The accompanying notes are an integral
part of the unaudited interim consolidated financial statements.
The accompanying notes are an integral
part of the unaudited interim consolidated financial statements.
The accompanying notes are an integral
part of the unaudited interim consolidated financial statements
The accompanying notes are an integral
part of the unaudited interim consolidated financial statements.
NOTES
TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
|
a.
|
Wize Pharma, Inc.
(the “Company” or “Wize”) was incorporated in the State of Delaware.
|
Wize, through its wholly owned
subsidiary Wize Pharma Ltd., which is a company incorporated in Israel (“Wize Israel”), is a clinical-stage biopharmaceutical
company currently focused on the treatment of ophthalmic disorders, including dry eye syndrome (“DES”).
Commencing August 30, 2016,
Wize Israel manages most of its activity through OcuWize Ltd. (“OcuWize”), a wholly owned Israeli subsidiary of Wize
Israel, which manages and develops most of the Company’s activity under an existing license agreement. In May 2015, Wize
Israel entered into an Exclusive Distribution and Licensing Agreement (as amended, the “License Agreement”), with
Resdevco Research and Development Company Ltd. (“Resdevco”). Pursuant to the License Agreement., Resdevco granted
to Wize Israel (and thereafter, to OcuWize) an exclusive license to develop in the United States, under the LO2A licensed technology,
products in the field of ophthalmic disorders, to mutually agree upon a manufacturer and to purchase, market, sell and distribute
LO2A in finished product form in the licensed territories in the field of ophthalmic disorders.
For discussion regarding the
issuance of the Series B Preferred Stock (as defined in Note 5 below) as a partial financing, concurrently with the recognition
of an obligation with respect to 37% of future revenues of LO2A-based products (“LO2A Proceeds”) (if any) and the
purchase of shares of Bonus BioGroup Ltd. (“Bonus”), classified as marketable equity securities that was completed
in February 2020, see also Note 5.
|
b.
|
Going concern uncertainty
and management plans:
|
The Company has not yet generated
any material revenues from its current operations, and therefore is dependent upon external sources for financing its operations.
As of September 30, 2020, the Company has an accumulated deficit of $41,131.
In addition, in the period
and year ended September 30, 2020 and December 31, 2019, respectively, the Company reported operating losses and negative cash
flows from operating activities.
Management considered the significance
of such conditions in relation to the Company’s ability to meet its current and future obligations and determined that such
conditions raise substantial doubt about the Company’s ability to continue as a going concern.
These unaudited interim consolidated
financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue
as a going concern.
Until such time as the Company
generates sufficient revenue to fund its operations (if ever), the Company plans to finance its operations through the sale of
Bonus Shares (as hereinafter defined) (see note 5), sale of equity or equity-linked securities and/or debt securities and, to
the extent available, short-term and long-term loans. Although the Company received loan proceeds from a bank (see Note 5) of
$247 during the nine month period ended September 30, 2020, there can be no assurance that the Company will succeed in obtaining
the necessary financing to continue its operations as a going concern.
Regarding the issuance, and
subsequent redemption, of the Series B Preferred Stock concurrently with the transaction with Bonus in February 2020, see also
Note 5.
WIZE PHARMA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
As of September 30, 2020, the
Company had an accumulated deficit of $41,131. The Company has historically incurred net losses and is not able to determine whether
or when it will become profitable, if ever. To date, the Company has not commercialized any products or generated any material
revenues from product sales and accordingly it does not have a revenue stream to support its cost structure. The Company’s
losses have resulted principally from costs incurred in development and discovery activities and general and administrative expenses.
The Company expects to continue
to incur losses for the foreseeable future, and these losses will likely increase as it:
■ initiates and manages further development and clinical trials
for LO2A;
■ seeks regulatory
approvals for LO2A;
■ implements
internal systems and infrastructures;
■ seeks to
license additional technologies to develop;
■ pays royalties
related to the License Agreement and in connection with the obligation with respect to future revenues;
■ hires management
and other personnel; and
■ moves towards
commercialization.
No certainty exists that the
Company will be able to complete the development of LO2A for Conjunctivochalasis (“CCH”), Sjögren’s syndrome
(“Sjögren’s”) or any other ophthalmic disorder, due to financial, technological or other difficulties.
