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 Annual Report on Form 10-K for the fiscal year ended
December 31, 2019 ("2019 Form 10-K") filed with the United States Securities and
Exchange Commission(the "SEC"), and our unaudited interim consolidated financial
statements and accompanying notes to these Financial Statements included 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 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, the risk factors set forth in our 2019 Form 10-K and in Part II - Item 1A of
this report.
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
2019 Form 10-K, our prior Quarterly Reports on Form 10-Q, and in Part II - Item
1A of this report.
Such risk factors are not necessarily all of the important factors that could
cause actual results to differ materially from those expressed in any of our
forward-looking statements. Given these uncertainties, readers are cautioned not
to place undue reliance on such forward-looking statements.
Factors that could cause our actual results to differ materially from those
expressed or implied in such forward-looking statements include, but are not
limited to:
? we will need to raise additional capital to meet our business requirements in
the future, and such capital raising may be costly or difficult to obtain and
will dilute current stockholders' ownership interests;
? our current pipeline is based on a single compound known as LO2A and on the
continuation of our license to commercialize LO2A;
? our inability to expand our rights under our License Agreement (as hereinafter
defined) may have a detrimental effect on our business;
? the initiation, timing, progress and results of our preclinical studies,
clinical trials and other product candidate development efforts;
19
? our ability to advance our product candidate into clinical trials or to
successfully complete our preclinical studies or clinical trials;
? our receipt of regulatory approvals for our product candidate, and the timing
of other regulatory filings and approvals;
? the clinical development, commercialization and market acceptance of LO2A;
? our ability to establish and maintain corporate collaborations;
? the implementation of our business model and strategic plans and transactions
for our business and product candidate;
? our ability to engage in strategic transactions that may monetize our rights
in our LO2A licensed technology and, if so, the timing and terms thereof;
? the scope of protection we are able to establish and maintain for intellectual
property rights covering LO2A and our ability to operate our business without
infringing the intellectual property rights of others;
? estimates of our expenses, future revenues, and capital requirements;
? competitive companies, technologies and our industry;
? political and economic instability, including, without limitation, due to
natural disasters or other catastrophic events, such as terrorist attacks,
pandemic diseases, such as the novel coronavirus (COVID-19), hurricanes, fire,
floods, pollution and earthquakes; and
? the impact of the political and security situation in Israel on our business.
All forward-looking statements attributable to us or persons acting on our
behalf speak only as of the date of this report and are expressly qualified in
their entirety by the cautionary statements included in this report. We
undertake no obligations to update or revise forward-looking statements to
reflect events or circumstances that arise after the date made or to reflect the
occurrence of unanticipated events. In evaluating forward-looking statements,
you should consider these risks and uncertainties.
Overview
General. 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"). 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.
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 focus on marketing LO2A as a treatment for DES and other ophthalmic
inflammations, including CCH and / or Sjögren's, in the United States, and in
additional territories, subject to obtaining the appropriate regulatory file for
each such territory and 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. The
registration process in certain countries, including the United States, requires
us to conduct additional clinical trials, in addition to the Phase II clinical
trial that we have completed and the Phase IV clinical trial which we completed
in May 2020, and with respect to which, we published topline data on November
12, 2020, as described in Item 5 below.
We plan, subject to successful studies results, to engage local or multinational
distributors to handle the distribution of LO2A or engage in such other
strategic transactions that may monetize our rights in our LO2A licensed
technology. In particular, we intend to (i) 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, or (ii) explore other strategic transactions with
pharmaceutical companies or others that will monetize our rights in the LO2A
licensed technology. However, there is no assurance whether we will be able to
consummate any such transactions and, even if we did, what will be the timing or
terms thereof.
