Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s
Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of our balance sheets, statements
of comprehensive income (loss) and cash flows. This section should be read in conjunction with our 2018 Form 10-K filed with the
SEC and our unaudited interim consolidated financial statements and accompanying notes to these financial statements including
in this form 10-Q. All amounts are in U.S. dollars and rounded to thousands of U.S dollars.
Forward-Looking
Statement Notice
This
unaudited quarterly report on Form 10-Q contains forward-looking statements, about our expectations, beliefs or intentions regarding,
among other things, our product development efforts, business, financial condition, results of operations, strategies or prospects.
In addition, from time to time, our representatives have made or may make forward-looking statements, orally or in writing. Forward-looking
statements can be identified by the use of forward-looking words such as “believe,” “expect,” “intend,”
“plan,” “may,” “should” or “anticipate” or their negatives or other variations
of these words or other comparable words or by the fact that these statements do not relate strictly to historical or current
matters. These forward-looking statements may be included in, but are not limited to, various filings made by us with the United
States Securities and Exchange Commission, or the SEC, press releases or oral statements made by or with the approval of one of
our authorized executive officers. Forward-looking statements relate to anticipated or expected events, activities, trends or
results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements
are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results
expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially
from the activities and results anticipated in forward-looking statements, including, but not limited to, those set forth in our
2018 Form 10-K.
This
report identifies important factors which could cause our actual results to differ materially from those indicated by the forward-looking
statements, particularly those set forth under Item 1A. “Risk Factors” as disclosed in our 2018 Form 10-K.
Such
risk factors are not necessarily all of the important factors that could cause actual results to differ materially from those
expressed in any of our forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance
on such forward-looking statements.
Factors
that could cause our actual results to differ materially from those expressed or implied in such forward-looking statements include,
but are not limited to:
|
●
|
we
have substantial debt which may adversely affect us by limiting future sources of financing, interfering with our ability
to pay interest and principal on our indebtedness and subjecting us to additional risks;
|
|
●
|
we
need to raise additional capital to meet our business requirements in the future, and such capital raising may be costly or
difficult to obtain and will dilute current stockholders’ ownership interests;
|
|
●
|
our
current pipeline is based on a single compound known as LO2A (“LO2A”) and on the continuation of our license to
commercialize LO2A;
|
|
●
|
our
inability to expand our rights under our LO2A License Agreement may have a detrimental effect on our business;
|
|
●
|
the
initiation, timing, progress and results of our preclinical studies, clinical trials and other product candidate development
efforts;
|
|
●
|
our
ability to advance our product candidate into clinical trials or to successfully complete our preclinical studies or clinical
trials;
|
|
●
|
our
receipt of regulatory approvals for our product candidate, and the timing of other regulatory filings and approvals;
|
|
●
|
the
clinical development, commercialization and market acceptance of LO2A;
|
|
●
|
our
ability to establish and maintain corporate collaborations;
|
|
●
|
the
implementation of our business model and strategic plans for our business and product candidate;
|
|
●
|
the
scope of protection we are able to establish and maintain for intellectual property rights covering LO2A and our ability to
operate our business without infringing the intellectual property rights of others;
|
|
●
|
the
possibility that we and our joint venture partner Cannabics Pharmacueticals, Inc. (“Cannabics”) will not be able to
agree on a business plan by June 30, 2019, causing our joint venture to terminate, or, if we do agree on a business plan, our
ability to successfully operate our joint venture together with Cannabics;
|
|
●
|
estimates
of our expenses, future revenues, and capital requirements;
|
|
●
|
competitive
companies, technologies and our industry; and
|
|
●
|
statements
as to the impact of the political and security situation in Israel on our business.
|
All
forward-looking statements attributable to us or persons acting on our behalf speak only as of the date of this report and are
expressly qualified in their entirety by the cautionary statements included in this report. We undertake no obligations to update
or revise forward-looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence
of unanticipated events. In evaluating forward-looking statements, you should consider these risks and uncertainties.
Description
of Business
We
are a clinical-stage biopharmaceutical company currently focused on the treatment of ophthalmic disorders, including dry eye syndrome
(“DES”). We have in-licensed certain rights to purchase, market, sell and distribute a formula known as LO2A,
a drug developed for the treatment of DES, and other ophthalmological illnesses, including Conjunctivochalasis (“CCH”)
and Sjögren’s syndrome (“Sjögren’s”).
LO2A
is currently registered and marketed by its inventor in Germany and Switzerland for the treatment of DES, in Hungary for the treatment
of DES, CCH and Sjögren’s and in the Netherlands for the treatment of DES and Sjögren’s.
