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Convertible Loans

9 Months Ended

Sep. 30, 2019

Debt Disclosure [Abstract]

CONVERTIBLE LOANS

NOTE 4:-

CONVERTIBLE LOANS

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 modifications 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 modifications 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.

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 modifications 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 (that did not involve the Company) as consideration for these derivative securities.

a.

2017 loan amendment

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:

		2017 Loan				2016 Loan

Aggregate principal amount		$	(*) 822			$	531

Conversion price per Company's share		$	1.1112			$	0.9768

Aggregate maximum of Right to Future Investment		$	(**) 1,233			$	797

Exercise price per Company's share of Right to Future Investment		$	1.332			$	1.308

(*)	Principal loan amount of $274 for each of the three 2017 Lenders.

(**)	Maximum of Right to Future Investment of $411 for each of the three 2017 Lenders.

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.

b.

2018 loan amendment

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 its related right to future investment and an aggregate amount of $3,286 was allocated to the 2017 Loan and its related 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.

c.

March 2019 loan amendment

On March 4, 2019, the Company and its wholly-owned subsidiary Wize Pharma Ltd. ("Wize Israel") entered into another 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 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 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 in paragraph b 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.

d.

May 2019 loan extension

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 in paragraph c 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 its related right to future investment.

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 $139 which was included in the 2017 Loan and its fair value as of that date amounting to $91, 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 nine months ended September 30, 2019 and the year ended December 31, 2018:

		September 30,				December 31,
		2019				2018

Opening balance (including interest)		$	2,635			$	3,204
Amortization of premium related to convertible loans prior to 2018 modification			-				(1,458	)
Amortization of premium related to convertible loans following 2018 modification			(641	)			(691	)
Derecognition of carrying amount of 2016 Loan and 2017 Loan upon extinguishments – March 2019 modification			(1,873	)			(1,680	)
Accrued interest on 2017 Loan and 2016 Loan			36				56
Amount allocated to 2016 Loan and 2017 Loan based on modified terms – March 2019 modification			1,767				3,204
Amortization of premium related to convertible loans following March 2019 modifications			(413	)			-
Derecognition of carrying amount of 2016 Loan and 2017 Loan upon extinguishments – May 2019 extension			(1,353	)			-
Amount allocated to 2016 Loan and 2017 Loan based on modified terms – May 2019 extension			1,556				-
Amortization of premium related to convertible loans – May 2019 extension			(134	)			-

		$	1,580			$	2,635