Signal management

CHEMOB THERAPEUTICS LTD. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

You should read the following discussion and analysis of our financial condition
and results of operations together with our condensed consolidated financial
statements and the related notes included elsewhere in this Quarterly Report on
Form 10-Q, as well as our audited consolidated financial statements and related
notes for the year ended December 31, 2021, as filed in our Annual Report on
Form 10-K for the year ended December 31, 2021 (the "2021 Annual Report"). Some
of the information contained in this discussion and analysis, particularly with
respect to our plans and strategy for our business and related financing,
includes forward-looking statements that involve risks and uncertainties. You
should read "Risk Factors" in Item 1A of our 2021 Annual Report for a discussion
of important factors that could cause actual results to differ materially from
the results described in or implied by the forward-looking statements contained
in the following discussion and analysis.

References to "we," "us," "our" and "Chemomab" in this "Management's Discussion
and Analysis of Financial Condition and Results of Operations" below refer to
the Company after the Merger, and, with respect to historical periods preceding
the Merger, refer to Chemomab Ltd., whose business became the business of the
Company upon consummation of the Merger.

Insight

The Company is a clinical-stage biotechnology company focused on the discovery
and development of innovative therapeutics for fibrotic and inflammatory
diseases with high unmet need. Based on the unique and pivotal role of the
soluble protein CCL24 in promoting fibrosis and inflammation, the Company
developed CM-101, a monoclonal antibody designed to bind and block CCL24
activity. CM-101 has demonstrated the potential to treat multiple severe and
life-threatening fibrotic and inflammatory diseases.

The Company has pioneered the therapeutic targeting of CCL24, a chemokine that
promotes various types of cellular processes that regulate inflammatory and
fibrotic activities through the CCR3 receptor. The chemokine is expressed in
various types of cells, including immune cells, endothelial cells and epithelial
cells. We have developed a novel CCL24 inhibiting product candidate with dual
anti-fibrotic and anti-inflammatory activity that modulates the complex
interplays of both of these inflammatory and fibrotic mechanisms that drive
abnormal states of fibrosis and clinical fibrotic diseases. This innovative
approach is being developed for difficult to treat rare diseases, also known as
orphan indications or diseases, such as primary sclerosing cholangitis, or PSC,
and systemic sclerosis, or SSc, for which patients have no established disease
modifying standard of care treatment options.

CM-101, the Company's lead clinical product candidate, is a first-in-class
humanized monoclonal antibody that attenuates the basic function of the soluble
chemokine CCL24, also known as eotaxin-2, as a regulator of major inflammatory
and fibrotic pathways. We have demonstrated that CM-101 interferes with the
underlying biology of inflammation and fibrosis through a novel and
differentiated mechanism of action. Based on these findings, the Company is
actively developing CM-101 in Phase 2 clinical studies directed toward two
distinct clinical indications including patients with liver, skin, and/or lung
fibrosis. We are currently conducting a Phase 2 clinical study in PSC, a rare
obstructive and cholestatic liver disease. In addition, we are planning a Phase
2 clinical trial in SSc focused on establishing biological proof-of-concept on
clinically relevant aspects of this complex disease in this patient population.
Although our primary focus relates to these two rare indications, an additional
Phase 2 clinical study is currently ongoing in non-alcoholic steatohepatitis, or
NASH. This trial is expected to provide important safety and PK data to support
the development of a CM-101 subcutaneous formulation.

Fibrosis is the abnormal and excessive accumulation of collagen and
extracellular matrix, the non-cellular component in all tissues and organs, that
provides structural and biochemical support to surrounding cells. When present
in excessive amounts, collagen and extracellular matrix lead to scarring and
thickening of connective tissues, affecting tissue properties and potentially
leading to organ failure. Fibrosis can occur in many different tissues,
including lung, liver, kidney, muscle, skin, and the gastrointestinal tract,
resulting in a wide array of progressive fibrotic conditions. Fibrosis and
inflammation are intrinsically linked. While a healthy inflammatory response is
necessary for efficient tissue repair; after injury, an excessive, uncontrolled
inflammatory response can lead to tissue fibrosis.