If LO2A fails in clinical trials or does not gain regulatory clearance or approval, or if LO2A does not achieve market acceptance,
the Company may never become profitable. In addition, while the Company explores license and other strategic transactions in an
attempt to monetize the LO2A, there is no assurance that the Company will be successful in doing so and, even if is able to do
so, what the timing or terms thereof may be of such licenses or strategic transactions.
The Company’s inability
to achieve and then maintain profitability would negatively affect its business, financial condition, results of operations and
cash flows. Moreover, the Company’s prospects must be considered in light of the risks and uncertainties encountered by
an early-stage company and in a highly regulated and competitive market, such as the biopharmaceutical market, where regulatory
approval and market acceptance of its products are uncertain, and the other risks set forth in the Company’s filings with
the U.S. Securities and Exchange Commission (“SEC”), including risks and uncertainties relating to the outbreak of
the COVID-19 pandemic. There can be no assurance that the Company’s efforts will ultimately be successful or result in revenues
or profits.
NOTE
2:-
|
SIGNIFICANT ACCOUNTING
POLICIES
|
These unaudited interim consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.
GAAP”).
|
a.
|
Use of estimates
in preparation of the financial statements:
|
The preparation of the financial
statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts
reported in the financial statements and accompanying notes. The Company evaluates on an ongoing basis its assumptions. The Company’s
management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the
time they are made.
WIZE PHARMA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
These estimates, judgments
and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the dates of these unaudited interim consolidated financial statements, and the reported amounts of expenses during the reporting
periods. Actual results could differ from those estimates.
The significant accounting
policies applied in the annual audited consolidated financial statements of the Company as of December 31, 2019 are applied consistently
in these unaudited interim consolidated financial statements, other significant accounting policies applied primarily to transactions
first occurring after December 31, 2019, are described below:
Contingent obligation with
respect to future revenues
The Company’s contingent
obligation to payment of 37% of the future LO2A Proceeds, if any, was accounted for as long-term debt in accordance with the provisions
of Accounting Standards Codification (“ASC”) 470-10-25, “Sales of Future Revenues or Various other Measures
of Income,” which relates to cash received in exchange for payments of a specified percentage or amount of revenue or other
measure of income of a particular product line, business segment, trademark, patent, or contractual right.
Such repayment obligations
are contingent upon the receipt by the Company of any future proceeds from LO2A sales, license or other, as described in Note
5 below.
The Company elected to measure
the contingent payment obligation in its entirety, at its fair value (the “Fair Value Option”) in accordance with
ASC 825-10, “Financial Instruments” due to the variable and contingent nature of the repayment provisions of such
financial liability.
The fair value of such liability
was measured upon its initial recognition at its fair value, based on the difference between the fair value of the marketable
securities received by the Company, less the amount of cash paid by the Company. In subsequent periods, the fair value of the
liability for contingent payment obligation is based on management estimate. As of September 30, 2020, the Company revaluated
the liability to its fair value with the assistance of an external appraiser, pursuant to the Company’s estimations and assumptions.
The Company has determined that
the inputs used in measuring the fair value of the contingent payment obligation fall within Level 3 in the fair value hierarchy
which involves significant estimations and assumptions regarding any projected future proceeds from the LO2A, including, among
others, the dry eye US market size in 2025 (USD 2.9 Billion), the maximum penetration rate of the product into the U.S. market
- 12%, the patent expiration date (2038), the operational profit rate - 26%, the probabilities for FDA phases approvals, and the
risk-adjusted rate for discounting future cash flows - 20.3%.
The Company has determined
that the inputs used in measuring the fair value of the contingent payment obligation fall within Level 3 in the fair value hierarchy
which involves significant estimates and assumptions including, among others, any projected future proceeds from the LO2A, the
risk-adjusted rate for discounting future cash flows and other relevant assumptions. Actual results could differ from
the estimates made. Changes in fair value (including the component related to imputed interest), would be included in the consolidated
statements of comprehensive loss as part of financial income (loss) under the heading “Changes in fair value of contingent
payment obligation with respect to future revenues.”
