Attached files
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EXCEL - IDEA: XBRL DOCUMENT - InnoVision Labs, Inc | Financial_Report.xls |
EX-32.2 - EXHIBIT 32.2 - InnoVision Labs, Inc | v393605_ex32-2.htm |
EX-31.2 - EXHIBIT 31.2 - InnoVision Labs, Inc | v393605_ex31-2.htm |
EX-32.1 - EXHIBIT 32.1 - InnoVision Labs, Inc | v393605_ex32-1.htm |
EX-31.1 - EXHIBIT 31.1 - InnoVision Labs, Inc | v393605_ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2014
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition
period from
to
Commission file number: 333-175212
GlassesOff
Inc.
(Exact name of registrant as specified in its charter)
Nevada | 26-4574088 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
5 Jabotinski St. POB 12 | |
Ramat Gan, Israel | 5252006 |
(Address of principal executive offices) | (Zip Code) |
(855) 393-7243
(Registrant’s telephone number, including area code)
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 preceding 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 ¨
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 (§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 ¨
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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer | ¨ | Accelerated Filer | ¨ |
Non-accelerated filer | ¨ (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 ¨ No x
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 3, 2014, there were 57,913,837 shares of common stock, par value $0.001 per share (“Common Stock”), outstanding.
GLASSESOFF INC.
INDEX TO FORM 10-Q FILING
FOR THE PERIOD ENDED SEPTEMBER 30, 2014
Table of Contents
Page
PART I | FINANCIAL INFORMATION | 3 |
ITEM 1. | Financial Statements. | 3 |
ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 18 |
ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk. | 26 |
ITEM 4. | Controls and Procedures. | 26 |
PART II | OTHER INFORMATION | 27 |
ITEM 6. | Exhibits. | 27 |
SIGNATURES | 28 |
2 |
GLASSESOFF INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
U.S DOLLARS IN THOUSANDS (Except shares and per share amounts)
PART I | FINANCIAL INFORMATION |
ITEM 1. | Financial Statements. |
CONSOLIDATED BALANCE SHEETS
September 30, | December 31, | |||||||
2014 | 2013 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 3,470 | $ | 1,526 | ||||
Trade receivables | 26 | - | ||||||
Other receivables and prepaid expenses | 180 | 160 | ||||||
Total Current Assets | 3,676 | 1,686 | ||||||
Long-term Assets: | ||||||||
Property and equipment, net | 143 | 70 | ||||||
Long term prepaid expenses | 11 | 13 | ||||||
Restricted cash | 67 | 67 | ||||||
Other assets, net | 491 | - | ||||||
Total Long Term Assets | 712 | 150 | ||||||
Total Assets | $ | 4,388 | $ | 1,836 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Current Liabilities: | ||||||||
Trade payables | $ | 169 | $ | 94 | ||||
Related parties payable | 321 | 350 | ||||||
Accrued expenses and other liabilities | 465 | 255 | ||||||
Total Current Liabilities | 955 | 699 | ||||||
Commitments and Contingent Liabilities | ||||||||
Shareholders' Equity: | ||||||||
Stock capital - Common shares of $0.001 par value per share 200,000,000 shares of common stock authorized; 57,865,110 and 53,287,362 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively | 57 | 53 | ||||||
Additional paid-in capital | 19,199 | 13,321 | ||||||
Deferred compensation | (222 | ) | (790 | ) | ||||
(Deficit) accumulated during the development stage | (15,601 | ) | (11,447 | ) | ||||
Total Shareholders' Equity | 3,433 | 1,137 | ||||||
Total Liabilities and Shareholders' Equity | $ | 4,388 | $ | 1,836 |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
3 |
GLASSESOFF INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
U.S DOLLARS IN THOUSANDS (Except shares and per share amounts)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Period of February 5, 2007 | ||||||||||||||||||||
(date of inception) | ||||||||||||||||||||
For the three months ended September 30, | For the nine months ended September 30, | through September 30, | ||||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2014 | ||||||||||||||||
Revenues | $ | 18 | $ | - | $ | 55 | $ | - | $ | 55 | ||||||||||
Cost of revenues | (1 | ) | - | (3 | ) | - | (3 | ) | ||||||||||||
Gross profit | 17 | - | 52 | - | 52 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
In-process research and development | - | - | - | - | (1,427 | ) | ||||||||||||||
Research and development | (504 | ) | (353 | ) | (1,402 | ) | (1,043 | ) | (8,023 | ) | ||||||||||
Sales and marketing | (152 | ) | (166 | ) | (876 | ) | (246 | ) | (1,295 | ) | ||||||||||
General and administrative | (724 | ) | (310 | ) | (1,927 | ) | (738 | ) | (4,826 | ) | ||||||||||
Total operating expenses | (1,380 | ) | (829 | ) | (4,205 | ) | (2,027 | ) | (15,571 | ) | ||||||||||
Operating (loss) | (1,363 | ) | (829 | ) | (4,153 | ) | (2,027 | ) | (15,519 | ) | ||||||||||
Financial (expense), income net | 15 | (5 | ) | (1 | ) | (4 | ) | (82 | ) | |||||||||||
Net (loss) | $ | (1,348 | ) | $ | (834 | ) | $ | (4,154 | ) | $ | (2,031 | ) | $ | (15,601 | ) | |||||
(Loss) per share (basic & diluted) | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.08 | ) | $ | (0.05 | ) | ||||||||
Weighted average number of shares outstanding | 57,362,077 | 48,396,657 | 54,962,602 | 42,744,627 |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
4 |
GLASSESOFF INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
U.S DOLLARS IN THOUSANDS (Except shares and per share amounts)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the
nine months ended September 30, | Period of February 5, 2007 (date of inception) through September 30, | |||||||||||
2014 | 2013 | 2014 | ||||||||||
Cash flows from operating activities | ||||||||||||
Net (loss) | $ | (4,154 | ) | $ | (2,031 | ) | $ | (15,601 | ) | |||
Adjustments to reconcile net (loss) to net cash (used in) | ||||||||||||
Operating activities: | ||||||||||||
Depreciation | 25 | 15 | 113 | |||||||||
Amortization of other assets | 37 | - | 37 | |||||||||
In-process research and development | - | - | 1,427 | |||||||||
Stock based compensation related to employees and nonemployees | 1,262 | 674 | 4,577 | |||||||||
Issuance of common stock in satisfaction of SEDA commitments fees | 150 | - | 150 | |||||||||
Increase in trade receivable | (26 | ) | - | (26 | ) | |||||||
Increase in other receivables and prepaid expenses | (20 | ) | (144 | ) | (191 | ) | ||||||
Decrease (increase) in restricted cash | - | 3 | - | |||||||||
Increase in trade payables | 75 | 28 | 169 | |||||||||
Increase (decrease) in related parties payables | (29 | ) | 130 | 321 | ||||||||
Increase in accrued expenses and other liabilities | 210 | 141 | 465 | |||||||||
Net cash (used in) operating activities | (2,470 | ) | (1,184 | ) | (8,559 | ) | ||||||
Cash flows from investing activities | ||||||||||||
Purchase of property and equipment | (98 | ) | (10 | ) | (256 | ) | ||||||
Investment in other assets, net | (426 | ) | - | (426 | ) | |||||||
Investment in deposits | - | (4 | ) | (67 | ) | |||||||
Net cash (used in) investing activities | (524 | ) | (14 | ) | (749 | ) | ||||||
Cash flows from financing activities | ||||||||||||
Proceeds from issuance of common stock and warrants, net | 4,938 | 2,856 | 12,778 | |||||||||
Net cash provided by financing activities | 4,938 | 2,856 | 12,778 | |||||||||
Increase in cash and cash equivalents | 1,944 | 1,658 | 3,470 | |||||||||
Cash and cash equivalents at the beginning of the period | 1,526 | 779 | - | |||||||||
Cash and cash equivalents at the end of the period | $ | 3,470 | $ | 2,437 | $ | 3,470 |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
5 |
GLASSESOFF INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
U.S DOLLARS IN THOUSANDS (Except shares and per share amounts)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended September 30, | Period of February 5, 2007 (date of inception) through September 30, | |||||||||||
2014 | 2013 | 2014 | ||||||||||
Non cash transactions: | ||||||||||||
Issuance of common stock in acquisition of in-process research and development | $ | - | $ | - | $ | 1,427 | ||||||
Exchange of redeemable preferred stock with non-redeemable preferred stock | $ | - | $ | - | $ | 1,117 | ||||||
Preferred stock converted into common stock | $ | - | $ | 12 | $ | 12 | ||||||
Common stock issued in reverse acquisition | $ | - | $ | 10 | $ | 10 | ||||||
Cashless exercise of 80,291 warrants into 41,141 shares of common stock | $ | - | $ | * | $ | * | ||||||
Cancellation of option exercise | $ | - | $ | - | $ | * | ||||||
Capitalization of stock based compensation to other assets | $ | 102 | $ | - | $ | 102 | ||||||
Additional information: | ||||||||||||
Cash paid for income taxes | $ | - | $ | - | $ | - | ||||||
Cash paid for interest expense | $ | - | $ | - | $ | - |
* Less than $1.
