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 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 June 30, 2020, the Company has an accumulated deficit of $38,069.
In
addition, in the period and year ended June 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.
The
accompanying 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 (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. 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 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 June 30, 2020, the Company had an accumulated deficit of $38,069. 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 pre-clinical 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.
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 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
|
The 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 the 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 consolidated financial statements of the Company as of December 31, 2019 are applied consistently in these
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 June 30, 2020, management has determined that there was no
significant change in the development of LO2A and thus there was no change in the fair value of the liability during the period
from initial recognition through June 30, 2020.
The
Company has determined that the inputs used in measuring the fair value of the contingent payment obligation falls 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 income (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 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 (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 is December 28, 2020 (or earlier), the liability was classified as a current liability as of June
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 income (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.
|
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 six and three month periods ended June 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
six and three months ended June 30, 2020 and 2019, are as follows:
|
|
Six months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,170
|
)
|
|
$
|
(1,705
|
)
|
Less: Net loss attributed to Series A Preferred Stock
|
|
|
46
|
|
|
|
122
|
|
Add: Deemed dividend with respect to right for future investment
|
|
$
|
-
|
|
|
$
|
(185
|
)
|
|
|
|
|
|
|
|
|
|
Net loss applicable to shareholders of Common Stock
|
|
$
|
(4,124
|
)
|
|
$
|
(1,768
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Shares of common stock used in computing basic and diluted net income (loss) per share
|
|
|
16,074,892
|
|
|
|
9,741,517
|
|
Net loss per share of Common stock, basic and diluted
|
|
$
|
(0.26
|
)
|
|
$
|
(0.18
|
)
|
|
|
Three months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
130
|
|
|
$
|
(1,853
|
)
|
Less: Net income (loss) attributed to Series A Preferred Stock
|
|
|
(1
|
)
|
|
|
69
|
|
Add: Deemed dividend with respect to right for future investment
|
|
|
-
|
|
|
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to shareholders of Common Stock
|
|
$
|
129
|
|
|
$
|
(1,865
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Shares of common stock used in computing basic and diluted net income (loss) per share
|
|
|
16,187,490
|
|
|
|
10,416,151
|
|
Net income (loss) per share of Common stock, basic and diluted
|
|
$
|
0.01
|
|
|
$
|
(0.18
|
)
|
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.
|
|
Six months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock, options and warrants excluded from the calculations of diluted income (loss) per share
|
|
|
16,675,339
|
|
|
|
7,491,490
|
|
|
NOTE
3:-
|
UNAUDITED
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
These 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 six-month period ended June 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 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.
WIZE
PHARMA, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands, except share and per share data
|
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.
|
Concurrently with the completion of the Bonus Agreements, the Company issued the Series B Preferred Stock. For more information, see Note 5 below.
|
|
c.
|
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 therefor, Bonus issued to Wize 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 Bonus ordinary shares 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 was $0.11.
|
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 (the “LO2A Shares”), the right to receive 37% of future LO2A Proceeds (if any), which, as more fully defined
in the Bonus Exchange Agreement, includes 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.
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 will be deposited directly into an escrow account (the “Bonus Escrow Account”), of which (i) $500
will be paid to Bonus as an advance promptly following execution of the Bonus Purchase Agreement, (ii) $3,200 will be 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 will be 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 June 30, 2020 and as of the date of these Financial Statements, Bonus has not satisfied the Nasdaq Listing condition
and the condition of the Milestone Closing has not occurred.
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.)
|
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 subject to Bonus failure to achieve listing in Nasdaq, 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 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 ordinary shares. Pursuant to the Bonus Agreements, an additional 28,413,000
Bonus ordinary shares will 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 June 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.
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 June 30, 2020, the Company recognized financial income from
revaluation of its investment in Bonus marketable securities in an amount of $1,000 (the Company recognized a loss of $2,388 for
the three month period ended March 31, 2020, resulting in financial income of $3,388 for the three month period ended June 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.
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 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 upon the failure of such listing by Bonus, such amount shall
be required to be released in its entirely to the Series B investors. This escrow account of $3,700 is presented as Restricted
deposit in the accompanying consolidated balance sheet as of June 30, 2020.
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
and until June 30, 2020, the Company recognized a loss in an amount of $803 (the Company recognized a gain of $1,910 during the
three month period ended March 31, 2020, resulting in a loss of $2,703 for the three month period ended June 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 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 17,047,800 Bonus Shares, representing approximately 1.76% of the
outstanding shares of Bonus.
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
|
|
|
Six months ended
June 30,
|
|
|
Three months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in the fair value of marketable securities
|
|
$
|
1,000
|
|
|
$
|
-
|
|
|
$
|
3,391
|
|
|
$
|
-
|
|
Bank commissions and exchange rate differences
|
|
|
-
|
|
|
|
28
|
|
|
|
-
|
|
|
|
2
|
|
Amortization of premium related to convertible loans
|
|
|
-
|
|
|
|
1,087
|
|
|
|
-
|
|
|
|
320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial income
|
|
$
|
1,000
|
|
|
$
|
1,115
|
|
|
$
|
3,391
|
|
|
$
|
322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest on convertible loans
|
|
$
|
-
|
|
|
$
|
(18
|
)
|
|
$
|
-
|
|
|
$
|
(9
|
)
|
Loss from extinguishment of convertible loans
|
|
|
-
|
|
|
|
(878
|
)
|
|
|
-
|
|
|
|
(926
|
)
|
Loss from recognition of mandatorily redeemable Series B Preferred Stock
|
|
|
(3,207
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Revaluation of mandatorily redeemable Series B Preferred Stock
|
|
|
(803
|
)
|
|
|
|
|
|
|
(2,713
|
)
|
|
|
|
|
Change in the fair value of marketable securities
|
|
|
-
|
|
|
|
(194
|
)
|
|
|
-
|
|
|
|
(101
|
)
|
Bank commissions and exchange rate differences
|
|
|
(14
|
)
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial expenses
|
|
|
(4,024
|
)
|
|
|
(1,090
|
)
|
|
|
(2,716
|
)
|
|
|
(1,036
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial income (loss), net
|
|
$
|
(3,024
|
)
|
|
$
|
25
|
|
|
$
|
675
|
|
|
$
|
(714
|
)
|
NOTE 7:-
|
SUBSEQUENT EVENTS
|
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.
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 $248,000) (the “2020 Loan”). 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, 2020. 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 any time, the value of
all the assets in the 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 Bonus Shares held by it.
On August 11, 2020, our 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 our Board of Directors and (ii) 100,000 restricted stock units vesting quarterly over a period of two years
to each of the other non-executive directors.