We
intend to market LO2A as a treatment for DES and other ophthalmic inflammations, including CCH and / or Sjögren’s,
in the United States, Israel and China (collectively, the “Licensed Territories”), and in additional territories,
subject to purchasing the rights to market, sell and distribute LO2A in those additional territories. We believe that the potential
for the most economic success is in marketing LO2A for treating CCH and Sjögren’s. Currently, we have a distribution
agreement for marketing in Israel, where LO2A is approved for the treatment of DES only, and a distribution agreement for distribution
in China, where the evaluation and preparation for the registration process commenced in December 2017 by the Chinese Distributor
(as defined below). The registration process in certain countries, including the United States, requires us to conduct additional
clinical trials, in addition to the Phase II clinical trials that we have completed and Phase IV clinical trials that we are currently
conducting.
We
plan to engage local or multinational distributors to handle the distribution of LO2A. In particular, we intend to engage, subject
to obtaining the requisite rights in LO2A, pharmaceutical companies or distributors around the world with relevant marketing capabilities
in the pharmaceutical field, in order for such pharmaceutical companies to sell LO2A, with us prioritizing those territories where
we may expedite the registration process of LO2A based on existing knowledge and studies previously conducted on LO2A, without
requiring additional studies.
In
August 2016, we commenced the Multi-Center Trial, which is a Phase II randomized, double-blind, placebo-controlled, clinical trial,
in parallel groups which is intended for the repeated confirmation of the effectiveness and safety of LO2A for patients suffering
from moderate to severe CCH. The trial is a multi-center trial in five different medical centers in Israel with a treatment time
of three months for each patient. All 62 patients have completed their treatment. We believe that we currently have sufficient
funds to complete the Multi-Center Trial by the end of 2018. In November 2018 we received the top line results for the Multi-Center
trial which describe analysis of the primary endpoint, defined as the reduction in Lissamine green conjunctival staining (LGCS)
score from baseline to 3 months. The originally planned primary analysis was based upon recruitment of a sample size of 62 patients.
Analysis was performed on the 49 fully evaluable patients using a mixed model with repeated measures (MMRM) and utilized all post
baseline observations, (1-month and 3-month follow-ups) demonstrating statistical significance between the LO2A group and the
placebo group (P=0.0079). The planned primary endpoint analysis compared average reduction in LGCS score from baseline to three
months. This analysis also demonstrated a strong trend towards significance (P=0.0713) with average reduction in LGCS score between
baseline and 3 months of -3.5 and -1.6 in the LO2A and placebo groups, respectively. We expect the full statistical report to
be published as soon as the statistical results and conclusion are available and approved.
In
March 2018, we commenced a Phase IV Study. The Phase IV Study is a multi-center trial in three different medical centers in Israel
and will evaluate the safety and efficacy of LO2A for symptomatic improvement of DES in 60 adult patients with Sjögren’s.
Enrolled patients will be randomized in a 1:1 ratio to one of two treatment groups, LO2A or Systane
®
Ultra UD.
Drops will be administered topically to the eye over a three month period. This Phase IV Study is designed to support our clinical
approval pathway for LO2A for the treatment of DES in patients with Sjögren’s within certain markets including the
U.S., China and Israel.
On
February 7, 2019, we entered into a joint venture agreement with Cannabics, which became effective on March 1, 2019. Pursuant
to the agreement, we agreed to form a new joint venture company for the purpose of researching, developing and administering cannabinoid
formulations to treat ophthalmic conditions across a range of disease and illness categories. The joint venture will pursue therapeutic
pathways with cannabinoids, supported by a growing body of research that we believe indicates cannabinoid-based therapies have
the potential to address significant unmet medical needs in the market. We and Cannabics will initially own 50% of the joint venture.
The initial board of directors of the new company will consist of three members: one Company appointee, one Cannabics appointee
and one industry expert recommended by us and approved by Cannabics. The initial officers of the Company will be our Chairman
Noam Danenberg and Cannabics’ Chief Executive Officer Eyal Barad, who will serve as co-chief executive officers. If the
joint venture’s business plan is not approved by the Company and Cannabics by June 30, 2019, the joint venture agreement
will then expire. In connection with forming the joint venture we issued Cannabics 900,000 shares of our Common Stock and Cannabics
issued us 2,263,944 shares of its common stock.
We have not
generated any material revenues from operations since our inception and we do not currently expect to generate any
significant revenues for the foreseeable future, primarily because LO2A is still in early clinical stage development in the
markets and for the indications we are currently targeting (DES with CCH and/or Sjögren’s). Our operating expenses
have increased from $536,000 in the three months ended March 31, 2018 to $591,000 for the three months ended March 31, 2019.
We will require significant additional capital and, assuming we will have sufficient liquidity resources, we anticipate we
will incur significantly higher costs in the foreseeable future, in order to finance our current strategic plans, including
the conduct of ongoing and future clinical trials as well as further research and development.