The accompanying notes are an integral part of the unaudited consolidated financial statements.
6 |
GLASSESOFF INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
U.S DOLLARS IN THOUSANDS (Except per share amounts)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 (Unaudited)
NOTE 1 -GENERAL
GlassesOff Inc. (the “Company”) formerly named Autovative Products, Inc., was formed on December 8, 2004 under the laws of the State of Nevada.
On June 26, 2013, the Company entered into an Agreement and Plan of Merger with Ucansi Acquisition Corp., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), and Ucansi Inc., a Delaware corporation (“Ucansi”). Pursuant to the Merger Agreement, on July 30, 2013 (the “Closing Date”), Merger Sub merged with and into Ucansi (the “Merger”), with Ucansi surviving the Merger as the Company's wholly owned subsidiary. Upon consummation of the Merger, the Company changed its name from Autovative Products, Inc. to GlassesOff Inc. The Merger has been accounted for as a reverse acquisition under the purchase method of accounting in accordance with ASC Topic 805 “Business Combinations”. The combination of the two companies is recorded as a recapitalization pursuant to which Ucansi is treated as the continuing entity. These condensed consolidated financial statements following the reverse acquisition are under the name of the legal parent GlassesOff Inc. but reflect the financial statements of Ucansi, which have been retroactively adjusted to reflect GlassesOff Inc.'s legal capital.
The Company is a development stage neuroscience software technology company, utilizing patented technology to develop consumer-oriented software applications for improving, through exercise, near vision sharpness, by improving the image processing function in the visual cortex of the brain.
The Company conducts its development efforts through its wholly owned Israeli subsidiary, Eyekon E.R.D Ltd.
The Company commenced generating revenues in the first quarter of 2014; however, because the Company has not yet generated significant revenue from operations and it is still devoting efforts to development stage activities, such as raising capital and recruiting and training personnel, the Company is still in its development stage.
The Company devotes substantially all of its efforts toward research and development activities. In the course of such activities, the Company has sustained operating losses and expects such losses to continue for the foreseeable future. The Company has not generated significant revenues and has not achieved profitable operations or positive cash flow from operations. The Company’s deficit accumulated during the development stage aggregated $15,601 through September 30, 2014. There is no assurance that profitable operations, if ever achieved, could be sustained on a continuing basis. The Company plans to continue to finance its operations with issuances of its equity securities and, in the longer term, revenues. There are no assurances, however, that the Company will be successful in obtaining an adequate level of financing needed for the long-term development.
The Company believes that its current cash sources will enable the continuance of the Company’s activities for at least twelve months with no need for additional fundraising.
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES
a. Basis of presentation:
The accompanying unaudited financial statements of the Company are presented in accordance with the requirements of Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted pursuant to such U.S. Securities and Exchange Commission (“SEC”) rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been made. The results for these interim periods are not necessarily indicative of the results for the entire year. The accompanying financial statements should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2013 and the notes thereto filed with the SEC on Form 10-K on March 31, 2014.
7 |
GLASSESOFF INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
U.S DOLLARS IN THOUSANDS (Except per share amounts)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 (Unaudited)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
b. Principles of consolidation:
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Ucansi Inc. and Eyekon E.R.D. Ltd.
Intercompany transactions and balances have been eliminated upon consolidation.
c. Revenue recognition:
Revenues are derived from subscription fees for access to and use of the Company's on-demand application services. The Company delivers its products through cloud-based client-server architecture to hand-held devices, currently implemented on the Apple iOS platform (iPhone, iPod, iPad) and Android. Under such subscription arrangements, the customer does not have the contractual right to take possession of the software at any time during the subscription period. Thus, revenue for the Company’s subscription services is recognized in accordance with accounting standards for service contracts in accordance with the provisions of SAB Topic 13.
The criteria in SAB Topic 13 are met when: 1) persuasive evidence of an arrangement exists; 2) delivery of the product has occurred; 3) a fixed or determinable fee; and 4) the collection of the fee is reasonably assured. Accordingly, revenue are recognized on a straight-line basis over the contractual cloud-based subscription services period, commencing on the date the service is made available to the customer, provided all of the applicable revenue recognition criteria have been met. In a case of a lifetime subscription the revenue are recognized on a straight-line basis over the estimated expected period of use.
d. Research and development costs:
Research and development, or R&D, costs are expensed as they are incurred and consist of salaries, stock-based compensation, benefits and other personnel-related costs, fees paid to consultants, clinical trials and related clinical manufacturing costs, license and milestone fees, and facilities and overhead costs.
e. Long lived assets:
The Company reviews the carrying value of its long-lived assets, including intangible assets subject to amortization, for impairment whenever events and circumstances indicate that the carrying value of the assets may not be recoverable. Recoverability of these assets is measured by comparing the carrying value of the assets to the undiscounted cash flows estimated to be generated by those assets over their remaining economic life. If the undiscounted cash flows are not sufficient to recover the carrying value of the assets, the assets are considered impaired. The impairment loss is measured by comparing the fair value of the assets to their carrying value.
f. Other Assets:
As described above, R&D costs are expensed as incurred; however, software development costs incurred subsequent to establishing technological feasibility and up to the general release of the software products are capitalized. Technological feasibility is demonstrated by the completion of a working model or a detailed program design. The capitalized costs with a finite life are amortized using the straight-line method over the estimated useful life of the assets. The amortization period is three years for software and technology related assets. Intangible assets with a finite life are tested for impairment upon the occurrence of certain triggering events.
