You should read the following discussion and analysis of our financial condition
and results of operations together with our audited annual consolidated
financial statements as of December 31, 2020 and December 31, 2019 and
accompanying notes appearing elsewhere in this Annual Report. This discussion
and analysis contains forward-looking statements that involve risks,
uncertainties and assumptions. The actual results may differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including, but not limited to, those set forth under "Risk Factors" and
elsewhere in this Annual Report. All amounts are in U.S. dollars and rounded.
Overview
We are a clinical-stage biopharmaceutical company currently focused on the
treatment of ophthalmic disorders, including DES. We have in-licensed LO2A, a
drug developed for the treatment of DES and other ophthalmological illnesses,
including CCH and Sjögren's.
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
$3,170,000 in the year ended December 31, 2019 to $2,442,000 in the year ended
December 31, 2020. We may 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
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Year Ended
December 31,
2020 2019
Operating expenses:
Research and development expenses $ (434,000 ) $ (492,000 )
General and administrative expenses (2,008,000 ) (2,678,000 )
Total operating costs
(2,442,000 ) (3,170,000 )
Financial income (expense), net (2,487,000 ) (280,000 )
Net loss $ (4,929,000 ) $ (3,450,000 )
Revenues
We did not generate any revenues from operations during the years ended December
31, 2020 and 2019. We had no revenues primarily because (1) from the time of the
creditors' arrangement in February 2015 until May 2015, when we (through Wize
Israel and OcuWize) 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.
Operating Expenses
Research and development expenses. Research and development expenses were
$434,000 for the year ended December 31, 2020, compared to $492,000 for the year
ended December 31, 2019, a decrease of $58,000 or 11.8%. The decrease in
research and development expenses is primarily related to conducting the Sjögren
clinical trial in 2019, as compared to only conducting a partial trial in 2020.
For more information with respect to our expenses in connection with entering
into the LO2A License Agreement, please see Note 5 of the audited consolidated
financial statements of Wize Israel appearing elsewhere in this Annual Report.
General and administrative expenses. General and administrative expenses were
$2,008,000 for the year ended December 31, 2020, compared to $2,678,000 for the
year ended December 31, 2019, a decrease of $670,000 or 25%. The decrease in
general and administrative expenses during these periods is primarily related to
decrease in share based payments of $442,000, a decrease in professional
services of $436,000 and in overseas travel expenses of $103,000, which were
partially offset by an increase in payroll and benefits of $364,000.
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Financial income (expense), Net. Financial expense, net was $2,487,000 for the
year ended December 31, 2020 compared to financial expense, net of $280,000 for
the year ended December 31, 2019, a change of $2,207,000 or 788.2%. The increase
in financial expense, net during this period is primarily related to the
increase in financial loss related to the Bonus Agreements of $3,642,000, and
decrease in gain from amortization of premium related to convertible loans of
$1,257,000, which were partially offset by an increase in gain from change in
the fair value of marketable securities and sale of shares of $1,727,000 and
decrease in loss from loss from extinguishment of convertible loans of $977,000
that occurred in 2019.
Net Loss. As a result of the foregoing, we incurred a net loss of $4,929,000 for
the year ended December 31, 2020 compared to a net loss of $3,450,000 for the
year ended December 31, 2019, an increase in the net loss of $1,479,000 or
42.9%.
Liquidity and Capital Resources
General
Liquidity is the ability of a company to generate funds to support its current
and future operations, satisfy its obligations, and otherwise operate on an
ongoing basis. Significant factors in the management of liquidity are funds
generated by operations, levels of accounts receivable and accounts payable and
capital expenditures. In the past several years, we financed our operations
primarily through equity and convertible debt financings in private placements,
as described below.
Working Capital and Cash Flows
As of December 31, 2020 and December 31, 2019, we had $247,000 and $718,000 in
cash and cash equivalents, respectively.