WIZE PHARMA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
Mandatorily Redeemable Series
B Preferred Stock
The Company classified its
formerly outstanding Series B Preferred Stock as a liability, as their terms embody an unconditional obligation of the Company
to redeem the shares by transferring cash or other assets that equal (i) 80% of the proceeds received by the Company through future
sales of the Bonus Shares issued to the Company under the Bonus Agreements (as hereinafter defined) and (ii) 80% of any cash dividends
received by the Company on such Bonus Shares) at a specified or determinable date or dates.
As the mandatory redemption
date was December 28, 2020 (or earlier), the liability was classified as a current liability as of September 30, 2020.
The Company elected to measure
this liability in its entirety, at its fair value (the “Fair Value Option”) in accordance with ASC 825-10, “Financial
Instruments” due to the variable and contingent nature of the redemption price of such financial liability.
Upon initial recognition and
in subsequent periods, the Company measured the fair value of the liability related to the Series B Preferred Stock based
on the value of the Bonus Shares and the cash amount that the Company is required to transfer to the Series B investors upon the
redemption of the Series B Preferred Stock. The difference between the amount received by the Company upon the issuance of the
Series B Preferred Stock and their fair value as of that date was carried immediately to the consolidated statements of comprehensive
loss as part of financial income (loss).
The issuance costs of the Series
B Preferred Stock were recognized immediately as an expense during the three months ended March 31, 2020.
On July 8, 2020, the Company
elected to redeem all of the Series B Preferred Stock. As a result, the Company distributed 68,191,200 Bonus Shares to the (now
former) holders of Series B Preferred Stock. However, as of September 30, 2020, 9,546,768 Bonus Shares (out of the
said 68,191,200 shares) to which several of the former holders of Series B Preferred Stock are entitled, are still held in the
Company’s bank account as the Company did not receive the required instructions as to the transfer of such Bonus Shares
from such former holders. The said shares are presented in the balance sheet as an asset and a liability at the amount of $1,007.
|
b.
|
Basic and diluted
income (loss) per share:
|
Basic income (loss) per share
is computed by dividing the income or loss for the period applicable to common shareholders by the weighted average number of
shares of Common Stock outstanding during the period. Securities that may participate in dividends with the Common Stock (such
as the convertible Series A Preferred Stock) are considered in the computation of basic income (loss) per share using the two-class
method. In periods of net loss, such participating securities are included in the computation, since the holders of such securities
have a contractual obligation to share the losses of the Company (as the convertible Series A Preferred Stock do not have a right
to receive any mandatory redemption amount and as they are entitled only to dividends on an as-converted basis together with the
common shares).
In computing diluted income
(loss) per share, basic income (loss) per share is adjusted to reflect the potential dilution that could occur upon the exercise
of options, warrants and rights for future investment issued or granted using the “treasury stock method” and upon
the conversion of the loans pursuant to a convertible loan agreement dated March 20, 2016, entered into between Wize Israel and
Rimon Gold Assets Ltd. (the “2016 Loan”), and a convertible loan agreement dated January 12, 2017 entered into between
Wize Israel, Ridge Valley Corporation and, by way of entering into assignments and assumption agreements following such date,
also with Rimon Gold Assets Ltd. and Shimshon Fisher (the “2017 Loan”) before their maturity date using the “if-converted
method,” if the effect of each of such financial instruments is dilutive.
For the nine and three month
periods ended September 30, 2020 and 2019, all outstanding stock options and other convertible instruments have been excluded
from the calculation of the diluted net income (loss) per share as all such securities are anti-dilutive for all years presented.
