Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - Infinity Augmented Reality, Inc. | Financial_Report.xls |
| EX-32.2 - EXHIBIT 32.2 - Infinity Augmented Reality, Inc. | exhibit_32-2.htm |
| EX-31.2 - EXHIBIT 31.2 - Infinity Augmented Reality, Inc. | exhibit_31-2.htm |
| EX-31.1 - EXHIBIT 31.1 - Infinity Augmented Reality, Inc. | exhibit_31-1.htm |
| EX-32.1 - EXHIBIT 32.1 - Infinity Augmented Reality, Inc. | exhibit_32-1.htm |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2013
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 000-53446
INFINITY AUGMENTED REALITY, INC.
(Exact name of registrant as specified in its charter)
|
Nevada
|
71-1013330
|
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
|
|
2220 Nostrand Avenue
Brooklyn, New York
|
11210
|
|
|
(Address of principal executive offices)
|
(Zip Code)
|
|
(212) 201-4070
|
||
|
(Registrant's telephone number, including area code)
|
(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," "non-accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer o
|
|
Accelerated filer o
|
|
Non-accelerated filer o
|
(Do not check if a smaller reporting company)
|
Smaller reporting company x
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. 93,984,019 shares of common stock as of December 31, 2013.
INFINITY AUGMENTED REALITY, INC.
(A Development Stage Company)
Quarterly Report On Form 10-Q
For The Quarterly Period Ended
November 30, 2013
INDEX
|
Page
|
|||
|
3
|
|||
|
18
|
|||
|
22
|
|||
|
22
|
|||
|
23
|
|||
|
23
|
|||
|
23
|
|||
|
23
|
|||
|
23
|
|||
|
23
|
|||
- 2 -
The following unaudited interim financial statements of Infinity Augmented Reality, Inc. and its Subsidiary (sometimes referred to as "we", "us" or "our Company") are included in this quarterly report on Form 10-Q:
|
Page
|
|
|
4
|
|
|
5
|
|
|
6
|
|
|
7
|
- 3 -
INFINITY AUGMENTED REALITY INC. AND ITS SUBSUDIARY
|
November 30,
|
August 31,
|
|||||||
|
2013
(Unaudited)
|
2013
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT ASSETS
|
||||||||
|
Cash and cash equivalents
|
$ | 349,390 | $ | 431,760 | ||||
|
Convertible note receivable
|
50,000 | 50,000 | ||||||
|
Prepaid expenses and other receivables
|
42,562 | 21,355 | ||||||
|
Total current assets
|
441,952 | 503,115 | ||||||
|
Leasehold improvements and equipment, net
|
153,071 | 126,108 | ||||||
|
Security deposit and other long-term receivables
|
97,632 | 86,272 | ||||||
|
Noncurrent assets of discontinued operations
|
145,781 | 145,781 | ||||||
|
TOTAL ASSETS
|
$ | 838,436 | $ | 861,276 | ||||
|
LIABILITIES
|
||||||||
|
CURRENT LIABILITIES
|
||||||||
|
Accounts payable and accrued expenses
|
$ | 363,315 | $ | 371,598 | ||||
|
Interest payable
|
11,326 | 3,906 | ||||||
|
Current liabilities of discontinued operations
|
775,000 | 775,000 | ||||||
|
Total current liabilities
|
1,149,641 | 1,150,504 | ||||||
|
Convertible debentures, net of debt discount
|
321,162 | 128,327 | ||||||
|
TOTAL LIABILITES
|
1,470,803 | 1,278,831 | ||||||
|
COMMITMENTS AND CONTINGENT LIABILITIES
|
||||||||
|
STOCKHOLDERS’ DEFICIT
|
||||||||
|
Common stock ($ 0.00001 par value; 500,000,000 authorized; 93,984,019
issued and 93,628,551 outstanding at November 30, 2013 and 93,584,759
issued and 93,229,291 outstanding at August 31, 2013
|
940 | 936 | ||||||
|
Additional paid in capital
|
58,924,628 | 57,938,675 | ||||||
|
Treasury stock, at cost 355,468 shares of common stock November 31, 2013 and August 31, 2012
|
(49,766 | ) | (49,766 | ) | ||||
|
Accumulated deficit
|
(59,500,946 | ) | (58,305,978 | ) | ||||
|
Accumulated other comprehensive income (loss)
|
(7,223 | ) | (1,422 | ) | ||||
|
Total Stockholders' Deficit
|
(632,367 | ) | (417,555 | ) | ||||
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$ | 838,436 | $ | 861,276 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 4 -
|
Three months ended November 30,
|
Period from November 15, 2012 to
November 30
|
|||||||||||
|
2013
|
2012
|
2013
|
||||||||||
|
Research and Development expenses
|
$ | (344,799 | ) | $ | - | $ | (478,503 | ) | ||||
|
Marketing expenses
|
(42,398 | ) | - | (76,765 | ) | |||||||
|
General and administrative expenses
|
(688,036 | ) | (260,670 | ) | (7,180,883 | ) | ||||||
|
Total Operating expenses
|
(1,075,233 | ) | (260,670 | ) | (7,736,151 | ) | ||||||
|
Other expense
|
||||||||||||
|
Foreign exchange gain
|
11,195 | - | 4,059 | |||||||||
|
Interest expense
|
(130,931 | ) | - | (198,598 | ) | |||||||
|
Loss from continuing operations before income tax
|
(1,194,969 | ) | (260,670 | ) | (7,930,690 | ) | ||||||
|
Income tax provision
|
- | (162,869 | ) | (78,637 | ) | |||||||
|
Loss from continuing operations
|
(1,194,969 | ) | (423,539 | ) | (8,009,327 | ) | ||||||
|
Loss from discontinued operations (including loss on disposal of life
settlement contracts of $8,438,584 for the three months ended November 30, 2012), net of tax
|
- | (4,264,642 | ) | - | ||||||||
|
Net loss
|
$ | (1,194,969 | ) | $ | (4,688,181 | ) | $ | (8,009,327 | ) | |||
|
Basic and diluted loss per common share
|
||||||||||||
|
Continuing operations
|
(0.01 | ) | (0.01 | ) | ||||||||
|
Discontinued operations
|
- | (0.04 | ) | |||||||||
|
Net loss per common share
|
(0.01 | ) | (0.05 | ) | ||||||||
|
Basic weighted average shares outstanding
|
99,281,941 | 98,229,599 | ||||||||||
|
Diluted weighted average shares outstanding
|
99,281,941 | 98,229,599 | ||||||||||
|
Net loss
|
$ | (1,194,969 | ) | $ | (4,688,181 | ) | $ | (8,009,327 | ) | |||
|
Foreign currency translation adjustments
|
(5,801 | ) | - | (7,223 | ) | |||||||
|
Comprehensive loss
|
$ | (1,200,770 | ) | $ | (4,688,181 | ) | $ | (8,016,550 | ) | |||
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 5 -
INFINITY AUGMENTED REALITY INC. AND ITS SUBSUDIARY
(A Development Stage Company)
|
Three months ended November 30,
|
Period from November
15, 2012 to
November 30,
|
|||||||||||
|
2013
|
2012
|
2013
|
||||||||||
|
Operating activities:
|
||||||||||||
|
Net loss
|
$ | (1,194,969 | ) | $ | (4,688,181 | ) | $ | (8,009,327 | ) | |||
|
Loss from discontinued operations
|