As of December 31, 2020, we had $265,000 in outstanding short term loans
relating to the loan obtained by OcuWize from Bank Hapoalim. As of December 31,
2019, we had no outstanding loans.
As of December 31, 2020 and December 31, 2019, we had $1,317,000 and $506,000 of
working capital, respectively. As of December 31, 2020, we had an accumulated
deficit of $39,218,000. The increase in working capital was primarily due to an
increase in marketable equity securities related to our acquisition of the Bonus
Shares.
The following table presents the major components of net cash flows (used in)
provided by operating, investing and financing activities for the periods
presented:
Year Ended
December 31,
2020 2019
Net cash used in operating activities $ (1,519,000 ) $ (2,064,000 )
Net cash provided by investing activities $ 823,000 $ -
Net cash provided by (used in) financing activities $ 197,000 $ (360,000 )
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
For the years ended December 31, 2020 and 2019, net cash used in operating
activities was $1,519,000 and $2,064,000, respectively. The decrease in net cash
used in operating activities was mainly due to (A) (i) a decrease in
amortization of premium related to convertible loans of $1,257,000,(ii) an
increase in loss from recognition of mandatorily redeemable Series B Preferred
Stock of $3,207,000, (iii) an increase in loss from revaluation of mandatorily
redeemable Series B Preferred Stock $597,000, (iv) an increase in loss from
revaluation of a contingent obligation with respect to future revenues of
$435,000, (v) a decrease in other current assets of $251,000 and (vi) an
increase in other accounts payable of $524,000, which were partially offset by
(B) (i) an increase in net loss of $1,479,000, (ii) an increase in gain on
marketable equity securities of $1,724,000,(iii) a decrease in stock based
compensation of $572,000, (iv) a decrease in loss from extinguishment of
convertible loans of $977,000, (v) recognition of a gain from completion of
milestone closing of $847,000 and (vi) recognition of gain from settlement
shares of $100,000 in 2020.
For the years ended December 31, 2020 and 2019, net cash provided by investing
activities was $823,000 and none, respectively. The increase in net cash used in
investing activities was mainly due to an increase in proceeds from the sale of
Bonus Shares of $821,000 which did not occur in 2019.
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For the years ended December 31, 2020 and 2019, net cash provided by (used in)
financing activities was $197,000 and $(360,000), respectively. The cash
provided by financing activities in 2020 was due to a loan received from a bank
on July 15, 2020 in an amount of $247,000 and the difference between the funds
that were raised in the Series B Purchase Agreement (as defined below) in the
amount of $7,500,000 and the funds that were invested in connection with the
Bonus Agreements, which amounted to $7,400,000, which was partially offset by
the payment of license fees to Resdevco for the 2020 fiscal year in an amount of
$150,000. Cash provided in 2019 from proceeds of $550,000 from issuance of
shares and warrants and cash used was from convertible loans repayment in an
amount of $760,000.
Outlook
According to management estimates, liquidity resources as of December 31, 2020
may not be sufficient to maintain our planned level of operations for the next
12 months. However, for a long-term solution (for the sake of clarity, if the
pending Cosmos Transaction is not consummated as planned), 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"
above. As of December 31, 2020, we had an accumulated deficit and a minimal
amount of stockholders' equity. In addition, during the years ended December 31,
2019 and 2020, we reported 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, 2020 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, other
than the PIPE Agreements in connection with the Bid Agreement. 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 Bonus Shares that we currently hold a result
of the Bonus Agreements.
Notwithstanding the foregoing, if we consummate the Cosmos Transaction,
including the Offer, as currently contemplated to occur on or about March 9,
2021, our business, including outlook, future plans and corporate structure,
will be materially impacted. For example, due to the Cosmos Transaction and the
contemplated distribution of CVRs, we expect that, following the Closing Date,
we will focus on the development of Cosmos' Bitcoin mining business and that,
with respect to our initiatives for the LO2A, we will focus on achieving an LO2A
Transaction as contemplated by the CVR Agreement.
