SEC Company Response from Mawson Infrastructure Group Inc. (MIGI) (CIK 0001218683) (BGDE) — Jun 26, 2018
Mawson Infrastructure Group Inc. (MIGI) (CIK 0001218683)
Date: June 26, 2018 · CIK: 0001218683 · Accession: 0001213900-18-008235
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 333-222889
Referenced dates: June 13, 2018
Letter
Wize Pharma, Inc.
Hanagar Street
Hod Hasharon, Israel 4527708
June 26, 2018
VIA EDGAR
United States Securities and Exchange Commission
Division of Corporation Finance
F Street, NE
Washington, DC 20549
Attn: Irene Paik, Christine Westbrook, Sasha Parikh and Sharon Blume
Re: Wize Pharma, Inc.
Amendment No. 2 to Registration Statement on Form S-1
Filed June 6, 2018
File No. 333-222889
Ladies and Gentlemen:
The following responses address the comments of the reviewing Staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “Commission”) as set forth in a comment letter dated June 13, 2018 (the "Comment Letter") relating to Amendment No. 2 to the Registration Statement on Form S-1 (the “Registration Statement”) filed on June 6, 2018 by Wize Pharma, Inc. (the “Company”). The numbers of the responses in this letter correspond to the numbers of the staff’s comments as set forth in the Comment Letter.
For reference purposes, the Staff’s comments have been reproduced herein in bold-face type, followed by the Company’s response.
Note 5. Convertible Loans, page F-61
1. In a footnote to the table on page F-62, you noted that the amortization of premium represents the periodic amortization of the balance of the amount that was allocated to the 2016 and 2017 loans upon the 2017 loan amendment into the respective principal amount of such loans. Please provide us the following information:
● quantify the “balance of the amount that was allocated to the 2016 and 2017 loans,”
● the amortization period of the premium, and
● relevant accounting literature that supports your accounting.
Response:
As described in 2017 annual financial statements, on December 21, 2017 (a few days before the maturity date of the convertible loans), the terms of each of the 2016 Loan and the 2017 Loan were modified, pursuant to which it was determined that the modified terms of such convertible loans were substantially different than their original terms (see below).
Securities and Exchange Commission
June 26, 2018
Page 2 of 5
In accordance with ASC 470-50-40-10:
“…From the debtor's perspective, an exchange of debt instruments between or a modification of a debt instrument by a debtor and a creditor in a nontroubled debt situation is deemed to have been accomplished with debt instruments that are substantially different if the present value of the cash flows under the terms of the new debt instrument is at least 10 percent 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 cash flow effect on a present value basis is less than 10 percent, the debt instruments are not considered to be substantially different, except in the following two circumstances:
a. A modification or an exchange affects the terms of an embedded conversion option, from which 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 percent of the carrying amount of the original debt instrument immediately before the modification or exchange.
b. A modification or an exchange of debt instruments adds a substantive conversion option or eliminates a conversion option that was substantive at the date of the modification or exchange. (For purposes of evaluating whether an embedded conversion option was substantive on the date it was added to or eliminated from a debt instrument, see paragraphs 470-20-40-7 through 40-9….”.
For the purposes of the 10% cash flow test calculation, the cash flows of the original and new loans were discounted at the effective interest rate used for accounting purposes of the original debt instrument. Such discount rate was approx. 20%. As it was determined that the 10% cash flow test resulted in a conclusion that a substantial modification or an exchange has occurred (for both 2016 Loan and 2017 Loan), the Company was not required to proceed to calculate the change in the fair value of the embedded conversion option (as described in (a) above).’
Accordingly, the amendment of both convertible loans was required to be accounted for as an extinguishment. As part of the required accounting treatment, the loans were recognized based on their fair value as it was determined at the date of the modification. As the conversion terms of the convertible loans (before and after the modification) were beneficial to the lenders (the Conversion price per Company’s share was 0.98$ with respect to the 2016 Loan and 1.1$ with respect to the 2017 Loan, while the fair value of the share as of that date was approximately 2.4$), the fair value of the convertible loans was determined to be much higher than their principal amount (including the value of the conversion feature). This resulted in a significant amount of premium with respect to the 2016 Loan and the 2017 Loan.
