XML 51 R8.htm IDEA: XBRL DOCUMENT

Significant Accounting Policies

12 Months Ended

Dec. 31, 2019

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES

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

Use of estimates in preparation of Financial Statements:

The preparation of consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated Financial Statements and accompanying notes. The Company evaluates on an ongoing basis its assumptions. The Company's management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated Financial Statements, and the reported amounts of expenses during the reporting periods. Actual results could differ from those estimates.

As applicable to the consolidated Financial Statements, the most significant estimates and assumptions relate to the going concern assumptions, determining the fair value of embedded and freestanding financial instruments related to convertible loans and rights to future investment as part of modification or the settlement of the convertible loans and the determination of whether modification of terms of financial instruments is considered substantial.

Principles of consolidation:

The consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. Inter-company balances and transactions have been eliminated upon consolidation.

Functional currency:

The Company aims to direct its main operations in the United States market. In addition, the convertible loans were denominated in U.S. dollars. Similarly, the Company issued warrants eligible for exercise for the Company's shares of Common Stock at an exercise price denominated in U.S. dollars and during January 2020 the Company completed the issuance of 7,500 Series B Non-Voting Redeemable Preferred Stock for a purchase price of $1 per share. Also, the management believes the Company will raise funds through private investment rounds and / or from issuance of equity in dollar amounts by approaching the market in the United States. As a result, it was determined that the U.S dollar is the currency of the primary economic environment in which the Company operates and expects to continue to operate in the foreseeable future. Thus, the functional currency of the Company is the U.S. dollar. The Company maintains its books and records in local currency, which is NIS.

Balances denominated in, or linked to foreign currency are stated on the basis of the exchange rates prevailing at the balance sheet date. For foreign currency transactions included in the consolidated statement of comprehensive loss, the exchange rates applicable on the relevant transaction dates are used. Transaction gains or losses arising from changes in the exchange rates used in the translation of such balances are carried to financing income or expenses as applicable.

The following table presents data regarding the dollar exchange rate of relevant currencies:

	As of December 31,				% of change
	2019		2018		2019			2018

USD 1 = NIS		3.456		3.748		(7.8	)		8.1

Cash and cash equivalents:

Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less at acquisition.

For presentation of statement of cash flows purposes, restrict cash balances are included with cash and cash equivalents, when reconciling the reported period total amounts.

	December 31
	2019

Cash and cash equivalents	$	718
Restricted bank deposit		41
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	759

There were no restricted cash amounts as of December 31, 2018.

Restricted bank deposit:

Restricted bank deposit is a deposit with maturities of more than three months and up to one year. The restricted bank deposit was presented at its cost, including accrued interest and represents cash which is used as collateral for Wize Israel's credit card used for certain corporate business expenses.

Marketable equity securities:

The Company's investment in marketable equity securities which is based on equity securities with readily determinable fair values was classified as financial instruments at fair value with any changes in fair value recognized periodically in net income.

Property and equipment, net:

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets at the following rates:

	%

Computers and electronic equipment		33
Furniture and office equipment		10

Impairment of long-lived assets:

The Company's long-lived assets are reviewed for impairment in accordance with Accounting Standards Codification ("ASC") 360, "Property, Plant and Equipment". Whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. During the years ended December 31, 2019 and 2018, no impairment losses have been identified.

Research and development expenses:

Research and development expenses are charged to the statement of comprehensive loss as incurred.

In-Process Research and Development assets, acquired in an asset acquisition (i.e., assets acquired outside a business combination transactions) that are to be used in a research and development project which are determined not to have an alternative future use are charged to expense at the acquisition date in accordance with ASC 730, "Research and Development".

Severance pay:

Wize Israel has two employee as of December 31, 2019 and 2018. Wize Israel's liability for severance pay is subject to Section 14 of Israel's the Severance Compensation Act, 1963 ("Section 14"), pursuant to which all Wize Israel's employees are included under Section 14, and are entitled only to monthly deposits, at a rate of 8.33% of their monthly salary, made in the employee's name with insurance companies. Under Israeli employment law, payments in accordance with Section 14 release Wize Israel from any future severance payments in respect of those employees. Wize Israel has made all of the required payments as of December 31, 2019 and 2018.

