capital reserve from available for sale financial assets		Capital reserve due to translation to presentation currency		Capital reserve from hedges		Capital reserve from share-based payments		Capital reserve from employee benefits		Accumulated deficit		Total equity
											Unaudited
										In thousands
Balance as of July 1, 2015	\$	9,312	\$	160,927	\$	1,147	\$	49	\$	(3,490)	\$	134	\$ 8,362	\$	(81)		\$ (101,097)	\$	75,263
Net loss		-		-		-		-		-		-		-	-		(4,622)		(4,622)
Other comprehensive income (loss)		-		-		-		72		-		(183)		-	-		-		(111)
Total comprehensive income (loss)		-		-		-		72		-		(183)		-	-		(4,622)		(4,733)
Exercise of options into shares, net		8		164		-		-		-		-	(83)		-		-		89
Cost of share-based payment		-		-		-		-		-		-	498		-		-		498
																	\$
Balance as of September 30, 2015	\$	9,320	\$	61,091	\$	1,147	\$	121	\$	(3,490)	\$	(49)	\$ 8,777		\$ (81)		(105,719)	\$	71,117

*Represent an amount less than 1 thousands

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

	Share capital		Share premium		Conversion option in convertible Available for debentures sale reserve			Capital reserve due to translation to Capital presentation reserve from currency hedges		Capital reserve from share-based payments		Capital reserve from employee benefits	Accumulated deficit	Total equity
									Audited
									In thousands
Balance as of December 31, 2014	\$	9,208	\$	158,417	\$1,147		\$10	\$ (3,490)	\$ (116)	\$ 8,783		\$ (81)	\$ (93,461)		\$ 80,417
Loss		-		-	-		-	-	-	-		-	(11,270)		(11,270)
Other comprehensive income		-		-	-		63	-	115	-		22	-		200
Total comprehensive income (loss)		-		-	-		63	-	115	-		22	(11,270)		(11,070)
Exercise of options into shares		112		2,674	-		-	-	-	(1,533)		-	-		1,253
Expiration of conversion option on convertible debentures		-		1,147	(1,147)		-	-	-	-		-	-		-
Cost of share-based payment		-		-	-		-	-	-	1,907		-	-		1,907
Balance as of December 31, 2015	\$	9,320	\$	162,238	\$ -	\$	73	\$ (3,490)	\$ (1)	\$ 9,157	\$	(59)	\$ (104,731)	\$	72,507

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Nine months September 30,	period Ended	For the Three months period Ended September 30,	Year Ended December 31,
	2016	2015	2016	2015	2015
		Unaudited			Audited
			In thousands
Cash Flows from Operating Activities
Net loss	\$ (4,925)	\$ (12,258)	\$ (1,041)	\$ (4,622)	\$ (11,270)
Adjustments to reconcile loss to net cash provided by (used in) operating activities:
Adjustments to the profit or loss items:
Depreciation, amortization and impairment of
equipment	2,631	2,438	922	866	3,227
Finance expense (income), net	(150)	41	22	611	(154)
Cost of share-based payment	1,022	1,527	313	498	1,907
Income tax expense	1,488	-	-	-	-
Loss(gain) from sale of property and equipment	(23)	-	(33)	-	-
Change in employee benefit liabilities, net	11	(109)	396	(80)	87
	4,979	3,897	1,620	1,895	5,067
Changes in asset and liability items:
Decrease (increase) in trade receivables, net	8,948	2,563	1,644	352	(5,604)
Decrease (increase) in other accounts receivables	(654)	360	(801)	862	118
Decrease (increase) in inventories	(1,750)	(1,388)	235	(2,026)	(913)
Decrease (increase) in deferred expenses	(487)	(1,129)	287	271	(565)
Increase (decrease) in trade payables	(8,277)	643	(1,408)	2,104	887
Increase (decrease) in other accounts payables	681	(103)	(45)	481	94
Increase (decrease) in deferred revenues	2,022	(1,643)	(987)	(396)	(2,405)
	483	(697)	(973)	1,648	(8,388)
Cash received (paid) during the period for:
Interest paid	(46)	(362)	(37)	(119)	(484)
Interest received	657	912	233	318	1,143
Taxes paid	(1,781)	(47)	(1,475)	-	(47)
	(1,170)	503	(1,279)	199	612
Net cash used in operating activities	\$ (633)	\$ (8,555)	\$ (1,673)	\$ (880)	\$ (13,979)