- | 4,264,642 | - | |||||||||
|
Adjustments to reconcile net loss to net cash (used in) provided by operations
|
||||||||||||
|
Amortization of debt discount
|
117,228 | - | 178,446 | |||||||||
|
Stock-based compensation
|
21,638 | 1,708 | 4,533,000 | |||||||||
|
Foreign exchange gain on investment in subsidiary
|
(11,195 | ) | - | (4,059 | ) | |||||||
|
Stock forfeited by stockholders to settle payment of withholding tax on behalf of such stockholders
|
- | - | (5,645 | ) | ||||||||
|
Payment-in-kind interest on shareholders loan
|
- | - | 2,543 | |||||||||
|
Loss on disposition of equipment
|
25,385 | - | 38,546 | |||||||||
|
Depreciation and amortization
|
9,491 | 5,988 | 31,409 | |||||||||
|
Deferred rent
|
- | 17,163 | (63,638 | ) | ||||||||
|
Deferred income taxes
|
- | 162,869 | 78,637 | |||||||||
|
Changes in operating assets and liabilities
|
||||||||||||
|
Prepaid expenses and other receivables
|
(20,921 | ) | (4,341 | ) | (23,713 | ) | ||||||
|
Security deposit
|
(9,153 | ) | - | (38,375 | ) | |||||||
|
Accounts payable and accrued expenses
|
(11,122 | ) | (23,308 | ) | 8,216 | |||||||
|
Interest payable
|
7,420 | - | 11,326 | |||||||||
|
Net cash used in operating activities- continuing operations
|
(1,066,198 | ) | (263,460 | ) | (3,262,634 | ) | ||||||
|
Net cash (used in) provided by operating activities- discontinued operations
|
- | (12,666,845 | ) | 5,858,675 | ||||||||
|
Net cash (used in) provided by operating activities
|
(1,066,198 | ) | (12,930,305 | ) | 2,596,041 | |||||||
|
Investing activities:
|
||||||||||||
|
Payment for purchase of convertible note
|
- | - | (50,000 | ) | ||||||||
|
Proceeds received from sale of equipment
|
- | - | 5,200 | |||||||||
|
Purchase of leasehold improvements and equipment
|
(59,039 | ) | - | (163,864 | ) | |||||||
|
Net cash used in investing activities- continuing operations
|
(59,039 | ) | - | (208,664 | ) | |||||||
|
Net cash provided by investing activities- discontinued operations
|
- | 9,756,718 | - | |||||||||
|
Net cash (used in) provided by investing activities
|
(59,039 | ) | 9,756,718 | (208,664 | ) | |||||||
|
Financing activities:
|
||||||||||||
|
Proceeds from convertible debentures
|
1,000,000 | - | 2,725,000 | |||||||||
|
Proceeds from exercise of stock options
|
39,926 | - | 119,926 | |||||||||
|
Proceeds from shareholder loan
|
- | - | 200,000 | |||||||||
|
Net cash provided by financing activities- continuing operations
|
1,039,926 | - | 3,044,926 | |||||||||
|
Net cash (used in) provided by financing activities- discontinued operations
|
- | 3,671,000 | (5,135,000 | ) | ||||||||
|
Net cash (used in) provided by financing activities
|
1,039,926 | 3,671,000 | (2,090,074 | ) | ||||||||
|
Effect of exchange rate on cash and cash equivalents
|
2,941 | - | (6,033 | ) | ||||||||
|
Change in cash and cash equivalents
|
(82,370 | ) | 497,413 | 291,270 | ||||||||
|
Cash and cash equivalents, beginning
|
431,760 | 4,885 | 58,120 | |||||||||
|
Cash and cash equivalents of continuing operations, ending
|
$ | 349,390 | $ | 502,298 | $ | 349,390 | ||||||
|
Conversion of shareholder loan into convertible debentures
|
$ | - | $ | - | $ | 202,543 | ||||||
|
Warrants issued in connection with convertible debentures
|
$ | 370,153 | $ | - | $ | 1,188,865 | ||||||
|
Fair value of conversion option
|
$ | 554,240 | $ | - | $ | 1,595,962 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 6 -
INFINITY AUGMENTED REALITY INC. AND ITS SUBSUDIARY
(A Development Stage Company)
|
NATURE AND CONTINUANCE OF OPERATIONS
|
Infinity Augmented Reality, Inc. (the "Company") was originally incorporated as Shimmer Gold, Inc. in the State of Nevada on September 7, 2006. The Company was an Exploration Stage company as defined by Accounting Standards Codification ("ASC") 915, Development Stage Entities, and was in the business of the acquisition and exploration of mineral resources during the period from September 7, 2006 to May 21, 2010. Subsequently, a majority of our shareholders approved an amendment to our Articles of Incorporation changing our name to Absolute Life Solutions, Inc. During the fiscal year ended August 31, 2010, the Company commenced operations as a specialty financial services company engaged in the business of purchasing life settlement contracts for long-term investment purposes and was no longer classified as a development stage company.
Effective November 15, 2012, the Company was no longer engaged in its prior primary activity as a specialty financial services company primarily engaged in the purchase of life settlement contracts. As a result of the foregoing, the Company is currently classified as a development stage company. All of the operations related to the Company’s life settlements business are reported as discontinued operations in the unaudited condensed consolidated financial statements. As discussed in Note 3, the prior period operations related to this business have also been reclassified as discontinued operations retrospectively for all periods presented.
During the year ended August 31, 2012, the Company formed a wholly-owned subsidiary Infinity Augmented Reality, LLC ("IAR Subsidiary") and commenced activities to enable it to be actively engaged in the development of software applications which will utilize augmented reality. Effective March 7, 2013, the Company changed its name from Absolute Life Solutions, Inc. to Infinity Augmented Reality, Inc. On that same date, the IAR Subsidiary was merged into the Company. Effective June 30, 2013, the Company formed a wholly owned Israeli subsidiary, Infinity Augmented Reality Israel Ltd. ("Infinity Israel"). The Company is actively engaged in the development of software applications which will utilize augmented reality. The Company intends to develop a comprehensive augmented reality platform for consumers. The Company’s objective is to establish itself firmly as a preeminent source for state-of-the-art augmented reality experiences, forging a strong association, early on, between the Infinity brand and the burgeoning medium.