8 |
GLASSESOFF INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
U.S DOLLARS IN THOUSANDS (Except per share amounts)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 (Unaudited)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
g. Loss per share:
Basic and Diluted losses per share are presented in accordance with ASC 260-10 “Earnings per share”. Outstanding restricted stock, options and warrants have been excluded from the calculation of the diluted loss per share because all such securities are antidilutive.
The total weighted average number of common shares related to outstanding restricted stock, options and warrants excluded from the calculations of diluted loss per share for the three months ended September 30, 2014 and 2013, and for the nine months ended September 30, 2014 and 2013 were 20,496,447, 18,778,280, 20,642,273 and 17,263,339, respectively.
The table below shows the amounts used in computing (losses) per share and the effect on income and the weighted average number of shares of dilutive potential common stock:
For the three months ended | For the nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Basic & Diluted net (loss) per share: | ||||||||||||||||
(Loss) from continuing operations | $ | (1,348 | ) | $ | (834 | ) | $ | (4,154 | ) | $ | (2,031 | ) | ||||
(1,348 | ) | (834 | ) | (4,154 | ) | (2,031 | ) | |||||||||
Number of shares used in per share computation: | ||||||||||||||||
Common Stock | 57,362,077 | 48,396,657 | 54,962,602 | 42,744,627 | ||||||||||||
Basic & Diluted net (loss) per share | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.08 | ) | $ | (0.05 | ) |
h. Fair value measurements:
As defined in ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Other inputs that are observable, directly or indirectly, such as quoted prices for similar assets and liabilities or market corroborated inputs.
Level 3: Unobservable inputs are used when little or no market data is available, which requires the Company to develop its own assumptions about how market participants would value the assets or liabilities. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation techniques in its assessment that maximize the use of observable inputs and minimize the use of unobservable inputs.
9 |
GLASSESOFF INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
U.S DOLLARS IN THOUSANDS (Except per share amounts)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 (Unaudited)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
h. Fair value measurements (continued):
The following table presents the Company’s financial assets and liabilities that are carried at fair value, classified according to the three categories described above:
Fair Value Measurements at September 30, 2014 | ||||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Cash and cash equivalents | $ | 3,470 | $ | 3,470 | $ | - | $ | - | ||||||||
Restricted cash | 67 | 67 | - | - | ||||||||||||
Total assets at fair value, net | $ | 3,537 | $ | 3,537 | $ | - | $ | - |
Fair Value Measurements at December 31, 2013 | ||||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Cash and cash equivalents | $ | 1,526 | $ | 1,526 | $ | - | $ | - | ||||||||
Restricted cash | 67 | 67 | - | - | ||||||||||||
Total assets at fair value, net | $ | 1,593 | $ | 1,593 | $ | - | $ | - |
i. Recent
accounting pronouncements:
In July 2013, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2013-11, Presentation of an Unrecognized
Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”).
ASU 2013-11 requires the netting of unrecognized tax benefits against a deferred tax asset for a loss or other carryforward that
would apply in settlement of the uncertain tax positions. The standard is effective for interim and annual periods beginning after
December 15, 2013 and is to be applied prospectively with optional retrospective adoption permitted. The Company adopted this
standard prospectively as of January 1, 2014. The adoption of ASU 2013-02 did not have a material impact on its consolidated results
of operation and financial condition.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU will supersede most of the existing revenue recognition requirements in U.S. GAAP and will require entities to recognize revenue at an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer. The new standard also requires significantly expanded disclosures regarding the qualitative and quantitative information of an entity's nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The pronouncement is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period and is to be applied retrospectively, with early application not permitted. The Company is currently evaluating the impact the pronouncement will have on its consolidated financial statements and related disclosures.
In June 2014, the FASB issued ASU No. 2014-10, Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation. The amendments in this ASU remove all incremental financial reporting requirements from U.S. GAAP for development stage entities, thereby improving financial reporting by eliminating the cost and complexity associated with providing that information. The amendments also clarify that the guidance in Topic 275, Risks and Uncertainties, is applicable to entities that have not commenced planned principal operations. For public business entities, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein.
10 |
GLASSESOFF INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
U.S DOLLARS IN THOUSANDS (Except per share amounts)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 (Unaudited)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
i. Recent accounting pronouncements (continued):
The amendment eliminating the exception to the sufficiency-of-equity-at-risk criterion for development stage entities in paragraph 810-10-15-16 should be applied retrospectively for annual reporting periods beginning after December 15, 2015, and interim periods therein. Early application is permitted. The Company intends to adopt ASU 2014-10 as of its annual financial statements for December 31, 2014. The adoption of ASU 2014-10 is not expected to have a material impact on the Company's consolidated results of operation and financial condition.
In June 2014, the FASB issued ASU No. 2014-12, "Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period." This ASU requires a reporting entity to treat a performance target that affects vesting and that could be achieved after the requisite service period as a performance condition, and apply existing guidance under the Stock Compensation Topic of the ASC as it relates to awards with performance conditions that affect vesting to account for such awards. The provisions of this ASU are effective for interim and annual periods beginning after December 15, 2015. This ASU is not expected to have a material impact on the Company's financial statements or disclosures.
In August 2014, the FASB issued ASU No. 2014-15, "Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern." This ASU establishes specific guidance to an organization's management on their responsibility to evaluate whether there is substantial doubt about the organization's ability to continue as a going concern. The provisions of this ASU are effective for interim and annual periods beginning after December 15, 2016. This ASU is not expected to have a material impact on our financial statements or disclosures.
There were various other updates recently issued, none of which are expected to a have a material impact on the Company's financial position, results of operations or cash flows.
NOTE 3 - OTHER RECEIVABLES AND PREPAID EXPENSES
September 30, | December 31 | |||||||
2014 | 2013 | |||||||
Israeli government authorities | $ | 96 | $ | 54 | ||||
Prepaid expenses | 84 | 106 | ||||||
$ | 180 | $ | 160 |
NOTE 4 - PROPERTY AND EQUIPMENT, NET
September 30, | December 31 | |||||||
2014 | 2013 | |||||||
Cost: | ||||||||
Office furniture and equipment | $ | 46 | $ | 21 | ||||
Computers and electronic equipment | 107 | 77 | ||||||
Laboratory equipment | 36 | 31 | ||||||
Leasehold improvements | 67 | 29 | ||||||
256 | 158 |
11 |
GLASSESOFF INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
U.S DOLLARS IN THOUSANDS (Except per share amounts)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 (Unaudited)
NOTE 4 - PROPERTY AND EQUIPMENT, NET (continued)
Accumulated depreciation: | ||||||||
Office furniture and equipment | 11 | 7 | ||||||
Computers and electronic equipment | 65 | 52 | ||||||
Laboratory equipment | 26 | 22 | ||||||
Leasehold improvements | 11 | 7 | ||||||
113 | 88 | |||||||
Depreciated cost | $ | 143 | $ | 70 |
Depreciation expenses for the three and nine months ended September 30, 2014 and 2013 and for the period of February 5, 2007 (inception date) through September 30, 2014 were $8, $4, $25, $15 and $113, respectively.
