Mawson Infrastructure Group Inc. - Quarter Report: 2019 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________to__________

Commission File Number: 000-52545

WIZE PHARMA, INC.

(Exact name of registrant as specified in its charter)

+(972) (72) 260-0536

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

Securities registered pursuant to Section 12(b) of the Act:

The number of shares outstanding of the Registrant’s Common Stock, $0.001 par value, on August 8, 2019 was 10,877,095.

TABLE OF CONTENTS

Throughout this report, unless otherwise designated, the terms “we,” “us,” “our,” the “Company,” “Wize” and “our company” refer to Wize Pharma, Inc., a Delaware corporation, and its wholly-owned Israeli subsidiary, Wize Pharma Ltd. (“Wize Israel”).

All dollar amounts refer to U.S. dollars unless otherwise indicated.

Unless derived from Wize’s financial statements or otherwise indicated, U.S. dollar translations of New Israeli Shekels (“NIS”) amounts presented in this report are translated using the rate of NIS 3.484 to one U.S. dollar, the exchange rate reported by the Bank of Israel for August 12, 2019.

On March 5, 2018, we effected a reverse stock split of our common stock, $0.001 par value (the “Common Stock”) at a ratio of one for twenty-four (1:24) (the “Reverse Stock Split”). Unless otherwise indicated, all share and per share amounts included in this Quarterly Report reflect the effects of the Reverse Stock Split.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

WIZE PHARMA, INC.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2019

U.S. DOLLARS IN THOUSANDS

UNAUDITED

INDEX

- - - - - - - - - - - - - - -

WIZE PHARMA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

The accompanying notes are an integral part of the unaudited interim consolidated financial statements (the “Financial statements”).

WIZE PHARMA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands (except share and per share data)

The accompanying notes are an integral part of the unaudited interim consolidated financial statements (the “Financial statements”).

WIZE PHARMA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

U.S. dollars in thousands (except share and per share data)

The accompanying notes are an integral part of the unaudited interim consolidated financial statements (the “Financial statements”).

WIZE PHARMA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

U.S. dollars in thousands (except share data)

WIZE PHARMA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

U.S. dollars in thousands (except share data)

WIZE PHARMA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

U.S. dollars in thousands (except share data)

The accompanying notes are an integral part of the unaudited interim consolidated financial statements (the “Financial statements”).

WIZE PHARMA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

U.S. dollars in thousands (except share data)

The accompanying notes are an integral part of the unaudited interim consolidated financial statements (the “Financial statements”).

WIZE PHARMA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

(Continued)

WIZE PHARMA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

(Continued)

The accompanying notes are an integral part of the unaudited interim consolidated financial statements (the “Financial statements”).

WIZE PHARMA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

On November 16, 2017, the Company completed the acquisition of Wize Pharma Ltd., an Israeli company (“Wize Israel”) by way of a reverse triangular merger.

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., a wholly-owned Israeli subsidiary which manages and develops most of the Company’s activity under the License Agreement.

In May 2015, Wize Israel entered into an Exclusive Distribution and Licensing Agreement (as amended, the “License Agreement”) with Resdevco Ltd. (“Resdevco”), whereby Resdevco granted to Wize Israel an exclusive license to purchase, market, sell and distribute a formula known as LO2A (“LO2A”) in the United States, Israel, Ukraine and China as well as a contingent right to do the same in other countries. LO2A is a drug developed for the treatment of DES, and other ophthalmological illnesses, including Conjunctivochalasis (“CCH”) and Sjögren’s syndrome (“Sjögren’s”). 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 the higher of $0.60, in Israel and Ukraine, or in a 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 January 2019, the Company paid Resdevco royalties in the amount of $180. 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.

The Company has determined not to pursue any activities in Israel and the Ukraine for the moment and specifically not until the Company will obtain from the inventor a regulatory file with DES and additional indications such as CCH or Sjögren’s.

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, 2019, the Company has an accumulated deficit of $31,887.