The continued existence of the Company is dependent upon its ability to generate profit from its augmented reality business and to meet its obligations as they become due. If additional cash is needed, the Company intends to finance the future capital required for continued operations from a combination of traditional debt and equity markets. However, there is no assurance that (a) traditional debt and equity markets may be accessible as required, or if so, on acceptable terms and, or (b) the demand for and selling prices of the Company’s augmented reality products, may not be sufficient to meet cash flow expectation. The outcome of these matters cannot be predicted with certainty and therefore the Company may not be able to continue or expand operations as planned. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.
- 7 -
INFINITY AUGMENTED REALITY INC. AND ITS SUBSUDIARY
(A Development Stage Company)
|
NOTE 2:
|
SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements as of November 30, 2013 and for the three months ended November 30, 2013 and 2012 and for the period from November 15, 2012 through November 30, 2013 have been prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and on the same basis as the annual audited financial statements. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions are eliminated in the consolidation process. The unaudited condensed consolidated Balance Sheet as of November 30, 2013, condensed consolidated Statements of Operations and Comprehensive loss for the three months ended November 30, 2013 and 2012 and for the period from November 15, 2012 through November 30, 2013, and condensed consolidated Statements of Cash Flows for the three months ended November 30, 2013 and 2012 and for the period from November 15, 2012 through November 30, 2013, are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of the financial position, operating results and cash flows for the period presented. The results for the three months ended November 30, 2013 are not necessarily indicative of results to be expected for the year ending August 31, 2014 or for any future interim period. In addition, the balance sheet data at August 31, 2013 was derived from the audited financial statements but does not include all disclosures required by GAAP. The accompanying financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on December 23, 2013.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. The most significant estimates with regard to these financial statements relate to the value of warrants and options and deferred income tax amounts and rates and timing of the reversal of income tax differences.
Development Stage Company
Effective November 15, 2012, the Company is considered a development stage company, having no operating revenues during the period from November 15, 2012 to November 30, 2013, as defined by ASC 915-205, Development-Stage Entities. ASC 915-205 requires companies to report their operations, shareholders equity and cash flows upon entering the development stage through the date that significant revenues are generated. From November 15, 2012 through November 30, 2013, all operating expenses of the Company related to its augmented reality business and is included in the Condensed Consolidated Statements of Operations.
- 8 -
INFINITY AUGMENTED REALITY INC. AND ITS SUBSUDIARY
(A Development Stage Company)
|
NOTE 2:
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
Cash and Cash Equivalents
The Company considers all short term investments with an original maturity of three months or less to be cash equivalents. The Company maintains cash balances that may be uninsured or in deposit accounts that exceed Federal Deposit Insurance Corporation limits. The Company maintains its cash deposits with major financial institutions.
Financial Instruments
The fair value of certain of the Company's financial instruments, consisting of cash, accounts payable and accrued expenses are estimated to be equal to their carrying value due to the short-term nature of these instruments. It is management's opinion that the Company is not exposed to significant interest, currency and credit risks arising from these financial instruments.
Leasehold Improvements and Equipment consists of computer hardware and furniture and is recorded at cost. Computer hardware and furniture are depreciated on a straight-line basis over their estimated lives of three to five years. Leasehold Improvements are amortized on a straight-line basis over the life of the lease of two years.
Software Development Costs
The Company applies the principles of ASC 985-20, Software- Costs of Software to Be Sold, Leased, or Marketed, which requires that software development costs incurred in conjunction with product development be charged to research and development expense until technological feasibility is established. Thereafter, until the product is released for sale, software development costs must be capitalized and reported at the lower of unamortized cost or net realizable value of the related product. The Company has adopted the "tested working model" approach to establishing technological feasibility for its products. Under this approach, a product in development is not considered to have passed the technological feasibility milestone until the Company has produced a model of the product that contains essentially all the functionality and features of the final product and have tested the model to ensure that it works as expected. The Company has expensed all software development costs when incurred since none of the Company’s products have reached technological feasibility.
Foreign Currency Translation
The financial statements are presented in United States dollars. In accordance with ASC 830, Foreign Currency Matters, foreign denominated monetary assets and liabilities are translated to their United States dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Non-monetary assets and liabilities are translated at exchange rates prevailing at the transaction date. Revenue and expenses are translated at average rates of exchange during the periods presented. Related translation adjustments are reported as a separate component of stockholders' deficit, whereas gains or losses resulting from foreign currency transactions and re-measurement are included in results of operations.
- 9 -
INFINITY AUGMENTED REALITY INC. AND ITS SUBSUDIARY
(A Development Stage Company)
|
NOTE 2:
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
Income Taxes
Deferred income taxes are provided for tax effects of temporary differences between the tax basis of asset and liabilities and their reported amounts in the financial statements. The Company uses the liability method to account for income taxes, which requires deferred taxes to be recorded at the statutory rate expected to be in effect when the taxes are paid. Valuation allowances are provided for a deferred tax asset when it is more likely than not that such asset will not be realized.
Management evaluates tax positions taken or expected to be taken in a tax return. The evaluation of a tax position includes a determination of whether a tax position should be recognized in the financial statements, and such a position should only be recognized if the Company determines that it is more likely than not that the tax position will be sustained upon examination by the tax authorities, based upon the technical merits of the position. For those tax positions that should be recognized, the measurement of a tax position is determined as being the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.
The Company’s policy for recording interest and penalties associated with audits is to record such expense as a component of income tax expense.
Loss per Share
Basic loss per share is calculated using the weighted average number of shares of common stock outstanding during the period. Included in basic loss per share calculations for each period presented are the effects of 6,000,000 warrants exercisable at $0.01. Diluted earnings per share reflect the potential dilution that could occur if potentially dilutive securities were exercised or converted to common stock. The dilutive effect of options and warrants and their equivalent is computed by application of the treasury stock method and the effect of convertible securities by the "if converted" method. As of November 30, 2013, 45,751,084 shares of common stock, comprised of 11,710,172 convertible debentures with a conversion price of $0.25, 11,710,172 warrants with an exercise price of $0.50, and stock options exercisable into 22,330,740 common shares are not included in diluted loss per share since their effect would be anti-dilutive. There were no other potential common shares at November 30, 2012.