Principal Financing Activities. The following is a summary of the equity and
debt financings conducted by us in the past several years:
2019 Loan Amendment. On March 4, 2019, the Company and Wize Israel entered into
an amendment (the "2019 Amendment") to convertible loan agreements that were
originally entered into in 2016 and 2017 (the "Loan Agreements") with Rimon
Gold, Ridge and Fisher ("Fisher", and together with Rimon Gold and Ridge, the
"2019 Lenders"). Pursuant to the 2019 Amendment, the maturity date under the
Loan Agreements was extended to May 31, 2019. The parties also agreed that the
2019 Lenders' remaining investment rights under one of the Loan Agreements to
invest up to $512,800, in the aggregate, at $1.308 per share, and the Lender's
remaining investment rights under one of the other Loan Agreements to invest up
to $663,400, 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.
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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
("Mobigo"), and Fisher. Pursuant to the May 2019 Amendment, the maturity dates
under the Loan Agreements were extended to November 30, 2019. The parties also
agreed that the lenders' investment rights under the Loan Agreements to invest
up to $512,809, in the aggregate, at $1.308 per share, and 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.
November 2019 Loan Amendment. On November 29, 2019, the Company and Wize Israel
entered into an amendment to convertible loan agreements with Rimon Gold, Mobigo
and Fisher (together, the "Lenders"). Pursuant to the Amendment, the Company
repaid approximately $760,000 of the $1,520,000 outstanding under the loans on
November 29, 2019 and the Lenders agreed to convert the remaining outstanding
amounts of the loans at a later date. On December 13, 2019, the Company issued
to the Lenders an aggregate of 2,816,196 shares of common stock upon conversion
of the loans at a reduced conversion price of $0.27 per share and issued
warrants to purchase an aggregate of 5,632,392 shares of common stock at an
exercise price of $0.27. The warrants have a term of five years and will be
exercisable five days following the public announcement of positive clinical
data results for LO2A. In addition, the parties agreed that effective December
13, 2019, the exercise price or conversion price of all other convertible
securities previously issued to the Lenders in connection with the loans (the
"Existing Convertible Securities") shall be adjusted to $0.27 per share and that
the aggregate number of shares of common stock issuable upon exercise or
conversion of a Lender's Existing Convertible Securities shall be reduced in
accordance with the percent of such Lender's conversion of its outstanding loan.
In addition, it was agreed that in any case when the exercise price of the
October 2018 Warrants is reduced as a result of dilutive issuance to an exercise
price lower than the exercise or conversion price of the Investment Rights
granted under the Loan Agreements, than the exercise or conversion price of the
Investment Rights shall be reduced to the new 2018 Warrants exercise price ("New
Exercise Price"). As of December 31, 2019, the New Exercise Price of such
Investment Rights was $0.16.
December 2019 Private Placement. On December 20, 2019 the, Company entered into
a securities purchase agreement (the "December 2019 Purchase Agreement") with an
accredited investor. Pursuant to the December 2019 Purchase Agreement, the
Company sold to the investor, in a private placement, an aggregate of 2,037,037
shares of common stock for a purchase price of $0.27 per share, for aggregate
gross proceeds of $550,000. The Company also agreed to issue to the investor
five-year warrants to purchase an aggregate of 4,074,047 shares of common stock.
The warrants will have an exercise price of $0.27 per share and will be
exercisable five days following the public announcement of positive clinical
data results for LO2A. The warrants will be exercisable on a cashless basis in
the event that, six months after issuance, there is not an effective
registration statement for the resale of the shares underlying the warrants.
The Bonus/LO2A Transaction. 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 ("TASE"), 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.
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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 was to 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.
In June and July 2020, we entered into a letter agreement (and amendment
thereto) with Bonus, whereby, among other things, we agreed with Bonus on the
manner that a portion of the fees payable to the financial advisor in connection
with the Bonus Agreements will be payable by Bonus.