NOTE 5 - OTHER ASSETS, NET
During 2014, GlassesOff reached technological feasibility of its first product version for the Android platform and began capitalizing the costs of producing product masters incurred subsequent to establishing technological feasibility. These costs include coding, testing and product design. In addition, the Company made a significant enhancement in its product for the iOS platform, which was also capitalized.
As of September 30, 2014, GlassesOff’s intangible assets associated with its first product version for the Android platform and significant enhancement for its product for the iOS platform were $528.
The amortization expenses with respect to these intangible assets for the three and nine months ended September 30, 2014 were $37 and $37 respectively.
NOTE 6 - ACCRUED EXPENSES AND OTHER LIABILITIES
September 30, | December 31, | |||||||
2014 | 2013 | |||||||
Employees and payroll accruals | $ | 253 | $ | 169 | ||||
Accrued expenses | 212 | 74 | ||||||
Other | - | 12 | ||||||
$ | 465 | $ | 255 |
NOTE 7 - STOCK OPTION PLAN
a. | Upon the closing of the Merger, the Company adopted the GlassesOff Inc. 2013 Incentive Compensation Plan (the “Equity Incentive Plan”). The number of shares of the Company’s common stock, par value $0.001 per share (“Common Stock”) authorized for issuance under the Equity Incentive Plan is 14,000,000. |
Options granted under the Equity Incentive Plan and the related award agreements expire ten years from the date of grant, unless earlier terminated in accordance with the terms of such grants. Options no longer vest following the termination of the grant recipient’s employment or other relationship with the Company.
12 |
GLASSESOFF INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
U.S DOLLARS IN THOUSANDS (Except per share amounts)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 (Unaudited)
NOTE 7 - STOCK OPTION PLANS (continued)
The Company assumed all of Ucansi’s options that were issued and outstanding immediately prior to the Merger and issued to the holders of such securities in exchange therefor options to acquire approximately 9,019,872 shares of Common Stock on terms similar to the terms of Ucansi's options.
The Company accounts for employees’ and directors’ stock-based compensation in accordance with ASC 718, "Share-Based Payment". ASC 718 requires companies to estimate the fair value of equity-based payment awards at the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's consolidated income statements.
The Company recognizes compensation expenses for the value of awards granted based on the straight line method over the requisite service period, net of estimated forfeitures.
The Company applies ASC 505-50, “Equity Based Payments to Non Employees” (“ASC 505-50”), with respect to options issued to non-employees. The Company has accounted for these grants under the fair value method of ASC 505-50, estimated using the Black-Scholes Merton option-pricing model.
b. | The following table summarizes all share-based compensation expenses related to grants under the Equity Incentive Plan to employees, directors and consultants included in the consolidated statements of operations: |
Period of February 5, 2007 | ||||||||||||||||||||
(date of inception) | ||||||||||||||||||||
For the three months ended September 30, | For the nine months ended September 30, | through September 30, | ||||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2014 | ||||||||||||||||
Research & development | $ | 38 | $ | 68 | $ | 407 | $ | 244 | $ | 2,281 | ||||||||||
Sales & marketing | 14 | 41 | 39 | 41 | 80 | |||||||||||||||
General & administrative | 133 | 57 | 354 | 271 | 1,419 | |||||||||||||||
Total | $ | 185 | $ | 166 | $ | 800 | $ | 556 | $ | 3,780 |
c. | The following is a summary of the stock options granted to employees under the Equity Incentive Plan: |
For the nine months ended September 30, 2014 | ||||||||
Number of Options | Weighted Average Exercise Price | |||||||
Outstanding at January 1, 2014 | 5,101,663 | $ | 0.0013 | |||||
Issued | 1,043,000 | $ | 1.9226 | |||||
Forfeited | (163,621 | ) | $ | 0.1149 | ||||
Outstanding at September 30, 2014 | 5,981,042 | $ | 0.3332 | |||||
Options exercisable at September 30, 2014 | 4,841,044 | $ | 0.0212 |
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GLASSESOFF INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
U.S DOLLARS IN THOUSANDS (Except per share amounts)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 (Unaudited)
NOTE 7 - STOCK OPTION PLANS (continued)
For the nine months ended September 30, 2013 | ||||||||
Number of Options | Weighted Average Exercise Price | |||||||
Outstanding at January 1, 2013 | 4,983,888 | $ | 0.0013 | |||||
Issued | - | - | ||||||
Outstanding at September 30, 2013 | 4,983,888 | $ | 0.0013 | |||||
Options exercisable at September 30, 2013 | 4,693,193 | $ | 0.0013 |
The total unrecognized estimated compensation cost related to employees’ non-vested stock options granted through September 30, 2014 was $1,127, which is expected to be recognized over a weighted average period of 2.6 years.
d. | The following is a summary of the stock options granted to non-employees under the Equity Incentive Plan: |
For the nine months ended September 30, 2014 | ||||||||
Number of Options | Weighted Average Exercise Price | |||||||
Outstanding at January 1, 2014 | 3,918,209 | $ | 0.0370 | |||||
Issued | 406,000 | $ | 1.9290 | |||||
Exercised | (318,762 | ) | $ | 0.0013 | ||||
Outstanding at September 30, 2014 | 4,005,446 | $ | 0.2317 | |||||
Options exercisable at September 30, 2014 | 3,570,644 | $ | 0.0385 |
For the nine months ended September 30, 2013 | ||||||||
Number of Options | Weighted Average Exercise Price | |||||||
Outstanding at January 1, 2013 | 3,872,953 | $ | 0.0404 | |||||
Issued | 163,948 | $ | 0.0013 | |||||
Forfeited | (118,113 | ) | $ | 0.0013 | ||||
Outstanding at September 30, 2013 | 3,918,788 | $ | 0.0399 | |||||
Options exercisable at September 30, 2013 | 3,774,906 | $ | 0.0399 |
The total unrecognized estimated compensation cost related to non-employees’ for non-vested stock options granted through September 30, 2014 was $161, which is expected to be recognized over a weighted average period of 1.28 years.
14 |
GLASSESOFF INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
U.S DOLLARS IN THOUSANDS (Except per share amounts)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 (Unaudited)
NOTE 7 - STOCK OPTION PLANS (continued)
e. | The options outstanding under the Equity Incentive Plan as of September 30, 2014 have been separated by exercise prices, as follows: |
Exercise Price | # of Options Outstanding | Average Remaining Contractual Life (years) | # of Options Exercisable | |||||||||||
$ | 0.001 | 7,971,400 | 7.54 | 7,814,404 | ||||||||||
$ | 0.244 | 576,088 | 5.73 | 547,284 | ||||||||||
$ | 1.930 | 1,333,000 | 9.36 | 50,000 | ||||||||||
$ | 1.860 | 106,000 | 9.69 | - | ||||||||||
9,986,488 | 8,411,688 |
NOTE 8 - WARRANTS
Pursuant to the Merger Agreement, the Company assumed all of Ucansi's warrants that were issued and outstanding immediately prior to the Merger and issued to the holders of such securities in exchange therefor warrants to acquire approximately 7,523,504 shares of Common Stock.