Results
of Operations -Three Months Ended March 31, 2019 Compared to the Three Months Ended March 31, 2018
|
|
Three Months Ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
(63,000
|
)
|
|
|
(210,000
|
)
|
General and administrative
|
|
|
(528,000
|
)
|
|
|
(326,000
|
)
|
Total operating costs
|
|
|
(591,000
|
)
|
|
|
(536,000
|
)
|
Financial income (expense), net
|
|
|
739,000
|
|
|
|
431,000
|
)
|
Net income (loss)
|
|
$
|
148,000
|
|
|
|
(105,000
|
)
|
Revenues
We did not generate any
revenues from operations during the three months ended March 31, 2019 and 2018. We had no revenues primarily because (1) from
the time of the Creditors’ Arrangement (as defined below) of Wize Israel in February 2015 until May 2015, when we (through
Wize Israel) entered into the LO2A License Agreement, Wize Israel did not conduct any business operations and (2) thereafter,
currently, Wize Israel is engaged primarily in research and development. Pursuant to the LO2A License Agreement, Wize Israel is
required to pay Resdevco certain royalties for sales in the licensed territories based on an agreed-upon price per unit of either
$0.60, in Israel and Ukraine, or in the low single digits of US Dollars, in the People’s Republic of China, payable on a
semi-annual basis, subject to making certain minimum royalty payments as set forth in the LO2A License Agreement. In February
2019, the Company and Resdevco agreed that royalties for 20 and 30 unit dose eyedrops shall be the higher of $0.60 or a percentage
of revenues, not to exceed 10%, from sales made in the United States and other countries, excluding Israel, China and Ukraine,
and that the Company shall pay Resdevco minimum yearly payments of $150,000 per year through 2021, and then annual payments of
$475,000 per year, and shall pay Resdevco $650,000 within two years after receipt of FDA approval for eye drops utilizing the
licensed technology.
Operating
Expenses
Research and development
expenses.
Research and development expenses were $63,000 for the three months ended March 31, 2019, compared to $210,000
for the three months ended March 31, 2018, a decrease of $147,000 or 70%. The decrease in research and development expenses is
mainly from license obligation reduction at the amount of $150,000.
General and administrative
expenses.
General and administrative expenses were $528,000 for the three months ended March 31, 2019, compared to $326,000
for the three months ended March 31, 2018, an increase of $202,000 or 61.9%. The increase in general and administrative expenses
during these periods is primarily related to increases in investor relations and marketing, and share-based expenses.
Financial Income,
Net
. Financial income, net was $739,000 for the three months ended March 31, 2019 compared to financial income, net of $431,000
for the three months ended March 31, 2018, a change of $308,000 or 71.5%. The increase in financial income, net during this period
is primarily related to higher amortization of premium related to convertible loans.
Net Income (loss)
.
As a result of the foregoing, we recognized $148,000 of net income for the three months ended March 31, 2019 compared to a net
loss of $105,000 for the three months ended March 31, 2018, a decrease in the net loss of $253,000 or 240.9%.
Liquidity
and Capital Resources
General
Liquidity
is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise
operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts
receivable and accounts payable and capital expenditures. Since the court-approved Creditors Arrangement (as defined below) completed
in February 2015, as described below, we financed our operations primarily through equity and convertible debt financings in private
placements, as described below.
Working
Capital and Cash Flows
As
of March 31, 2019 and December 31, 2018, we had $2,422,000 and $3,183,000 in cash and cash equivalents, respectively.
As
of March 31, 2019 and December 31, 2018, we had $1,775,000 and $2,635,000, respectively, of outstanding loans, including accrued
interest and net of discounts, all of which relates to convertible loans, as described below. However, the aggregate principal
amount of such loans is $1,353,000 (not including interest).
As of March 31, 2019 and
December 31, 2018, we had $1,224,000 and $204,000 of working capital, respectively. As of March 31, 2019, we had an accumulated
deficit of $29,953. The increase in working capital was primarily due to an increase in marketable equity securities from the
transaction with Canabbics.
The
following table presents the major components of net cash flows (used in) provided by operating, investing and financing activities
for the periods presented:
|
|
Three Months Ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
$
|
(730,000
|
)
|
|
$
|
(504,000
|
)
|
Net cash provided by investing activities
|
|
$
|
-
|
|
|
$
|
19,000
|
|
Net cash provided by financing activities
|
|
$
|
-
|
|
|
$
|
861,000
|
|
Three
Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018
For the three months
ended March 31, 2019 and 2018, net cash used in operating activities was $(730,000) and $(504,000), respectively. The increase
in net cash used in operating activities of $226,000 was mainly due to a decrease in net loss of $253,000 and increase in amortization
of a premium related to convertible loans of $321,000.