WIZE PHARMA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
The income (loss) and the weighted
average number of shares used in computing basic and diluted net income (loss) per share for the nine and three months ended September
30, 2020 and 2019, are as follows:
|
|
Nine
months ended
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,232
|
)
|
|
$
|
(2,577
|
)
|
Less: Net loss attributed to Series A Preferred Stock (*)
|
|
|
80
|
|
|
|
124
|
|
Add: Deemed dividend with respect to right for future
investment
|
|
|
-
|
|
|
|
(185
|
)
|
|
|
|
|
|
|
|
|
|
Net loss applicable to shareholders of Common Stock
|
|
$
|
(7,152
|
)
|
|
$
|
(2,638
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Shares of common stock used in computing basic and diluted net loss per
share
|
|
|
16,149,313
|
|
|
|
10,101,073
|
|
Net loss per share of Common stock, basic and diluted
|
|
$
|
(0.44
|
)
|
|
$
|
(0.26
|
)
|
|
|
Nine
months ended
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock, options and warrants excluded from the calculations of diluted loss per share
|
|
|
16,693,339
|
|
|
|
7,295,167
|
|
|
|
Three
months ended
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,062
|
)
|
|
$
|
(872
|
)
|
Less: Net loss attributed to Series A Preferred Stock
(*)
|
|
|
32
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to shareholders of Common Stock
|
|
$
|
(3,030
|
)
|
|
$
|
(858
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Shares of common stock used in computing basic and diluted net loss per
share
|
|
|
16,296,791
|
|
|
|
10,806,155
|
|
Net loss per share of Common stock, basic and diluted
|
|
$
|
(0.19
|
)
|
|
$
|
(0.08
|
)
|
|
(*)
|
During the year
ended December 31, 2018 the Company issued Series A Preferred Stock as part of the October
2018 transaction. These preferred shares are participating securities.
|
|
|
Three
months ended
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock, options and warrants excluded from the calculations of diluted loss per share
|
|
|
16,693,339
|
|
|
|
6,986,873
|
|
WIZE PHARMA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 3:-
|
UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
|
These unaudited interim consolidated
financial statements have been prepared in accordance with U.S. GAAP for interim financial information. Accordingly, they do not
include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating
results for the three and nine-month period ended September 30, 2020 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2020 or for any other interim period. These unaudited interim consolidated financial
statements and related notes should be read in conjunction with the audited consolidated financial statements and related notes
for the fiscal year ended December 31, 2019, included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2019, as filed with the SEC on March 30, 2020 (the “2019 Form 10-K”). The accompanying consolidated balance sheet
as of December 31, 2019 has been derived from these audited consolidated statements.
NOTE 4:-
|
STOCKHOLDERS’ EQUITY
|
|
a.
|
The Common Stock
confers upon their holders the right to participate and vote in general shareholder meetings of the Company and to share in
the distribution of dividends, if any, declared by the Company, and rights to receive a distribution of assets upon liquidation.
|
|
|
|
|
b.
|
On January 9, 2020,
the Company entered into the Bonus Agreements and the Series B Purchase Agreement (as such terms are defined in Note 5 below),
whereby, at the closing of both transactions, which occurred on February 19, 2020, (i) the Company sold 37% of future revenues
(if any) from its LO2A Proceeds to Bonus, an Israeli company whose ordinary shares are traded on the Tel Aviv Stock Exchange
(“TASE”), and invested cash amount of $7,400 in Bonus (of which $3,700 are held in trust) and (ii) in consideration,
Bonus issued to the Company new ordinary shares of Bonus in a number equal to $16,400 divided by a purchase price per share
of NIS 0.50 (approximately $0.12). The fair value of such Bonus ordinary shares received, based on a quote of the share price
on January 9, 2020, the date of signing the Bonus Agreements, was $0.12 and, as of the date of the closing of the transactions,
was $0.11.
|
|
c.
|
On August 11, 2020,
the Company’s Board of Directors approved the following equity grants: (i) 150,000 restricted stock units vesting quarterly
over a period of two years to the Chairman of the Board of Directors of the Company and (ii) 100,000 restricted stock units
vesting quarterly over a period of two years to each of the other three non-executive directors.
|
NOTE
5:-
|
SIGNIFICANT TRANSACTIONS
|
The
Bonus/LO2A Transaction
On
January 9, 2020, the Company entered into (i) an Exchange Agreement (the “Bonus Exchange Agreement”), with Bonus and
(ii) a Share Purchase Agreement (the “Bonus Purchase Agreement” and, together with the Bonus Exchange Agreement, the
“Bonus Agreements”) with Bonus.