Stock-Based Compensation
The Company records stock-based compensation expense in accordance with ASC 718, Compensation - Stock Compensation. The Company expenses stock-based compensation to employees over the requisite service period based on the estimated grant-date fair value of the awards and forfeiture rates. For stock-based compensation awards to non-employees, the Company re-measures the fair value of the non-employee awards at each reporting period prior to vesting and finally at the vesting date of the award. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.
Recent Accounting Pronouncements
Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or are not expected to be significant to the condensed financial statements of the Company.
- 10 -
INFINITY AUGMENTED REALITY INC. AND ITS SUBSUDIARY
(A Development Stage Company)
|
NOTE 3:
|
DISCONTINUED OPERATIONS
|
Effective November 15, 2012, the Company reached an agreement with the agent of the Lenders regarding the satisfaction of the outstanding balance of the Loans, under the terms of a Loan Satisfaction Agreement. Such agreement resulted in the disposition of all of the life settlement contracts that were held by the Company to the Lender or an affiliate of the Lender. All of the operations related to the Company’s life settlements business are reported as discontinued operations in the condensed financial statements. The prior period operations related to this business have also been reported as discontinued operations retrospectively for all periods presented. The assets and liabilities related to the Company’s life settlements business are reported as assets and liabilities of discontinued operations in the condensed consolidated balance sheets as of November 30, 2013 and August 31, 2013. The Company presented the prior year assets and liabilities related to the Company’s life settlements business as discontinued operations to provide comparability between the periods presented.
Discontinued operations on the condensed consolidated statement of operations for the three months ended November 30, 2013 and 2012 are as follows:
|
Three months ended
November 30,
|
||||||||
|
2013
|
2012
|
|||||||
|
Sales, general and administrative expenses
|
$ | - | $ | (129,200 | ) | |||
|
Realized loss on extinguishment of debt
|
- | (8,438,584 | ) | |||||
|
Change in fair value of life settlement contracts net of premiums paid
|
- | 2,055,438 | ||||||
|
Interest expense
|
- | (1,610,571 | ) | |||||
|
Loss from discontinued operations before income tax
|
- | (8,122,917 | ) | |||||
|
Income tax benefit
|
- | 3,858,275 | ||||||
|
Net loss from discontinued operations
|
$ | - | $ | (4,264,642 | ) | |||
Assets and liabilities of discontinued operations for the Company’s life settlements business on the condensed consolidated balance sheets consist of the following:
|
November 30
|
August 31,
|
|||||||
|
2013
|
2013
|
|||||||
|
ASSETS
|
||||||||
|
NON CURRENT ASSETS
|
||||||||
|
Deferred income taxes
|
145,781 | 145,781 | ||||||
|
Total noncurrent assets of discontinued operations
|
$ | 145,781 | $ | 145,781 | ||||
|
LIABILITIES
|
||||||||
|
CURRENT LIABILITIES
|
||||||||
|
Income and other taxes payable
|
775,000 | 775,000 | ||||||
|
Total current liabilities of discontinued operations
|
$ | 775,000 | $ | 775,000 | ||||
During the three months ended November 30, 2012, a life settlement contract matured resulting in cash proceeds of $10,000,000. Subsequent to November 30, 2012, these proceeds were used to satisfy the Term Interest of $2,123,281, the Revolving Total of $6,085,000 and the Premiums Payable of $1,170,526.
- 11 -
INFINITY AUGMENTED REALITY INC. AND ITS SUBSUDIARY
(A Development Stage Company)
|
NOTE 3:
|
DISCONTINUED OPERATIONS (Cont.)
|
As of November 30, 2013 and August 31, 2013, the Company had a deferred income tax asset of $145,781 from an NOL from discontinued operations and income tax payable of $775,000, which includes $75,000 for interest and penalties, as a result of a realized gain from maturity of a life settlement contract which could not be offset by the capital loss generated by the disposition of life settlement contracts.
|
NOTE 4:
|
CONVERTIBLE NOTE RECEIVABLE
|
On July 10, 2013, the Company was issued a $50,000 par value Convertible Promissory Note from Meta Company, a Delaware company. The Note bears a 5% annual coupon and matures on July 31, 2014. The Note is convertible into common shares of Meta Company at conversion price of 80% of the price of common equity sold in a Qualified Offering of at least $1,000,000. The note is carried at cost which approximates fair value.
|
NOTE 5:
|
CONVERTIBLE DEBENTURES
|
During the three months ended November 30, 2013, the Company completed a private placement of (i) five-year Convertible Debentures (the “Debentures”) for an aggregate principal amount of $1,000,000, bearing interest at 1.2% per annum, convertible into shares (the “Conversion Shares”) of common stock, at a conversion price of $0.25, and (ii) a five-year Warrant (the “Warrants”) to purchase 4,000,000 shares of common stock (the “Warrant Shares”), to certain accredited investors (the “Purchasers”) pursuant to Securities Purchase Agreements dated September 17, October 9 and November 7, 2013.
The Debentures bear interest at 1.2% per annum payable semi-annually in arrears in either cash or common stock (at the discretion of the Company). There are no provisions for early redemption by the Company.
The Purchasers were issued Warrants to purchase the Company’s common stock, exercisable for a period of five years at an initial exercise price of $0.50, subject to adjustment. The Warrants provide for customary adjustments to the exercise price in the event of stock splits, stock dividends and other similar corporate events and may be exercised on a cashless basis. The Warrants do not confer any voting rights or any other rights as a shareholder.
The Company accounts for the beneficial conversion feature (“BCF”) and warrant valuation in accordance with ASC 470-20, Debt with Conversion and Other Options. The Company records a BCF related to the issuance of convertible debt that has conversion features at fixed rates that are “in-the-money” when issued and the fair value of warrants issued in connection with those instruments. The BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds to warrants, based on their relative fair value, and as a reduction to the carrying amount of the convertible debt equal to the intrinsic value of the conversion feature. The discount recorded in connection with the BCF and warrant valuation is recognized as non-cash interest expense and is amortized over the terms of the convertible notes. The Company recorded an aggregate of $924,393 for the calculated fair value of the warrants and BCF, in conjunction with the convertible notes issued on September 17, October 9 and November 7, 2013.
