UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2019 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________to__________ Commission File Number: 000-52545 WIZE PHARMA, INC. (Exact name of registrant as specified in its charter) | Delaware | 88-0445167 | | ...

Part I [Business](index=6&type=section&id=Item%201.%20Business.) Wize Pharma is a clinical-stage biopharmaceutical company developing its in-licensed drug LO2A for ophthalmic disorders, pursuing regulatory approval and commercialization through partnerships as an emerging growth company [Overview](index=6&type=section&id=Overview) Wize Pharma is a clinical-stage biopharmaceutical company focused on ophthalmic disorders, developing its in-licensed LO2A for DES, CCH, and Sjögren's, with ongoing clinical trials and a recent joint venture for cannabinoid-based treatments - The company is a clinical-stage biopharmaceutical firm focused on ophthalmic disorders, having in-licensed rights to a formula known as LO2A for treating Dry Eye Syndrome (DES), Conjunctivochalasis (CCH), and Sjögren's syndrome[20](index=20&type=chunk) - LO2A is currently registered and sold for DES and/or Sjögren's in Germany, Switzerland, Hungary, and the Netherlands[21](index=21&type=chunk) - A Phase II multi-center trial for CCH completed enrollment of **62** patients, with top-line results showing a strong trend towards statistical significance (P=0.0713) for the primary endpoint[25](index=25&type=chunk) - A Phase IV study for DES in patients with Sjögren's commenced in March **2018**, enrolling **60** patients to compare LO2A against Systane Ultra UD[26](index=26&type=chunk) - In February **2019**, Wize entered into a **50/50** joint venture with Cannabics Pharmaceuticals to research and develop cannabinoid-based treatments for ophthalmic conditions[27](index=27&type=chunk) [Historical Background and Corporate Details](index=7&type=section&id=Historical%20Background%20and%20Corporate%20Details) Wize Pharma, Inc. was formed via a reverse merger with Wize Israel on November 16, 2017, becoming a non-shell company after divesting its prior business and effecting a 1-for-24 reverse stock split in March 2018 - On November 16, **2017**, the company completed a reverse merger with Wize Israel, which became its wholly-owned subsidiary, and was renamed from "OphthaliX, Inc." to "Wize Pharma, Inc.", ceasing to be a shell company[35](index=35&type=chunk) - In the merger, each Wize Israel share was converted into **4.1445791236989** shares of the company's common stock, resulting in former Wize Israel shareholders owning **90%** of the post-merger company[36](index=36&type=chunk)[37](index=37&type=chunk) - Prior to the merger, the company sold its subsidiary Eyefite back to Can-Fite, terminating its license for the CF101 drug candidate and related service agreements[38](index=38&type=chunk) - A **1-for-24** reverse stock split of the company's Common Stock was effected on March 5, **2018**[41](index=41&type=chunk) [The Market Opportunity](index=12&type=section&id=The%20Market%20Opportunity) The company targets significant market opportunities in Dry Eye Syndrome, Conjunctivochalasis, and Sjögren's syndrome, with the DES market projected to reach **$5.6 billion** by **2026** and Sjögren's drug sales **$2.2 billion** by **2024** - The Dry Eye Syndrome (DES) market was approximately **$2.2 billion** in **2016** and is expected to grow to **$5.6 billion** by **2026**[49](index=49&type=chunk) - Conjunctivochalasis (CCH) is estimated to be the cause of approximately **one-third** of all DES cases[54](index=54&type=chunk) - The Sjögren's syndrome market is estimated to affect up to **7.7 million** people in **7** major markets by **2024**, with drug sales projected to grow from **$1.1 billion** in **2014** to **$2.2 billion** by **2024**[56](index=56&type=chunk)[57](index=57&type=chunk) [LO2A License Agreement](index=14&type=section&id=LO2A%20License%20Agreement) Wize Israel holds an exclusive LO2A license from Resdevco for U.S., Israel, and China, requiring minimum annual royalties and milestone payments, with termination clauses tied to FDA approval deadlines, and serving as collateral for convertible loans - Wize Israel has an exclusive license from Resdevco to purchase, market, sell, and distribute LO2A in the United States, Israel, and Ukraine (though activities in Ukraine are not being pursued), with China added as a licensed territory in December **2017**[60](index=60&type=chunk)[70](index=70&type=chunk) - The company is obligated to pay Resdevco minimum annual payments of **$150,000** per year through **2021** for U.S. rights, increasing to **$475,000** per year thereafter, with an additional payment of **$650,000** due within two years of receiving FDA