Pursuant
to the Bonus Agreements, the Company agreed to grant Bonus, in consideration for the issuance of 62,370,000 ordinary shares of
Bonus to the Company (the “LO2A Shares”), the right to receive 37% of future LO2A Proceeds (if any), which, as more
fully defined in the Bonus Exchange Agreement, include
proceeds generated by the Company, Wize Israel and OcuWize, as a result of (i) the sale, license or other disposal of products
or other rights underlying the LO2A technology licensed to OcuWize under the License Agreement; and (ii) a Sale Transaction, which,
as more fully defined in the Bonus Exchange Agreement, includes the sale of shares or assets of Wize Israel and/or OcuWize. In
addition, if the Sale Transaction involves a change of control of the Company, Bonus will be entitled to elect, to either remain
with its right to 37% of the LO2A Proceeds or receive a one-time payment equal to 37% of the value attributed to Wize Israel out
of the total proceeds payable for the Company in such transaction.
WIZE PHARMA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 5:-
|
SIGNIFICANT TRANSACTIONS (Cont.)
|
In
addition, pursuant to the Bonus Purchase Agreement, the Company agreed to purchase 51,282,000 ordinary shares of Bonus (the “PIPE
Shares”, and together with the LO2A Shares, the “Bonus Shares”), for an aggregate purchase price of $7,400 in
cash, which funds were deposited directly into an escrow account (the “Bonus Escrow Account”), of which (i) $500 was
paid to Bonus as an advance promptly following execution of the Bonus Purchase Agreement, (ii) $3,200 was released to Bonus concurrently
with the closing of the transactions contemplated by the Bonus Agreements in exchange for 50% of the PIPE Shares and (iii) $3,700
will be released to Bonus upon the Milestone Closing (as defined in the Bonus Purchase Agreement), in exchange for the remaining
50% of the PIPE Shares that were
issued by Bonus and deposited into the escrow at the closing. The Company’s obligation to consummate the Milestone Closing
is conditioned upon the satisfaction by Bonus of certain conditions, including the listing of its ordinary shares (or, if an ADR
Program is to be implemented by Bonus, the American Depositary Shares representing such ordinary shares) on the Nasdaq Capital
Market (or another superior tier of the Nasdaq market) (the “Nasdaq Listing”). However, as of September 30, 2020 and
as of the date of these financial statements, Bonus has not satisfied the Nasdaq Listing condition and the Milestone Closing has
not occurred.
The Bonus Agreements contain
customary covenants, representations and warranties of the parties thereto, including, among others, (i) a covenant by the Company
to use its reasonable commercial efforts to commercialize the LO2A technology or otherwise generate the LO2A Proceeds; (ii) a
covenant by Bonus to issue additional shares to the Company upon certain events, including if Bonus conducts a private placement
of its ordinary shares during the nine-month period following the closing at a price per share that is below NIS 0.30 per share;
(iii) a covenant by Bonus to use its reasonable commercial efforts to conduct the Nasdaq Listing as soon as practicable, and in
any event within 180 days following the closing (the “Initial Deadline”) and, if the Nasdaq Listing does not occur
by the Initial Deadline, the Company will be entitled to liquidated damages for each 30 days of delay. The liquidated damages,
which range between $20 to $164 depending on the length of the delay, may be paid, at Bonus’ election, in either cash or
ordinary shares of Bonus; and (iv) a post-closing covenant by the Company to create, and cause Wize Israel and OcuWize to create,
certain first priority liens in favor of Bonus to secure the Company’s obligations under the Bonus Exchange Agreement, including
certain related negative covenants.
In addition, pursuant to the
Bonus Agreements (as amended as of June 24, 2020), Bonus agreed to cover nearly 50% of the Company’s fees and expenses payable
by the Company in cash, Bonus shares and/or a combination thereof to H.C. Wainwright & Co., LLC (“HCW”) in connection
with the transactions contemplated by the Bonus Agreements and the Series B Purchase Agreement (as defined below). In particular,
Bonus agreed to reimburse the Company or pay HCW directly $350 in cash, Bonus shares and/or a combination thereof.
Regarding the requirement to
release the remaining escrow amount of $3,700 to the Series B investors if Bonus fails to achieve the Nasdaq Listing, see below.
According to the Bonus Agreements,
as amended, the total number of Bonus Shares issuable to the Company (including the shares to be released at the Milestone Closing)
was computed as the number of ordinary shares of Bonus equal to the quotient obtained by dividing (A) $16,400 expressed in NIS
(based on the exchange rate between NIS and the dollar as of January 8, 2020) by (B) NIS 0.50. As of January 9, 2020, such total
number of Bonus Shares represented (on a post-issuance basis) approximately 12% of the outstanding share capital of Bonus. The
fair value of Bonus shares based on a quote of the share price on January 9, 2020, the date of signing the Bonus Agreements, was
$0.12 per share and, as of the date of the closing was $0.11 per share.