RECENT DEVELOPMENTS

New leadership appointments

On June 16, 2022, our board of directors ("Board of Directors") appointed Ms.
Jill M. Quigley, JD, as a Class I director and as a member of the audit
committee of the Board of Directors (the "Audit Committee"). Additionally, our
Board of Directors determined Ms. Quigley to be an independent director and
designated her as the Audit Committee financial expert. Ms. Quigley is a highly
accomplished biotechnology executive with broad experience in public company
executive management, global operations, legal affairs, finances, and board
membership. Ms. Quigley, as a Class I director, will serve in such capacity
until the Company's annual general meeting to be convened in 2025. Ms. Quigley's
appointment followed Mr. Joel Maryles' decision on May 31, 2022 not to stand for
re-election as a Class I director at the Company's annual general meeting in
2022. Following the appointment of Ms. Quigley and departure of Mr. Maryles, the
current composition of the Audit Committee is Dr. Claude Nicaise (chair), Dr.
Alan Moses and Ms. Quigley.


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On June 14, 2022, Mr. Ilan Vaknin, PhD, joined Chemomab as Vice President of
Research & Development. Dr. Vaknin has more than 20 years of highly relevant
experience in immunology, antibody development, biomarkers and drug development,
including more than a decade in senior science roles at the biotechnology
company Compugen.

New CM-101 WE Patent

On June 21, 2022, the United States Patent and Trademark Office issued a new
patent the United States Patent and Trademark Office issued Chemomab a new
patent that covers the use of CM-101 and other anti-CCL24 antibodies and binding
fragments for the treatment of a range of fibro-inflammatory liver diseases,
including PSC and other cholestatic-associated disorders. Liver diseases are an
important target for CCL24-associated diseases--CM-101 is currently in a Phase 2
trial for the treatment of PSC, a potentially lethal disease affecting the bile
ducts of the liver, and a Phase 2 liver fibrosis study of CM-101 is now
concluding. In addition, there are a number of other liver diseases where CM-101
might have therapeutic value. This new method of use patent adds to the
protections provided by CM-101's core composition of matter patents that have
already issued in the U.S., Europe and other major global territories, U.S.
Patent No.11365246, "Anti CCL24 (eotaxin 2) Antibodies for Use in the Treatment
of Hepatic Disease" has a filing date of March 8, 2018, and a grant date of June
21, 2022, with corresponding first to expire claims in 2038 and a possible
patent term extension of up to an additional five years, as provided under the
Drug Price Competition and Patent Restoration Act (35 U.S.C. §156).

Revisions to Chemomab Clinical Programs

On March 9, 2022, we announced that, following a comprehensive strategic review,
we were revising our current clinical programs. The changes are designed to
optimize the clinical development of lead product candidate CM-101 by maximizing
the clinical information obtained, generating additional important data to
support future advancement to registration trials, and decreasing the overall
risk in the CM-101 clinical development program in the lead indications of PSC
and SSc, as well as potentially in additional indications where the scientific
rationale is strong. The key top-line changes that are being implemented in the
clinical development programs include the following:

Expanding our commitment to PSC with an enlarged clinical trial that adds an
important dose finding component. We are significantly expanding the Phase 2
clinical trial in PSC by implementing a dose finding component to the CM-101
development program. We will be increasing the size of the study to 93patients
by adding two additional dose cohorts to the current 10 mg/kg cohort, a lower
dose cohort to evaluate 5 mg/kg, and a higher dose cohort to evaluate 20 mg/kg.
Additionally, we are changing the trial's primary outcome to an evaluation of
CM-101's safety and tolerability. Each cohort will enroll 25 patients with PSC
and the placebo cohort will enroll 18 patients. In addition, we plan to add an
open-label extension to the trial to evaluate the safety, tolerability and
durability of effect over a total of 48 weeks of treatment duration. We have
begun regulatory submissions to support trial expansion and other relevant
changes.

We will be performing a blinded interim safety analysis of the currently
enrolling dose cohort in the PSC study, expected to be completed before the end
of this year. The primary purpose of this safety analysis is to support review
by the Data Monitoring Committee, a prerequisite to opening enrollment in this
trial to the planned higher dose cohort of 20mg/kg.