For the three months
ended March 31, 2019 and 2018, net cash used in investing activities was nil and $19,000, respectively. The decrease in net cash
provided by investing activities was mainly due to proceeds from sale of marketable equity of $19,000 in the three months period
ended March 31, 2018 which we did not have in the three months period ended March 31, 2019.
For
the three months ended March 31, 2019 and 2018, net cash provided by financing activities was nil and $861,000, respectively.
Cash was provided in the three months ended March 31, 2018 by proceeds of $861,000 that were received from the exercise of certain
convertible securities by Ridge, Rimon Gold and Sadan. On March 26, 2018, Rimon Gold exercised a portion of their 2016 Investment
Right (as defined below) and received 217,442 shares of Common Stock in exchange for approximately $284,000. On March 26, 2018,
Ridge exercised a portion of their 2017 Investment Right (as defined below) and received 213,524 shares of Common Stock in exchange
for approximately $284,000. On March 26, 2018, Sadan exercised a portion of his warrants to purchase (as adjusted based on an
exchange ratio of each ordinary share of Wize Israel issued and outstanding converted into 4.1445791236989 shares of the Company’s
Common Stock (the “Exchange Ratio”)) an aggregate of 904,036 shares of our Common Stock at an exercise price of $1.9728
(the “PIPE Warrants”), which PIPE Warrants were granted on November 16, 2017 and was issued 144,168 shares of our
Common Stock in exchange for approximately $0.3 million.
Outlook
According
to management estimates, liquidity resources as of March 31, 2019 may not be sufficient to maintain our planned level of
operations for the next 12 months. In particular, if needed, we may raise additional funding. However, for a long-term
solution, we will need to seek additional capital for the purpose of implementing our business strategy and managing our
business and developing drug candidates. Conducting clinical trials and commercializing products is expensive and we will
need to raise substantial additional funds to achieve our strategic objectives. We have not yet generated any material
revenues from our current operations, and therefore we are dependent upon external sources for financing our operations. We
will require significant additional financing in the near future. Additional financing may not be available on acceptable
terms, if at all. Our future capital requirements as well as the ability to obtain financing will depend on many factors,
including those listed under “RISK FACTORS – Risks Related to our Business,” beginning on page 33 of our
2018 Form 10-K. As of March 31, 2019, we had an accumulated deficit. In addition, during the years ended December 31, 2018
and 2017, we reported operating losses and negative cash flows from operating activities. Our management considered the
significance of such conditions in relation to our ability to meet our current and future obligations and determined that
such conditions raise substantial doubt about each our ability to continue as a going concern. As such, the report of
our independent registered public accounting firm on the audited financial statements as of and for the year ended December
31, 2018 contains an emphasis of matter paragraph regarding substantial doubt about our ability to continue as a going
concern. Substantial doubt about our ability to continue as a going concern could materially limit our ability to raise
additional funds through the issuance of new debt or equity securities or otherwise. Future reports on our financial
statements may also include an emphasis of matter paragraph with respect to our ability to continue as a going
concern.
We
currently have no agreements, arrangements, or understandings with any person to obtain funds through bank loans, lines of credit,
or any other sources. Until we can generate significant continuing revenues, we expect to satisfy our future cash needs through
debt or equity financings, or by out-licensing our distribution rights. We cannot be certain that additional funding will be available
to us on acceptable terms, or at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminate
one or more of our commercialization efforts.
We are addressing our
liquidity issues by implementing initiatives to raise additional funds as well as other measures that we believe will allow us
to continue as a going concern. Such initiatives may include monetizing of our assets, including the sale of the Can-Fite Bio-Pharma
Ltd. shares that we currently own that are presented as marketable equity securities in our financial statements.
Principal
Financing Activities.
The following is a summary of the equity and debt financings conducted by Wize Israel in the prior
five years:
In
December 2014, an Israeli court approved the Creditors’ Arrangement under the Israeli Companies Law between Wize Israel
(then known as Star Night Technologies Ltd.), its creditors and its shareholders, in which Wize Israel was purchased by a group
of investors led by Ridge. Upon the completion of the Creditors’ Arrangement, all of Wize Israel’s assets, rights
and obligations were transferred to the creditors’ arrangement fund, so that Wize Israel’s equity after the approval
of such arrangement was zero and Wize Israel remained a public shell company without any activity, rights or obligations. The
Creditors’ Arrangement was completed in February 2015. In connection with the Creditors’ Arrangement, on February
15, 2015, Wize Israel issued 692,307 ordinary shares of Wize Israel, in the aggregate, to Ridge, Zarachia, Avner Arazi (“Arazi”)
and Amir Bramli (“Bramli”, and together with Ridge, Zarachia and Arazi, the “2015 Investors”), in exchange
for their purchase of the public shell for NIS 1,800,000 (approximately $463,000). In addition, on April 7, 2015, for no consideration,
the 2015 Investors provided Wize Israel with a capital amount of NIS 4,056,000 (approximately $1,044,000) in cash.