The closing of the transactions
contemplated by the Bonus Agreements, as amended, was subject to several customary conditions, including the execution by Bonus
and the Company of a Registration Rights Agreement (the “Bonus Registration Rights Agreement”), pursuant to which
Bonus will be required to file a resale registration statement (the “Resale Registration Statement”) with the SEC
to register the Bonus Shares for resale, within 30 days following the Nasdaq Listing, and to have the Resale Registration Statement
declared effective within 45 days after the Nasdaq Listing in the event the Resale Registration Statement is not reviewed by the
SEC, or 120 days after the Nasdaq Listing in the event the Resale Registration Statement is reviewed by the SEC.
The transactions contemplated
by the Bonus Agreements were completed on February 19, 2020.
WIZE PHARMA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 5:-
|
SIGNIFICANT TRANSACTIONS (Cont.)
|
As of the date of closing of
the Bonus Agreements, the Company received 85,239,000 of Bonus Shares. Pursuant to the Bonus Agreements, an additional 28,413,000
Bonus Shares were to be released to the Company upon the Nasdaq Listing and concurrently with the release of the $3,700 from the
escrow account to Bonus. However, as of September 30, 2020 and as of the date of these financial statements, Bonus has not satisfied
the Nasdaq Listing condition and the Milestone Closing has not occurred. Accordingly, such amount is presented as restricted deposit
(asset) in the balance sheet as of September 30, 2020 and the same amount is reflected as part of the liability with respect to
the Series B Preferred Stock (as defined below). The Bonus Agreements also provide that, in the event that the Milestone Closing
shall not occur on or before twelve (12) months following the Initial Deadline (the “Milestone End Date”), the Company
may terminate the requirement to conduct the Milestone Closing by written notice to Bonus, with a copy to the escrow agent (the
“Investor Milestone Termination Notice” and the date of delivery of such notice, the “Investor Milestone Termination
Date”), in which case, (A) the liquidated damages described above shall not continue to accrue for the time following the
Investor Milestone Termination Date, (B) the escrow amount shall be returned to the Company (following the redemption of the Series
B Preferred Stock described below, to the former holders thereof), and (C) the 28,413,000 Bonus Shares held in escrow shall be
returned to Bonus.
As the Bonus Shares represent
marketable securities with readily determinable fair value, Bonus shares issued to the Company were recognized upon initial recognition
based on their quoted price (less applicable non-marketability discount) as of the date of the completion of the Bonus Agreements
at an aggregate amount of $8,759. The difference between the fair value of Bonus shares and the amount of cash that was transferred
directly to Bonus from an escrow account was recognized as financial liability, representing the Company’s obligation to
Bonus with respect to the LO2A Proceeds in an amount of $5,059 (see Note 2).
In addition, during the period
from completion of the Bonus Agreements (February 19, 2020) and through September 30, 2020, the Company recognized financial income
from revaluation of its investment in Bonus marketable securities in an amount of $644 (the Company recognized income of $1,000
for the six month period ended June 30, 2020, resulting in financial loss of $356 for the three month period ended September 30,
2020) due to the change in the quoted market price of these shares on TASE. Such amount was presented as part of financial income
(expenses), net.
During the nine month period
ended September 30, 2020, the Company received cash proceeds of $111 from the sale of 1,023,707 of Bonus Shares, which are marketable
securities, in open market transactions.
The
Mandatorily Redeemable Series B Investment
In order to finance the transactions
contemplated by the Bonus Purchase Agreement, on January 9, 2020, the Company entered into a Securities Purchase Agreement (the
“Series B Purchase Agreement”) with certain accredited investors.