In addition, in period and year ended June 30, 2019 and December 31, 2018, respectively, the Company reported operating losses and negative cash flows from operating activities.

Furthermore, unless the Company can extend the maturity date, or obtain additional financing, the convertible loans in the aggregate principal amount of $1,353 (discussed in Note 4) will become due on November 30, 2019.

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 equity or equity-linked securities and/or debt securities and, to the extent possible, refinance 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.

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, 2019, the Company had an accumulated deficit of $31,887. 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 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.

The Company expects to continue to incur losses for the foreseeable future, and these losses will likely increase as it:

No certainty exists that the Company will be able to complete the development of LO2A for CCH, 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. Even if the Company does achieve profitability, it may not be able to sustain or increase profitability on a quarterly or annual basis or to develop the cannabis drug with Cannabics (see Note 5b).

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 markets, such as the biopharmaceutical market, where regulatory approval and market acceptance of its products are uncertain. There can be no assurance that the Company’s efforts will ultimately be successful or result in revenues or profits.

WIZE PHARMA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

The Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).

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.

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.

As applicable to the consolidated financial statements, the most significant estimates and assumptions relate to the going concern assumptions, determining the fair value of embedded and freestanding financial instruments related to convertible loans, and to stock-based compensation.

The significant accounting policies applied in the annual consolidated financial statements of the Company as of December 31, 2018 are applied consistently in these Financial Statements, except as described in b below.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 requires lessees to recognize their leases contracts as assets and liabilities in the financial statements. Furthermore, with respect to operating lease transactions, ASU 2016-02 requires the Company to continue recognizing expenses but recognize expenses on their income statements in a manner similar to current lease accounting. The amendments in this ASU became effective on January 1, 2019. In July 2018, the FASB issued ASU 2018-11, Leases - Targeted Improvements, to allow a company to elect an optional modified retrospective transition method that applies the new lease requirements through a cumulative-effect adjustment in the period of adoption. Effective January 1, 2019, the Company adopted the new lease accounting standard using the modified retrospective transition option of applying the new standard at the adoption date. The Company elected to apply the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification.

The Company recognized $60 of operating lease right of use assets and operating lease liabilities at January 1, 2019. As of June 30, 2019, total of right-of-use assets related to the Company’s operating leases was $51 and operating lease liabilities and operating lease liabilities non-current were $19 and $32, respectively.

The loss and the weighted average number of shares used in computing basic and diluted net loss per share for the six months ended June 30, 2019 and 2018, is as follows:

WIZE PHARMA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

During the year ended December 31, 2018 the Company issued preferred stock as part of the October 2018 transaction. These preferred shares are participating securities.

The loss and the weighted average number of shares used in computing basic and diluted net loss per share for the three months ended June 30, 2019 and 2018, is as follows:

During the year ended December 31, 2018 the Company issued preferred stock as part of the October 2018 transaction. These preferred shares are participating securities.

The accompanying Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States 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 six and three months period ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019 or for any other interim period. The accompanying 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, 2018, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC on April 1, 2019 (the “2018 Form 10-K”). The accompanying consolidated balance sheet as of December 31, 2018 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

On March 20, 2016, Wize Israel entered into an agreement (as amended on March 30, 2016, the “2016 Loan Agreement”) pursuant to which Rimon Gold Assets Ltd. (“Rimon Gold”) extended a loan in the principal amount of up to NIS 2 million (approximately $531 according to an exchange rate at 2016 loan originate date), which bears interest at an annual rate of 4% (the “2016 Loan”). Pursuant to the 2016 Loan Agreement, as modified by the 2017 Loan Agreement (as defined below) and the 2017 Loan Amendment (as defined below), the 2016 Loan had a maturity date of December 31, 2018. Regarding the modification of the maturity date of the 2016 loan in October 2018, March 2019 and May 2019, see also Note 4b, 4c and 4d.

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 according to an exchange rate at 2016 loan origination date), 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 3.6 (approximately $0.96). As a result of the 2017 Loan Amendment (as defined below), the aggregate principal amount of the 2016 Loan is $531 and the conversion price per share for the 2016 Loan was adjusted to $0.9768.