As
of March 31, 2019, we (through Wize Israel) had a total principal and accrued interest balance of approximately $1.48 million
of loans outstanding under the Convertible Loans described below, of which (1) Ridge extended a principal amount of $0.27 million,
(2) Rimon Gold extended a principal amount of $0.8 million, and (3) Fisher (not affiliated, to Wize Israel’s knowledge,
with Ridge or Rimon Gold) extended a principal amount of $0.27 million. Below is a summary of the material provisions of the Loan
Agreements.
The
2016 Loan.
On March 20, 2016, Wize Israel entered into a convertible loan (as amended on March 30, 2016, December 21,
2017 and October 19, 2018, and March 4, 2018 (the “2016 Loan Agreement”) with Rimon Gold, whereby Rimon Gold extended
a loan in the principal amount of up to NIS 2 million (approximately $531,000, according to exchange rate of originate date),
which bears interest at an annual rate of 4% (the “2016 Loan”). The 2016 Loan Agreement and the 2017 Loan Agreement
(as defined below) have a maturity date of May 31, 2019 and the lenders’ investment rights under the 2016 Loan Agreement
to invest up to $512,809, in the aggregate, at $1.308 per share, and the lender’s investment rights under the 2017 Loan
Agreement to invest up to $663,446, in the aggregate, at $1.332 per share, expires on November 30, 2019.
Under
the 2016 Loan Agreement, Rimon Gold had the right, at its sole discretion, to convert any outstanding portion of the 2016 Loan,
but not less than NIS 100,000 (approximately $26,000), into Wize Israel ordinary shares at a conversion price per share of NIS
15.2592 (approximately $3.84), subject to adjustments for stock splits and similar events set forth in the 2016 Loan Agreement.
As a result of the Merger and based on the Exchange Ratio, the conversion price per share for the 2016 Loan was adjusted to NIS
3.60 (approximately $0.96). As a result of the 2017 Loan Amendment (as defined below), the aggregate principal amount of the 2016
Loan is $531,067 and the conversion price per share for the 2016 Loan was adjusted to $0.9768.
In
order to secure its obligations and performance pursuant to the 2016 Loan Agreement, Wize Israel recorded a first priority fixed
charge in favor of Rimon Gold on all of Wize Israel’s rights, including its distribution rights, under the LO2A License
Agreement, and a first priority floating charge on all of Wize Israel’s rights, title and interest in all of its assets,
as they may exist from time to time (the agreements relating to such charges being referred to as the “Security Agreements”).
Rimon
Gold is entitled, under certain circumstances, to demand repayment of the 2016 Loan, including among others: (i) if Wize Israel
breaches or fails to perform or is shown to have made a false statement, under the 2016 Loan Agreement or the Security Agreements;
(ii) any failure of Wize Israel to make a timely payment; (iii) upon the appointment of a receiver; (iv) the imposition of a lien
on a material asset of Wize Israel; (v) if Wize Israel files a motion to stay proceedings; (vi) upon the expiration or termination
of the LO2A License Agreement or if any party is in material breach of the LO2A License Agreement or if any party notifies the
other of its intention to terminate the LO2A License Agreement; (vii) an adverse material change; and (viii) upon the non-performance
of Wize Israel pursuant to the 2017 Loan Agreement described below. We believe that we have complied with the aforementioned covenants
through the date of this report.
The
2016 Loan Agreement and the Security Agreements contain a number of other restrictive covenants that limit Wize Israel’s
operating flexibility. These covenants include, among other things, limitations on the creation of liens; on the incurrence of
indebtedness; on dispositions of assets, mergers, acquisitions and other change of control transactions; on changes in the general
nature of Wize Israel’s business; restrictions on payments to related parties; restrictions on conducting rights offerings,
and on the distribution of dividends. We believe that we have complied with the aforementioned covenants through the date of this
report.
In
addition, under the 2016 Loan Agreement, as modified by the 2017 Loan Agreement and the 2017 Loan Amendment, Rimon Gold has the
right, which we refer to as the 2016 Investment Right, until June 30, 2019, to invest up to $796,601, in the aggregate, at an
agreed price per share, which was adjusted based on the Exchange Ratio from NIS 20.4 (approximately $6.00) to NIS 5.04 (approximately
$1.44) and based on the 2017 Loan Amendment, from NIS 5.04 to a fixed price of $1.308 (subject to adjustments in case of stock
splits or similar events). See
“-December 2017 Loan Amendment
” below.