Based on our ongoing efforts to expand the number of clinical trial sites, the
current development landscape of trials in PSC, and the increased size of the
study, we anticipate that the top-line data from this Phase 2 trial in PSC will
be available in the second half of 2024.

Focusing our clinical efforts in systemic sclerosis on establishing earlier
biological proof-of-concept in clinically relevant aspects of this complex
disease. We are focusing our SSc trial towards establishing biological proof of
concept in this patient population. We are revising the design of our planned
SSc trial in a way that we believe should enable an expedited path to data
supporting proof of the relevance of CCL-24 biology, provide further elucidation
of the different mechanisms of action of CM-101, and potentially detect a CM-101
clinical efficacy signal for treating the skin, lung and vascular damage seen in
SSc patients. We expect to launch the trial by the end of 2022.

Early Conclusion of enrollment in our safety, pharmacokinetic and biomarker
liver fibrosis study, yielding a data readout targeted near the end of 2022. We
concluded enrollment in our safety, tolerability and biomarker trial that is
evaluating a subcutaneous formulation of CM-101 in NASH patients with liver
fibrosis. We believe that the data from this trial could provide useful insights
in support of the CM-101 development program and that the early completion of
this study should be sufficient to achieve our key objectives: characterizing
the safety and tolerability of CM-101 in NASH patients, assessing possible early
signs of biomarker activity in these patients, and providing the tolerability
and pharmacokinetic data needed to assess next steps in the development of our
current subcutaneous formulation, while allowing us to focus our resources on
our lead indications of PSC and SSc.


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We expect that the changes we are making to the CM-101 development program will
provide important data on clinical dose response relationships to inform the
broader development program and to identify the optimal dose to advance into
late development in PSC. The modifications are also expected to generate proof
of mechanism data on biologically relevant aspects of SSc, a complex
rheumatological disorder, to best inform the development path for a novel,
first-in-class therapeutic like CM-101, along with relevant safety and
tolerability data to support the evaluation of higher doses and inform decisions
on next steps in the development of our current subcutaneous formulation.

Shelf check-in statement and ATM offer

On April 30, 2021, we filed a shelf registration statement on Form S-3 with the
SEC (File No. 333-255658) for the issuance and sale by us of up to $200,000,000
of our ordinary shares, ADSs, debt securities, warrants and units comprising any
combination of the foregoing securities (the "Shelf Registration Statement"). On
the same date, we entered into a sales agreement (the "Sales Agreement") with
Cantor Fitzgerald, pursuant to which we may offer and sell, from time to time,
at our option, through or to Cantor Fitzgerald, up to an aggregate of
$75,000,000 of our ADSs (the "ATM Facility"). During the period from April 30,
2021 through the date of this quarterly report on Form 10-Q, we had sold an
aggregate of 699,806 ADSs pursuant to the Sales Agreement for a total gross
consideration of approximately $15.9 million.

On April 25, 2022, we filed a prospectus supplement with the SEC for the
issuance and sale of up to $18,125,000 of our ADSs in connection with the
reactivation of the ATM Facility and pursuant to General Instruction I.B.6 of
Form S-3, which, subject to certain exceptions, limits the amount of securities
we are able to offer and sell under such registration statement to one-third of
our unaffiliated public float. Any ADSs offered, or to be offered, and sold
under the Sales Agreement were issued and sold, or will be issued and sold,
pursuant to the Shelf Registration Statement and the applicable prospectus or
prospectus supplement by methods deemed to be an "at the market offering" as
defined in Rule 415(a)(4) promulgated under the Securities Act, or if specified
by us, by any other method permitted by law.

During the period of April 25, 2022 up to the date of this Quarterly Report on Form 10-Q, we have not sold any ADS pursuant to the Agreement of Sale.