approval[63](index=63&type=chunk) - Resdevco holds termination rights if Wize fails to meet key deadlines, including submitting an FDA marketing application for DES by May 1, **2019**, and obtaining FDA approval by May 1, **2021**[64](index=64&type=chunk) - Wize Israel's rights under the LO2A License Agreement serve as collateral for its convertible loans with Rimon Gold[66](index=66&type=chunk) [LO2A Drug Profile](index=16&type=section&id=LO2A) LO2A is a sterile, preservative-free artificial tear with **0.015%** sodium hyaluronate, designed for ocular surface lubrication with long retention and low toxicity, demonstrating efficacy in clinical trials for DES, CCH, and Sjögren's - LO2A is a sterile, preservative-free, single-dose artificial tear preparation containing **0.015%** high molecular weight sodium hyaluronate (SH)[72](index=72&type=chunk) - The formulation's visco-elastic properties ensure it is retained on the corneal surface for **4-6** hours, and the absence of preservatives is a key feature, as they can damage the ocular surface, especially in DES patients[77](index=77&type=chunk)[78](index=78&type=chunk) - A pivotal Phase III study demonstrated that LO2A was significantly superior to Gel-Larmes in improving patient symptoms (p=0.024) and equivalent in improving objective signs of DES[103](index=103&type=chunk)[104](index=104&type=chunk) - A **2013** Phase II study in Hungary showed LO2A was effective in treating severe CCH, leading to Hungarian approval for this indication, and a **2016** study showed efficacy in patients with dry eye associated with Sjögren's[105](index=105&type=chunk)[106](index=106&type=chunk)[108](index=108&type=chunk) Toxicology Studies Summary | Study Type | Species/Strain | Route | Result | | :--- | :--- | :--- | :--- | | Acute Toxicity | Mouse ICR | Oral | No deaths, LDLo > 1500 mg/kg | | Sub-acute Toxicity | New Zealand Albino Rabbits | Ocular | No abnormalities detected; good tolerance to LO2A | | Ocular Tolerance | Japanese White Albino Rabbits | Lower Conjunctival Sac | Weak, reversible irritation observed | | Skin Sensitisation | Hartley Guinea-Pigs | Dermal | No sensitization potential | | Mutagenicity in-vitro | Salmonella/E. coli | N/A | Not mutagenic or genotoxic | [Our Clinical Trials](index=23&type=section&id=Our%20Clinical%20Trials) Wize is conducting Phase II and Phase IV clinical trials for LO2A in CCH and Sjögren's syndrome, respectively, with the CCH trial showing strong significance and R&D expenses increasing to **$694,000** in **2018** - The company completed a multi-center Phase II trial in Israel for moderate to severe CCH, with top-line results on **49** evaluable patients showing statistical significance (P=0.0079) in a mixed model analysis and a strong trend towards significance (P=0.0713) in the primary endpoint analysis[110](index=110&type=chunk)[113](index=113&type=chunk) - A Phase IV study for DES in patients with Sjögren's began in March **2018** in Israel, designed as a randomized, double-masked trial comparing LO2A to Alcon's Systane Ultra UD in **60** patients over three months[115](index=115&type=chunk)[116](index=116&type=chunk) - A previous 'Single Center Trial' for CCH was terminated in October **2017** due to inadequate data quality, low patient recruitment, and a high dropout rate[114](index=114&type=chunk) Research and Development Expenses | Year | Expense ($) | | :--- | :--- | | 2018 | 694,000 | | 2017 | 450,000 | [Marketing, Sales and Distribution](index=25&type=section&id=Marketing%2C%20Sales%20and%20Distribution) Wize Pharma's commercial strategy relies on third-party distributors, including an exclusive agreement for mainland China with estimated minimum purchase obligations of **$22.5 million to $39 million** over five years, while U.S. FDA engagement awaits additional funding - The company plans to use local or multinational distributors to handle sales and distribution of LO2A[121](index=121&type=chunk) - An exclusive distribution agreement was signed on May 31, **2018**, with a Chinese distributor for mainland China, with the distributor responsible for all regulatory approvals in China[123](index=123&type=chunk) - A framework agreement with the Chinese distributor includes estimated minimum purchase obligations ranging from **$22.5 million** to **$39 million** over a five-year period[122](index=122&type=chunk) - The company does not intend to approach the FDA for a Pre-IND meeting for the U.S. market until it secures additional funding due to the time and cost involved[124](index=124&type=chunk) [Competition](index=26&type=section&id=Competition) The company faces intense competition in the DES market from dominant players like Novartis and Allergan, and in Sjögren's syndrome from limited pipeline drugs, but believes