Both 2016 Loan and the 2017 Loan are convertible into common shares of the Company. This means that the economic characteristics and risks of a conversion option embedded in the loans are considered related to those of an equity instrument (i.e. the shares of the Company) and therefore cannot be considered clearly and closely related to the economic characteristics and risks of the debt host. Thus, the Company was required to analyze whether the embedded conversion feature requires bifurcation.
The Company analyzed the provisions of ASC 815-10-15-74:
“…Notwithstanding the conditions of paragraphs 815-10-15-13 through 15-139, the reporting entity shall not consider the following contracts to be derivative instruments for purposes of this Subtopic:
a. Contracts issued or held by that reporting entity that are both:
1. Indexed to its own stock
2. Classified in stockholders’ equity in its statement of financial position…” .
In accordance with the provisions of ASC 815-40 it was determined that the embedded conversion feature is eligible to be considered indexed to the Company’s own stock as its settlement amount equals the difference between (1) the fair value of a fixed number of the entity’s equity shares and (2) a fixed monetary amount or a fixed amount of a debt instrument issued by the entity (the “fixed-for-fixed” concept). Also, it was determined that if the conversion option was freestanding (i.e. as a warrant) it was eligible for equity classification. In reaching such conclusion the Company has considered ASC 815-40-25-1 through 25-43.
Securities and Exchange Commission
June 26, 2018
Page 3 of 5
To conclude the above, the company has applied ASC 470-20, “Debt - Debt with Conversion and Other Options” to determine whether the conversion feature is beneficial to the lenders. However, as both 2016 Loan and the 2017 Loan were required to be recognized based on their fair value after the modification (doe to the conclusion that a substantial modification has occurred), it was determined that the effective conversion price is higher than the price of the company’s ordinary shares at the modification date (i.e. the conversion price is not beneficial to the lenders). Such conclusion is based on the fact that the fair value of the convertible loans incorporates the entire modified terms of the loans, including those that stem from the conversion option. Please note that this conclusion is in consistence with the following excerpt from Ernst Young guidance (FRD - Issuer’s accounting for debt and equity financings):
“…Modifications or exchanges of convertible debt instruments
For convertible debt instruments, the provisions of ASC 470-50 are applied first to determine whether the modification or exchange is to be accounted for as an extinguishment or as a modification.
If the transaction is accounted for as an extinguishment, the new debt instrument issued to extinguish the old debt instrument is evaluated (1) for a bifurcatable embedded derivative, then (2) for the application of the cash conversion guidance and finally (3) pursuant to the BCF guidance if there has been no other form of separate accounting for the embedded conversion option pursuant to the previous evaluations. However, as the new instrument is recorded at its fair value, and that fair value incorporates any current intrinsic value in the embedded conversion option, it is likely the new debt will not have a BCF…”.
Below is a description of the information requested by the Staff’s comment:
● The aggregate amount that was allocated to 2016 and 2017 Loan, based on their modified terms was approximately 3.2$ million, while their aggregate principal amount was 1.353$ million (2017 Loan - 0.822$ million and 2016 Loan - 0.531$ million). The difference between such amounts represents premium which is amortized over the term of the convertible loans.
● The amortization period of the convertible loans is about 1 year - from the date of modification (December 21, 2017) to date of maturity (December 31, 2018).
● The company applied the following accounting literature:
● ASC 470-50, “Modifications and Extinguishments” was applied to determine whether the modification is required to be accounted for as an extinguishment
● ASC 815-15, “Derivatives and Hedging - Embedded Derivatives”/ ASC 815-40, “Derivatives and Hedging- Contracts in Entity's Own Equity” was applied to determine whether the embedded conversion feature is required to be bifurcated.
● ASC 470-20, “Debt - Debt with Conversion and Other Options” was applied to determine whether the conversion feature is beneficial to the lenders (i.e. the existence of Beneficial Conversion Feature).
● ASC 835-30, ”Interest - Imputation of Interest” was applied to determine the periodic interest cost (including amortization) which represents the effective interest rate on the face amount of the loans (including the periodic premium amortization).