Impact of COVID-19

Since March 2020, the COVID-19 pandemic has dramatically expanded into a
worldwide pandemic, creating macro-economic uncertainty and disruption in the
business and financial markets. The continuing implications of the COVID-19
pandemic on Chemomab remain uncertain and will depend on future developments,
including any adverse impact due to additional variants of the virus; its impact
on our employees; the range of government mandated restrictions and other
measures; and the success of the COVID-19 vaccines and their effectiveness
against the virus and related variants. Furthermore, our clinical trial sites
have been affected by the COVID-19 pandemic, and as a result, commencement of
the enrollment in our clinical trials of CM-101 in PSC was delayed, and the
enrollment rate has been affected as well. As a result, we expanded our patient
recruiting efforts to additional territories. In addition, after enrollment in
these trials, patients might still discontinue participation in these trials
because of possible COVID-19 implications.

Based on management's assessment, the extent to which the COVID-19 pandemic will
continue to impact our operations will depend on future developments, which are
highly uncertain and cannot be predicted with confidence, including the ultimate
duration and changing severity of the outbreak, and the actions that may be
required to continue to contain COVID-19 or address its impact. We are
monitoring the remaining limitations on patient recruitment due to the effects
of the COVID-19 pandemic and if necessary, will adjust activities accordingly.

Company Information

We were incorporated on September 22, 2011 under the laws of the State of
Israel. In March 2021, in connection with the Merger, we changed our name from
Anchiano Therapeutics Ltd. to Chemomab Therapeutics Ltd. Our principal executive
offices are located at Kiryat Atidim, Building 7, Tel Aviv, Israel 6158002, and
our phone number is +972-77-331-0156. Our website is: www.chemomab.com. The
information contained on, or that can be accessed through, our website is not
incorporated by reference into this Quarterly Report on Form 10-Q. We have
included our website address as an inactive textual reference only.


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Components of operating results

Revenue

To date, we have not generated any revenue. We do not expect to generate any
revenue unless and until we obtain regulatory approval and commercialize a
product candidate, or until we receive revenue from a collaboration such as a
co-development or out-licensing agreement. There can be no assurance that we
will receive such regulatory approvals, and if any product candidate is
approved, that we will be successful in commercializing it.

Research and development costs

Research and development expenses primarily include expenses incurred in the development of our product candidates. These expenses include:

• expenses incurred under agreements with contract research organizations or

contract manufacturing organizations, as well as investigation sites and

consultants who conduct our clinical trials, preclinical studies and other

scientific development services;

• manufacturing scale-up expenses and acquisition and manufacturing cost

preclinical and clinical testing equipment;

• employee-related expenses, including salaries, benefits, travel and

stock-based compensation expenses for employees engaged in research and

development functions, as well as external costs, such as fees paid to third parties

consultants engaged in such activities;

• license maintenance costs and milestone costs incurred as part of

    various license agreements;


  • costs related to compliance with regulatory requirements; and


  • depreciation and other expenses.



We recognize external development costs based on an evaluation of the progress
to completion of specific tasks using information provided to us by our service
providers.

We do not allocate employee costs or facility expenses, including depreciation
or other indirect costs, to specific programs because these costs are deployed
across multiple programs and, as such, are not separately classified. We use our
internal resources primarily to oversee research, as well as for managing our
preclinical development, process development, manufacturing and clinical
development activities. Our employees work across multiple programs and,
therefore, we do not track costs by program.

Research and development activities are fundamental to our business. Product
candidates in later stages of clinical development generally have higher
development costs than those in earlier stages of clinical development,
primarily due to the increased size and duration of later-stage clinical trials.
As a result, we expect that our research and development expenses will increase
substantially over the next several quarters and years as we continue to advance
the development of our product candidates. We also expect to incur additional
expenses related to milestone and royalty payments payable to third parties with
whom we have entered into license agreements to acquire the rights to its
product candidates.

General and administrative expenses

General and administrative expenses primarily include salaries, related benefits and stock-based compensation costs for personnel performing management and administrative functions. General and administrative expenses also include professional fees for legal, consulting, accounting and auditing services.