The following is a summary of issued and outstanding warrants as of September 30, 2014:
Number of outstanding warrants | Weighted Average Exercise Price | Weighted Average Life (years) | ||||||||||
Outstanding at January 1, 2014 | 10,013,504 | $ | 0.99 | 4.04 | ||||||||
Issued | - | - | - | |||||||||
Exercised | - | - | - | |||||||||
Outstanding at September 30, 2014 | 10,013,504 | $ | 0.99 | 3.29 |
The following is a summary of issued and outstanding warrants as of September 30, 2013:
Number of outstanding warrants | Weighted Average Exercise Price | Weighted Average Life (years) | ||||||||||
Outstanding at January 1, 2013 | 7,603,719 | $ | 0.91 | 4.11 | ||||||||
Issued | 2,490,000 | $ | 1.25 | 4.83 | ||||||||
Exercised | (80,215 | ) | $ | 0.49 | 4.11 | |||||||
Outstanding, September 30, 2013 | 10,013,504 | $ | 0.99 | 4.29 |
NOTE 9 -COMMITMENTS AND CONTINGENT LIABILITIES
Aggregate minimum rental commitments, under non-cancelable leases, as of September 30, 2014, were as follows:
Period ended September 30, | ||||
2015 | $ | 107 | ||
2016 | 100 | |||
2017 | 17 | |||
Total | $ | 224 |
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GLASSESOFF INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
U.S DOLLARS IN THOUSANDS (Except per share amounts)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 (Unaudited)
NOTE 10 - STOCK CAPITAL
a. | Pursuant to the Merger as described in Note 1a., the capital structure of the Company changed, and such change has been given retroactive treatment in the Company's balance sheets. Pursuant to the Merger Agreement, all shares of Ucansi’s common and preferred stock that were issued and outstanding immediately preceding the Merger were converted into the right to receive an aggregate of approximately 40,000,000 shares of Common Stock after giving effect to a 7.5-for-1 forward split of the Common Stock (effected as a stock dividend). |
b. | Restricted Shares |
Upon the closing of the Merger, the Company entered into new employment and consulting agreements with its executive officers, pursuant to which the Company granted Messrs. Madar and Shaffir 200,000 and 300,000 shares, respectively, of restricted Common Stock, vesting in substantially equal amounts on the first, second and third anniversaries of the date of grant.
Upon appointment as Chairman of the Board, the Company granted Mr. Novik 300,000 shares of restricted Common Stock, which vest in substantially equal monthly installments over a period of 12 months from the date of grant.
On February 7, 2014, the company granted 75,000 shares of restricted Common Stock to a consultant, which vested immediately and 50,000 shares of restricted Common Stock to two employees, vesting in substantially equal amounts on the first, second and third anniversaries of the date of grant.
On July 10, 2014, the company granted 30,684 shares of restricted Common Stock to a consultant, which vested immediately.
The total unrecognized estimated compensation cost related to non-vested restricted stock granted through September 30, 2014 was $222, which is expected to be recognized over a weighted average period of 1.33 years.
c. | In the second quarter of 2014, the Company issued 142,095 shares of Common Stock for an exercise price of $0.0013 per share in connection with an exercise of 142,095 options. |
d. | In the third quarter of 2014, the Company issued 176,668 shares of Common Stock for an exercise price of $0.0013 per share in connection with an exercise of 176,668 options. |
e. | On July 1, 2014, the Company entered into a Standby Equity Distribution Agreement, which is referred to as the SEDA, with YA Global Master SPV Ltd., a Cayman Islands exempt limited partnership (the “Investor”), pursuant to which the Company may issue and sell to the Investor from time to time as provided in the SEDA, and the Investor has agreed to purchase, up to $15,000 of Common Stock. |
The Company is not obligated to sell any Common Stock to YA but may, over the term of the SEDA and in its sole discretion, sell that number of shares of Common Stock at the purchase price specified in the SEDA for aggregate proceeds to the Company of up to $15,000. YA is obligated to purchase such shares from the Company subject to certain conditions as defined in the SEDA.
As a part of a commitment fee payable to the Investor, in July 2014, the Company issued to the Investor’s designee an aggregate of 103,301 shares of Common Stock valued at $150.
On August 1, 2014, in connection with the SEDA, the Company registered for resale by the selling stockholders named therein an aggregate of 5,000,000 shares of Common Stock.
16 |
GLASSESOFF INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
U.S DOLLARS IN THOUSANDS (Except per share amounts)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 (Unaudited)
NOTE 11 - FINANCIAL (EXPENSES) INCOME, NET
Period from February 5, 2007 | ||||||||||||||||||||
For the three months ended | For the nine months ended | (date of inception) | ||||||||||||||||||
September 30, | September 30, | to September 30, | ||||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2014 | ||||||||||||||||
Financial income | $ | - | $ | 3 | $ | - | $ | 5 | $ | 6 | ||||||||||
Financial (expenses) and bank fees | (1 | ) | (2 | ) | (5 | ) | (2 | ) | (19 | ) | ||||||||||
Exchange rate differences gain (loss) | 16 | (6 | ) | 4 | (7 | ) | (69 | ) | ||||||||||||
$ | 15 | $ | (5 | ) | $ | (1 | ) | $ | (4 | ) | $ | (82 | ) |
NOTE 12 - SUBSEQUENT EVENTS
On October 30, 2014 the Company issued and sold 48,727 shares of Common Stock to the Investor pursuant to the SEDA for proceeds of $40.
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ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements”. Forward-looking statements include statements about our expectations, beliefs or intentions regarding our product offerings, business, financial condition, results of operations, strategies or prospects. You can identify such forward-looking statements by the words “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” “likely,” “goal,” “assumes,” “targets” and similar expressions and/or the use of future tense or conditional constructions (such as “will,” “may,” “could,” “should” and the like) and by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance. We undertake no obligation to update, and we do not have a policy of updating or revising, these forward-looking statements, except as required by applicable law.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto that appear in Item 1 of this Quarterly Report on Form 10-Q.
The discussion and analysis of GlassesOff’s financial condition and results of operations are based on GlassesOff’s financial statements, which GlassesOff has prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires GlassesOff to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, GlassesOff evaluates such estimates and judgments, including those described in greater detail below. GlassesOff bases its estimates on historical experience and on various other factors that GlassesOff believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Business
GlassesOff is a development stage neuroscience software technology company, utilizing patented technology to develop and commercialize consumer-oriented software applications for improving, through exercise, near vision sharpness by improving the image processing function in the visual cortex of the brain. GlassesOff delivers its products through a cloud-based client server architecture to hand-held devices, currently implemented on the Apple iOS platform (iPhone, iPod, iPad) and Android, and which are planned to be offered on additional platforms.
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Plan of Operation
During December 2013, GlassesOff completed development of the first commercial version of its consumer-oriented software application for improving, through exercise, near vision sharpness by improving the brain’s image processing function, for the iOS platform and began marketing the product to end consumers via Apple’s App Store. On June 30, 2014, GlassesOff launched the first version of its software application for the Android platform as a beta version and has since worked on optimizing the application and user communication. During the fourth quarter of 2014, GlassesOff plans to gradually increase its marketing and public relations campaigns, aiming to increase the awareness to its product and increase its number of customers. Additionally, GlassesOff plans to participate in various conferences and conventions around the world to further expose its product and technology to professional audience and potentially form business partnerships.
GlassesOff is not currently planning any major purchase or sale of equipment in 2014, but it expects that employee headcount will increase.