The fund is made available to the employee at the time the employer-employee relationship is terminated, regardless of cause of termination.

The severance pay liabilities and deposits under Section 14 are not reflected in the consolidated balance sheets as the severance pay risks have been irrevocably transferred to the severance funds.

Severance expenses for the years ended December 31, 2019 and 2018 amounted to $17 and $10, respectively.

Income taxes:

The Company accounts for income taxes in accordance with ASC 740, "Income Taxes". This topic prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances in respect of deferred tax assets are provided for, if necessary, to reduce deferred tax assets to amounts more likely than not to be realized.

The Company implements a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% (cumulative basis) likely to be realized upon ultimate settlement. As of December 31, 2019 and 2018, no liability for unrecognized tax positions has been recognized.

Concentrations of credit risk:

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, marketable securities and restricted bank deposits. Cash and cash equivalents and restricted bank deposits are invested in major banks in Israel.

Management believes that the financial institutions that hold the Company's investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments.

The Company has no off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.

Convertible loans:

Allocation of proceeds:

The proceeds received upon the original issuance of the 2016 Loan (as defined below) together with a freestanding derivative financial instrument (derivative liability for right to future investment) were allocated to the financial instruments issued based on the residual value method.

The detachable derivative financial instrument related to the 2016 Loan was recognized based on its fair value and the remaining amount of the proceeds was allocated to the 2016 Loan component.

The 2017 Loan (as defined below) was not issued with any detachable instruments.

Beneficial Conversion Features ("BCFs"):

Upon initial recognition, the Company has considered the provisions of ASC 815-40, "Derivatives and Hedging – Contracts in Entity's Own Equity" ("ASC 815-40"), and determined that the embedded conversion feature of the 2016 Loan should not be separated from the host instrument because it qualifies for equity classification. Furthermore, the Company applied ASC 470-20, "Debt – Debt with Conversion and Other Options" ("ASC 470-20) which clarifies the accounting for instruments with BCFs or contingently adjustable conversion ratios, and has applied the BCFs guidance to determine whether the conversion feature is beneficial to the investor.

The BCFs was calculated by allocating the proceeds received in financing transactions to the 2016 Loan and to any detachable freestanding financial instrument (derivative liability for future investment) included in the transaction, and by measuring the intrinsic value of the conversion option based on the effective conversion price as a result of the allocated proceeds.

The intrinsic value of the conversion option with respect to the 2016 Loan was recorded as a discount on the 2016 Loan with a corresponding amount credited directly to equity as additional paid-in capital. After the initial recognition, the discount on the 2016 Loan was amortized as interest expense over the contractual term of the 2016 Loan (before its modification) by using the effective interest method.

Upon initial recognition, the Company has considered the provisions of ASC 815-15, "Derivatives and Hedging - Embedded Derivatives", and determined that the embedded conversion feature of the 2017 Loan cannot be considered as clearly and closely related to the host debt instrument, However, it was determined that the embedded conversion feature should not be separated from the host instrument because the embedded conversion option, if freestanding, did not meet the definition of a derivative in accordance with the provisions of ASC 815-10, "Derivatives and Hedging" since its terms did not require or permit net settlement. Thus, it was determined that the conversion feature does not meet the characteristic of being readily convertible to cash.

Furthermore, the Company applied ASC 470-20 which clarifies the accounting for instruments with BCFs or contingently adjustable conversion ratios.

Pursuant to ASC 470-20-30, the amount of the BCFs with respect to the 2017 Loan was calculated at the commitment date, as the difference between the conversion price (i.e., the entire proceeds received for the 2017 Loan) and the aggregate fair value of the Common Stock and other securities (which consist of the future Investment Rights) into which the 2017 Loan was convertible.

As such difference was determined to be greater than the amount of the entire proceeds originally received for the 2017 Loan, the amount of the discount assigned to the BCFs was limited to the amount of the entire proceeds.