We anticipate that our general and administrative expenses will increase in the
future as we increase headcount and general activities to support our continued
research activities and development of our product candidates as well as
expanding our presence in the United States. We also anticipate that we will
incur increased headcount, accounting, audit, legal, regulatory, compliance,
director and officer insurance costs, as well as investor and public relations
expenses associated with being a public company. We expect that the additional
costs for these services will substantially increase our general and
administrative expenses. Additionally, if and when we believe that regulatory
approval of a product candidate appears likely, we expect to incur an increase
in payroll and related expenses as a result of our preparation for commercial
operations, especially as it relates to the sales and marketing of any product
candidate.


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Operating results

Three and six months ended June 30, 2022 Compared to the three and six month periods ended June 30, 2021

Below is a summary of our operating results for the periods indicated:

Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30,
2021

                               Three months ended
                                    June 30,               Increase/(decrease)
                                2022          2021            $               %
                                 (in thousands)
Operating expenses:
Research and development     $    2,914     $  1,307     $     1,607          123 %
General and administrative        3,340        1,446           1,894          131 %
Operating loss                   (6,254 )     (2,753 )         3,501          127 %
Financing expense, net              480           17             463        2,724 %
Income Tax                         (544 )          -            (544 )        100 %
Net loss                     $   (6,190 )   $ (2,770 )   $    (3,420 )        123 %



Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021

                                Six months ended
                                    June 30,              Increase/(decrease)
                               2022          2021            $               %
                                 (in thousands)
Operating expenses:
Research and development     $   5,659     $  2,464     $     3,195          130 %
General and administrative       5,915        1,988           3,927          198 %
Operating loss                 (11,574 )     (4,452 )        (7,122 )        160 %
Financing expense, net             264           22             242        1,100 %
Income Tax (benefit)              (544 )          -            (544 )        100 %
Net loss                     $ (11,294 )   $ (4,474 )   $    (6,820 )        152 %



Our results of operations have varied in the past and can be expected to vary in
the future due to numerous factors. We believe that period-to-period comparisons
of our operating results are not necessarily meaningful and should not be relied
upon as indications of future performance.


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Research and development costs

Research and development expenses increased by approximately $1.6 million, or
123%, for the three months ended June 30, 2022, as compared to the same period
in 2021. The increase was primarily due to increased clinical and pre-clinical
activities.

Research and development expenses increased by approximately $3.2 million, or
130%, for the six months ended June 30, 2022, as compared to the same period in
2021 also due primarily to increased clinical and pre-clinical activities.

General and administrative expenses

General and administrative expenses increased by approximately $1.9 million, or
131%, for the three months ended June 30, 2022, as compared to the same period
in 2021. The increase was primarily due to increase in salaries and related
benefits expenses of $1.1 million mainly related to key additions to the senior
management team, as well as increase in non-cash share-based expenses in the
amount of $0.2 million and provision for expenses recorded in relation to an
audit by the Israeli Tax Authority.

General and administrative expenses increased by approximately $3.9 million, or
198%, for the six months ended June 30, 2022, as compared to the same period in
2021. The increase was primarily due to the increase in non-cash share-based
expenses in the amount of $1.0 million as well as increase in salaries and
related benefits expenses of $1.6 million mainly related to key additions to the
senior management team, and provision for expenses recorded in relation to an
audit by the Israeli Tax Authority.

Financing charges, net

Financing expenses, net increased by approximately $463 thousand for the three
months ended June 30, 2022 from the same period in 2021. Financing expense, net
for the three months ended June 30, 2022 was primarily related to foreign
currency exchange rate loss. Financing expense, net for the three months ended
June 30, 2021 was primarily related to foreign currency exchange rate loss which
was partially offset by interest income from bank deposits.

Financing expenses, net increased by approximately $242 thousand for the six
months ended June 30, 2022 from the same period in 2021. Financing expense, net
for the six months ended June 30, 2022 was primarily related to foreign currency
exchange rate loss which was partially offset by interest income from bank
deposits. Financing expense, net for the six months ended June 30, 2021 was
primarily related to foreign currency exchange rate loss.

Cash and capital resources

Since inception, we have not generated any revenue and have incurred significant
operating losses and negative cash flows from our operations, resulting in an
accumulated deficit at June 30, 2022 of $47.5 million. We have funded our
operations to date primarily with proceeds from the sale of our ADSs, and, prior
to the Merger, other equity securities. Cash in excess of immediate requirements
is invested primarily with a view to liquidity and capital preservation.