20
In November 2018, we completed a phase II multi-center trial at five different
medical centers in Israel (the "Phase II Multi-Center Trial"). The Phase II
Multi-Center Trial was a randomized, double-blind, placebo-controlled study
carried out in parallel groups that evaluated the safety and efficacy of LO2A
for patients suffering from moderate to severe CCH. The primary efficacy
endpoint for the Phase II Multi-Center Trial was the change from baseline in
lissamine green conjunctival staining score at 3 months; secondary endpoints
include change from baseline in lissamine green conjunctival staining score at 1
month, change from baseline in LIPCOF score at 1 and 3 months, change from
baseline in TFBUT at 1 and 3 months and change from baseline in OSDI
questionnaire score at 1 and 3 months. Safety endpoints include adverse events
recorded throughout the trial, best-corrected visual acuity, slit lamp
biomicroscopy findings, undilated fundoscopy findings and intraocular pressure
measurements. We consulted with ophthalmology consultants from the United States
in the preparation of the protocol for the Phase II Multi-Center Trial. In
November 2018 we received the top line results for the Phase II Multi-Center
Trial which describe analysis of the primary endpoint. 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.
In May 2020, we completed a phase IV multi-center trial at five different
medical centers in Israel (the "Phase IV Multi-Center Trial"). The Phase IV
Multi-Center Trial evaluated the safety and efficacy of LO2A for symptomatic
improvement of DES in 69 adult patients with Sjögren's. Enrolled patients were
randomized in a 1:1 ratio to one of two treatment groups, LO2A or Systane® Ultra
UD. The Phase IV Multi-Center Trial was 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. We announced the topline results of
such trial on November 12, 2020, as described in Item 5 below.
Bonus Agreements. On January 9, 2020, the Company entered into (i) an Exchange
Agreement (the "Bonus Exchange Agreement"), with Bonus BioGroup Ltd. ("Bonus"),
an Israeli company whose ordinary shares are traded on the Tel Aviv Stock
Exchange, 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 L02A-based products ("LO2A
Proceeds") (if any), which, as more fully defined in the Bonus Exchange
Agreement, include proceeds generated by the Company, Wize Israel and OcuWize,
as a result of (i) the sale, license or other disposal of products or other
rights underlying the LO2A technology licensed to OcuWize under the License
Agreement, as amended; 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.
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 $7.4
million, which funds were deposited into an escrow account (the "Bonus Escrow
Account"), of which (i) $500,000 was to be paid to Bonus as an advance promptly
following execution of the Bonus Purchase Agreement, (ii) $3.2 million was to 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) $3.7
million will be released to Bonus upon the Milestone Closing (as defined in the
Bonus Purchase Agreement), in exchange for 50% of the PIPE Shares that were to
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 September 30, 2020 and as of the date hereof, Bonus
has not satisfied the Nasdaq Listing condition and the Milestone Closing has not
occurred. Accordingly, such amount is presented as restricted deposit (asset) in
the balance sheet as of September 30, 2020 and the same amount is reflected as
part of the liability with respect to the Series B Preferred Stock (as defined
below).
The Bonus Agreements 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
$20,000 to $164,000, 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. The Bonus Agreements also provide that, in the event
that the Milestone Closing shall not occur on or before twelve (12) months
following the Initial Deadline , the Company may terminate the requirement to
conduct the Milestone Closing by written notice to Bonus, with a copy to the
escrow agent (the date of delivery of such notice, the "Investor Milestone
Termination Date"), in which case, (A) the liquidated damages described above
shall not continue to accrue for the time following the Investor Milestone
Termination Date, (B) the escrow amount shall be returned to the Company
(following the redemption of the Series B Preferred Stock described below, to
the former holders thereof), and (C) the 28,413,000 Bonus Shares held in escrow
shall be returned to Bonus.
21
According to the Bonus Agreements, the total number of Bonus Shares issuable to
the Company (including the shares to be released at the Milestone Closing) was
computed as the number of ordinary shares of Bonus equal to the quotient
obtained by dividing (A) $16.4 million 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.
Series B Preferred Stock and Redemption. 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 sold to the investors, and the investors purchased 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 (the "Series B Preferred Stock") for a purchase price of $1,000 per
share, for aggregate gross proceeds under the Series B Purchase Agreement of
$7.5 million, which funds were deposited into an escrow account, of which (i)
$500,000 was paid to the Bonus Escrow Account and $100,000 was 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 $6.9 million were released to the Bonus Escrow Account upon the
closing of the transactions contemplated by the Series B Purchase Agreement (of
which, as described above, $3.7 million shall 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). As of September 30, 2020, and as of
the date hereof, Bonus has not satisfied the Nasdaq Listing condition and the
Milestone Closing has not occurred.