Critical Accounting Policies
The financial statements contained in this Quarterly Report on Form 10-Q have been prepared in accordance with GAAP. The significant accounting policies followed in the preparation of the financial statements, on a consistent basis are:
Use of estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While management believes that such estimates are fair when considered in conjunction with the consolidated financial position and results of operations taken as a whole, actual results could differ from those estimates and such differences may be material to the financial statements.
Financial statements in U.S. Dollars: The functional currency of GlassesOff is the U.S. Dollar, as the U.S. Dollar is the primary currency of the economic environment in which GlassesOff has operated and expects to continue to operate in the foreseeable future. The majority of the operations of Eyekon E.R.D. Ltd., which is GlassesOff’s wholly owned subsidiary, are currently conducted in Israel, and most of the Israeli expenses are currently paid in New Israeli Shekels, or NIS; however, the subsidiary’s operations do not generate any positive cash flow to cover its expenses and is not able to exist without the parent company’s funding. Therefore the currency which is used in operating, financing and investing activities, including loans and equity transactions, is the U.S. Dollar.
Accordingly, the functional and reporting currency of GlassesOff is the U.S. Dollar. Monetary accounts maintained in currencies other than the U.S. Dollar are remeasured into U.S. Dollars. All transaction gains and losses from the remeasurement of monetary balance sheet items are reflected in the statements of operations as financial income or expenses, as appropriate.
Principles of consolidation: The consolidated financial statements include the accounts of GlassesOff and its wholly owned direct and indirect subsidiaries: Ucansi Inc. and Eyekon E.R.D. Ltd. Intercompany transactions and balances have been eliminated upon consolidation.
Cash equivalents: For purposes of reporting within the statement of cash flows, GlassesOff considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less to be cash and cash equivalents.
Concentrations of credit risk: Financial instruments that potentially subject GlassesOff and its subsidiaries to concentrations of credit risk consist principally of cash and cash equivalents. Cash and cash equivalents are invested in major banks in Israel and in the U.S. Such deposits in Israel and the U.S. are not insured. Management believes that the financial institutions that hold GlassesOff’s investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments. GlassesOff has no off-balance-sheet concentration of credit risk such as foreign exchange contracts or any other hedging arrangements.
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Revenue recognition: Revenues are derived from subscription fees for access to and use of GlassesOff’s on-demand application services. Under such subscription arrangements for its on-demand application services, the customer does not have the contractual right to take possession of the software at any time during the subscription period. Thus, revenue for GlassesOff’s subscription services will be recognized in accordance with accounting standards for service contracts. There are four basic criteria which must be met to recognize revenue: 1) persuasive evidence of an arrangement exists; 2) delivery of the product has occurred; 3) a fixed or determinable fee; and 4) the collection of the fee is reasonably assured. The application of the relevant accounting standards will require GlassesOff to exercise significant judgment related to specific transactions and transaction types.
Research and development costs: Research and development, or R&D, costs are expensed as they are incurred and consist of salaries, stock-based compensation, benefits and other personnel-related costs, fees paid to consultants, clinical trials and related clinical manufacturing costs, license and milestone fees, and facilities and overhead costs.
Long lived assets: GlassesOff reviews the carrying value of its long-lived assets, including intangible assets subject to amortization, for impairment whenever events and circumstances indicate that the carrying value of the assets may not be recoverable. Recoverability of these assets is measured by comparing the carrying value of the assets to the undiscounted cash flows estimated to be generated by those assets over their remaining economic life. If the undiscounted cash flows are not sufficient to recover the carrying value of the assets, the assets are considered impaired. The impairment loss is measured by comparing the fair value of the assets to their carrying value.
Other Assets: R&D costs are expensed as incurred with the exception of software development costs incurred subsequent to establishing technological feasibility and up to the general release of the software products, which costs are capitalized. Technological feasibility is demonstrated by the completion of a working model or a detailed program design. The capitalized costs with a finite life are amortized using the straight-line method over the estimated useful life of the assets. The amortization period is three years for software and technology related assets. Intangible assets with a finite life are tested for impairment upon the occurrence of certain triggering events.
(Loss) per share: Basic and Diluted losses per share are presented in accordance with ASC 260-10 “Earnings per share”. Outstanding restricted stock, options and warrants have been excluded from the calculation of the diluted loss per share because all such securities are antidilutive.
Results of Operations
Three and Nine Months Ended September 30, 2014 Compared to the Three and Nine Months Ended September 30, 2013
Revenue
GlassesOff generated no revenue for either the three or nine month periods ended September 30, 2013. GlassesOff generated revenues for the first time in 2014, and it recorded revenues in the sums of $18,000 and $55,000 for the three and nine month periods ended September 30, 2014, respectively.
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Cost of sales
For the three and nine months ended September 30, 2014, GlassesOff incurred cost of sales in the aggregate of $1,000 and $3,000, respectively, comprising royalties payable under a license agreement for certain intellectual property.
Research and Development Expenses
GlassesOff expects its R&D expenses to increase as it continues to develop its products and increase headcount. R&D expenses consist of:
· | internal costs associated with R&D activities; |
· | personnel-related expenses, including salaries and stock-based compensation expenses, benefits, travel and related costs for the personnel involved in R&D; |
· | internal and external costs associated with scientific studies, including payments to investigators and labs participating in the studies, payments to purchase and/or use equipment required for such studies and payments to subjects for participating in the subject studies; |
· | outsource services associated with R&D activities; and |
· | facilities and other expenses, which include expenses for rent and maintenance of facilities. |
GlassesOff expects its R&D expenses to increase most significantly in the near future in connection with the development efforts for new device platforms, new operating systems and potentially new product applications. GlassesOff intends to continue to hire new employees in R&D in order to meet its operation goals and expedite the development of new product versions for the iOS platform and Android platform, introduce a new product version for a new platform and potentially start working on new products. GlassesOff believes that significant investment in product development is a competitive necessity and plans to continue these investments in an effort to realize the potential of its product.
For the nine months ended September 30, 2014 and 2013 and for the period from February 5, 2007 (inception date) through September 30, 2014, GlassesOff incurred R&D expenses in the aggregate of $1,402,000, $1,043,000 and $9,450,000, respectively. The increase in R&D expenses for the nine month period ended September 30, 2014 as compared to the 2013 period resulted primarily from stock-based compensation expenses for options and restricted shares granted to employees and consultants of $477,000 in 2014 as compared to $280,000 in 2013, consulting expenses of $253,000 in 2014 as compared to $91,000 in 2013 and payroll expenses of $446,000 in 2014 as compared to $409,000 in 2013.
For the three months ended September 30, 2014 and 2013, GlassesOff incurred R&D expenses in the aggregate of $504,000 and $353,000, respectively. The increase in R&D expenses for the three month period ended September 30, 2014 as compared to the 2013 period resulted primarily from payroll expenses of $264,000 in 2014 as compared to $115,000 in 2013.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of salaries and other related costs for employees of GlassesOff and external service providers for services, such as search engine optimization and public relations services. During 2013 and the nine month period ended September 30, 2014, GlassesOff invested in building marketing infrastructure in connection with the GlassesOff product, which included, among other things, developing public relations networks to generate awareness of the GlassesOff’s product and launch date, preparing marketing materials and conducting search engine optimization for GlassesOff’s website to improve its ranking in search engine search results for certain relevant key words searches.