During the period of April 30, 2021 through June 30, 2022we sold a total of 699,806 ADS pursuant to the sales agreement for an aggregate gross consideration of $15.9 million. Of the June 30, 2022we had a total of about $51.8 million cash, cash equivalents and short-term deposits.

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Developing product candidates, conducting clinical trials and commercializing
products are expensive, and we will need to raise substantial additional funds
to achieve our strategic objectives. We believe that our existing cash
resources, including from the ADSs sold pursuant to the Sales Agreement, will be
sufficient to fund our projected cash requirements through the end of 2023.
Nevertheless, we will require significant additional financing in the future to
fund our operations, including if and when we progress into additional clinical
trials, obtain regulatory approval for any of our product candidates and
commercialize the same. We believe that we will need to raise significant
additional funds before we have any cash flow from operations, if at all. Our
future capital requirements will depend on many factors, including:

• the progress and costs of our preclinical studies, clinical trials and other

research and development activities;

• the scope, prioritization and number of our clinical trials and other research

and development programs;

• the amount of revenue and contributions we receive under future licenses,

development and marketing agreements for our product

candidates;

• the costs of developing and expanding our operational infrastructure;

• the costs and time required to obtain regulatory approval for our product

candidates;

• the costs of filing, prosecuting, enforcing and defending patent claims and

other intellectual property rights;

• the costs and delays of securing manufacturing agreements for the

commercial production;

• costs of contracts with third parties to provide sales and marketing services

capabilities for us;

• acquisition costs or development and marketing efforts

for any future product, product candidate or platform;

• the magnitude of our general and administrative expenses; and

• any costs we may incur under future entry and exit license agreements

relating to our product candidates.


We currently do not have any commitments for future external funding. In the
future, we will need to raise additional funds, and we may decide to raise
additional funds even before we need such funds if the conditions for raising
capital are favorable. Until we can generate significant recurring revenues, we
expect to satisfy our future cash needs through debt or equity financings,
credit facilities or by out-licensing applications of our product candidates.
The sale of equity or convertible debt securities may result in dilution to our
existing shareholders. The incurrence of indebtedness would result in increased
fixed obligations and could also subject us to covenants that restrict our
operations. We cannot be certain that additional funding, whether through grants
from the Israel Innovation Authority, financings, credit facilities or
out-licensing arrangements, will be available to us on acceptable terms, if at
all. If sufficient funds are not available, we may be required to delay, reduce
the scope of or eliminate research or development plans for, or
commercialization efforts with respect to, one or more applications of our
product candidates, or obtain funds through arrangements with collaborators or
others that may require us to relinquish rights to certain potential products
that we might otherwise seek to develop or commercialize independently.

Cash flow

The table below shows a summary of our cash flow activities for the periods
indicated:

                                              Six months ended
                                                  June 30,                 Increase/(decrease)
                                             2022          2021              $                %
                                               (in thousands)

Net cash used in operating activities ($9,412) ($6,900) $

  (2,512 )           36 %
Net cash provided by (used in) investing
activities                                     4,109       (20,605 )         24,714           (120 )%
Net cash provided by financing
activities                                        22        61,227          (61,205 )         (100 )%
Net increase (decrease) in cash, cash
equivalents and restricted cash            $  (5,281 )   $  33,722     $    (39,003 )         (116 )%




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Operational activities

Net cash used in operating activities increased by $2.5 million, or 36%, for the
six months ended June 30 2022 compared to the same period in 2021. The increase
was primarily related to the increase in net loss of $6.8 million, offset by an
increase in accrued expenses of $2.2 million, decrease in other receivables of
$1.0 million and changes in non-cash activities adjustment of $1.1 million.

Investing activities

Net cash provided by investing activities for the six months ended June 30, 2022
increased by approximately $24.7 million compared to same period in 2021. The
increase is primarily related to an increase in short term bank deposits. Net
cash used in investing activities for the six months ended June 30, 2021 was
primarily related to the deposit of proceeds received from a private placement
in bank deposits.