Our obligation to consummate the Milestone Closing was 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").
On November 29, 2020, we entered into an Addendum (the "Addendum") with Bonus,
whereby, among other things, Bonus agreed to issue to Wize ordinary shares of
Bonus (the "Bonus Shares"), the total number of which consists of (i) the
Milestone Settlement Shares, which, as defined in the Addendum, means Bonus
Shares equal to the quotient obtained by dividing US$500,000 expressed in NIS
(based on the exchange rate set in the Addendum) by NIS 0.50, and (ii) the HCW
Settlement Shares (together with the Milestone Settlement Shares, the
"Settlement Shares"), which, as defined in the Addendum, means Bonus Shares
equal to the quotient obtained by dividing US$350,000 expressed in NIS (based on
the exchange rate set in the Addendum) by NIS 0.50. In consideration for the
Settlement Shares, Wize agreed to make certain amendments to the Bonus
Agreements, including the following key modifications: (i) Wize will waive the
requirement that Bonus will effect the Nasdaq Listing and, in relation thereto,
conduct the Milestone Closing, which means that US$3.7 million were released
from an existing escrow account to Bonus, whereas the 28,413,000 Bonus Shares
held in such escrow (the "Nasdaq Milestone Shares") were released to Wize and to
its former holders of Series B Preferred Stock (the "Former Series B Holders");
(ii) Wize will waive approximately US$120,000 in liquidated damages that accrued
as a result of the delay in effecting the Nasdaq Listing; and (iii) Bonus agreed
to extend the period for Wize to create, and cause its Israeli subsidiaries to
create, certain first priority liens in favor of Bonus to secure obligations
under the Bonus Exchange Agreement, including certain related negative
covenants. The closing occurred on December 29, 2020. It should be noted that,
in accordance with the obligations of Wize to the Former Series B Holders (see
below), Wize has transferred 80% of the Milestone Settlement Shares and 80% of
the Nasdaq Milestone Shares to such investors.
As of March 1, 2021, we held 2,845,541 Bonus Shares, which based on the closing
sale price of the Bonus Shares on the TASE as of such date, were worth NIS 3,
656,520 (equivalent to $1,114,793).
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).
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.
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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.
Short Term Loan. On July 15, 2020, OcuWize entered into a loan agreement with
Bank Hapoalim (the "Bank"), whereby the Bank extended a loan in the principal
amount of NIS 850,000 (approximately $247,000) (the "2020 Loan"). The 2020 Loan
bears interest at an annual rate of 5.45%, which will be paid in monthly
payments. The 2020 Loan has a maturity date of January 15, 2020. In order to
secure its obligations and performance pursuant to the 2020 Loan, OcuWize
recorded a pledge in favor of the Bank and agreed that at any time, the value of
all the assets in the bank account will not be less than NIS 1,700,000
(approximately $496,000). In order to satisfy this requirement, the Company
loaned to OcuWize a portion of the Bonus Shares held by it. The 2020 Loan was
fully repaid on January 14, 2021.
Warrant Exercises and Exchanges. On December 8, 2020, we entered into exchange
agreements (the "Exchange Agreements") with certain holders of common stock
purchase warrants issued by the Company in October 2018 to purchase an aggregate
of 3,000,000 shares of the Company's common stock (the "2018 Warrants").
Pursuant to the terms of the Exchange Agreements, the holders of the 2018
Warrants surrendered their 2018 Warrants for cancellation and received, as
consideration for such cancellation, an aggregate of 3,000,000 restricted shares
of common stock.
On December 24, 2020, we entered into an agreement (the "2020 Agreement") with
certain holders representing a majority of the then outstanding 2018 Warrants.