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Nine months period Ended September 30,					For the Three months period Ended September 30,	Year Ended December 31,
		2016		2015		2016		2015	2015
				Unaudited					Audited
						Thousands of US dollar
Cash Flows from Investing Activities
Proceeds from sale of short term investments, net		\$ 2,369	\$	641		\$ 1,593	\$	616	\$ 13,971
Purchase of property and equipment		(1,904)		(1,932)		(435)		(600)	(2,718)
Proceeds from sale of property and equipment		41		-		20		-	-
Net cash provided by (used in) investing activities		506		(1,291)		1,178		16	11,253
Cash Flows from Financing Activities
Proceeds from exercise of warrants and options		*		1,254		*		89	1,254
Receipt of long-term loans		1,701		-		-		-	197
Repayment of long-term loans		(159)		-		(98)		-	(9)
Repayment of convertible debentures		-		-		-		-	(7,797)
Net cash provided by (used in) financing activities		1,542		1,254		(98)		89	- (6,355)
Exchange differences on balances of cash and cash
equivalent		14		(167)		(67)		(245)	(418)
Increase (decrease) in cash and cash equivalents		1,429		(8,759)		(660)		(1,020)	(9,499)
Cash and cash equivalents at the beginning of the period		5,047		14,546		7,136		6,807	14,546
Cash and cash equivalents at the end of the period	\$	6,476	\$	5,787	\$	6,476		\$ 5,787	\$ 5,047
Significant non-cash transactions Purchase of property and equipment through capital lease	\$	132	\$	-	\$	48	\$	-	\$ -

* Represent an amount less than 1 thousands

Note 1:- General

These Financial Statements have been prepared in a condensed format as of September 30, 2016 and for the nine and three months then ended ("interim consolidated financial statements").

These financial statements should be read in conjunction with the Company's annual financial statements as of December 31, 2015 and for the year then ended and the accompanying notes ("annual consolidated financial statements").

Note 2:- Significant Accounting Policies

a. Basis of preparation of the interim consolidated financial statements:

The interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for the preparation of financial statements for interim periods, as prescribed in IAS 34, "Interim Financial Reporting".

Note 3:- Operating Segments

a. General:

The Company has two operating segments, as follows:

Proprietary Products	Medicine development, manufacture and sale of
-	plasma-derived therapeutics products.
Distribution -	Distribution of drugs in Israel manufacture by other companies for clinical uses, most of which are produced from plasma or its derivatives products.

b. Reporting on operating segments:

	Proprietary Products	Distribution	Total
		Unaudited
Nine months period ended September 30,2016
Revenues	\$ 38,270	\$ 14,966	\$ 53,236
Gross profit	\$ 14,427 \$	2,255	16,682
Unallocated corporate expenses Finance income, net			(20,269) 150
Loss before taxes on income			\$ (3,437)

Note 3:- Operating Segments (Cont.)

	Proprietary Products	Distribution	Total
		Unaudited
Nine months period ended September 30,2015
Revenues	\$ 25,434 \$	18,811	\$ 44,245
Gross profit	\$ 5,615 \$	2,125	7,740
Unallocated corporate expenses Finance expense, net			(19,957) (41)
Loss before taxes on income		\$	(12,258)

	Proprietary Products	Distribution	Total
Three months period ended September 30,2016		Unaudited
Revenues	\$ 15,044	\$ 4,329	\$ 19,373
Gross profit	\$ 5,611	\$ 665	6,276
Unallocated corporate expenses Finance expense, net			(7,295) (22)
Loss before taxes on income			\$ (1,041)

		Proprietary Distribution Products		Total
	Unaudited
Three months period ended September 30,2015
Revenues	\$	9,553	\$	6,516	\$	16,069
Gross profit (loss)	\$	2,664	\$	1,044		3,708
Unallocated corporate expenses Finance expenses, net						(7,719) (611)
Loss before taxes on income					\$	(4,622)