Pursuant to the Certificate of Designations of Series B Non-Voting Redeemable
Preferred Stock (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 had 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 has 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, and (ii) December 28, 2020,
unless the Company elected to redeem the Series B Preferred Stock earlier.
On February 19, 2020, the Company closed (i) the Series B Purchase Agreement and
issued and sold 7,500 shares of Series B Preferred Stock for aggregate gross
proceeds of $7.5 million and (ii) the Bonus Agreements, whereby the Company sold
37% of the LO2A Proceeds to Bonus as described above and invested $7.4 million
in Bonus, of which $3.7 million were released to Bonus at closing in
consideration for 85,239,000 Bonus Shares and $3.7 million were deposited into
an escrow account, and in consideration for their release upon the Nasdaq
Listing, an additional 28,413,000 Bonus Shares will be released to the Company
(and, following the redemption described below, to the other former holders of
Series B Preferred Stock). However, as of September 30, 2020 and as of the date
hereof, Bonus has not satisfied the Nasdaq Listing condition and the Milestone
Closing has not occurred. Accordingly, such amount is presented as restricted
deposit (asset) in the balance sheet, as of September 30, 2020 and the same
amount is reflected as part of the liability with respect to the Series B
Preferred Stock.
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 hereof,
the Company beneficially owns the remaining 16,024,093 Bonus Shares,
representing approximately 1.61% of the outstanding shares of Bonus (excluding
5,682,600 Bonus shares, out of the 28,413,000 Bonus shares held in trust, that
will be transferred to the Company upon satisfaction of certain conditions set
forth in the Bonus Agreements, including the Nasdaq Listing).
Outlook. 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 decreased
from $2,569,000 in the nine months ended September 30, 2019 to $2,296,000 for
the nine months ended September 30, 2020, primarily because we reduced our
general and administrative expenses, as discussed below. 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 and further research and
development or engaging in such other strategic transactions that may monetize
our rights in our LO2A licensed technology. In particular, we are currently
exploring a strategic transaction that will entail acquiring a company that is
not in our line of business, while allowing our securityholders to retain their
economic interests in our LO2A licensed technology, such as by way of issuing
contingent value rights linked to such LO2A technology to our existing
securityholders. However, there is no assurance whether we will be able to enter
and consummate such transaction and, even if weare, what the timing or terms
thereof may be.
22
Results of Operations - Nine Months Ended September 30, 2020 Compared to the
Nine Months Ended September 30, 2019
Nine Months Ended
September 30,
2020 2019
Operating expenses:
Research and development $ (392,000 ) (451,000 )
General and administrative (1,904,000 ) (2,118,000 )
Total operating costs (2,296,000 ) (2,569,000 )
Financial income (loss), net (4,936,000 ) (8,000 )
Net loss $ (7,232,000 ) (2,577,000 )
Revenues
We did not generate any revenues from operations during the nine months ended
September 30, 2020 and 2019. We had no revenues primarily because Wize Israel is
engaged primarily in research and development. Pursuant to the 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 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 the U.S. Food and Drug Administration ("FDA") approval for eye drops
utilizing the licensed technology.
Operating Expenses
Research and development expenses. Research and development expenses were
$392,000 for the nine months ended September 30, 2020, compared to $451,000 for
the nine months ended September 30, 2019, a decrease of $59,000, or 15%. The
decrease in research and development expenses is mainly due to the completion of
clinical trials in May 2020, which was partially offset by expenses related to
finalizing the study report of such clinical trials.
General and administrative expenses. General and administrative expenses were
$1,904,000 for the nine months ended September 30, 2020, compared to $2,118,000
for the nine months ended September 30, 2019, a decrease of $214,000, or 10%.
The decrease in general and administrative expenses during these periods is
primarily related to decreases in share-based compensation expenses, and
decreases in overseas travels and investor relations, which were partially
offset by an increase in payroll and benefits.