In addition, under the 2016 Loan Agreement, as modified by the 2017 Loan Agreement (as defined below) and the 2017 Loan Amendment (as defined below), Rimon Gold had the right (the “2016 Investment Right”), until June 30, 2019, to invest up to $797, 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 (as defined below), from NIS 5.04 to $1.308 (subject to adjustments in case of stock splits or similar events). Regarding modification to extend the term of the 2016 investment right in October 2018 March 2019 and May 2019, see also Note 4b, 4c and 4d.

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 License Agreement or if any party is in material breach of the License Agreement or if any party notifies the other of its intention to terminate the License Agreement; (vii) an adverse material change; or (viii) upon the non-performance of Wize Israel pursuant to the 2017 Loan Agreement, see also Note 4a. The 2016 Loan Agreement and the Security Agreements contain 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 the Company’s business; restrictions on payments to related parties; restrictions on conducting rights offerings, and on the distribution of dividends.

The Company believes it is in compliance with the 2016 loan covenants through the date of the financial statements.

WIZE PHARMA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

On January 15, 2017, Wize Israel entered into the loan agreement (the “2017 Loan Agreement”) with Ridge Valley Corporation (“Ridge”), and, by way of entering into assignments and assumption agreements following such date, also with Rimon Gold and Shimshon Fisher (“Fisher,” and together with Ridge and Rimon Gold, the “2017 Lenders”), whereby each of the lenders extended a loan in the principal amount of up to NIS 1 million (approximately $274 according to an exchange rate at 2017 loan originate date) and in the aggregate principal amount of up to NIS 3 million (approximately $822 according to an exchange rate at 2017 loan originate date), 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 (as defined below), the 2017 Loan had a maturity date of December 31, 2018. Regarding the modification of the maturity date of the 2017 loan in October 2018, March 2019 and May 2019, see also Note 4b, 4c and 4d.

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 according to an exchange rate at 2017 loan originate date), that the lender provided to Wize Israel (each such portion converted 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 (see also Note 12b to the 2018 consolidated financial statements), the 2017 Loan Conversion Price for Rimon Gold, Fisher and Ridge was adjusted to NIS 16.8 (approximately $4.80), and as a result of the Merger, the 2017 Loan Conversion Price of NIS16.8 (approximately $4.8) was adjusted in accordance with the Exchange Ratio to NIS 4.05 (approximately $1.15).

As a result of the 2017 Loan Amendment (as defined below), the aggregate principal amount of the 2017 Loan is $822 and the 2017 Loan Conversion Price was adjusted to $1.1112. See “2017 Loan Amendment” below.

In addition, under the 2017 Loan Agreement, as modified by the 2017 Loan Amendment (as defined below), the 2017 Lenders had the right (the “2017 Investment Right”), until June 30, 2019, to invest up to $1,233, in the aggregate, at an agreed price per share equal to 120% of the applicable 2017 Loan Conversion Price, which was adjusted in December 2017, 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). Regarding modification to extend the term of the 2017 investment right in October 2018, March 2019 and May 2019, see also Note 4b, 4c and 4d.

Ridge was 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; or (vi) an adverse material change. The 2017 Loan contains a number of restrictive covenants that limit the 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.

The Company believes it is in compliance with the 2017 loan covenants through the date of the financial statements.

On April 21, 2019, Ridge transferred the loan and the investment right due to the loan to Mobigo Inc, a company wholly owned by the Company’s CEO, Noam Danenberg. Mr. Danenberg waived a debt owed to him directly by Ridge as consideration for these derivative securities (refer to Note 6h)

WIZE PHARMA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

On December 21, 2017, the Company 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:

Accordingly, each of the modified financial instruments was initially recorded at fair value. Then, the total fair value of the modified financial instruments related to the 2017 Loan and 2016 Loan (the “Reacquisition Price”) was allocated to the original financial instruments included in the 2017 Loan and 2016 Loan, as applicable, based on the relative fair value of such financial instruments as of the date of the extinguishment. As a result, an aggregate amount of $2,104 was allocated to the 2016 Loan and an aggregate amount of $2,985 was allocated to the 2017 Loan.