LO2A's unique properties offer competitive advantages - The global DES market is dominated by three companies: Novartis/Alcon, Allergan, and Santen, with Shire's Xiidra® being a more recent entrant[126](index=126&type=chunk) - Currently, no therapeutic agent is specifically approved for Sjögren's syndrome, and the development pipeline is small, with only one product, Orencia (Bristol-Myers Squibb), in Phase III[127](index=127&type=chunk)[128](index=128&type=chunk) - Wize believes LO2A's competitive advantages include being preservative-free, usable with contact lenses, having anti-irritant properties, and a non-Newtonian viscosity profile[129](index=129&type=chunk) [Intellectual Property](index=26&type=section&id=Intellectual%20Property) The company's intellectual property for LO2A, licensed from Resdevco, includes an expired DES patent, a CCH patent expiring in **2032**, and a provisional Sjögren's patent application potentially protecting until **2038**, all subject to challenge - The U.S. patent covering LO2A for treating DES (US Patent No. 5,106,615) has expired, leading the company to focus on CCH and Sjögren's indications[131](index=131&type=chunk) - The use of LO2A for treating CCH is protected by a patent family, including US Patent No. 8,912,166, which expires in **2032**[131](index=131&type=chunk)[132](index=132&type=chunk) - A provisional patent application (No. 62/467139) was filed in March **2017** covering the use of LO2A for treating eye irritation from non-infectious diseases like Sjögren's, with patents from this application potentially expiring in **2038**[133](index=133&type=chunk) [Government Regulations](index=27&type=section&id=Government%20Regulations) The company operates under stringent government regulations, requiring extensive FDA preclinical and clinical trials in the U.S., EMA marketing authorization in Europe, and navigating evolving approval processes in Israel and China, which now accepts foreign clinical data - In the U.S., the FDA requires extensive preclinical studies and a three-phase human clinical trial program before a New Drug Application (NDA) can be submitted for marketing approval[140](index=140&type=chunk)[144](index=144&type=chunk)[147](index=147&type=chunk) - The FDA offers accelerated review programs such as Fast Track, Breakthrough Therapy, and Priority Review for drugs that address serious conditions and unmet medical needs, which the company may seek[151](index=151&type=chunk)[152](index=152&type=chunk) - In the European Economic Area (EEA), marketing authorization is granted by the European Commission via the EMA through centralized, mutual recognition, or decentralized procedures[163](index=163&type=chunk)[164](index=164&type=chunk)[166](index=166&type=chunk) - China's regulatory body (CFDA) has implemented reforms to accelerate drug approval, including accepting foreign clinical trial data and removing the requirement for a drug to be approved in another country first before submission in China[185](index=185&type=chunk)[191](index=191&type=chunk)[193](index=193&type=chunk) [Implications of Being an Emerging Growth Company](index=40&type=section&id=Implications%20of%20Being%20an%20Emerging%20Growth%20Company) As an "emerging growth company" under the JOBS Act, Wize Pharma benefits from reduced public company reporting requirements, including fewer years of audited financials and simplified executive compensation disclosures - The company qualifies as an "emerging growth company" under the JOBS Act, allowing it to take advantage of reduced disclosure requirements[200](index=200&type=chunk) - Exemptions include providing only two years of audited financials, reduced executive compensation disclosure, and an exemption from the auditor attestation requirement for internal control over financial reporting[200](index=200&type=chunk) [Risk Factors](index=40&type=section&id=Item%201a.%20Risk%20Factors.) Investment in the company carries high risk due to persistent operating losses, going concern doubts, reliance on LO2A, significant regulatory and competitive hurdles, intellectual property challenges, substantial debt, and geopolitical risks from Israeli operations [Risks Related to our Business](index=41&type=section&id=Risks%20Related%20to%20our%20Business) The company faces substantial business risks including a history of operating losses, an accumulated deficit of **$30.1 million**, significant debt of **$1.48 million**, and substantial doubt about its going concern ability, compounded by an ISA inquiry - The company has a history of operating losses and anticipates continued substantial losses, with net losses approximately **$3.28 million** in **2018** and **$2.97 million** in **2017**, and an accumulated deficit of **$30.1 million** as