	Proprietary Products	Distribution	Total
		In thousands Audited
Year Ended December 31, 2015
Revenues	\$ 42,952	\$ 26,954	\$ 69,906
Gross profit	\$ 12,484	\$ 3,314	\$ 15,798
Unallocated corporate expenses Finance income, net			(27,222) 154
Loss before taxes on income			\$ (11,270)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4:- Financial Instruments

a. Classification of financial instruments by fair value hierarchy

Financial assets (liabilities) measured at fair value

	Level 1		Level 2
	In thousands
September 30, 2016
Marketable securities at fair value through profit or loss:
Equity shares \$	75 \$		-
Mutual funds	393		-
Debt securities (corporate and government)	1,054		-
	1,522
Derivatives instruments		\$	38
Available for sale debt securities (corporate and government) \$	-	\$	19,201
\$	1,522	\$	19,239
September 30, 2015
Marketable securities at fair value through profit or loss:
Equity shares \$	535		-
Mutual funds	1,272		-
Exchange traded notes	21
Debt securities (corporate and government) \$	7,040 \$		-
	8,868		-
Derivatives instruments \$		- \$	(57)
Available for sale debt securities (corporate and government) \$	-	\$	27,605
\$	8,868	\$	27,548
December 31, 2015
Marketable securities at fair value through profit or loss:
Equity shares \$	67	\$	-
Mutual funds	365		-
Debt securities (corporate and government)	993		-
	1,425		-
Derivatives instruments	-		34
Available for sale debt securities (corporate and government)	-		21,834
\$	1,425	\$	21,868

b. During the nine months ended on September 30, 2016 there was no transfer due to the fair value measurement of any financial instrument from Level 1 to Level 2, and furthermore, there were no transfers to or from Level 3 due to the fair value measurement of any financial instrument.

Note 5:- Significant Events during the period

• a. Commencing January 1, 2016, the Israeli corporate tax rate decreased from 26.5% to 25%.
• b. In April 2016 the Company received payments as a result of achieving certain regulatory and sales milestones under the strategic agreements with Chiesi Farmaceutici S.p.A. and Baxalta Incorporated and recorded them as deferred revenues. These deferred revenues will be recognized during the term of the strategic agreements.
• c. On May 8, 2016 the Company's Board of Directors approved the grant, for no consideration, of 263,900 options to employees exercisable in 13 installments, 25% of the options vest on the first anniversary of the grant date and 6.25% vest at the end of each quarter thereafter into ordinary shares at an exercise price of NIS 14.82 per option. Expected volatility of the share prices is 33%-51%. Risk-free interest rate is 0.13%-1.35%. Expected average forfeiture rate is 2%-5%. Dividend yield is 0%. According to a calculation formula based on the Binomial Model, the fair value of the options was estimated at \$462 thousands.
• d. On July 10, 2016 the Company and the Israel Tax Authority (ITA) entered into a settlement agreement for the tax years 2004-2006. As part of the agreement, the Company paid NIS 5 million (\$ 1.3 million) (including interest and CPI adjustment). As of December 31, 2015, the Company has carried forward losses in the amount of \$ 85.8 million.
• e. On July 12, 2016 the Company's Board of Directors approved the grant to the Company's management, of 57,500 options at an exercise price of NIS 15.20 per option. The options are exercisable in 13 installments, 25% of the options vest on the first anniversary of the grant date and 6.25% vest at the end of each quarter thereafter into ordinary shares. Expected volatility of the share prices is 32%-41%. Risk-free interest rate is 0.2%-1.3%. Expected average forfeiture rate is 0%. Dividend yield is 0%. According to a calculation formula based on the Binomial Model, the fair value of the options was estimated at \$86 thousands.
• f. On August 30, 2016, the General Meeting of the Company's Shareholders approved the grant of 19,167 restricted shares ("RS") to the Company's management, 18,000 options and 6,000 RS to Mr. Amir London, the Company's CEO, and 50,000 options to the Company's directors. The RSs do not have exercise price. The options are exercisable in 13 installments, 25% of the options vest on the first anniversary of the grant date and 6.25% vest at the end of each quarter thereafter into ordinary shares at an exercise price of NIS 15.2 per option. Expected volatility of the share prices is 32%-41%. Risk-free interest rate is 0.2%-1.4%. Expected average forfeiture rate is 0%. Dividend yield is 0%. According to a calculation formula based on the Binomial Model, the fair value of the options was estimated at \$151 thousands. The fair value of the RS was estimated based on the market price of the share on the grant date at \$124 thousands.

Note 6:- Subsequent Events

a. On October 6, 2016, the Company and Shire amended the supply and distribution agreement, and extended the period of minimum purchases of Glassia until 2020. Minimum revenue for Glassia in the extended agreement for the years 2017 to 2020 will reach approximately \$237 million and may be expanded to \$288 million during that period.