In connection with the Purchase Agreement (see note 12j to 2018 consolidated financial statements), 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 loans (the “Amendment”). Pursuant to the 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.

The 2018 loan amendment was accounted for as an extinguishment on October 19, 2018.

According to ASC 470-50, each of the modified financial instruments were measured at fair value. Then, the total fair value of the modified financial instruments related to the 2017 Loan and 2016 Loan (the “Reacquisition Price”) was allocated to the original financial instruments included in the 2017 Loan and 2016 Loan, as applicable, based on the relative fair value of such financial instruments as of the date of the extinguishment. As a result, an aggregate amount of $2,314 was allocated to the 2016 Loan and an aggregate amount of $3,286 was allocated to the 2017 Loan and the related 2016 and 2017 right to future investment.

The difference between the Reacquisition Price that was allocated to the Right to Future Investment amounting to $874 which was included in the 2016 Loan and its fair value as of that date amounting to $764 was recorded directly to additional paid in capital (as a deemed dividend in an amount of $110). In addition, the Reacquisition Price that was allocated to the Right to Future Investment amounting to $1,336 which was included in the 2017 Loan and its fair value as of that date amounting to $1,154, was recorded directly to additional paid-in capital (as a deemed dividend in an amount of $182). The difference between reacquisition price that was allocated to the 2017 loan and to the 2016 loan, respectively and their respective carrying value of the 2017 Loan and 2016 Loan was recorded as a loss on extinguishment amounting to $1,709 of the 2017 Loan and 2016 Loan.

The 2018 loan amendment became effective in the fourth quarter of 2018 and all of the accounting effects were recognized in the fourth quarter of 2018.

WIZE PHARMA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

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 “March 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 March 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 expiration date of 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.

The March 2019 loan amendment was accounted for as an extinguishment on March 4, 2019. Until that date, the 2017 loan and the 2016 loan were being accounted for under the terms of the 2018 loan amendment discussed above.

According to ASC 470-50, each of the modified financial instruments were measured at fair value on the extinguishment date. Then, the total fair value of the modified financial instruments related to the 2017 Loan and 2016 Loan (the “Reacquisition Price”) was allocated to the original financial instruments included in the 2017 Loan and 2016 Loan, as applicable, based on the relative fair value of such financial instruments as of the date of the extinguishment. As a result, an aggregate amount of $986 was allocated to the 2016 Loan its related right to future investment and an aggregate amount of $1,423 was allocated to the 2017 Loan and its right to future investment.

The difference between the Reacquisition Price that was allocated to the Right to Future Investment amounting to $237 which was included in the 2016 Loan and its fair value as of that date amounting to $192 was recorded directly to additional paid-in capital (as a deemed dividend in an amount of $45). In addition, the Reacquisition Price that was allocated to the Right to Future Investment amounting to $348 which was included in the 2017 Loan and its fair value as of that date amounting to $289, was recorded directly to additional paid-in capital (as a deemed dividend in an amount of $59). The difference between reacquisition price that was allocated to the 2017 loan and to the 2016 loan, respectively and their respective carrying value of the 2017 Loan and 2016 Loan was recorded as gain on extinguishment amounting to $48 of the 2017 Loan and 2016 Loan.

On May 31, 2019, the Company and its wholly-owned subsidiary Wize Pharma Ltd. (“Wize Israel”) entered into an additional extension to convertible loan agreements (the “May 2019 Amendment”) with Rimon Gold Assets Ltd. (“Rimon Gold”), Noam Danenberg (“Noam”), and Shimshon Fisher (“Fisher” and, together with Rimon Gold and Noam, the “Lenders”). Pursuant to the May 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 Noam Danenberg, was extended to November 30, 2019 from May 31, 2019 (as previously described under the March 2019 Amendment). The parties also agreed that the expiration date of 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 November 30, 2019 to May 31, 2021. As consideration for extending the maturity date of the loans, the Company issued to the Lenders two-year warrants to purchase an aggregate of 868,034 shares of common stock at a fixed price of $1.10 per share (the “May 2019 Warrants”).