Following modifications or exchanges of convertible loans that were accounted for as an extinguishment (see below), upon each additional recognition of the convertible loans based on their modified terms, the Company applied ASC 470-20, "Debt – Debt with conversion and other options" to determine whether the conversion feature is considered beneficial to the investors. However, due to the fact that following each of the extinguishments of the convertible loans, such modified convertible loans were recognized based on their fair value as of the modification date, the conversion terms were not considered beneficial to the investors.

Modifications or Exchanges:

Modifications to, or exchanges of, financial instruments such as convertible loans, are accounted for as a modification or an extinguishment, following to provisions of ASC 470-50, "Debt- Modification and Extinguishments" ("ASC 470-50"). Such an assessment done by management either qualitatively or quantitatively based on the facts and circumstances of each transaction.

Under ASC 470-50, modifications or exchanges are generally considered extinguishments with gains or losses recognized in current earnings if the terms of the new debt and original instrument are substantially different. The instruments are considered "substantially different" when the present value of the cash flows under the terms of the new debt instrument is at least 10% different from the present value of the remaining cash flows under the terms of the original instrument.

If the terms of a debt instrument are changed or modified and the present value of the cash flows under the terms of the new debt instrument is less than 10%, the debt instruments are not considered to be substantially different, except in the following two circumstances (i) The transaction significantly affects the terms of an embedded conversion option, such that the change in the fair value of the embedded conversion option (calculated as the difference between the fair value of the embedded conversion option immediately before and after the modification or exchange) is at least 10% of the carrying amount of the original debt instrument immediately before the modification or exchange or (ii) The transaction adds a substantive conversion option or eliminates a conversion option that was substantive at the date of the modification or exchange.

If the original and new debt instruments are considered as "substantially different", the original debt is derecognized and the new debt is initially recorded at fair value, with the difference recognized as an extinguishment gain or loss under financial expense or income as applicable.

If a convertible debt instrument with a beneficial conversion option that was separately accounted for in equity, is extinguished prior to its conversion or stated maturity date, a portion of the reacquisition price is allocated to the repurchase of the beneficial conversion option. The amount of the reacquisition price allocated to the beneficial conversion option is measured using the intrinsic value of that conversion option at the extinguishment date. The residual amount, if any, is allocated to the convertible debt instrument.

The gain or loss on the extinguishment of the convertible debt instrument is determined based on the difference between the carrying amount and the fair value of the allocated reacquisition price.

Modifications to, or exchanges of equity financial instruments such as right to future investment, are accounted for as a modification or an extinguishment in a similar manner as described above. Such an assessment is done by management either qualitatively or quantitatively based on the facts and circumstances of each transaction. Among others, management considers whether, the fair value of the financial instruments before and after the modification or exchange are substantially different.

If the original and new equity instruments are considered as "substantially different", the excess fair value of the allocated reacquisition price over the fair value of the modified financial instrument before the modification, is recognized directly to retained earnings as a deemed dividend.

Issuance costs of convertible loan:

Upon initial recognition, costs incurred in respect of obtaining financing through issuance of the 2016 Loan (or costs allocated to such component in a package issuance) are presented as a direct deduction from the amount of the 2016 Loan and in subsequent periods such costs (together with the discount created by BCFs if applicable) expensed as financing expenses over the contractual term of the 2016 Loan by using the effective interest method. Any such costs that were allocated to the derivative component were expensed as incurred.

Upon initial recognition, costs incurred in respect of obtaining financing through issuance of the 2017 Loan also discussed in Note 8 (or costs allocated to such component in a package issuance) were presented as a deferred asset since the 2017 Loan was completely discounted at the initial recognition. In subsequent periods, such expenses were amortized ratably over the original term of the 2017 Loan.

Extinguishment of convertible loans:

Upon the final extinguishment of the convertible loans upon their maturity, the difference between the reacquisition price which consist of the cash paid, the fair value of instruments issued (shares and warrants) and the modification of loans and cancellation of existing financial instruments) and the carrying amounts of the convertible loans being extinguished is recognized as a gain or loss in the period of extinguishment.