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For the nine month periods ended September 30, 2014 and 2013 and for the period from February 5, 2007 (inception date) through September 30, 2014, GlassesOff incurred sales and marketing expenses of $876,000, $246,000 and $1,295,000, respectively. The increase for the nine month period ended September 30, 2014 as compared to the 2013 period resulted primarily from payroll expenses of $242,000 in 2014 as compared to $79,000 in 2013, consulting and marketing expenses of $474,000 in 2014 as compared to $60,000 in 2013 and stock-based compensation expenses for options and restricted shares granted to employees and consultants of $87,000 in 2014 as compared to compensation expenses for options of $41,000 in 2013.
The increase in sales and marketing expenses for the nine month periods ended September 30, 2014 as compared to the 2013 periods resulted primarily from an increase in GlassesOff’s marketing efforts as it ramped up commercialization efforts of its initial product. Marketing expenses are expected to increase in the near future as GlassesOff expands its marketing efforts.
For the three month periods ended September 30, 2014 and 2013, GlassesOff incurred sales and marketing expenses of $152,000 and $166,000 respectively. The decrease for the three month period ended September 30, 2014 as compared to the 2013 period resulted primarily from payroll expenses of $39,000 in 2014 as compared to $47,000 in 2013.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation expenses for persons serving in GlassesOff’s executive and administration functions. Other general and administrative expenses include facility-related costs not otherwise included in R&D expenses, and professional fees for legal and accounting services, including those associated with reporting obligations applicable to public companies in the United States. GlassesOff expects that its general and administrative expenses will increase as it adds additional personnel in response to the increased responsibilities and reporting obligations imposed on GlassesOff as a publicly traded company and in connection with new product development.
For the nine month periods ended September 30, 2014 and 2013 and for the period from February 5, 2007 (inception date) through September 30, 2014, GlassesOff incurred general and administrative expenses of $1,927,000, $738,000 and $4,826,000, respectively. The increase for the nine month period ended September 30, 2014 as compared to the 2013 period resulted primarily from payroll expenses of $245,000 in 2014 as compared to $168,000 in 2013, stock-based compensation expenses for options and restricted shares granted to employees and directors of $735,000 in 2014 as compared to $352,000 in 2013, commitment fees of $153,000 paid in connection with our standby equity distribution agreement (the “SEDA”) in 2014 as compared to $0, in 2013, investor relations services of $192,000 in 2014 as compared to $21,000 in 2013 and professional services expenses of $458,000 in 2014 as compared to $133,000 in 2013, the last of which resulted primarily from GlassesOff becoming a publicly traded company in July 2013.
For the three month periods ended September 30, 2014 and 2013, GlassesOff incurred general and administrative expenses of $724,000 and $310,000, respectively. The increase for the three month period ended September 30, 2014 as compared to the 2013 period resulted primarily from payroll expenses of $97,000 in 2014 as compared to $73,000 in 2013, commitment fees of $153,000 paid in connection with the SEDA in 2014 as compared to $0 in 2013, stock-based compensation expenses for options and restricted shares granted to employees and directors of $172,000 in 2014 as compared to $138,000 in 2013, investor relations services of $81,000 in 2014 as compared to $21,000 in 2013 and professional services expenses of $185,000 in 2014 as compared to $62,000 in 2013.
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Financial Expenses and Income
Financial expenses and income consist of the following:
· | interest earned on the GlassesOff’s cash and cash equivalents; |
· | bank fees and commissions; and |
· | expenses or income resulting from fluctuations of the NIS, in which a portion of GlassesOff’s assets and liabilities is denominated, against the U.S. Dollar. |
For the nine month periods ended September 30, 2014 and 2013 and for the period from February 5, 2007 (inception date) through September 30, 2014, GlassesOff incurred net financial expenses of $1,000, $4,000 and $82,000, respectively. Financial expenses for the nine month period ended September 30, 2014 decreased as compared to the 2013 period primarily due to currency fluctuations of the NIS.
For the three month periods ended September 30, 2014 and 2013, GlassesOff incurred net financial income (expenses) of $15,000 and $(5,000), respectively. Financial income for the three month period ended September 30, 2014 increased as compared to the 2013 period primarily due to currency fluctuations of the NIS.
Stock-based Compensation
GlassesOff’s stock-based compensation expenses with respect to employees are recorded according to ASC 718, which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees and directors, including employee stock options under GlassesOff’s stock plans, based on estimated fair values.
ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in GlassesOff’s consolidated statement of operations.
GlassesOff applies ASC 505-50, “Equity Based Payments to Non Employees”, with respect to options issued to non-employees.
GlassesOff estimates the fair value of stock options granted using the Black-Scholes-Merton option pricing model. For the nine month periods ended September 30, 2014 and 2013 and for the period from February 5, 2007 (inception date) through September 30, 2014, GlassesOff’s stock-based compensation expenses were $1,262,000, $674,000 and $4,577,000, respectively. Stock-based compensation expenses for the nine months ended September 30, 2014 increased as compared to the 2013 period primarily due to 1,449,000 stock options and 155,684 restricted shares granted to employees and non-employees in 2014 as compared to 164,108 stock options and 800,000 restricted shares granted to employees or non-employees in 2013.
For the three month periods ended September 30, 2014 and 2013, GlassesOff’s stock-based compensation expenses were $220,000 and $286,000, respectively. Stock-based compensation expenses for the three months ended September 30, 2014 decreased as compared to the 2013 period primarily due to 155,684 restricted shares granted to employee and non-employees in 2014 as compared to 800,000 restricted shares granted to employee and non-employees in 2013.
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Cash Flows
Nine Months Ended September 30, 2014 Compared to the Nine Months Ended September 30, 2013
For the nine months ended September 30, 2014 and 2013 and for the period from February 5, 2007 (inception date) through September 30, 2014, net cash used in operations was $2,470,000, $1,184,000 and $8,559,000, respectively. Cash was used primarily for salaries, subcontractors and software development expenses. The increase in cash used in operating activities for the nine months ended September 30, 2014 as compared to the 2013 period resulted primarily from hiring of new employees and an increase in subcontractor expenses. It is expected that cash used in operating activities will increase as we plan to continue to develop new product versions for new territories (localization), new devices and new platforms, and potentially development of new products.
For the nine months ended September 30, 2014 and 2013 and for the period from February 5, 2007 (inception date) through September 30, 2014, net cash used in investing activities was $524,000, $14,000 and $749,000, respectively. The increase in cash used in investing activities for the nine month period ended September 30, 2014 as compared to the 2013 period resulted primarily from purchase of property and equipment and from payroll and subcontractors expenses capitalized in the period.
For the nine months ended September 30, 2014 and 2013 and for the period from February 5, 2007 (inception date) through September 30, 2014, net cash provided by financing activities was $4,938,000, $2,856,000 and $12,778,000, respectively. This increase in cash provided by financing activities for the nine month period ended September 30, 2014 as compared to the 2013 period resulted primarily from GlassesOff’s issuance and sale of 4,000,000 shares of common stock in a private placement during the 2014 period.