Financing activities

Net cash provided by financing activities for the six months ended June 30, 2022
decreased by approximately $61.2 million, as compared to the same period in
2021. The decrease is primarily related to a decrease in proceeds from the
issuance of ADSs of approximately $58.7 million (net of expenses), and cash
acquired in the Merger of approximately $2.4 million, in each case in the six
months ended on June 30, 2021.

Financing activities for the six months ended June 30, 2021 reflect proceeds
received from the private placement as well as sales of the Company's ADSs under
the ATM program.

Contractual Commitments

The Company's contractual commitments at June 30, 2022 were as follows (in
thousands):

Remainder of 2022       $  5,021
2023                       5,741
2024                         146
2025-2027                      -
Total                   $ 10,908


Critical accounting policies

The Company's financial statements are prepared in accordance with generally
accepted accounting principles in the United States ("GAAP"). The preparation of
the Company's financial statements and related disclosures in accordance with
GAAP requires it to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenue, costs and expenses, and the disclosure
of contingent assets and liabilities in the Company's financial statements. The
Company bases its estimates on historical experience, known trends and events
and various other factors that it believes are reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. The Company evaluates its estimates and assumptions on an ongoing
basis. The Company's actual results may differ from these estimates under
different assumptions or conditions.

While the Company's significant accounting policies are described in more detail
in Note 2 to the Company's consolidated financial statements included elsewhere
in the 2021 Annual Report, the Company believes that the following accounting
estimates are those that include a higher degree of judgment or complexity and
are reasonably likely to have a material impact on our financial condition or
results of operations and are therefore considered critical accounting
estimates.


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Share-based compensation

We apply Accounting Standard Codification (ASC) 718-10, "Share-Based Payment,"
which requires the measurement and recognition of compensation expenses for all
share-based payment awards made to employees and directors, including employee
options under Chemomab's option plans based on estimated fair values.

ASC 718-10 requires that we estimate the fair value of equity-based payment
awards on the date of grant using an option-pricing model. The fair value of the
award is recognized as an expense over the requisite service periods in
Chemomab's statements of comprehensive loss. Chemomab recognizes share-based
award forfeitures as they occur, rather than estimate by applying a forfeiture
rate.

In June 2018, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") 2018-07, "Compensation-Stock Compensation
(Topic 718): Improvements to Nonemployee Share-Based Payment Accounting", which
simplifies the accounting for nonemployee share-based payment transactions by
aligning the measurement and classification guidance, with certain exceptions,
to that for share-based payment awards to employees. The amendments expand the
scope of the accounting standard for share-based payment awards to include
share-based payment awards granted to non-employees in exchange for goods or
services used or consumed in an entity's own operations and supersedes the
guidance related to equity-based payments to non-employees. We adopted these
amendments on January 1, 2019.

We accrue compensation expense for the fair value of non-employee awards over the required service period of each award.

We estimate the fair value of options granted as equity awards using a
Black-Scholes options pricing model. The option-pricing model requires a number
of assumptions, of which the most significant are share price, expected
volatility and the expected option term (the time from the grant date until the
options are exercised or expire). The Company determines the fair value per
share of the underlying stock by taking into consideration its most recent sales
of stock, as well as additional factors that the Company deems relevant. The
Company's board determined the fair value of ordinary shares based on valuations
performed using the Option Pricing Method subject to relevant facts and
circumstances. The Company has historically been a private company and lacks
company-specific historical and implied volatility information of its stock.
Expected volatility is estimated based on volatility of similar companies in the
biotechnology sector. The Company has historically not paid dividends and has no
foreseeable plans to issue dividends. The risk-free interest rate is based on
the yield from governmental zero-coupon bonds with an equivalent term. The
expected option term is calculated for options granted to employees and
directors using the "simplified" method. Grants to non-employees are based on
the contractual term. Changes in the determination of each of the inputs can
affect the fair value of the options granted and the results of operations of
the Company.

Recently issued accounting pronouncements

Certain recently issued accounting pronouncements are discussed in Note 2, Summary of Significant Accounting Policies, to the audited consolidated financial statements in our 2021 Annual Report.

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