The May 2019 loan extension was accounted for as an extinguishment on May 31, 2019. Until that date, the 2017 loan and the 2016 loan were being accounted for under the terms of the March 2019 loan amendment discussed above.

According to ASC 470-50, each of the modified financial instruments were measured at fair value on the extinguishment date. Then, the total fair value of the modified financial instruments related to the 2017 Loan and 2016 Loan (the “Reacquisition Price”) was allocated to the original financial instruments included in the 2017 Loan and 2016 Loan, as applicable, based on the relative fair value of such financial instruments as of the date of the extinguishment. As a result, an aggregate amount of $1,015 was allocated to the 2016 Loan and an aggregate amount of $1,498 was allocated to the 2017 Loan and the related 2016 and 2017 right to future investment.

WIZE PHARMA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

The difference between the Reacquisition Price that was allocated to the Right to Future Investment amounting to $94 which was included in the 2016 Loan and its fair value as of that date amounting to $61 was recorded directly to additional paid-in capital (as a deemed dividend in an amount of $33). In addition, the Reacquisition Price that was allocated to the Right to Future Investment amounting to $140 which was included in the 2017 Loan and its fair value as of that date amounting to $92, was recorded directly to additional paid-in capital (as a deemed dividend in an amount of $48). The difference between reacquisition price that was allocated to the 2017 loan and to the 2016 loan, respectively and their respective carrying value of the 2017 Loan and 2016 Loan was recorded as loss on extinguishment amounting to $926 of the 2017 Loan and 2016 Loan.

The below table describes the roll forward of 2017 Loan and 2016 Loan for the six months ended June 30, 2019 and the year ended December 31, 2018:

WIZE PHARMA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

The Company determined the fair value of the RSUs to be the quoted market price of the Company’s common stock on the date of issuance. The aggregate fair value of these restricted stock units issued was $476. The Company is recording this amount quarterly over the vesting period of 24 months following March 31, 2019.

WIZE PHARMA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

WIZE PHARMA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

Composition:

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:

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. 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 $1,805,000 in the six months ended June 30, 2018 to $1,880,000 for the six months ended June 30, 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 Six Months Ended June 30, 2019 Compared to the Six Months Ended June 30, 2018

Revenues

We did not generate any revenues from operations during the six months ended June 30, 2019 and 2018. We had no revenues primarily because (1) from the time of the Creditors’ Arrangement (as defined in our Form 10-K) 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 $221,000 for the six months ended June 30, 2019, compared to $299,000 for the six months ended June 30, 2018, a decrease of $78,000 or 26%. The decrease in research and development expenses is primarily related to lower expenses for clinical trials.

General and administrative expenses. General and administrative expenses were $1,509,000 for the six months ended June 30, 2019, compared to $1,506,000 for the six months ended June 30, 2018, an increase of $3,000 or 0.2%. The increase in general and administrative expenses during these periods is primarily related to decrease in share-based payment expense of $335,000 and decrease in professional services expenses of $120,000 which was partly offset by an increases in investor relations and marketing of $119,000, an increase in payroll expenses of $107,000, increase in travel expenses of $70,000 and increase in other expenses of $56,000.

Financial income (loss), Net. Financial expense, net was $25,000 for the six months ended June 30, 2019 compared to financial income, net of $832,000 for the six months ended June 30, 2018, a change of $807,000 or 97%. The decrease in financial income, net during this period is primarily related to recognition of losses from extinguishments of the convertible loans in the amount of $878,000 and increase in investment revaluation of $194,000 derived from unrealized loss on marketable securities measured at fair value through earnings which was partially offset by a higher amortization of premium related to convertible loans of $195,000.