- 12 -
INFINITY AUGMENTED REALITY INC. AND ITS SUBSUDIARY
(A Development Stage Company)
|
NOTE 5:
|
CONVERTIBLE DEBENTURES (Cont.)
|
The Company valued the warrants at the date the warrants were issued, using the Black-Scholes valuation model and the following assumptions:
|
September 17,
2013
|
October 9,
2013
|
November 7,
2013
|
||||||||||
|
Contractual term (Years)
|
5.0 | 5.0 | 5.0 | |||||||||
|
Volatility
|
68.5 | % | 67.3 | % | 66.3 | % | ||||||
|
Dividend yield
|
0.0 | % | 0.0 | % | 0.0 | % | ||||||
|
Risk-free interest rate
|
1.65 | % | 1.43 | % | 1.34 | % | ||||||
|
November 30,
2013
|
||||
|
1.2% convertible debentures
|
2,927,543 | |||
|
Debt discount/ beneficial conversion feature
|
2,606,381 | |||
|
Balance
|
$ | 321,162 | ||
|
NOTE 6:
|
COMMITMENTS AND CONTINGENT LIABILITIES
|
On November 27, 2013, Infinity Israel received a pre lawsuit claim letter from the legal representative of a former employee. Infinity Israel intends to contest the lawsuit and has instructed its legal counsel to prepare a response letter. The compensation amount sought by the former employee as per his pre lawsuit claim letter is approximately 202,000 NIS (approximately $57,000 based on foreign exchange rate as of November 27, 2013). Due to the early stage of the lawsuit, an evaluation of the likelihood of an unfavorable outcome cannot be made at this time.
Effective November 1, 2013, Infinity Israel entered into an Employment Agreement with Ortal Zanzuri pursuant to which she will serve as the Chief Financial Officer of Infinity Israel. On November 11, 2013, the Board of the Company unanimously resolved to approve her employment agreement and resolved to appoint Ms. Zanzuri as the Secretary, Treasurer and Chief Financial Officer of the Company, effective on January 1, 2014. The Board also accepted the resignation of Mr. Joshua Yifat, effective as of December 31, 2013. In connection with her appointment as Chief Financial Officer, Ms. Zanzuri will receive annual compensation of 480,000 New Israeli Shekel (approximately $136,000) and will be granted 200,000 Non-Qualified Stock Options with an exercise price, vesting and expiration dates as determined by the Board (the “Options”). These Options shall be subject to the terms and conditions of the Company’s adoption of an Israeli Employee Sub-Plan under the Company’s 2013 Equity Incentive Plan and a written stock option agreement.
- 13 -
INFINITY AUGMENTED REALITY INC. AND ITS SUBSUDIARY
(A Development Stage Company)
| NOTE 7:- |
COMMON STOCK, WARRANTS AND OPTIONS
|
Common Stock
During the three months ended November 30, 2013, a consultant exercised 399,260 options at an exercise price of $0.10 per share. The Company received cash proceeds of $39,926 on exercise of those options.
As of November 30, 2013, there are 355,468 shares of common stock in the Company’s treasury.
Warrants
Warrant transactions are summarized as follows:
|
Number of warrants
|
Weighted
average
exercise
price
|
Weighted average life remaining
(in years)
|
||||||||
|
Balance as at August 31, 2013 Issued
|
13,710,172 | 0.28 |
3.51 years
|
|||||||
|
Additions as of November 30, 2013 Issued
|
4,000,000 | 0.50 |
4.86 years
|
|||||||
|
Balance as at November 30, 2013
|
17,710,172 | 0.33 |
3.64 years
|
|||||||
As of November 30, 2013, there were 17,710,172 and on August 31, 2013, there were 13,710,172 warrants outstanding and exercisable with expiration dates commencing June 2015 through November 2018.
Except as set forth under limited circumstances, the warrants do not permit net cash settlement.
Stock options
During the three months ended November 30, 2013, the Board of Directors granted to a director 100,000 Non-Qualified Stock Options with an exercise price of $0.29 (the “Options”), vesting semiannually over the next 2 years (at the beginning of the Company’s quarterly reporting date), and expire on September 1, 2018. 25,000 (or 25%) of the Options shall initially vest on March 1, 2014 through September 1, 2015.
During the three months ended November 30, 2013, the Company’s Chief Financial Officer, Mr. Joshua Yifat, entered into a consulting agreement effective on January 1, 2014. Pursuant to the consulting agreement, the Board of Directors granted him 200,000 Non Qualified Stock Options on November 7, 2013, at an exercise price of $0.35 vesting on April 16, 2014 and expiring on November 6, 2018.
Total Fair value of these options was $ 46,380. As of November 30, 2013, the unamortized stock compensation expense of these options is $34,566 which will be amortized over the period ended May 31, 2014.
For the three months ended November 30, 2013, the compensation expense of these options was $21,638 and is included in the condensed consolidated Statements of Operations and Comprehensive loss.
- 14 -
INFINITY AUGMENTED REALITY INC. AND ITS SUBSUDIARY
(A Development Stage Company)
| NOTE 7: |
COMMON STOCK, WARRANTS AND OPTIONS (Cont.)
|
Valuation Assumptions
The Company estimates the fair value of stock option grants using a Black-Scholes option pricing model. In applying this model, the Company uses the following assumptions:
|
|
„
|
Risk-Free Interest Rate: The Company determined the risk-free interest rate equivalent to the expected term based on the U.S. Treasury constant maturity rate.
|
|
|
„
|
Expected Volatility: The Company determined its future stock price volatility based on the average historical stock price volatility of comparable peer companies.
|
|
|
„
|
Expected Term: Due to the limited exercise history of the Company’s stock options, the Company determined the expected term based on the stratification of employee groups and the expected effect of events that have indications on future exercise activity. Expected life for options granted to employees uses the Simplified Method, while options granted to non-employees uses an expected term equal to the life of the contract.
|
|
|
„
|
Expected Dividend Rate: The Company has not paid and does not anticipate paying any cash dividends in the near future.
|
The fair value of each option award was estimated on the grant date using the Black Scholes option-pricing model and expensed under the straight line method. The following assumptions were used:
|
Three Months
ended
November 30, 2013
|
|||
|
Exercise price
|
$0.29 - $0.35
|
||
|
Expected stock price volatility
|
66.3% - 73.8%
|
||
|
Risk-free rate of interest
|
1.31% - 1.72%
|
||
|
Expected life of options
|
3-3.5 Years
|
The aggregate fair value of the options at grant date was approximately $46,380.