The
2017 Loan
. On January 15, 2017, Wize Israel entered into the 2017 Loan Agreement (as amended on December 21, 2017, and October
19, 2018 the “2017 Loan Agreement”) with Ridge, and, by way of entering into assignments and assumption agreements
following such date, also with Rimon Gold and Fisher (together, the “2017 Lenders”), whereby each of the lenders extended
a loan in the principal amount of up to NIS 1 million (approximately $283,000) and in the aggregate principal amount of up to
NIS 3 million (approximately $850,000), which bears interest at an annual rate of 4% (the “2017 Loan”, and together
with the 2016 Loan, the “Loans”)). Pursuant to the 2017 Loan Agreement and the 2017 Loan Amendment, the 2017 Loan
has a maturity date which is the New Loan Agreements Maturity Date. In addition, pursuant to the 2017 Loan Amendment, the expiration
date of the investment right under the 2017 Loan Agreement was amended to be 180 days after the New Loan Agreements Maturity Date.
Under
the 2017 Loan Agreement, each of the 2017 Lenders had the right, at its sole discretion, to convert any outstanding portion of
the 2017 Loan, but no less than NIS 100,000 (approximately $28,000), that the lender provided to Wize Israel (each such portion
converted, the into Wize Israel ordinary shares at a conversion price per share equal to the lower of (1) NIS 24 (approximately
$6.72) and (2) the lowest price per share of Wize Israel in any offering made by Wize Israel following the date of the 2017 Loan
Agreement and through the date of such requested conversion, subject to adjustments for stock splits and similar events set forth
in the 2017 Loan Agreement (the “2017 Loan Conversion Price”). As a result of the 2017 PIPE (as defined below), the
2017 Loan Conversion Price for Rimon Gold, Fisher and Ridge was adjusted to NIS 16.80 (approximately $4.80), and as a result of
the Merger, the 2017 Loan Conversion Price of NIS16.80 (approximately $4.80) was adjusted in accordance with the Exchange Ratio
to NIS 4.05 (approximately $1.15). As a result of the 2017 Loan Amendment, the aggregate principal amount of the 2017 Loan is
$822,144 and the 2017 Loan Conversion Price was adjusted to a fixed price of $1.1112. See
“-December 2017 Loan Amendment
”
below.
In
addition, under the 2017 Loan Agreement, as modified by the 2017 Loan Amendment, the 2017 Lenders have the right, which we refer
to as the 2017 Investment Right, until June 30, 2019, to invest up to $1,233,216, in the aggregate, at an agreed price per share
equal to 120% of the applicable 2017 Loan Conversion Price, which was adjusted based on the 2017 Loan Amendment, to a fixed exercise
price of $1.332 (subject to adjustments in case of stock splits or similar events). See
“-December 2017 Loan Amendment
”
below.
Ridge
is entitled, under certain circumstances, to demand repayment of the 2017 Loan, including: (i) if Wize Israel breaches or fails
to perform or is shown to have made a false statement, under the 2017 Agreement or the Security Agreements; (ii) any failure of
Wize Israel to make a timely payment; (iii) upon the appointment of a receiver; (iv) the imposition of a lien on a material asset
of Wize Israel; (v) if Wize Israel files a motion to freeze proceedings; and (vi) an adverse material change. We believe that
we have complied with the aforementioned covenants through the date of this report.
The
2017 Loan contains a number of restrictive covenants that limit Wize Israel’s operating flexibility. These covenants include,
among other things, limitations on the creation of liens; on the incurrence of indebtedness; on dispositions of assets, mergers,
acquisitions and other change of control transactions; on changes in the general nature of Wize Israel’s business; restrictions
on payments to related parties; and on the distribution of dividends. Wize Israel has complied with the aforementioned covenants
through the date of this report.
It
should be noted that, prior to entering into the 2017 Loan Agreement, Ridge provided the following three loans to Wize Israel,
all of which bore interest at an annual rate equal to the interest rates of the Israeli government bonds: (1) NIS 250,000 was
extended in November 2016, (2) NIS 300,000 was extended in December 2016 and (3) NIS 200,000 was extended in February 2017 (together,
the “Ridge Interim Loans”). On March 30, 2017, after Ridge already provided NIS 250,000 under the 2017 Loan Agreement
out of the NIS 1 million committed by Ridge thereunder, Ridge exercised its right to have the Ridge Interim Loans treated as a
portion of the remaining NIS 1 million.
In
addition, as part of the 2017 Loan Agreement, Wize Israel and the other lenders agreed that (1) the security interests made under
the Security Agreements will also serve to secure the loans made by Rimon Gold under the 2017 Loan Agreement, and (2) Rimon Gold
will have the right to be repaid the full 2016 Loan prior to any repayment of the 2017 Loan.