of December 31, **2018**[206](index=206&type=chunk) - The company has substantial debt, with **$1.48 million** in convertible loans outstanding as of December 31, **2018**, which contain restrictive covenants limiting operational flexibility[209](index=209&type=chunk)[211](index=211&type=chunk) - Management estimates that current liquidity resources are not sufficient to maintain operations for the next twelve months, raising substantial doubt about the company's ability to continue as a going concern[218](index=218&type=chunk) - The Israel Securities Authority (ISA) is conducting an administrative inquiry into Wize Israel's past public reports, which could lead to enforcement proceedings and financial sanctions[222](index=222&type=chunk) [Risks Related to Business and Regulatory Matters](index=46&type=section&id=Risks%20Related%20to%20our%20Business%20and%20Regulatory%20Matters) The company's success hinges on LO2A's development and commercialization, facing significant regulatory and market risks, prior clinical trial failures, reliance on third-party manufacturing and distribution, intense competition, and potential product liability claims - The company's entire current pipeline is based on a single compound, LO2A, and failure to develop and commercialize LO2A will have a material adverse effect on the business[228](index=228&type=chunk)[229](index=229&type=chunk) - The company terminated its 'Single Center Trial' for CCH in October **2017** due to inadequate data quality, low patient recruitment, and high dropout rates, highlighting clinical trial risks[238](index=238&type=chunk) - The company relies on a contract manufacturer for LO2A production and does not have its own sales, marketing, or distribution capabilities, making it dependent on third-party agreements[242](index=242&type=chunk)[244](index=244&type=chunk) - The company faces intense competition from large, well-funded pharmaceutical companies like Novartis, Allergan, and Shire, which have established products and greater resources[246](index=246&type=chunk)[247](index=247&type=chunk) [Risks Related to Intellectual Property](index=53&type=section&id=Risks%20Related%20to%20our%20Intellectual%20Property) The company's intellectual property is highly dependent on the LO2A License Agreement, facing risks from the expired DES patent, potential challenges to its CCH patent expiring in **2032**, and difficulties in enforcing trade secret protection - The business is dependent on the continuation of the LO2A License Agreement with Resdevco, which can be terminated if Wize fails to meet its obligations, such as minimum royalty payments and regulatory milestones[261](index=261&type=chunk) - The patent covering the composition and use of LO2A for treating DES has expired, limiting the company's ability to prevent competition for this indication[266](index=266&type=chunk) - Licensed patents for the CCH indication are limited in scope and, like any patent, may be challenged, invalidated, or designed around by competitors[265](index=265&type=chunk)[267](index=267&type=chunk) - The company relies on confidentiality agreements to protect trade secrets, but these can be breached and may be difficult and costly to enforce[275](index=275&type=chunk) [Risks Related to Our Common Stock](index=59&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) The company's common stock faces significant risks including substantial dilution from outstanding convertible securities, classification as a "penny stock," high volatility due to thin trading, concentrated insider ownership, and no anticipated dividends - A large number of shares are issuable upon conversion or exercise of outstanding convertible securities, which could cause substantial dilution, including warrants to purchase over **9.2 million** shares and convertible preferred stock for **910,000** shares as of March 26, **2019**[294](index=294&type=chunk)[295](index=295&type=chunk) - The Common Stock may be classified as a "penny stock" (trading below **$5.00**), which involves stricter broker-dealer rules that can reduce liquidity and adversely affect the market price[298](index=298&type=chunk) - As of March 26, **2019**, executive officers, directors, and **5%+** stockholders beneficially owned approximately **68.32%** of the Common Stock, giving them significant control over corporate matters[302](index=302&type=chunk) - The company has never paid dividends and does not anticipate doing so in the foreseeable future, also being restricted from paying dividends by its loan agreements with Rimon Gold[308](index=308&type=chunk) [Risks Related to Operations in Israel](index=65&type=section&id=Risks%20Related%20to%20our%20Operations%20in%20Israel) The company's Israeli operations are exposed