The following table summarizes the stock-based compensation expense from stock option, employee stock purchase programs and restricted Common Stock awards for the Three months ended November 30, 2013 and 2012:
|
Three months ended
November 30,
|
||||||||
|
2013
|
2012
|
|||||||
|
Employee awards
|
$ | 4,644 | $ | - | ||||
|
Non- employee awards, net of forfeitures
|
16,994 | 1,708 | ||||||
|
Total stock options compensation expense
|
$ | 21,638 | $ | 1,708 | ||||
- 15 -
INFINITY AUGMENTED REALITY INC. AND ITS SUBSUDIARY
(A Development Stage Company)
| NOTE 7: |
COMMON STOCK, WARRANTS AND OPTIONS (Cont.)
|
The following table summarizes stock option activity:
|
Number of Shares
|
Weighted
Average
Exercise
Price
|
Total
Weighted
Average
Intrinsic
Value
|
Weighted
Average
Remaining
Contractual
Life
(in years)
|
|||||||||||||
|
Outstanding at August 31, 2013
|
22,430,000 | 0.11 | 0.19 | 4.51 | ||||||||||||
|
Options granted
|
300,000 | 0.33 | 0.14 | 5.04 | ||||||||||||
|
Options exercised
|
(399,260 | ) | 0.10 | - | - | |||||||||||
|
Options forfeited
|
- | - | - | - | ||||||||||||
|
Options cancelled
|
- | - | - | - | ||||||||||||
|
Outstanding at November 30, 2013
|
22,330,740 | 0.11 | 0.36 | 4.27 | ||||||||||||
As of November 30, 2013, the unamortized stock compensation expense is $49,418 which will be amortized over the period ended May 31, 2015.
Income tax expense consists of the following components at November 30, 2013 and 2012:
|
Three Months ended
November 30,
|
||||||||
|
2013
|
2012
|
|||||||
|
Current tax expense
|
$ | - | $ | - | ||||
|
Deferred tax expense (benefit)
|
- | 162,869 | ||||||
|
Total income tax expense (benefit)
|
$ | - | $ | 162,869 | ||||
The Company calculates its interim tax provision in accordance with the provisions of ASC 740-270, Income Taxes; Interim Reporting. For interim periods, the Company estimates its annual effective income tax rate and applies the estimated rate to the year-to-date income or loss before income taxes. The Company also computes the tax provision or benefit related to items reported separately and recognizes the items net of their related tax effect in the interim periods in which they occur. The Company also recognizes the effect of changes in enacted tax laws or rates in the interim periods in which the changes occur.
In computing the annual estimated effective tax rate the Company makes certain estimates and judgments, such as estimated annual taxable income or loss, the nature and timing of permanent and temporary differences between taxable income for financial reporting and tax reporting, and the recoverability of deferred tax assets. These estimates and assumptions may change as new events occur, additional information is obtained, or as the tax environment changes. The difference between the statutory rate of 35% and the effective rate of 0% is primarily attributable to the effect of state and local taxes and offset by an increase in the valuation allowance.
- 16 -
INFINITY AUGMENTED REALITY INC. AND ITS SUBSUDIARY
(A Development Stage Company)
As of August 31, 2013 the Company had approximately $1,974,000 of federal, state and local net operating losses (“NOL”). The federal NOL carryforward expires in the fiscal year ending August 31, 2032. As of August 31, 2013, the Company had approximately $340,000 of NOLs in Israel available to be carried forward indefinitely. The Company recorded a valuation allowance against its deferred tax asset resulting from its NOLs since management concluded that it was more likely than not that the Company would not realize the benefit of this portion of its deferred tax assets by generating sufficient taxable income in future years.
As of November 30, 2013, the Company has filed income tax returns through the fiscal 2012 tax year. The Company is required to file income tax returns in the United States (federal) and in New York State and City, and in Israel. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements.
The evaluation was performed for the August 31, 2008 – August 31, 2012 tax years, which remain subject to examination. At this time, the fiscal year 2011 tax return has been selected for examination by the Internal Revenue Service. The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in material changes to its financial position.
There are no significant amounts accrued for penalties or interest as of or during the three months ended November 30, 2013 and 2012. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.
|
NOTE 9:
|
SUBSEQUENT EVENTS
|
On December 5, 2013, the Company issued Debentures and 1,300,000 warrants and received aggregate proceeds of $325,000.
On December 19, 2013, the Company issued Debentures and 1,500,000 warrants and received aggregate proceeds of $375,000.
On December 29, 2013, Infinity Israel entered into an agreement to purchase certain intellectual property (“IP”) from Motti Kushnir and Matan Protter (“the sellers”). In consideration for the purchase of the IP, the Company issued 84,226 shares of common stock, valued at approximately 100,000 New Israeli Shekels (approximately $29,000), of the Company which shall be restricted for a period of six months from the date of issuance.
On December 29, 2013, Infinity Israel entered into an employment agreements with the sellers according to which Motti Kushnir (“Motti”) will serve as the Chief Operation Officer (“COO”) effective December 29, 2013 and Matan Protter (“Matan”) will serve as the Chief Technology Officer (”CTO”) effective as of January 1, 2014. In connection with their appointment as COO and CTO, Motti and Matan will receive annual compensation of approximately 630,000 and 531,600 New Israeli Shekel (approximately $179,000 and $151,000), respectively, and each of them will be granted 1,375,000 Non-Qualified Stock Options with an exercise price, vesting and expiration dates as determined by the Board (the “Options”). These Options shall be subject to the terms and conditions of the Company’s adoption of an Israeli Employee Sub-Plan under the Company’s 2013 Equity Incentive Plan and a written stock option agreement.
The Company evaluates events that have occurred after the balance sheet date through the date the financial statements were publicly available. Based upon the evaluation, the Company did not identify any other recognized or non-recognized subsequent events that would have required adjustment to or disclosure in the financial statements.
- 17 -
Special Note: Certain statements in this quarterly report on Form 10-Q concerning our business prospects or future financial performance, anticipated revenues, expenses, profitability or other financial items, estimates as to size, growth in or projected revenues from the life settlement market, developments in industry regulations and the application of such regulations, expected outcomes of pending or potential litigation and regulatory actions, and our strategies, plans and objectives, together with other statements that are not historical facts, are “forward-looking statements” as that term is defined under the federal securities laws. All of these forward-looking statements are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. You should carefully review the risks described herein and in other documents we file from time to time with the Securities and Exchange Commission, (“ SEC ”), including our Annual Report on Form 10-K for the year ended August 31, 2013 (“ Fiscal 2013 ”), particularly in the sections entitled “Item 1A – Risk Factors” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Unless required by law, we undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this Report or to reflect the occurrence of unanticipated events. Shareholders and potential shareholders should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this Report. Management cautions that these statements are qualified by their terms and/or important factors, many of which are outside of our control, and involve a number of risks, uncertainties and other factors that could cause actual results and events to differ materially from the statements made, including, but not limited to, the following:
|
|
·
|
actual or anticipated fluctuations in our quarterly and annual operating results;
|
|
|
·
|
actual or anticipated product constraints;
|
|
|
·
|
decreased demand resulting from changes in laws;
|
|
|
·
|
product and services announcements by us or our competitors;
|
|
|
·
|
loss of any of our key executives;
|
|
|
·
|
regulatory announcements, proceedings or changes;
|
|
|
·
|
competitive product developments and legal developments;
|
|
|
·
|
any business combination we may propose or complete;
|
|
|
·
|
any financing transactions we may propose or complete; or
|
|
|
·
|
broader industry and market trends unrelated to its performance.
|
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.