December
2017 Loan Amendment
. On December 21, 2017, we entered into an amendment (the “2017 Loan Amendment”) to the 2016
Loan Agreement and the 2017 Loan Agreement. Pursuant to the 2017 Loan Amendment, (i) the maturity date of the Loans was extended
from December 31, 2017 to December 31, 2018; (ii) the exercise period of the 2016 Investment Right was amended so that it shall
expire on June 30, 2019; (iii) the exercise period of the 2017 Investment Right was amended so that it shall expire, without the
need to first convert the 2017 Loan, on June 30, 2019; and (iv) the below terms of the Loans were amended to be denominated in
U.S. dollars instead of NIS:
|
|
2016 Loan
|
|
|
2017 Loan
|
|
Aggregate Principal Amount
|
|
$
|
531,067
|
|
|
$
|
822,144
|
*
|
Conversion Price Per Wize US Share
|
|
$
|
0.9768
|
|
|
$
|
1.1112
|
|
Aggregate Maximum Investment Right
|
|
$
|
796,601
|
|
|
$
|
1,233,216
|
**
|
Exercise Price of Investment Right
|
|
$
|
1.308
|
|
|
$
|
1.332
|
|
*
|
Principal
loan amount of $274,048 for each of the three 2017 Lenders.
|
**
|
Maximum
Investment Right of $411,072 for each of the three 2017 Lenders.
|
Rimon
Gold and Ridge Consents to the Merger Agreement
. In connection with the Merger Agreement, Wize Israel sought and obtained
the written consents of Rimon Gold and Ridge to the transactions contemplated by the Merger Agreement. The consent provided by
Rimon Gold provided that it is based upon, among other things, the following obligations: (1) following the closing of the Merger
Agreement, we will assist Rimon Gold with its filing requirements, if any, with the SEC with respect to beneficial ownership and
similar reports; and (2) at closing of the Merger Agreement, we will execute and deliver to Rimon Gold the Wize Guaranty, which
we executed and delivered to Rimon Gold.
Under
the Wize Guaranty, we irrevocably guarantee Wize Israel’s obligations to Rimon Gold under the Convertible Loans. In addition,
the Wize Guaranty contains a number of restrictive covenants that limit our operating flexibility. These covenants include, among
other things, limitations on the creation of liens; on the incurrence of indebtedness; on dispositions of assets, mergers, acquisitions
and other change of control transactions; on changes in the general nature of our business; and on the distribution of dividends.
Wize Israel has complied with the aforementioned covenants through the date of this report.
2017
PIPE
. On June 23, 2017, Wize Israel entered into a Private Placement Agreement (the “2017 PIPE Agreements”) with
each of Yosef Eliyahu Peretz (“Peretz”), Yaakov Zarachia (“Zarachia”), Simcha Sadan (“Sadan”)
and Jonathan Brian Rubini (“Rubini”, and together with Peretz, Zarachia and Sadan, the “2017 PIPE Investors”).
Pursuant to the 2017 PIPE Agreements, the 2017 PIPE Investors invested a total of up to NIS 3.49 million (approximately $1 million)
in exchange for a total of 207,739 ordinary shares of Wize Israel, at a price per share of NIS 16.8 (approximately $4.8), with
Peretz investing NIS 490,000 (approximately $139,000) in exchange for the private placement of 29,167 ordinary shares of Wize
Israel (the “Peretz Financing”) and each of Zarachia, Sadan and Rubini (the “Other Investors”) investing
NIS 1 million (approximately $282,000) in exchange for the private placement of 59,524 ordinary shares of Wize Israel each (together,
the “Other Financing”), and together with the Peretz Financing, the “2017 PIPE”). At the Effective Time,
the 207,739 ordinary shares of Wize Israel that were issued to the 2017 PIPE Investors as part of the 2017 PIPE were automatically
cancelled and converted, based on the Exchange Ratio, into an aggregate of 860,987 shares of our Common Stock.
Subject
to the closing of the Merger, Wize Israel also undertook to cause us to grant 2017 Warrants to each of the 2017 PIPE Investors,
with each PIPE Warrant being exercisable into one share of our Common Stock, with a term of three years from the date of grant.
According to the 2017 PIPE Agreements, the number of 2017 Warrants and the exercise price thereof will reflect, prior to giving
effect to an adjustment based on the exchange ratio, (i) 30,625 warrants to Peretz and (ii) 62,500 warrants to each of the Other
Investors, each warrant exercisable into one ordinary share of Wize Israel, at an exercise price of NIS 28.8 per share (approximately
$8.40). Based on the Exchange Ratio, Peretz was granted 126,928 2017 Warrants and each of the Other Investors was granted 259,036
2017 Warrants, each at an exercise price of $1.9728. Consistent with the foregoing, we executed and delivered the 2017 Warrants
to the 2017 PIPE Investors on November 16, 2017.