Fair value of financial instruments:

ASC 820, "Fair Value Measurements and Disclosures" ("ASC 820"), defines fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date.

In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company.

Unobservable inputs are inputs that reflect the Company's assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

The hierarchy is broken down into three levels based on the inputs as follows:

Level 1	-	Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access.

Level 2	-	Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3	-	Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

The availability of observable inputs can vary from investment to investment and is affected by a wide variety of factors, including, for example, the type of investment, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment and the investments are categorized as Level 3.

The carrying amounts of cash and cash equivalents, short-term bank deposits, other accounts receivable, trade payables and other accounts payable approximate their fair value due to the short-term maturities of such instruments.

Fair value of the marketable equity securities is determined based on a Level 1 input.

Legal and other contingencies:

The Company accounts for its contingent liabilities in accordance with ASC 450 "Contingencies". A provision is recorded when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. With respect to legal matters, provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. As of December 31, 2019, the Company is not a party to any litigation that could have a material adverse effect on the Company's business, financial position, results of operations or cash flows.

Legal costs incurred in connection with loss contingencies are expensed as incurred.

Treasury shares:

Shares held by the Company are presented as a reduction of equity, at their cost to the Company as treasury stock, until such shares are retired and removed from the account.

Series A Warrants and December 2019 Warrants with Down-Round Protection

Commencing January 1, 2018 and following the early adoption of Accounting Standard Update ("ASU") No. 2017-11, "I. Accounting for certain financial instruments with Down Round Features" (ASU 2017-11) as described in Note 2.r, the Company disregard certain down-round features when assessing whether a financial instrument is indexed to its own stock, for purposes of determining liability or equity classification.

Based on its evaluation, management has determined that the Series A Warrants (as defined below) and warrants that were issued on October 2018 (the "October 2018 Warrants") and on December 20, 2019 (the "December 2019 Warrants"), as part of a private placement , as described in Note 11h and 11u, respectively, which include a down-round protection that would adjust the exercise price of the Series A Warrants based on the price at which the Company subsequently issues shares or other equity-linked financial instruments, if that price is less than the original exercise price of the Series A Warrants, are eligible for equity classification.

In accordance with the provisions of ASU 2017-11, upon the occurrence of an event that triggers a down round protection (i.e., when the exercise price of the Series A Warrants is adjusted downward because of the down round feature), the effect is accounted for as a deemed dividend and as a reduction of income available (increase of loss applicable) to common shareholders for purposes of basic earnings per share (EPS) calculation.

Regarding a triggering event that required down-round adjustment of the exercise price of the warrants during 2019, see Note 8e.

Basic and diluted loss per share:

Basic loss per share is computed by dividing the loss for the period applicable to Ordinary Shareholders by the weighted average number of shares of Common Stock outstanding during the period. Securities that may participate in dividends with the Common Stock (such as the convertible Series A Preferred Stock) are considered in the computation of basic income (loss) per share using the two-class method. In periods of net loss, such participating securities are included in the computation, since the holders of such securities have a contractual obligation to share the losses of the Company (as the convertible Series A Preferred Stock do not have a right to receive any mandatory redemption amount and as they are entitled only to dividends on an as-converted basis together with the common shares).

In computing diluted loss per share, basic loss per share is adjusted to reflect the potential dilution that could occur upon the exercise of options, warrants and rights for future investment issued or granted using the "treasury stock method" and upon the conversion of 2017 Loan and 2016 Loan using the "if-converted method", if the effect of each of such financial instruments is dilutive.

For the years ended December 31, 2019 and 2018, all outstanding stock options and other convertible instruments have been excluded from the calculation of the diluted net loss per share as all such securities are anti-dilutive for all years presented.