Overview
During the year ended August 31, 2012, we formed a wholly-owned subsidiary Infinity Augmented Reality, LLC (“IAR Subsidiary”) which was actively engaged in the development of software applications which will utilize augmented reality.
On February 26, 2013, the Company memorialized its understandings regarding prior and future activities with Infinity Advanced Technologies LTD (“IATL”), a company organized under the laws of the State of Israel which is developing applications for the Company’s augmented reality activities. In consideration of the services provided, IATL shall be entitled to receive a monthly base fee of $53,000. Additional charges may be incurred upon prior approval of the Company. Effective June 30, 2013, the Company terminated its services agreement with IATL.
Effective March 7, 2013, we changed our name from Absolute Life Solutions, Inc. to Infinity Augmented Reality, Inc. On that same date, we merged our IAR Subsidiary into the Company. We are currently actively engaged in the development of software applications which will utilize Augmented Reality. We intend to develop a comprehensive augmented reality platform for consumers. Our objective is to establish ourself firmly as a preeminent source for state-of-the-art augmented reality experiences, forging a strong association, early on, between the Infinity brand and the burgeoning medium.
- 18 -
Augmented reality is a medium in which real sensory inputs are enhanced, or augmented, with relevant digital information from the Internet. Using specially equipped eyewear, virtual images, video, and sound are superimposed for the user over what is actually seen and heard, heightening the real-life experience with additional information that is pertinent, informative, practical, and/or entertaining. The individual user may also be fully immersed in a virtual world, temporarily blocking out real surroundings. With augmented reality, sensory inputs are no longer limited to what is within eyeshot or earshot, but may incorporate, in real-time, all that the network has to offer.
Augmented reality requires an interface, such as digitally-enhanced eyewear, that can instantaneously overlay virtual images and video on top of what is actually experienced. Companies like Google and Lumus are in the process of developing augmented reality glasses that will change the way users see and interact with the world. IAR will utilize their augmented reality applications through these glasses and/or through other mobile devices such as smart phones. As the individual turns his or her head in various directions and looks at different people or objects through the eyewear, the sights that are overlaid change accordingly. The eyewear incorporates speakers that add virtual sounds to the overall experience, as well as microphones that capture and interpret the user’s spoken commands through speech recognition technology in order to summon desired information and actions.
Results of Operations
Our results of operations for the three months ended November 30, 2013, consisted of consisted of operating and administrative expenses for personnel, leased office space and professional fees, income tax expense and loss from discontinued operations.
Three months ended November 30, 2013 compared to three months ended November 30, 2012
INFINITY AUGMENTED REALITY INC.
|
Three months ended November 30,
|
||||||||
|
2013
|
2012
|
|||||||
|
Research and Development expenses
|
$ | (344,799 | ) | $ | - | |||
|
Marketing expenses
|
(42,398 | ) | - | |||||
|
General and administrative expenses
|
(688,036 | ) | (260,670 | ) | ||||
|
Total Operating expenses
|
(1,075,233 | ) | (260,670 | ) | ||||
|
Foreign exchange gain
|
11,195 | |||||||
|
Interest expense
|
(130,931 | ) | - | |||||
|
Loss from continuing operations before income tax
|
(1,194,969 | ) | (260,670 | ) | ||||
|
Income tax provision
|
- | (162,869 | ) | |||||
|
Loss from continuing operations
|
(1,194,969 | ) | (423,539 | ) | ||||
|
Loss from discontinued operations (including loss on disposal of life
settlement contracts of $8,438,584 for the three months ended November 30, 2012), net of tax
|
- | (4,264,642 | ) | |||||
|
Net loss
|
$ | (1,194,969 | ) | $ | (4,688,181 | ) | ||
- 19 -
Expenses: Operating expenses increased from $260,670 for the three months ended November 30, 2012 to $1,075,232 for the three months ended November 30, 2013. Operating expenses were primarily related to salaries and other operating cost resulting from development of augmented reality applications mainly in the Israeli subsidiary.
Interest Expense: Interest expense for the three months ended November 30, 2013 increased to $130,931 as compared to $0 in the three months ended November 30, 2012. Interest expenses include interest on Convertible Debts and amortization of debt discount related to convertible debt.
Income Tax: Income tax expense was $162,869 for the three months ended November 30, 2012. The expenses are primarily attributable to an increase in the valuation allowance because the Company entered the development stage. There were no income tax expenses in the three months ended November 30, 2013 since we recorded a full valuation allowance against the deferred tax asset resulting from the our NOL, since we concluded that it is more likely than not that we will not realize the benefit of our deferred tax assets by generating sufficient taxable income in future years
Net Income (Loss): We reported a net loss of $1,194,969 for the three months ended November 30, 2013 compared to a net loss of $4,688,181 for the three months ended November 30, 2012. The decrease of approximately $3,493,000 is primarily attributable to an approximate decrease of $4,265,000 loss from discontinued operations offset by an increase of approximately $345,000 in research and development expenses, an increase of approximately $470,000 in marketing and general and administrative expenses for continuing operations, an increase of approximately $131,000 in interest expense for continuing operations, an increase of approximately $11,200 in foreign exchange gains on our investment in our wholly-owned Israeli subsidiary and a decrease of approximately $163,000 in income tax expense for continuing operations. Refer to preceding discussions for explanation of variances.
Liquidity and Capital Resources
Net cash used in operating activities for the three months ended November 30, 2013 was $1,066,198. Net cash used in investing activities was $59,039 mainly from purchase of computers and other equipment. Net cash provided by financing activities was $1,039,926 arising from proceeds received from convertible debentures and exercise of stock options. This resulted in a decrease in cash of $82,370.
Working Capital and Capital Availability: As of November 30, 2013, we had negative working capital of $707,689. Subsequent to November 30, 2013, we issued Convertible Debentures and received aggregate proceeds of $700,000. We anticipate, that barring unforeseen developments, the proceeds received from these subsequent debt financings will sustain our operations for approximately two months. To date, we issued a total of approximately $3,627,543 of Convertible Debentures with a maximum available of $5,000,000. We anticipate raising additional funds to continue our augmented reality operations through subsequent debt or equity offerings to one or more accredited investors. Such issuances may dilute the interests of our existing shareholders. During the next twelve months we anticipate that we will not generate significant cash from operations. We are unable to estimate our working capital requirements and capital availability for the next twelve months.