On
June 22, 2017, Ridge provided notice to Wize Israel that it had waived its right to adjust the 2017 Loan Conversion Price in connection
with the Peretz Investment. On July 4, 2017, Wize Israel completed the Peretz Investment. However, Ridge did not waive its right
to adjust the 2017 Loan Conversion Price in connection with the Other Investments. On July 31, 2017, at a general meeting of the
shareholders of Wize Israel, the Other Investments was approved and on August 7, 2017 Wize Israel completed the Other Investments.
October
2018 Private Placement.
On October 22, 2018, the Company entered into a securities purchase agreement with certain accredited
investors. Pursuant to the 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 (i) 3,100,000 shares of common stock, for a purchase price of $1.00
per share, and (ii) 1,350 shares of newly created Series A Preferred Stock (each convertible into 1,000 shares of common stock),
for a purchase price of $1,000 per share, for aggregate gross proceeds under the purchase agreement of $4,450. The Company also
agreed to issue to the investors Series A Warrants to purchase an aggregate of 4,450,000 shares of common stock (equal to 100%
of the shares of common stock sold (on an as-converted basis with respect to shares of Series A Preferred Stock)), and Series
B Warrants to purchase an aggregate of 4,450,000 shares of common stock (equal to 100% of the shares of common stock sold (on
an as-converted basis with respect to shares of Series A Preferred Stock)). The Series A Warrants have an exercise price of $1.10
per share, and the Series B Warrants have an exercise price of $1.00 per share. The investors under the purchase agreement include
prior investors in the Company and a lender to the Company.
2018
loan amendment.
In connection with the 2018 privet placement, on October 19, 2018 (“2018 modification date”) the
Company and its wholly-owned subsidiary Wize Pharma Ltd. (“Wize Israel”) entered into an amendment to the existing
convertible loan (the “Amendment”). Pursuant to Amendment, the maturity date under the (i) 2016 Loan Agreement, and
(ii) 2017 Loan Agreement, was amended to be the earliest of (a) 90 days following the date that the registration statement the
Company will file under the Registration Rights Agreement covering the resale of all common stock, issued pursuant to the Purchase
Agreement, and issuable upon conversion of the Series A Preferred Stock and exercise of the Warrants, are registered for resale
for investors who are not a party to the Loan Agreements Amendment, (b) 90 days following the date on which all securities issued
to investors under the Purchase Agreement are no longer deemed registrable securities under the Registration Rights Agreement,
and (c) one year following the closing under the Purchase Agreement. In addition, pursuant to the Amendment, the expiration date
of the investment right under the 2016 Loan Agreement and the 2017 Loan Agreement was amended to be 180 days after the Loan Agreements
Maturity Date.
2019
loan amendment.
On March 4, 2019, the Company and its wholly-owned subsidiary Wize Pharma Ltd. (“Wize Israel”)
entered into an amendment to convertible loan agreements (the “2019 Amendment”) with Rimon Gold Assets Ltd. (“Rimon
Gold”), Ridge Valley Corporation (“Ridge Valley”), and Shimshon Fisher (“Fisher” and, together with
Rimon Gold and Ridge Valley, the “Lenders”). Pursuant to the 2019 Amendment, the maturity date under the (i) convertible
loan agreement between Wize Israel and Rimon Gold, dated March 20, 2016 (as amended, the “2016 Loan Agreement”), and
(ii) convertible loan agreement, dated January 12, 2017 (as amended, the “2017 Loan Agreement”), among Wize Israel,
Rimon Gold, and Ridge Valley, was extended to May 31, 2019 (as previously described under the 2018 Loan Modification) from March
4, 2019. The parties also agreed that the Lenders’ remaining investment rights under the 2016 Loan Agreement to invest up
to $512.8, in the aggregate, at $1.308 per share, and the Lender’s remaining investment rights under the 2017 Loan Agreement
to invest up to $663.4, in the aggregate, at $1.332 per share, be extended from June 30, 2019 to November 30, 2019.
April 2019 Purchase
of Existing Convertible Loans by Chief Executive Officer
. In April 2019 our Chief Executive Officer
purchased
directly from Ridge all of the outstanding convertible loans held by Ridge in the amount of approximately $279,000 for
a total of 265,531 shares of common stock issuable upon conversion of the loans and accompanying investment rights to purchase
an additional 94,382 shares of common stock at $1.332 per share.
Off-Balance
Sheet Arrangements
As
of March 31, 2019, we did not have any off-balance sheet arrangements, as such term is defined under Item 303
of Regulation S-K, that have or are reasonably likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is
material to investors.
Recently
Issued Accounting Pronouncements
For information with
respect to recent accounting pronouncements, see Note 2 to our interim consolidated financial statements as of March 31, 2019 included
in this Form 10-Q.
Critical Accounting Policies
Our critical accounting
policies are described in the notes to our consolidated financial statements as of December 31, 2018 included in our 2018 Form
10-K. There have been no changes to critical accounting policies in the three months period ended March 31, 2019.