Liquidity and Capital Resources
GlassesOff expects to incur losses from operations for the foreseeable future, and GlassesOff expects to incur increasing R&D expenses, including expenses related to the hiring of personnel and outsourcing of certain development projects. GlassesOff expects that general and administrative expenses will also increase as it expands its finance and administrative staff and adds infrastructure. GlassesOff also expects that sales and marketing expenses will increase significantly in connection with the commercialization activities related to its product. GlassesOff’s future capital requirements will depend on a number of factors, including the continued progress of R&D of its current product and potential products and the total average cost of customer acquisition, comprising initial acquisition cost and customer retention cost.
GlassesOff plans to continue to finance its operations with the issuance of equity securities and, in the longer term, revenues from operations. There are no assurances, however, that GlassesOff will be successful in obtaining the financing necessary for the long-term development of its current product or future products. GlassesOff’s future capital requirements will depend on many factors, including requirements for investment in developing new product versions for new territories (localization), new devices and new platforms, and potentially development of new products. Furthermore, the expected ramp-up in sales and marketing activities will require significantly higher resources. GlassesOff did not generate product revenues during 2013, and it generated only limited revenue for the nine months ended September 30, 2014. GlassesOff expects continuing operating losses to result in increases in cash used in operations over the next 12 months. Management believes that GlassesOff’s current cash on hand will enable it to continue its planned operations for at least the next twelve months with no need for additional funding. To the extent that GlassesOff’s current capital resources are insufficient to meet its future capital requirements, GlassesOff will need to finance its future cash needs through public or private equity offerings, debt financings, or corporate collaboration and licensing arrangements.
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On July 1, 2014, GlassesOff entered into the SEDA with YA Global Master SPV Ltd., a Cayman Islands exempt limited partnership (the “Investor”), pursuant to which GlassesOff may, at its election and in its sole discretion, issue and sell to the Investor, from time to time as provided in the SEDA, and the Investor has agreed to purchase up to $15,000,000 of Common Stock. In accordance with the terms, and subject to the conditions, of the SEDA, GlassesOff may elect from time to time, in its sole discretion, to sell to the Investor shares of Common Stock at a per share price equal to 98.5% of the lowest daily volume weighted average price of the Common Stock as quoted by Bloomberg, L.P. (the “Market Price”) during the five consecutive trading days commencing immediately subsequent to the date on which the GlassesOff delivers to the Investor a notice of GlassesOff’s election to effect an Advance (each, an “Advance Notice”). In no event will the Market Price be less than 85% of the daily volume weighted average price of the Common Stock on the trading day immediately preceding the date of the Advance Notice. The amount of each Advance may not exceed the lesser of (x) $500,000 or (y) the Daily Value Traded (as defined in the SEDA) for the five consecutive trading days immediately prior to the date of the applicable Advance Notice. Pursuant to the SEDA, the Investor is obligated to purchase the Common Stock under the SEDA subject to certain conditions, including, among others, GlassesOff’s filing of a registration statement with the SEC to register the resale by the Investor of the shares of Common Stock acquired pursuant to the SEDA and the SEC declaring such registration statement effective.
On October 30, 2014 GlassesOff issued and sold 48,727 shares of Common Stock to the Investor for proceeds of $40,000.
GlassesOff currently does not have any commitments for future external funding other than the SEDA. GlassesOff will need to raise additional funds, and it may decide to raise additional funds even before it needs such funds if the conditions for raising capital are favorable. GlassesOff may seek to issue equity or debt securities or obtain a credit facility from one or more financial institutions or otherwise. The sale of equity or convertible debt securities may result in dilution to its existing stockholders, including issuances of equity under the SEDA. The incurrence of indebtedness would result in increased fixed obligations and could also subject GlassesOff to covenants that restrict its operations. Additional equity or debt financing, or corporate collaboration and licensing arrangements may not be available on acceptable terms, or at all. If adequate funds are not available, GlassesOff may be required to delay, reduce the scope of or eliminate its R&D programs, reduce its planned commercialization efforts or obtain funds through arrangements with collaborators or others that may require GlassesOff to relinquish rights to certain potential products that it might otherwise seek to develop or commercialize independently. GlassesOff’s ability to continue to operate as a going concern is dependent upon additional financial support.
Effects of Inflation and Currency Fluctuations
Inflation generally affects GlassesOff by increasing its cost of labor and other development costs. GlassesOff does not believe that inflation had a material effect on its results of operations for the three and nine month periods ended September 30, 2014 or 2013.
Currency fluctuations may affect GlassesOff by increasing or decreasing costs. Currency fluctuations had no material effect on GlassesOff’s results of operations for the three and nine month periods ended September 30, 2014 or 2013. GlassesOff does not purchase forward currency contracts or engage in other hedging arrangements for either hedging or speculative purposes.
Off-Balance Sheet Arrangements
GlassesOff has no off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
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ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk. |
Not required for smaller reporting companies as defined in Rule 12b-2 of the Exchange Act.
ITEM 4. | Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that is designed to provide reasonable assurance that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to management in a timely manner. Our Principal Executive Officer and Principal Financial Officer evaluated this system of disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q and, based on such evaluation, concluded that the system was operating effectively as of such date to ensure appropriate disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 of the Exchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II | OTHER INFORMATION |
ITEM 6. | Exhibits. |
10.1 | Standby Equity Distribution Agreement, dated July 1, 2014, by and between GlassesOff and YA Global Master SPV Ltd., filed as Exhibit 10.1 to our Current Report on Form 8-K, filed with the SEC on July 3, 2014 and incorporated herein by reference |
31.1* | Certification of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-K |
31.2* | Certification of Principal Financial Officer pursuant to Item 601(b)(31) of Regulation S-K |
32.1** | Certification of Chief Executive Officer pursuant to Item 601(b)(32) of Regulation S-K |
32.2** | Certification of Principal Financial Officer pursuant to Item 601(b)(32) of Regulation S-K |
101.INS* | XBRL Instance Document |
101.SCH* | XBRL Taxonomy Extension Schema |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase |
101.LAB* | XBRL Taxonomy Extension Label Linkbase |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase |
* | Filed herewith. |
** | Furnished herewith. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GLASSESOFF INC. | ||
/s/ Nimrod Madar | ||
Date: November 14, 2014 | Nimrod Madar | |
President and Chief Executive Officer | ||
(Principal Executive Officer) | ||
/s/ Steve Schaeffer | ||
Date: November 14, 2014 | Steve Schaeffer | |
Chief Financial Officer | ||
(Principal Financial Officer and Principal Accounting Officer) |
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EXHIBIT INDEX
10.1 | Standby Equity Distribution Agreement, dated July 1, 2014, by and between GlassesOff and YA Global Master SPV Ltd., filed as Exhibit 10.1 to our Current Report on Form 8-K, filed with the SEC on July 3, 2014 and incorporated herein by reference |
31.1* | Certification of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-K |
31.2* | Certification of Principal Financial Officer pursuant to Item 601(b)(31) of Regulation S-K |
32.1** | Certification of Chief Executive Officer pursuant to Item 601(b)(32) of Regulation S-K |
32.2** | Certification of Principal Financial Officer pursuant to Item 601(b)(32) of Regulation S-K |
101.INS* | XBRL Instance Document |
101.SCH* | XBRL Taxonomy Extension Schema |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase |
101.LAB* | XBRL Taxonomy Extension Label Linkbase |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase |
* | Filed herewith. |
** | Furnished herewith. |
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