Going Concern Qualification
The Company will require additional funds to finance its operations. Effective November 15, 2012, we are a development stage company dependent upon the expected demand for our software applications and our ability to generate sufficient cash from our augmented reality business to meet our obligations as they come due. We may not be able to obtain additional financing on reasonable terms or at all. There can be no assurance that we can successfully implement our business plan, and it is uncertain that we will achieve a profitable level of operations and be able to obtain additional financing. There can be no assurance that any additional financings will be available to us on satisfactory terms and conditions, if at all. These conditions raise substantial doubt about our ability to continue as a going concern.
- 20 -
Application of Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations are based on our financial statements that were prepared in accordance with accounting principles generally accepted in the United States of America. To guide our preparation, we follow accounting policies, some of which represent critical accounting policies as defined by the SEC. The SEC defines critical accounting policies as those that are both most important to the portrayal of a company’s financial condition and results and require management’s most difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates involve significant judgments, assumptions and estimates by management that may have a material impact on the carrying value of certain assets and liabilities, disclosures of contingent liabilities, and the reported amounts of income and expenses during the reporting period that management considers critical accounting estimates. The judgments, assumptions and estimates used by management are based on historical experience, management’s experience, knowledge of the accounts and other factors that are believed to be reasonable. Because of the nature of the judgments and assumptions made by management, actual results may differ materially from these judgments and estimates, which could have a material impact on the carrying values of assets and liabilities and the results of our operations. Areas affected by our estimates and assumptions are identified below.
We apply the principles of ASC 985-20, Software- Costs of Software to Be Sold, Leased, or Marketed, which requires that software development costs incurred in conjunction with product development be charged to research and development expense until technological feasibility is established. Thereafter, until the product is released for sale, software development costs must be capitalized and reported at the lower of unamortized cost or net realizable value of the related product. We have adopted the “tested working model” approach to establishing technological feasibility for its products. Under this approach, a product in development is not considered to have passed the technological feasibility milestone until we have produced a model of the product that contains essentially all the functionality and features of the final product and have tested the model to ensure that it works as expected. We have expensed all software development costs when incurred since they have not reached technological feasibility.
We account for the BCF and warrant valuation in accordance with ASC 470-20, Debt with Conversion and Other Options. We record a BCF related to the issuance of convertible debt that has conversion features at fixed rates that are “in-the-money” when issued and the fair value of warrants issued in connection with those instruments. The BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds to warrants, based on their relative fair value, and as a reduction to the carrying amount of the convertible debt equal to the intrinsic value of the conversion feature. The discount recorded in connection with the BCF and warrant valuation is recognized as non-cash interest expense and is amortized over the terms of the convertible notes.
We record stock-based compensation expense in accordance with ASC 718, Compensation - Stock Compensation. We expense stock-based compensation to employees over the requisite service period based on the estimated grant-date fair value of the awards and forfeiture rates. For stock-based compensation awards to non-employees, we re-measure the fair value of the non-employee awards at each reporting period prior to vesting and finally at the vesting date of the award. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.
We review the carrying value of the property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment includes current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment, there was no impairment during the three months ended November 30, 2013.
- 21 -
We evaluate the useful lives of our property and equipment to assure that an adequate amount of depreciation is being charged to operations. Useful lives are based generally on specific knowledge of an asset’s life.
We are required to estimate our income taxes. This process involves estimating our current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These differences result in deferred tax assets and liabilities. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income, and, to the extent we believe that recovery is not likely, we establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we include a tax provision or reduce our tax benefit in the statements of operations. We use our judgment to determine our provision or benefit for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets.
We cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates used to prepare our financial statements when we deem it necessary.
We have not made any material changes to our critical accounting estimates or assumptions or the judgments affecting the application of those estimates or assumptions.
Off-Balance Sheet Arrangements
We did not engage in any off-balance sheet arrangements or transactions.
Outlook
Effective March 7, 2013, we changed our name from Absolute Life Solutions, Inc. to Infinity Augmented Reality, Inc. On that same date, we merged our IAR Subsidiary into the Company. We are actively engaged in the development of software applications which will utilize Augmented Reality. On February 26, 2013, we memorialized our understandings regarding prior and future activities with IATL, a company organized under the laws of the State of Israel which is developing applications for our augmented reality activities. Effective June 30, 2013, we terminated our services agreement with IATL. On June 30, 2013, we formed a wholly owned Israeli subsidiary, Infinity Israel. We are currently in the process of developing an augmented reality platform. We believe our Company and our industry are fundamentally sound and well positioned to deal with the current uncertainty in the financial and capital markets. We do not rely on leverage in our capital structure. We do rely, however, upon the availability of investment capital. While it is conceivable that a financial crisis could diminish the supply of investment capital throughout the economy, we believe that greater investment capital will be placed in the augmented reality sector though there can be no assurance that this will be the case. We believe this is due to the fact that augmented reality is one of the technologies of the future.
We believe that domestic and international demand for augmented reality products will continue to grow as the industry continues to mature.
Management does not believe that there is any material market risk exposure with respect to derivative or other financial instruments that would require disclosure under this item.
Disclosure Controls and Procedures. With the participation of our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)), as of the end of the period covered by this report. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such periods, our disclosure controls and procedures were not effective due to the material weaknesses noted below, in ensuring that (i) information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
- 22 -
|
|
·
|
Due to the small size of its staff, the Company did not have sufficient segregation of duties to support its internal control over financial reporting.
|
There were no changes in our internal controls over financial reporting during the quarter ended November 30, 2013, that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.
On November 27, 2013, our subsidiary, Infinity Israel received a pre lawsuit claim letter from the legal representative of a former employee. Infinity Israel intends to contest the lawsuit and has instructed its legal counsel to prepare a response letter. The compensation amount sought by the former employee as per his pre lawsuit claim letter is approximately 202,000 NIS (approximately $57,000). Due to the early stage of the lawsuit, an evaluation of the likelihood of an unfavorable outcome cannot be made at this time.
None.
The Company currently does not have senior securities
Not applicable.
None.
|
Exhibit
Number
|
Description
|
|
|
31.1
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
31.2
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
32.1
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act .
|
|
|
32.2
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act .
|
|
|
101.INS
|
XBRL Instance Document
|
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document
|
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
- 23 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
|
INFINITY AUGMENTED REALITY, INC.
|
||
|
January 14, 2014
|
/s/ Ortal Zanzuri
|
|
|
Ortal Zanzuri
|
||
|
Treasurer and Chief Financial Officer
|
||
|
(Principal Financial Officer)
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
Signature
|
Capacity in which signed
|
Date
|
|
/s/ Enon Landenberg
|
President and Chief Executive Officer
|
January 14, 2014
|
|
Enon Landenberg
|
(Principal Executive Officer )
|
- 24 -