Net loss. As a result of the foregoing, we recognized $1,705,000 of net loss for the six months ended June 30, 2019 compared to a net loss of $973,000 for the six months ended June 30, 2018, an increase in the net loss of $732,000 or 75%.

Results of Operations Three Months Ended June 30, 2019 Compared to the Three Months Ended June 30, 2018

Operating Expenses

Research and development expenses. Research and development expenses were $158,000 for the three months ended June 30, 2019, compared to $89,000 for the three months ended June 30, 2018, an increase of $69,000 or 78%. The increase in research and development expenses is mainly from an increase of expenses for clinical trials.

General and administrative expenses. General and administrative expenses were $981,000 for the three months ended June 30, 2019, compared to $1,180,000 for the three months ended June 30, 2018, a decrease of $199,000 or 16.8%. The decrease in general and administrative expenses during these periods is primarily related to decrease in share-based payment expense of $316,000 and decrease in professional services expenses of $83,000 which was partially offset by an increases in travel expenses of $46,000, an increase in payroll expenses of $62,000 and an increase in other expenses of $56,000.

Financial Income (expense), Net. Financial expense, net was $714,000 for the three months ended June 30, 2019 compared to financial income, net of $401,000 for the three months ended June 30, 2018, a change of $1,115,000 or 278%. The decrease in financial income, net during this period is primarily related to recognition of losses from extinguishments of the convertible loans at the amount of $926,000 and increase in investment revaluation of $101,000 derived from unrealized loss on marketable securities measured at fair value through earnings and a lower amortization of premium related to convertible loans of $126,000.

Net loss. As a result of the foregoing, we recognized $1,853,000 of net loss for the three months ended June 30, 2019 compared to a net loss of $868,000 for the three months ended June 30, 2018, an increase in the net loss of $985,000 or 134%.

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 in our Form 10-K) 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 June 30, 2019 and December 31, 2018, we had $1,795,000 and $3,183,000 in cash and cash equivalents, respectively.

As of June 30, 2019 and December 31, 2018, we had $1,663,000 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 June 30, 2019 and December 31, 2018, we had $439,000 and $204,000 of working capital, respectively. As of June 30, 2019, we had an accumulated deficit of $31,887. 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:

Six Months ended June 30, 2019 Compared to Six Months ended June 30, 2018

For the six months ended June 30, 2019 and 2018, net cash used in operating activities was $1,198,000 and $1,014,000, respectively. The increase in net cash used in operating activities of $184,000 was mainly due to an increase in net loss of $732,000, increase in amortization of a premium related to convertible loans of $195,000 and a decrease in stock-based compensation of $335,000 which was partially offset by losses from convertible loans extinguishments of $878,000 and Marketable equity securities revaluation of $166,000.

For the six months ended June 30, 2019 and 2018, net cash provided by investing activities was Nil and $176,000, respectively. The decrease in net cash provided by investing activities was mainly due to decrease in proceeds from sale of marketable equity of $177,000 in the six month period ended June 30, 2018 which we did not have in the six month period ended June 30, 2019.

For the six months ended June 30, 2019 and 2018, net cash provided by (used in) financing activities was (150,000) and $1,057,000, respectively. The decrease in net cash provided by financing activities was mainly due proceeds from issuance of shares with respect to exercise of PIPE warrants and right for future investment in the amount of $861,000 in 2018 and from receipt on account of stock to be issued in the amount of $196,000 in 2018. There were no such transactions in 2019.

Outlook

According to management estimates, liquidity resources as of June 30, 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 June 30, 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 included in our Form 10-K 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.

Recent Amendments to our Loan Agreements.  The following is a summary of the recent amendments to our convertible loan agreements.

As of June 30, 2019, we (through Wize Israel) had a total principal and accrued interest balance of approximately $1.48 million of loans outstanding under certain convertible loans.

The 2016 Loan.  On March 20, 2016, Wize Israel entered into a convertible loan (as amended on March 30, 2016, December 21, 2017, October 19, 2018, March 4, 2019, and May 31, 2019 (the “2016 Loan Agreement”) with Rimon Gold Assets Ltd. (“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”).

