| h. | Government investment grants: |
Government grants are recognized when there is reasonable assurance that the grants will be received and the Company will comply with the attendant conditions.
Research and development grants received from the Israeli Innovation Authority (“IIA”) are recognized upon receipt as a liability only if future economic benefits are expected from the project that will result in royalty-bearing sales. A liability for the grant is first measured at fair value using a discount rate that reflects a market interest rate. 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.
Future Royalty payments will be treated as a reduction of the liability. In that event, the royalty obligation is treated as a contingent liability in accordance with IAS 37, “Provisions, Contingent Liabilities and Contingent Assets” (“IAS 37”).
At the end of each reporting period, the Company evaluates whether there is reasonable assurance that the received grants will not be repaid based on its best estimate of future
sales and, if so, no liability is recognized and the grants are recorded against a corresponding reduction in research and development expenses.
Since the Company’s development projects are at the beginning of Phase 3 clinical trials, future economic benefits from the research and development activity are currently expected. Therefore, a liability was recorded with respect to the IIA grants, against a corresponding increase in research and development expenses.
Research and development grants received from the European Union are recorded against a corresponding reduction in research and development expenses. Since they are non-refundable and do not depend on the generation of future sales.