The loss and the weighted average number of shares used in computing basic and diluted net loss per share for the years ended December 31, 2019 and 2018, is as follows:

	Year ended December 31,
	2019			2018

Numerator:
Net loss	$	(3,450	)	$	(3,279	)
Add: Loss attributed to preferred stock (*)		136			147
Less: Deemed dividend with respect to right for future investment	$	(185	)	$	(292	)
Less: Deemed dividend due to down round adjustment		(267	)		-

Net loss applicable to stockholders of Common Stock	$	(3,766	)	$	(3,424	)

Denominator:
Shares of Common Stock used in computing basic and diluted net loss per share		10,519,682			5,649,262
Net loss per share of Common Stock, basic and diluted	$	(0.36	)	$	(0.61	)

(*)

During the year ended December 31, 2018 the Company issued preferred stock pursuant to the Purchase Agreement (as defined below). These preferred shares are participating securities as described in Note 12h. During the years ended December 31, 2019 and 2018 there were no other potentially dilutive instruments.

	Year ended December 31,
	2019		2018

Number of shares:
Common shares used in computing basic loss per share		10,519,682		5,649,262
Common shares used in computing diluted loss per share		10,519,682		5,649,262

Preferred Stock, options and warrants excluded from the calculations of diluted loss per share		16,931,097		10,498,954

The components of accumulated other comprehensive income (loss) which resulted from foreign currency translation adjustment as of December 31, 2019 and 2018 were as follows:

	Total accumulated other comprehensive income (loss)

Balance at December 31, 2018	$	(73	)

Balance at December 31, 2019	$	(73	)

Stock-based compensation:

Stock-based compensation to employees is accounted for in accordance with ASC 718, "Compensation - Stock Compensation" ("ASC 718"), which requires estimation of the fair value of equity - based payment awards on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service period.

Stock-based compensation expense is recognized for the value of awards granted based on the accelerated method over the requisite service period of each of the awards, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The fair value of stock options granted to Wize Israel employees was estimated using the Black- Scholes option pricing model, which requires a number of assumptions, of which the most significant are the expected stock price volatility and the expected option term. Expected volatility was calculated based upon historical volatilities of Wize Israel on a weekly basis since the marketability of Wize Israel is less than the expected option term. The expected option term represents the period that Wize Israel's stock options are expected to be outstanding and is determined based on the simplified method until sufficient historical exercise data will support using expected life assumptions. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term.

The expected dividend yield assumption is based on Wize Israel's historical experience and expectation of no future dividend payouts. Wize Israel has historically not paid cash dividends and has no foreseeable plans to pay cash dividends in the future.

Until December 31, 2017, ASC 505-50, "Equity-Based Payments to Non-Employees" provisions were applied with respect to options and warrants issued to non-employees which requires the use of option valuation models to measure the fair value of the options and warrants at the grant date, and at the end of each accounting period between the grant date and the final measurement date. Following the adoption of ASU2018-07 all equity-classified nonemployee share-based payment awards granted during 2018 and 2019 were measured at grant-date fair value of the equity instruments that the Company is obligated to issue.

Disclosure of new accounting standards

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

The Company recognized $42 of operating lease right of use assets and operating lease liabilities at January 1, 2019. As of December 31, 2019, total of right-of-use assets related to the Company's operating leases and operating lease liabilities was $22.

The Company recorded an amortization of $20 in right of use assets and operating lease liabilities for the year ended December 31, 2019.

The components of lease costs, lease terms and discount rate are as follows:

	Year Ended December 31, 2019
Operating lease costs:
Office rent		22
Total operating lease cost		22

Remaining Lease Term
Office rent		0.9 years

Weighted Average Discount Rate
Office rent		15	%

Period:
2020		22
		22

Recent Accounting Pronouncements not adopted yet

ASU 2016-13, "Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13")

On June 2016, the FASB issued ASC Update 2016-13, "Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASC Update 2016-3") ASC Update 2016-13 revised the criteria for the measurement, recognition, and reporting of credit losses on financial instruments to be recognized when expected. This update is effective for fiscal years beginning after December 15, 2019, including the interim periods within those years, with early adoption permitted for fiscal years beginning after December 15, 2018, including interim periods within those years.

The Company is in the process of evaluating the effect that ASU 2016-13 will have on the results of operations and financial statements, if any.