to political, economic, and military instability, potential disruption from military reserve duty, currency fluctuation risks, and challenges in enforcing U.S. judgments against non-U.S. assets and personnel - The company's executive office, senior management, and some clinical sites are located in Israel, exposing operations to potential political, economic, and military instability in the region[319](index=319&type=chunk) - Key personnel, including the Acting CEO, are subject to mandatory military reserve duty in Israel, which could disrupt operations if they are called to active duty[322](index=322&type=chunk) - A portion of the company's expenses are in currencies other than the U.S. Dollar (NIS and Euro), exposing it to currency fluctuation risks[323](index=323&type=chunk) - Enforcing U.S. judgments, including those based on U.S. securities laws, against the company and its non-U.S. resident officers and directors may be difficult in Israeli courts[324](index=324&type=chunk) [Unresolved Staff Comments](index=66&type=section&id=Item%201b.%20Unresolved%20Staff%20Comments.) The company has no unresolved staff comments - None[326](index=326&type=chunk) [Properties](index=66&type=section&id=Item%202.%20Properties.) The company leases approximately **710 square feet** of office space in Hod Hasharon, Israel, for its principal executive offices at an annual rent of about **$18,000**, which management deems adequate - The company's principal executive offices are located at 24 Hanagar Street, Hod Hasharon, Israel, where it leases approximately **710 square feet** for an annual rent of about **$18,000**[327](index=327&type=chunk) [Legal Proceedings](index=66&type=section&id=Item%203.%20Legal%20Proceedings.) The Israel Securities Authority is conducting an administrative inquiry into Wize Israel's past public reports regarding LO2A's U.S. regulatory pathway, with potential enforcement proceedings and ongoing settlement discussions - The Israel Securities Authority (ISA) is conducting an administrative inquiry regarding Wize Israel's public reports concerning the regulatory path for marketing LO2A for DES in the U.S[328](index=328&type=chunk) - In October **2018**, the ISA indicated its intent to start administrative enforcement proceedings against Wize Israel, its former Chairman, and its CEO, with the company currently in settlement discussions with the ISA[328](index=328&type=chunk) [Mine Safety Disclosures](index=66&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This item is not applicable to the company - Not applicable[330](index=330&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=67&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities.) The company's common stock trades on the OTCQB under "WIZP" with significant volatility, approximately **85** stockholders of record as of March 29, **2019**, and no anticipated cash dividends due to loan restrictions - The company's Common Stock has traded on the OTCQB under the symbol "WIZP" since January 4, **2018**[332](index=332&type=chunk) - As of March 29, **2019**, there were approximately **85** stockholders of record holding **4,914,405** shares[334](index=334&type=chunk) - The company has never paid cash dividends and does not intend to in the foreseeable future, and is restricted from doing so by its loan agreement with Rimon Gold[335](index=335&type=chunk) Quarterly Stock Price Range (2018) | Quarter | High ($) | Low ($) | | :--- | :--- | :--- | | Q1 2018 | 3.74 | 2.99 | | Q2 2018 | 6.05 | 3.59 | | Q3 2018 | 6.10 | 2.00 | | Q4 2018 | 3.25 | 0.75 | [Selected Financial Data](index=68&type=section&id=Item%206.%20Selected%20Financial%20Data.) As a "smaller reporting company," the company is not required to provide the information for this item - Not required as the company is a "smaller reporting company"[339](index=339&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=68&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) The company, a clinical-stage biopharmaceutical firm with no material revenue, reported an increased net loss of **$3.28 million** in **2018**, faces substantial doubt about its going concern ability, and requires additional financing to fund its clinical development - The increase in R&D expenses in **2018** was due to costs for both CCH and Sjögren's clinical trials, compared to only the CCH trial in **2017**[346](index=346&type=chunk) - The **184%** increase in G&A expenses was primarily due to higher professional services fees (**$579k**), stock-based compensation (**$783k**), and payroll (**$218k**)[347](index=347&type=chunk) - Management has concluded that there is substantial doubt about the company's ability to continue as a going concern, as liquidity resources as of Dec 31, **2018**, are not