Securities and Exchange Commission
June 26, 2018
Page 4 of 5
The below table describes the roll forward of 2017 Loan and 2016 Loan for the three months ended March 31, 2018 and the year ended December 31, 2017:
March 31, December 31,
Opening balance $ 3,204 $ 289
Proceeds from issuance of convertible loan, net of issuance cost -
Recognition of derivative liability related to 2016 Loan - -
Recognition of BCF as a discount of 2017 Loan - (811 )
Amortization of premium related to convertible loans (*) (446 ) -
Amortization of discounts resulting from BCF and derivative liability and debt issuance costs related to 2017 Loan and 2016 Loan - 1,122
Accrued interest on 2017 Loan and 2016 Loan
Derecognition of carrying amount of 2016 Loan and 2017 Loan upon extinguishment - (1,458 )
Amount allocated to 2016 and 2017 Loan based on modified terms - 3,204
$ 2,771 $ 3,204
(*) The amortization of premium represents the periodic amortization of the balance of the amount that was allocated to the 2016 and 2017 loans upon the 2017 loan amendment into the respective principal amount of such loans. As of December 31, 2017 fair value of the loans was USD 3,137 thousands, principal amount of the loans was USD 1,353 thousands. The differences between the fair value of the loans and its principal value at the amount of USD 1,785 (the “premium”) will be amortized quarterly over the loans remaining contractual life- till December 31, 2018.
General
2. We note that you have a pending request for confidential treatment relating to Exhibit 10.1 to your Form 8-K filed June 5, 2018. Please be advised that we will not be in a position to declare your registration statement effective until we resolve any issues concerning the confidential treatment request.
Response:
The Commission granted confidential treatment for the information excluded from the Exhibits to the Company’s Form 10-K filed on March 29, 2018, as amended, and Form 8-K filed on June 5, 2018, as set forth below.
Exhibit to Form Filed on Confidential Treatment Granted
10.43 10-K March 29, 2018 through March 29, 2028
10.44 10-K March 29, 2018 through March 29, 2028
10.1 8-K June 5, 2018 through May 31, 2028
Securities and Exchange Commission
June 26, 2018
Page 5 of 5
Please do not hesitate to contact the undersigned if you have any questions or comments. Thank you.
Very
truly yours,
/s/
OR EISENBERG
Show Raw Text
CORRESP
1
filename1.htm
Wize
Pharma, Inc.
24
Hanagar Street
Hod
Hasharon, Israel 4527708
June
26, 2018
VIA
EDGAR
United
States Securities and Exchange Commission
Division
of Corporation Finance
100
F Street, NE
Washington,
DC 20549
Attn: Irene
Paik, Christine Westbrook, Sasha Parikh and Sharon Blume
Re:
Wize
Pharma, Inc.
Amendment
No. 2 to Registration Statement on Form S-1
Filed
June 6, 2018
File
No. 333-222889
Ladies
and Gentlemen:
The
following responses address the comments of the reviewing Staff of the Division of Corporation Finance (the “Staff”)
of the Securities and Exchange Commission (the “Commission”) as set forth in a comment letter dated June 13,
2018 (the "Comment Letter") relating to Amendment No. 2 to the Registration Statement on Form S-1 (the “Registration
Statement”) filed on June 6, 2018 by Wize Pharma, Inc. (the “Company”). The numbers of the responses
in this letter correspond to the numbers of the staff’s comments as set forth in the Comment Letter.
For
reference purposes, the Staff’s comments have been reproduced herein in bold-face type, followed by the Company’s
response.
Note
5. Convertible Loans, page F-61
1. In
a footnote to the table on page F-62, you noted that the amortization of premium represents
the periodic amortization of the balance of the amount that was allocated to the 2016
and 2017 loans upon the 2017 loan amendment into the respective principal amount of such
loans. Please provide us the following information:
● quantify
the “balance of the amount that was allocated to the 2016 and 2017 loans,”
● the
amortization period of the premium, and
● relevant
accounting literature that supports your accounting.
Response:
As
described in 2017 annual financial statements, on December 21, 2017 (a few days before the maturity date of the convertible loans),
the terms of each of the 2016 Loan and the 2017 Loan were modified, pursuant to which it was determined that the modified terms
of such convertible loans were substantially different than their original terms (see below).