In addition, under the 2016 Loan Agreement, as amended to date, Rimon Gold has certain investment rights to purchase securities of Wize Israel, which later became investment rights to purchase securities of the Company in the Merger.

The 2017 Loan. On January 15, 2017, Wize Israel entered into the 2017 Loan Agreement (as amended on December 21, 2017, October 19, 2018, March 4, 2019, and May 31, 2019 the “2017 Loan Agreement”) with Ridge Valley Corporation (“Ridge”), and, by way of entering into assignments and assumption agreements following such date, also with Rimon Gold and Shimshon Fisher (“Fisher”), 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 lenders also received certain investment rights to purchase securities of Wize Israel, which later became investment rights to purchase securities of the Company in the Merger.

March 2019 Loan Amendment. On March 4, 2019, the Company and its wholly-owned subsidiary Wize Israel entered into an amendment to convertible loan agreements (the “March 2019 Amendment”) with Rimon Gold, Ridge, and Fisher. Pursuant to the March 2019 Amendment, the maturity date under the (i) 2016 Loan Agreement, and (ii) the 2017 Loan Agreement was extended to May 31, 2019 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.

May 2019 Loan Amendment. On May 31, 2019, the Company and Wize Israel entered into an amendment to convertible loan agreements (the “May 2019 Amendment”) with Rimon Gold, Mobigo Inc., an entity owned by our Chief Executive Officer, and Fisher. Pursuant to the May 2019 Amendment, the maturity dates under (i) the 2016 Loan Agreement and (ii) the 2017 Loan Agreement were extended to November 30, 2019 from May 31, 2019. The parties also agreed that 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 lenders’ investment rights under the 2017 Loan Agreement to invest up to $663,446, in the aggregate, at $1.332 per share, be extended to May 31, 2021. As consideration for extending the maturity date of the loans, the Company issued to the lenders two-year warrants to purchase an aggregate of 868,034 shares of common stock at an exercise price of $1.10 per share.

Off-Balance Sheet Arrangements

As of June 30, 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 June 30, 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 six month period ended June 30, 2019.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we have elected not to provide the disclosure required by this item.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d- 15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)), as of the end of the period covered by this Quarterly Report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of June 30, 2019, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting

There has been no change in our internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act, during our most recent fiscal quarter ended June 30, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II-OTHER INFORMATION

Item 1. Legal Proceedings

As previously reported, the Israeli Securities Authority (the “ISA”) has conducted an administrative inquiry regarding two of Wize Israel’s public reports filed with the ISA in Israel during 2016 and, in October 2018, the ISA commenced administrative enforcement proceedings against Wize Israel, the Company’s former Chairman and the Company’s Chief Financial Officer (who, at the relevant time, served as Wize Israel’s chief financial officer) in connection with the foregoing reports. In August 2019, the ISA’s Administrative Enforcement Committee approved a settlement of the proceedings, whereby, (i) Wize Israel undertook to pay a civil penalty of NIS 200,000 (equivalent to approximately $57,000) to the ISA and (ii) the Company’s Chief Financial Officer undertook to pay a civil penalty of NIS 175,000 (equivalent to approximately $50,000) to the ISA and also agreed that, if he will violate, at any time until August 2020, certain provisions of Israeli securities laws relating to misleading public reports, he will be barred, for a nine-month period thereafter, from serving as an officer or director in certain entities supervised by the ISA, including companies that are publicly traded in Israel (but, for the sake of clarity, not companies traded in the U.S., such as the Company).

Item 1A. Risk Factors

See Item 1A. “Risk Factors” as disclosed in our 2018 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

On August 8, 2019, the Board of Directors appointed Or Eisenberg to serve as the Company’s Chief Operating Officer. Mr. Eisenberg will continue to serve as the Chief Financial Officer, Treasurer and Secretary.

Item 6. Exhibits

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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