Financial loss, Net. Financial loss, net was $4,936,000 for the nine months
ended September 30, 2020 compared to financial loss, net of $8,000 for the nine
months ended September 30, 2019, a change of $4,928,000, or 61,600%. The change
in financial loss, net during these periods is primarily related to a decrease
in premium amortization on convertible loans, which were extinguished prior to
January 1, 2020, as well as due to a recorded loss from the recognition of the
Series B Preferred Stock and changes from the revaluation of the Series B
Preferred Stock and the contingent obligation with respect to future revenues
under the Bonus Agreements which were partially offset by an increase in the
fair value of marketable securities during the nine month period ended September
30, 2020.
Net loss. As a result of the foregoing, we recognized a net loss of $7,232,000
for the nine months ended September 30, 2020 compared to a net loss of
$2,577,000 for the nine months ended September 30, 2019, a change of $4,655,000,
or 181%.
23
Results of Operations - Three Months Ended September 30, 2020 Compared to the
Three Months Ended September 30, 2019
Three Months Ended
September 30,
2020 2019
Operating expenses:
Research and development $ (212,000 ) (230,000 )
General and administrative (938,000 ) (609,000 )
Total operating costs (1,150,000 ) (839,000 )
Financial income (loss), net (1,912,000 ) (33,000 )
Net loss $ (3,062,000 ) (872,000 )
Revenues
We did not generate any revenues from operations during the three months ended
September 30, 2020 and 2019. We had no revenues primarily because Wize Israel is
engaged primarily in research and development. See further discussion above
under revenues for nine months ended September 30, 2020 above.
Operating Expenses
Research and development expenses. Research and development expenses were
$212,000 for the three months ended September 30, 2020, compared to $230,000 for
the three months ended September 30, 2019, a decrease of $18,000, or 8%. The
decrease in research and development expenses is mainly due to the fact that in
the three months ended September 30, 2020, we did not have any active clinical
studies.
General and administrative expenses. General and administrative expenses were
$938,000 for the three months ended September 30, 2020, compared to $609,000 for
the three months ended September 30, 2019, an increase of $329,000, or 54%. The
increase in general and administrative expenses during these periods is
primarily related to an increase in payroll and benefits expenses and
professional services, which were partially offset by a decrease in share-based
compensation expenses as well as decreases in investor relations and marketing
expenses.
Financial loss, Net. Financial loss, net was $1,912,000 for the three months
ended September 30, 2020 compared to financial loss, net of $33,000 for the
three months ended September 30, 2019, a change of $1,879,000, or 5,694%. The
change in financial income, net during these periods is primarily related to a
decrease in premium amortization on convertible loans, which were extinguished
prior to January 1, 2020, and a loss from extinguishment of convertible loans,
which were set off by a decrease in fair value of marketable securities and
changes from the revaluation of the Series B Preferred Stock and the contingent
obligation with respect to future revenues under the Bonus Agreements during the
three month period ended September 30, 2020.
Net loss. As a result of the foregoing, we recognized $3,062,000 of net loss for
the three months ended September 30, 2020 compared to $872,000 net loss for the
three months ended September 30, 2019, a change of $2,190,000, or 251%.
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. In the past several years, we financed our operations
primarily through equity and convertible debt financings in private placements.
Working Capital and Cash Flows
As of September 30, 2020 and December 31, 2019, we had $102,000 and $718,000 in
cash and cash equivalents, respectively.
As of September 30, 2020, we had $247,000 of outstanding loan, and as of
December 30, 2019, we had no outstanding loans.
24
As of September 30, 2020, we had a current obligation of $4,707,000 related to
the formerly outstanding Series B Preferred Stock, of which (i) $3.7 million are
for the funds held in escrow and which, upon the failure of the Nasdaq Listing
by Bonus, will be released in its entirely to the former holders of the Series B
Preferred Stock, and (ii) approximately $1.0 million, which is presented on our
balance sheet both as an asset and a liability, is related to 9,546,768 Bonus
shares (out of the said 68,191,200 Bonus shares that we were required to
distribute as part of the redemption described above) to which several of the
former holders of Series B Preferred Stock are entitled and are still held in
the Company's bank account (and the Company will transfer those shares to such
holders when the Company will receive from those holders instructions to which
bank account the shares should be transferred).