Pursuant to the Series B Purchase
Agreement, the Company agreed to sell to the investors, and the investors agreed to purchase from the Company, in a private placement,
an aggregate of 7,500 shares of newly created Series B Non-Voting Redeemable Preferred Stock, par value $0.001 per share, of the
Company (“Series B Preferred Stock”) for a purchase price of $1.00 per share, for aggregate gross proceeds under the
Series B Purchase Agreement of $7,500, which funds were deposited into an escrow account, of which (i) $500 was to be paid to
the Bonus Escrow Account and $100 was to be paid to the Company to cover certain of its transactions expenses, in each case, promptly
following the execution of the Series B Purchase Agreement, and (ii) the remaining $6,900 was to be released to the Bonus Escrow
Account upon the closing of the transactions contemplated by the Series B Purchase Agreement (of which, as described above, $3,200
was to be released upon the earlier of the Milestone Closing or upon written consent of the holders of at least a majority of
the Series B Preferred Stock).
The Series B Purchase Agreement
contained customary covenants, representations and warranties of the parties thereto, including, among others, (i) a covenant
by the investors not to transfer the Series B Preferred Stock without the approval of the Company; (ii) a covenant by the Company,
for as long as any Series B Preferred Stock remain outstanding, not to sell any Bonus Shares for a price per share equal to less
than NIS 0.40 (the “Price Restriction”); and (iii) a covenant by the Company, simultaneously with, or promptly
after, the redemption of the Series B Preferred Stock, to assign certain rights under the Bonus Purchase Agreement, such as the
right to liquidated damages in the event of delayed Nasdaq Listing, and under the Bonus Registration Rights Agreement, to the
investors.
WIZE PHARMA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 5:-
|
SIGNIFICANT TRANSACTIONS (Cont.)
|
In connection with the Series
B Purchase Agreement, the Company agreed to file, at the closing, a Certificate of Designations of Series B Non-Voting Redeemable
Preferred Stock with the Secretary of State of Delaware (the “Series B Certificate of Designations”). Pursuant to
the Series B Certificate of Designations, the Company designated 7,500 shares of preferred stock as Series B Preferred Stock.
The Series B Preferred Stock were not convertible into shares of Common Stock of the Company and have no voting powers, except
as related to certain rights to protect the rights and preferences of the Series B Preferred Stock and with respect to sales or
dispositions of the Series B Preferred Stock at a price per share below the Price Restriction. The Series B Preferred Stock entitled
its holders to (i) 80% of the proceeds received by the Company through future sales of the Bonus Shares issued to the Company
under the Bonus Agreements and (ii) 80% of any cash dividends received by the Company on such Bonus Shares. Under the Series B
Certificate of Designations, the Company had the option to redeem the Series B Preferred Stock at any time by distributing to
holders of the Series B Preferred Stock (i) 80% of the Bonus Shares then held by the Company and (ii) 80% of all dividends received
by the Company but not yet paid to holders of the Series B Preferred Stock (the “Redemption Payment”). The Company
was required to redeem the Series B Preferred Stock through payment of the Redemption Payment upon the earlier of (i) 60 days
following the Nasdaq Listing of the Bonus Shares, and (ii) December 28, 2020.
However, until the completion
of the Nasdaq Listing, an amount of $3,700 shall remain in an escrow account and, upon the failure of such listing by Bonus by
the Milestone End Date, such amount shall be required to be released in its entirety to the Series B investors. This escrow account
of $3,700 is presented as restricted deposit in the accompanying consolidated balance sheet as of September 30, 2020 and the same
amount is reflected as part of the liability with respect to the mandatorily redeemable series B preferred Stock.
As of the completion date (February
19, 2020), the Company recognized a liability in light of its obligation to redeem the Series B Preferred Stock at its fair value
in an amount of $10,707, representing the sum of the remaining escrow amount of $3,700 (which, in case the Milestone Closing will
not be met, will be paid to the Series B investors) and 80% of the Company’s investment in Bonus marketable shares, see
Note 2.
The difference between the
amount of the liability recognized with respect to the Series B Preferred Stock ($10,707) and the cash amount actually invested
by such preferred stock investors ($7,500), amounting to $3,207 was recognized immediately as financial expense, net upon the
completion of the Bonus agreement and the Series B Purchase Agreement, within financial income (loss), net.
In addition, from the date
of the completion of the Bonus agreements and until September 30, 2020, the Company recognized a loss in an amount of $597 (the
Company recognized a loss of $803 during the six month period ended June 30, 2020, resulting in a gain of $206 for the three month
period ended September 30, 2020) as part of financial income (loss), net due to the revaluation of the mandatorily redeemable
Series B Preferred Stock liability.