Securities and Exchange Commission
June 26, 2018
Page 2 of 5
In
accordance with ASC 470-50-40-10:
“…From
the debtor's perspective, an exchange of debt instruments between or a modification of a debt instrument by a debtor and a creditor
in a nontroubled debt situation is deemed to have been accomplished with debt instruments that are substantially different if
the present value of the cash flows under the terms of the new debt instrument is at least 10 percent 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 cash flow effect on a present value basis is less than 10 percent, the debt instruments
are not considered to be substantially different, except in the following two circumstances:
a. A
modification or an exchange affects the terms of an embedded conversion option, from
which 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 percent of the carrying amount
of the original debt instrument immediately before the modification or exchange.
b. A
modification or an exchange of debt instruments adds a substantive conversion option
or eliminates a conversion option that was substantive at the date of the modification
or exchange. (For purposes of evaluating whether an embedded conversion option was substantive
on the date it was added to or eliminated from a debt instrument, see paragraphs 470-20-40-7
through 40-9….”.
For
the purposes of the 10% cash flow test calculation, the cash flows of the original and new loans were discounted at the effective
interest rate used for accounting purposes of the original debt instrument. Such discount rate was approx. 20%. As it was determined
that the 10% cash flow test resulted in a conclusion that a substantial modification or an exchange has occurred (for both 2016
Loan and 2017 Loan), the Company was not required to proceed to calculate the change in the fair value of the embedded conversion
option (as described in (a) above).’
Accordingly,
the amendment of both convertible loans was required to be accounted for as an extinguishment. As part of the required accounting
treatment, the loans were recognized based on their fair value as it was determined at the date of the modification. As the conversion
terms of the convertible loans (before and after the modification) were beneficial to the lenders (the Conversion price per Company’s
share was 0.98$ with respect to the 2016 Loan and 1.1$ with respect to the 2017 Loan, while the fair value of the share as of
that date was approximately 2.4$), the fair value of the convertible loans was determined to be much higher than their principal
amount (including the value of the conversion feature). This resulted in a significant amount of premium with respect to the 2016
Loan and the 2017 Loan.
Both
2016 Loan and the 2017 Loan are convertible into common shares of the Company. This means that the economic characteristics and
risks of a conversion option embedded in the loans are considered related to those of an equity instrument (i.e. the shares of
the Company) and therefore cannot be considered clearly and closely related to the economic characteristics and risks of the debt
host. Thus, the Company was required to analyze whether the embedded conversion feature requires bifurcation.
The
Company analyzed the provisions of ASC 815-10-15-74:
“…Notwithstanding
the conditions of paragraphs 815-10-15-13 through 15-139, the reporting entity shall not consider the following contracts
to be derivative instruments for purposes of this Subtopic:
a. Contracts
issued or held by that reporting entity that are both:
1. Indexed
to its own stock
2. Classified
in stockholders’ equity in its statement of financial position…” .
In
accordance with the provisions of ASC 815-40 it was determined that the embedded conversion feature is eligible to be considered
indexed to the Company’s own stock as its settlement amount equals the difference between (1) the fair value of a fixed
number of the entity’s equity shares and (2) a fixed monetary amount or a fixed amount of a debt instrument issued by the
entity (the “fixed-for-fixed” concept). Also, it was determined that if the conversion option was freestanding (i.e.
as a warrant) it was eligible for equity classification. In reaching such conclusion the Company has considered ASC 815-40-25-1
through 25-43.
Securities and Exchange Commission
June 26, 2018
Page 3 of 5
To
conclude the above, the company has applied ASC 470-20, “Debt - Debt with Conversion and Other Options” to determine
whether the conversion feature is beneficial to the lenders. However, as both 2016 Loan and the 2017 Loan were required to be
recognized based on their fair value after the modification (doe to the conclusion that a substantial modification has occurred),
it was determined that the effective conversion price is higher than the price of the company’s ordinary shares at the modification
date (i.e. the conversion price is not beneficial to the lenders). Such conclusion is based on the fact that the fair value of
the convertible loans incorporates the entire modified terms of the loans, including those that stem from the conversion option.
Please note that this conclusion is in consistence with the following excerpt from Ernst Young guidance (FRD - Issuer’s
accounting for debt and equity financings):
“…Modifications
or exchanges of convertible debt instruments
For
convertible debt instruments, the provisions of ASC 470-50 are applied first to determine whether the modification or exchange
is to be accounted for as an extinguishment or as a modification.
