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Significant Accounting Policies

9 Months Ended

Sep. 30, 2020

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES

These unaudited interim 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 the financial statements:

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company evaluates on an ongoing basis its assumptions. The Company's management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made.

These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of these unaudited interim consolidated financial statements, and the reported amounts of expenses during the reporting periods. Actual results could differ from those estimates.

The significant accounting policies applied in the annual audited consolidated financial statements of the Company as of December 31, 2019 are applied consistently in these unaudited interim consolidated financial statements, other significant accounting policies applied primarily to transactions first occurring after December 31, 2019, are described below:

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.

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 September 30, 2020, the Company revaluated the liability to its fair value with the assistance of an external appraiser, 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 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. 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."

Mandatorily Redeemable Series B Preferred Stock

The Company classified its formerly outstanding Series B Preferred Stock as a liability, as their terms embody an unconditional obligation of the Company to redeem the shares by transferring cash or other assets that equal (i) 80% of the proceeds received by the Company through future sales of the Bonus Shares issued to the Company under the Bonus Agreements (as hereinafter defined) and (ii) 80% of any cash dividends received by the Company on such Bonus Shares) at a specified or determinable date or dates.

As the mandatory redemption date was December 28, 2020 (or earlier), the liability was classified as a current liability as of September 30, 2020.

The Company elected to measure this liability 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 redemption price of such financial liability.

Upon initial recognition and in subsequent periods, the Company measured the fair value of the liability related to the Series B Preferred Stock based on the value of the Bonus Shares and the cash amount that the Company is required to transfer to the Series B investors upon the redemption of the Series B Preferred Stock. The difference between the amount received by the Company upon the issuance of the Series B Preferred Stock and their fair value as of that date was carried immediately to the consolidated statements of comprehensive loss as part of financial income (loss).

The issuance costs of the Series B Preferred Stock were recognized immediately as an expense during the three months ended March 31, 2020.

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 (now former) holders of Series B Preferred Stock. However, as of September 30, 2020, 9,546,768 Bonus Shares (out of the said 68,191,200 shares) to which several of the former holders of Series B Preferred Stock are entitled, are still held in the Company's bank account as the Company did not receive the required instructions as to the transfer of such Bonus Shares from such former holders. The said shares are presented in the balance sheet as an asset and a liability at the amount of $1,007.

Basic and diluted income (loss) per share:

Basic income (loss) per share is computed by dividing the income or loss for the period applicable to common 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 income (loss) per share, basic income (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 the loans pursuant to a convertible loan agreement dated March 20, 2016, entered into between Wize Israel and Rimon Gold Assets Ltd. (the "2016 Loan"), and a convertible loan agreement dated January 12, 2017 entered into between Wize Israel, Ridge Valley Corporation and, by way of entering into assignments and assumption agreements following such date, also with Rimon Gold Assets Ltd. and Shimshon Fisher (the "2017 Loan") before their maturity date using the "if-converted method," if the effect of each of such financial instruments is dilutive.

For the nine and three month periods ended September 30, 2020 and 2019, all outstanding stock options and other convertible instruments have been excluded from the calculation of the diluted net income (loss) per share as all such securities are anti-dilutive for all years presented.

The income (loss) and the weighted average number of shares used in computing basic and diluted net income (loss) per share for the nine and three months ended September 30, 2020 and 2019, are as follows:

	Nine months ended September 30,
	2020			2019

Numerator:
Net loss	$	(7,232	)	$	(2,577	)
Less: Net loss attributed to Series A Preferred Stock (*)		80			124
Add: Deemed dividend with respect to right for future investment		-			(185	)

Net loss applicable to shareholders of Common Stock	$	(7,152	)	$	(2,638	)

Denominator:
Shares of common stock used in computing basic and diluted net loss per share		16,149,313			10,101,073
Net loss per share of Common stock, basic and diluted	$	(0.44	)	$	(0.26	)

	Nine months ended September 30,
	2020		2019

Preferred Stock, options and warrants excluded from the calculations of diluted loss per share		16,693,339		7,295,167

	Three months ended September 30,
	2020			2019

Numerator:
Net loss	$	(3,062	)	$	(872	)
Less: Net loss attributed to Series A Preferred Stock (*)		32			14

Net loss applicable to shareholders of Common Stock	$	(3,030	)	$	(858	)

Denominator:
Shares of common stock used in computing basic and diluted net loss per share		16,296,791			10,806,155
Net loss per share of Common stock, basic and diluted	$	(0.19	)	$	(0.08	)

(*)

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

	Three months ended September 30,
	2020		2019

Preferred Stock, options and warrants excluded from the calculations of diluted loss per share		16,693,339		6,986,873