On July 8, 2020, the Company
elected to redeem all of the Series B Preferred Stock. As a result, the Company distributed 68,191,200 Bonus Shares representing
an amount of $6,597 to the holders of Series B Preferred Stock representing 80% of the Bonus shares then held by the Company.
As a result of such distribution, as of the date of these financial statements, the Company owns the remaining 16,024,093 Bonus
Shares, representing approximately 1.61% of the outstanding shares of Bonus. However, as of September 30, 2020, an amount of 9,546,768
Bonus Shares (out of the said 68,191,200 shares) to which several of the former holders of Series B Preferred Stock are entitled,
are still held in the Company’s bank account as the Company did not receive the required instructions as to the transfer
of such Bonus Shares from such former holders. The said shares are presented in the balance sheet as an asset and a liability
at the amount of $1,007.
The
2020 Loan
On July 15, 2020, OcuWize entered
into a loan agreement with Bank Hapoalim (the “Bank”), whereby the Bank extended a loan in the principal amount of
NIS 850,000 (approximately $247,000) (the “2020 Loan”), which is presented as a short term loan payable in the accompanying
unaudited consolidated balance sheet as of September 30, 2020. The 2020 Loan bears interest at an annual rate of 5.45%, which will
be paid in monthly payments. The 2020 Loan has a maturity date of January 15, 2021. In order to secure its obligations and performance
pursuant to the 2020 Loan, OcuWize recorded a pledge in favor of the Bank and agreed that at all times, the value of all the assets
in the OcuWize bank account will not be less than NIS 1,700,000 (approximately $496,000). In order to satisfy this requirement,
the Company loaned to OcuWize a portion of the Bonus Shares held by it.
WIZE PHARMA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 6:-
|
FINANCIAL INCOME (LOSS), NET
|
|
|
Nine
months ended
September 30,
|
|
|
Three
months ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in the fair value of marketable securities
|
|
$
|
644
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Bank
commissions and exchange rate differences
|
|
|
-
|
|
|
|
22
|
|
|
|
-
|
|
|
|
-
|
|
Revaluation
of mandatorily redeemable Series B Preferred Stock
|
|
|
-
|
|
|
|
-
|
|
|
|
206
|
|
|
|
-
|
|
Amortization
of premium related to convertible loans
|
|
|
-
|
|
|
|
1,188
|
|
|
|
-
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial
income
|
|
$
|
644
|
|
|
$
|
1,210
|
|
|
$
|
206
|
|
|
$
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest on convertible loans
|
|
$
|
-
|
|
|
$
|
(36
|
)
|
|
$
|
-
|
|
|
$
|
(18
|
)
|
Accrued interest on loans
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
Loss
from extinguishment of convertible loans
|
|
|
-
|
|
|
|
(878
|
)
|
|
|
-
|
|
|
|
-
|
|
Loss
from recognition of mandatorily redeemable Series B Preferred Stock
|
|
|
(3,207
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Loss
from revaluation of contingent obligation with respect to future revenues
|
|
|
(1,758
|
)
|
|
|
-
|
|
|
|
(1,758
|
)
|
|
|
-
|
|
Revaluation
of mandatorily redeemable Series B Preferred Stock
|
|
|
(597
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Change
in the fair value of marketable securities
|
|
|
-
|
|
|
|
(302
|
)
|
|
|
(356
|
)
|
|
|
(108
|
)
|
Exchange rate differences
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6
|
)
|
Bank
commissions and exchange rate differences
|
|
|
(17
|
)
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial
expenses
|
|
|
(5,580
|
)
|
|
|
(1,218
|
)
|
|
|
(2,118
|
)
|
|
|
(134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial
income (loss), net
|
|
$
|
(4,936
|
)
|
|
$
|
(8
|
)
|
|
$
|
(1,912
|
)
|
|
$
|
(33
|
)
|
NOTE 7:-
|
SUBSEQUENT EVENTS
|
On
November 12, 2020, the Company announced topline results from its Phase IV clinical trial of its in-license eye drop formula,
LO2A, for the symptomatic treatment of dry eye syndrome in patients with Sjögren’s syndrome.