If
the transaction is accounted for as an extinguishment, the new debt instrument issued to extinguish the old debt instrument is
evaluated (1) for a bifurcatable embedded derivative, then (2) for the application of the cash conversion guidance and finally
(3) pursuant to the BCF guidance if there has been no other form of separate accounting for the embedded conversion option pursuant
to the previous evaluations. However, as the new instrument is recorded at its fair value, and that fair value incorporates any
current intrinsic value in the embedded conversion option, it is likely the new debt will not have a BCF…”.
Below
is a description of the information requested by the Staff’s comment:
● The
aggregate amount that was allocated to 2016 and 2017 Loan, based on their modified terms
was
approximately 3.2$ million, while their aggregate principal amount was 1.353$ million
(2017 Loan - 0.822$ million and 2016 Loan - 0.531$ million). The difference between such
amounts represents premium which is amortized over the term of the convertible loans.
● The
amortization period of the convertible loans is about 1 year - from the date of
modification (December 21, 2017) to date of maturity (December 31, 2018).
● The
company applied the following accounting literature:
● ASC
470-50, “Modifications and Extinguishments” was applied to determine whether
the modification is required to be accounted for as an extinguishment
● ASC
815-15, “Derivatives and Hedging - Embedded Derivatives”/ ASC 815-40,
“Derivatives and Hedging- Contracts in Entity's Own Equity” was applied to
determine whether the embedded conversion feature is required to be bifurcated.
● ASC
470-20, “Debt - Debt with Conversion and Other Options” was applied to determine
whether the conversion feature is beneficial to the lenders (i.e. the existence of Beneficial
Conversion Feature).
● ASC
835-30, ”Interest - Imputation of Interest” was applied to determine the
periodic interest cost (including amortization) which represents the effective interest
rate on the face amount of the loans (including the periodic premium amortization).
Securities and Exchange Commission
June 26, 2018
Page 4 of 5
The
below table describes the roll forward of 2017 Loan and 2016 Loan for the three months ended March 31, 2018 and the year ended
December 31, 2017:
March 31,
December 31,
2018
2017
Opening balance
$ 3,204
$ 289
Proceeds from issuance of convertible loan, net of issuance cost
-
811
Recognition of derivative liability related to 2016 Loan
-
-
Recognition of BCF as a discount of 2017 Loan
-
(811 )
Amortization of premium related to convertible loans (*)
(446 )
-
Amortization of discounts resulting from BCF and derivative liability and debt issuance costs related to 2017 Loan and 2016 Loan
-
1,122
Accrued interest on 2017 Loan and 2016 Loan
13
47
Derecognition of carrying amount of 2016 Loan and 2017 Loan upon extinguishment
-
(1,458 )
Amount allocated to 2016 and 2017 Loan based on modified terms
-
3,204
$ 2,771
$ 3,204
(*)
The
amortization of premium represents the periodic amortization of the balance of the amount that was allocated to the 2016 and
2017 loans upon the 2017 loan amendment into the respective principal amount of such loans. As of December 31, 2017 fair value
of the loans was USD 3,137 thousands, principal amount of the loans was USD 1,353 thousands. The differences between the fair
value of the loans and its principal value at the amount of USD 1,785 (the “premium”) will be amortized
quarterly over the loans remaining contractual life- till December 31, 2018.
General
2. We
note that you have a pending request for confidential treatment relating to Exhibit 10.1
to your Form 8-K filed June 5, 2018. Please be advised that we will not be in a position
to declare your registration statement effective until we resolve any issues concerning
the confidential treatment request.
Response:
The
Commission granted confidential treatment for the information excluded from the Exhibits to the Company’s Form 10-K filed
on March 29, 2018, as amended, and Form 8-K filed on June 5, 2018, as set forth below.
Exhibit
to Form
Filed on
Confidential Treatment Granted
10.43
10-K
March 29, 2018
through March 29, 2028
10.44
10-K
March 29, 2018
through March 29, 2028
10.1
8-K
June 5, 2018
through May 31, 2028
Securities and Exchange Commission
June 26, 2018
Page 5 of 5
Please
do not hesitate to contact the undersigned if you have any questions or comments. Thank you.
Very
truly yours,
/s/
OR EISENBERG
Or
Eisenberg
Acting Chief Executive Officer and Chief Financial Officer
Cc:
Gregory
Sichenzia, Esq.
Avital
Perlman, Esq.
Ido
Zemach, Adv.
Yoni
Henner, Adv.