Pursuant to the terms of the 2020 Agreement, we agreed to voluntarily reduce the
exercise price of the 2018 Warrants to $0.001 per share until January 7, 2021,
after which such exercise price shall revert back to $0.16 per share. As a
result of the adjustment to the exercise price of the 2018 Warrants, the
exercise price of the warrants issued in November 2017 (the "2017 Warrants"),
the placement agent warrants issued in October 2018 (the "2018 Placement Agent
Warrants"), the warrants issued to certain lenders in May 2019 (the "May 2019
Warrants"), the warrants issued to certain lenders in November 2019 (the
"November 2019 Warrants"), the warrants issued to certain purchasers from the
private placement in December 2019 (the "December 2019 Warrants") and certain
investment rights issued in January 2017 (the "Investment Rights") were also
adjusted to reflect a reduced exercise price of $0.001 per share (collectively,
the "Warrant Adjustments"). As a result of the Warrant Adjustments, on December
29, 2020 an aggregate of 13,332,657 were issued as a result of the exercise of
such warrants, each on a cashless basis. Such warrant exercises also included
warrants beneficially owned by our Chief Executive Officer, Noam Dannenberg.
In light of the foregoing, as of March 1, 2021, we no longer have any warrants
or investment rights outstanding except 26,287 warrants.
Off-Balance Sheet Arrangements
As of December 31, 2020 and December 31, 2019, we did not have any off-balance
sheet arrangements, as such term is defined under Item 303 of Regulation S-K,
that have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
is material to investors.
Recently Issued Accounting Pronouncements
For information with respect to recent accounting pronouncements, see Note 2u to
our audited consolidated financial statements for the year ended December 31,
2020.
Critical Accounting Policies
Contingent obligation with respect to future revenues
The Company's contingent obligation to payment of 37% of the future LO2A
Proceeds, if any, was accounted for as long-term debt in accordance with the
provisions of Accounting Standards Codification ("ASC") 470-10-25, "Sales of
Future Revenues or Various other Measures of Income," which relates to cash
received in exchange for payments of a specified percentage or amount of revenue
or other measure of income of a particular product line, business segment,
trademark, patent, or contractual right.
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Such repayment obligations are contingent upon the receipt by the Company of any
future proceeds from LO2A sales, license or other, as described in Note 5 below.
The Company elected to measure the contingent payment obligation in its
entirety, at its fair value (the "Fair Value Option") in accordance with ASC
825-10, "Financial Instruments" due to the variable and contingent nature of the
repayment provisions of such financial liability.
The fair value of such liability was measured upon its initial recognition at
its fair value, based on the difference between the fair value of the marketable
securities received by the Company, less the amount of cash paid by the Company.
In subsequent periods, the fair value of the liability for contingent payment
obligation is based on management estimate. As of December 31, 2020, the Company
revalued the liability to its fair value with the assistance of an external
valuation specialist, pursuant to the Company's estimations and assumptions.
The Company has determined that the inputs used in measuring the fair value of
the contingent payment obligation fall within Level 3 in the fair value
hierarchy which involves significant estimations and assumptions regarding any
projected future proceeds from the LO2A, including, among others, the dry eye US
market size in 2025 (USD 2.9 Billion), the maximum penetration rate of the
product into the U.S. market - 12%, the patent expiration date (2038), the
operational profit estimated rate - 26%, the probabilities for FDA phases
approvals, and the risk-adjusted rate for discounting future cash flows - 20.3%.
The Company has determined that the inputs used in measuring the fair value of
the contingent payment obligation fall within Level 3 in the fair value
hierarchy which involves significant estimates and assumptions including, among
others, any projected future proceeds from the LO2A, the risk-adjusted rate for
discounting future cash flows and other relevant assumptions, see Note
10. Actual results could differ from the estimates made. Changes in fair value
(including the component related to imputed interest), would be included in the
consolidated statements of comprehensive loss as part of financial income (loss)
under the heading "Changes in fair value of contingent payment obligation with
respect to future revenues."
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