As of September 30, 2020 and December 31, 2019, we had $338,000 and $506,000 of
working capital, respectively. The decrease in working capital was primarily due
to the recognition of the Series B Preferred Shares as a result of the
transaction with Bonus, which was partially offset by a recognition of
restricted deposit and investment in Bonus Shares and from a recognition of a
loan payable received from the bank on July 15, 2020. As of September 30, 2020,
we had an accumulated deficit of $41,131,000.
The following table presents the major components of net cash flows (used in)
provided by operating, investing and financing activities for the periods
presented:
Nine Months Ended
September 30,
2020 2019
Net cash used in operating activities $ (956,000 ) $ (1,548,000 )
Net cash provided by investing activities $ 114,000 $ -
Net cash provided by (used in) financing activities $ 197,000 $ (150,000 )
Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30,
2019
For the nine months ended September 30, 2020 and 2019, net cash used in
operating activities was $956,000 and $1,548,000, respectively. The decrease in
net cash used in operating activities of $592,000 was mainly due to the increase
in net loss of $4,655,000, an increase in marketable equity securities
revaluation of $946,000, a decrease in the loss from extinguishment of
convertible loans of $878,000 and a decrease in stock-based compensation of
$445,000 which was set off by an increase in net loss from the recognition and
fair value revaluation of the Series B Preferred Stock of $3,804,000, an
increase in net loss from revaluation of the contingent obligation with respect
to future revenues pursuant to the Bonus Agreements of $1,758,000 and a decrease
in amortization of the premium related to convertible loans of $1,188,000.
For the nine months ended September 30, 2020 and 2019, net cash provided by
investing activities was $114,000 and nil, respectively. The increase in net
cash provided by investing activities resulted from selling a portion of the
Bonus shares held by the Company.
For the nine months ended September 30, 2020 and 2019, net cash provided by
financing activities was $197,000 and net cash used in financing activities was
$150,000, respectively. The cash provided by financing activities in 2020 was
due to a loan received on July 15, 2020 and the difference between the funds
that were raised in the Series B transaction in the amount of $7,500,000 and the
funds that were invested in the transaction with Bonus, which amounted to
$7,400,000, which was partially offset by the payment of the license fees to
Resdevco for the 2020 fiscal year as described above. The cash used in financing
activities in 2019 was due to the payment of the license fees to Resdevco for
the 2019 fiscal year.
Outlook
According to management estimates, liquidity resources as of September 30, 2020
may not be sufficient to maintain our planned level of operations for the next
12 months. In particular, we will need to raise additional funding or sell some
of our marketable securities we received as a result of the transaction with
Bonus and, as described below, take short-term loans. However, for a longer-term
solution, we will need to either (i) seek additional capital for the purpose of
implementing our business strategy and managing our business and developing drug
candidates or (ii) reach another strategic transaction with pharmaceutical
companies or others that may monetize our rights in the LO2A licensed
technology. 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 Item 1A. "Risk
Factors" of our 2019 Form 10-K.
25
On July 15, 2020, OcuWize entered into a loan agreement with Bank Hapoalim (the
"Bank"), whereby the Bank extended a loan in the principal amount of NIS 850,000
(approximately $247,000) (the "2020 Loan"). The 2020 Loan bears interest at an
annual rate of 5.45%, which will be paid in monthly payments. The 2020 Loan has
a maturity date of January 15, 2021. In order to secure its obligations and
performance pursuant to the 2020 Loan, OcuWize recorded a pledge in favor of the
Bank and agreed that at 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 the
Bonus Shares held by it.
In addition, during the years ended December 31, 2019 and 2018, and the
nine-month period ended September 30, 2020, 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, 2019 included in our Form
10-K for the year ended December 31, 2019, contains an emphasis of this matter
in a 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 a similar emphasis of matter paragraph
with respect to our ability to continue as a going concern.
Except as outlined above, 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, sell of marketable equity securities or by out-licensing our
distribution rights or reaching another strategic transaction with
pharmaceutical companies or others that may monetize our rights in the LO2A
licensed technology. 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.
Off-Balance Sheet Arrangements
As of September 30, 2020, 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 September 30, 2020 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, 2019 included in our 2019 Form 10-K.
There have been no changes to critical accounting policies in the nine months
period ended September 30, 2020, other than the described in Note 2.a to the
Financial Statements above.
26
© Edgar Online, source Glimpses
WIZE PHARMA, INC. 