sufficient for the next twelve months[357](index=357&type=chunk) Results of Operations (in thousands) | | Year Ended Dec 31, 2018 | Year Ended Dec 31, 2017 | | :--- | :--- | :--- | | Research and development | $ (694) | $ (450) | | General and administrative | $ (2,936) | $ (1,031) | | **Total operating costs** | **$ (3,630)** | **$ (1,481)** | | Financial expenses (income), net | $ 351 | $ (1,485) | | **Net loss** | **$ (3,279)** | **$ (2,966)** | Cash Flow Summary (in thousands) | | Year Ended Dec 31, 2018 | Year Ended Dec 31, 2017 | | :--- | :--- | :--- | | Net cash used in operating activities | $ (2,208) | $ (1,364) | | Net cash provided by (used in) investing activities | $ 253 | $ (4) | | Net cash provided by financing activities | $ 4,910 | $ 1,538 | [Quantitative and Qualitative Disclosures About Market Risk](index=78&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) As a smaller reporting company, the company has elected not to provide the disclosure required by this item - Disclosure not required as the company is a smaller reporting company[393](index=393&type=chunk) [Financial Statements and Supplementary Data](index=78&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data.) The information required by this item, including the full financial statements, is included in Item 15 of the report - All required information is included in Item 15 of Part IV of this report[394](index=394&type=chunk) [Changes In and Disagreements With Accountants on Accounting and Financial Disclosure](index=78&type=section&id=Item%209.%20Changes%20In%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure.) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[395](index=395&type=chunk) [Controls and Procedures](index=78&type=section&id=Item%209A.%20Controls%20and%20Procedures.) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, **2018**, with no material changes, and the report omits an auditor attestation as permitted for emerging growth companies - Management concluded that as of December 31, **2018**, the company's disclosure controls and procedures were effective at a reasonable assurance level[396](index=396&type=chunk) - Based on an assessment using the COSO framework, management concluded that internal control over financial reporting was effective as of December 31, **2018**[399](index=399&type=chunk)[400](index=400&type=chunk) - The annual report does not include an auditor attestation report on internal controls, as permitted for emerging growth companies[401](index=401&type=chunk) [Other Information](index=79&type=section&id=Item%209B.%20Other%20Information.) The company reports no other information for this item - None[404](index=404&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=80&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance.) The company's governance structure includes a five-member Board with four independent directors, an Audit Committee with a financial expert, a Compensation Committee, and a Scientific Advisory Board, though no formal code of ethics has been adopted - The Board has determined that directors Michael Belkin, Yossi Keret, Franck Amouyal, and Joseph Zarzewsky are independent[426](index=426&type=chunk) - The Audit Committee members are Yossi Keret (financial expert), Joseph Zarzewsky, and Dr. Franck Amouyal[431](index=431&type=chunk) - The Compensation Committee members are Yossi Keret, Dr. Michael Belkin, and Joseph Zarzewsky[432](index=432&type=chunk) - The company has not adopted a code of ethics[425](index=425&type=chunk) Key Directors and Executive Officers | Name | Position | | :--- | :--- | | Noam Danenberg | Chairman of the Board | | Michael Belkin | Director | | Yossi Keret | Director | | Franck Amouyal | Director | | Joseph Zarzewsky | Director | | Or Eisenberg | Acting CEO, CFO, Treasurer and Secretary | [Executive Compensation](index=86&type=section&id=Item%2011.%20Executive%20Compensation.) In **2018**, Acting CEO Or Eisenberg received **$411,000** and Chairman Noam Danenberg **$406,000** in total compensation, including base fees and option awards, with both holding **36,000** outstanding options each at year-end - Or Eisenberg's employment agreement includes an annual base salary of **480,000 NIS** (~**$131k**), with potential increases tied to exchange listing, clinical trial completion, and financing milestones[446](index=446&type=chunk) - Noam Danenberg's consulting agreement provides for a monthly fee of **40,000 NIS** (~**$10.9k**) with similar potential increases tied to company milestones[448](index=448&type=chunk) 2018 Executive Compensation Summary | Name and Position | Year | Salary ($) | Option Awards ($) | All Other Comp. ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | Or Eisenberg, Acting CEO & CFO | 2018 | 210,000 | 198,000 | 3,000 | 411,000 | | Noam Danenberg, Chairman | 2018 | 204,000 | 198,000 | 4,000 | 406,000 | Outstanding Equity Awards at Fiscal Year-End 2018 (Named Executives) | Name | Unexercised Options () | Exercise Price ($) | Expiration Date | | :--- | :--- | :--- | :--- | | Or Eisenberg | 36,000 | 3.59 | 4/4/25 | | Noam Danenberg | 36,000 | 3.59 | 4/4/25 | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=90&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters.) As of March 26, **2019**, the company's ownership is highly concentrated, with several entities holding over **5%** and executive officers and directors collectively owning **2.74%**, while **2,500,000** shares are reserved under the **2018** Stock Incentive Plan - As of March 26, **2019**, all executive officers and directors as a group beneficially owned **272,128** shares, representing **2.74%** of the class[463](index=463&type=chunk)[476](index=476&type=chunk) - The company has a **2018** Stock Incentive Plan under which **2,500,000** shares were initially reserved for issuance, with an annual increase provision[487](index=487&type=chunk) Security Ownership of 5% and Greater Shareholders (as of March 26, 2019) | Shareholder | Beneficial Ownership (%) | | :--- | :--- | | Rimon Gold Assets Ltd. | 24.33% | | Ridge Valley Corporation | 13.63% | | Jonathan Rubini | 14.07% | | Cannabics Pharmaceuticals, Inc. | 9.07% | | Yaakov Zarachia | 7.61% | | Bigger Capital Fund, LP | 7.03% | | District 2 Capital Fund L.P. | 7.03% | | Simcha Sadan | 6.81% | | Shimshon Fisher | 5.59% | [Certain Relationships and Related Transactions, Director Independence](index=95&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20Director%20Independence.) The company engages in related party transactions, including amended convertible loan agreements with major shareholders, a significant ownership stake by the Chairman's wife in a key lender, and a finder's fee agreement for a director related to the Chinese distributor - The company amended its convertible loan agreements with related parties Rimon Gold, Ridge Valley, and Fisher in October **2018** and March **2019** to extend maturity dates and investment rights periods[488](index=488&type=chunk) - Chairman Noam Danenberg's wife, Tali Harpaz, owns **49%** of Ridge Valley Corporation, a significant lender to and shareholder of the company[490](index=490&type=chunk) - Director Joseph Zarzewsky has an affiliate agreement for a **5%** royalty on revenues from relationships he initiates, including the one with the company's Chinese distributor[456](index=456&type=chunk)[427](index=427&type=chunk) [Principal Accounting Fees and Services](index=96&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services.) The company changed its independent auditor from EY to Fahn Kanne & Co. Grant Thornton Israel on February 15, **2018**, with no disagreements, and total auditor fees were **$94,000** in **2018** and **$168,000** in **2017** - On February 15, **2018**, the company changed its independent registered public accounting firm from Kost Forer Gabbay & Kasierer (EY) to Fahn Kanne & Co. Grant Thornton Israel[494](index=494&type=chunk) Auditor Fees (in thousands) | Fee Type | 2018 ($) | 2017 ($) | | :--- | :--- | :--- | | Audit Fees - Grant Thornton | 89 | 120 | | Audit Fees - EY | - | 31 | | All other Fees - EY | 5 | 17 | | **Total Fees** | **94** | **168** | Part IV [Exhibits, Financial Statement Schedules](index=97&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules.) This section presents the consolidated financial statements for **2018** and **2017**, including the auditor's report which, despite fair presentation, highlights a 'Going Concern' uncertainty due to historical losses and reliance on financing [Report of Independent Registered Public Accounting Firm](index=98&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) The independent auditor's report affirms fair presentation of financial statements but includes an emphasis-of-matter paragraph on the company's going concern ability, citing historical net losses and an accumulated deficit of nearly **$30 million** - The auditor's report contains a "Going Concern" paragraph, raising substantial doubt about the Company's ability to continue as a going concern[505](index=505&type=chunk) - The going concern uncertainty is based on the Company's history of net losses, its accumulated deficit of **$29,997,000** as of December 31, **2018**, and its lack of material revenues[505](index=505&type=chunk) [Consolidated Balance Sheets](index=100&type=section&id=Consolidated%20Balance%20Sheets) As of December 31, **2018**, total assets were **$3.403 million** and liabilities **$3.191 million**, resulting in a positive stockholders' equity of **$212,000**, a significant improvement from a **$3.098 million** deficit in **2017** due to financing activities Consolidated Balance Sheets (in thousands) | | As of Dec 31, 2018 | As of Dec 31, 2017 | | :--- | :--- | :--- | | **Total current assets** | **$3,395** | **$590** | | Cash and cash equivalents | $3,183 | $215 | | **TOTAL ASSETS** | **$3,403** | **$595** | | **Total current liabilities** | **$3,191** | **$3,693** | | Convertible loans, net | $2,635 | $3,204 | | **TOTAL LIABILITIES** | **$3,191** | **$3,693** | | **Total stockholders' equity (deficit)** | **$212** | **$(3,098)** | [Consolidated Statements of Comprehensive Loss](index=101&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Loss) For **2018**, the company reported a net loss of **$3.279 million**, an increase from **$2.966 million** in **2017**, primarily due to higher research and development and general and administrative expenses Consolidated Statements of Comprehensive Loss (in thousands) | | For the Year Ended Dec 31, 2018 | For the Year Ended Dec 31, 2017 | | :--- | :--- | :--- | | Research and development expenses | $694 | $450 | | General and administrative expenses | $2,936 | $1,031 | | **Operating loss** | **$(3,630)** | **$(1,481)** | | Financial income (expense), net | $351 | $(1,485) | | **Net loss** | **$(3,279)** | **$(2,966)** | | **Basic and diluted net loss per share** | **$(0.61)** | **$(0.86)** | [Consolidated Statements of Changes in Stockholders' Equity (Deficit)](index=102&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity%20(Deficit)) Stockholders' equity improved from a **$3.098 million** deficit in **2017** to a **$212,000** positive equity in **2018**, primarily driven by **$3.915 million** from unit issuances and **$1.145 million** from warrant exercises, offset by the net loss - Stockholders' equity (deficit) increased from **$(3,098,000)** at the end of **2017** to **$212,000** at the end of **2018**[514](index=514&type=chunk)[516](index=516&type=chunk) - The improvement was primarily due to the issuance of units consisting of common stock, preferred stock, and warrants, which provided net proceeds of **$3,915,000**[516](index=516&type=chunk) - Additional capital of **$1,145,000** was raised from the exercise of PIPE warrants and rights for future investment[516](index=516&type=chunk) [Consolidated Statements of Cash Flows](index=104&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) In **2018**, net cash used in operating activities was **$2.208 million**, offset by **$4.910 million** from financing activities and **$253,000** from investing activities, resulting in a year-end cash balance of **$3.183 million** Consolidated Statements of Cash Flows (in thousands) | | For the Year Ended Dec 31, 2018 | For the Year Ended Dec 31, 2017 | | :--- | :--- | :--- | | Net cash used in operating activities | $(2,208) | $(1,364) | | Net cash provided by (used in) investing activities | $253 | $(4) | | Net cash provided by financing activities | $4,910 | $1,538 | | **Change in cash, cash equivalents and restricted cash** | **$2,956** | **$187** | | **Cash, cash equivalents and restricted cash at end of year** | **$3,183** | **$227** | [Notes to Consolidated Financial Statements](index=106&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies and financial position, including 'Going Concern' uncertainty, reverse recapitalization, complex convertible loan accounting, significant equity financing events like the **October 2018** private placement raising **$4.45 million**, and subsequent events like the Cannabics Pharmaceuticals joint venture - Note 1b explicitly states that management has determined conditions exist that raise substantial doubt about the Company's ability to continue as a going concern[527](index=527&type=chunk) - Note 8 details the complex accounting for the **2016** and **2017** convertible loans, including modifications in December **2017** and October **2018** that were treated as extinguishments, resulting in recognized gains/losses and revaluation of the debt[636](index=636&type=chunk)[651](index=651&type=chunk)[655](index=655&type=chunk) - Note 12j describes the October **2018** private placement, which raised **$4.45 million** through the sale of **3.1M** common shares, **1,350** shares of Series A Preferred Stock, and the issuance of **8.9M** warrants (Series A and B)[691](index=691&type=chunk) - Note 15 discloses a subsequent event in February **2019**, where the company entered into a joint venture with Cannabics Pharmaceuticals to develop cannabinoid-based ophthalmic treatments[725](index=725&type=chunk) [Form 10-K Summary](index=154&type=section&id=Item%2016.%20Form%2010-K%20Summary.) The company reports no summary for this item - None[735](index=735&type=chunk)