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, 2015

 

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 4, 2015, there were 6,012,449 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, 2015

 

Table of Contents

 

		Page
PART I	FINANCIAL INFORMATION
ITEM 1.	Financial Statements.	3
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	21
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	29
ITEM 4.	Controls and Procedures	29
PART II	OTHER INFORMATION
ITEM 6.	Exhibits.	30
SIGNATURES		31

 

 

GLASSESOFF INC. AND SUBSIDIARIES

U.S. DOLLARS IN THOUSANDS

(Except shares and per share amounts)

 

PART I

FINANCIAL INFORMATION

 

ITEM 1.

Financial Statements.

 

CONSOLIDATED BALANCE SHEETS

 

		September 30, 2015				December 31, 2014
		(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents		$	1,500			$	2,570
Trade receivables			34				18
Other receivables and prepaid expenses			345				120
Total Current Assets			1,879				2,708
Long Term Assets:
Property and equipment, net			118				142
Intangible asset, net			368				455
Long term prepaid expenses			15				16
Restricted cash			65				64
Total Long Term Assets			566				677
Total Assets		$	2,445			$	3,385
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Trade payables		$	157			$	105
Related parties payable			174				316
Accrued expenses and other liabilities			511				427
Total Current Liabilities			842				848
Long Term Liabilities:
Convertible notes payable, net of discount of $620 and $0 as of September 30, 2015 and December 31, 2014 respectively			11				-
Related parties payable			242				-
Total Long Term Liabilities			253				-
Commitments and Contingent Liabilities
Stockholders’ Equity:
Stock capital - Common shares of $0.001 par value per share 20,000,000 shares of common stock authorized; 6,012,449 and 5,834,833 shares issued and outstanding at September 30, 2015 and December 31, 2014 respectively			6				6
Additional paid-in capital			21,572				19,438
Accumulated deficit			(20,228	)			(16,907	)
Total Stockholders’ Equity			1,350				2,537
Total Liabilities and Stockholders’ Equity		$	2,445			$	3,385

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

 

GLASSESOFF INC. AND SUBSIDIARIES

U.S DOLLARS IN THOUSANDS
(Except shares and per share amounts)

 

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 

		For the three months ended								For the nine months ended
		September 30,								September 30,
		2015				2014				2015				2014
Revenues		$	57			$	26			$	162			$	79
Cost of revenues:
Platform commissions and royalties			(19	)			(9	)			(55	)			(27	)
Amortization of intangible assets			(49	)			(37	)			(140	)			(37	)
Total cost of revenues			(68	)			(46	)			(195	)			(64	)
Gross profit (loss)			(11	)			(20	)			(33	)			15
Operating expenses:
Research and development			(589	)			(467	)			(1,726	)			(1,365	)
Sales and marketing			(267	)			(152	)			(696	)			(876	)
General and administrative			(256	)			(724	)			(876	)			(1,927	)
Total operating expenses			(1,112	)			(1,343	)			(3,298	)			(4,168	)
Operating (loss)			(1,123	)			(1,363	)			(3,331	)			(4,153	)
Financial (expenses) income, net			(11	)			15				10				(1	)
Net (loss)		$	(1,134	)		$	(1,348	)		$	(3,321	)		$	(4,154	)
(Loss) per share (basic & diluted)		$	(0.19	)		$	(0.23	)		$	(0.57	)		$	(0.76	)
Weighted average number of shares outstanding			5,883,871				5,736,214				5,841,060				5,495,406

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

  

GLASSESOFF INC. AND SUBSIDIARIES

U.S DOLLARS IN THOUSANDS (Except shares and per share amounts)

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		For the nine months ended September 30,
		2015				2014
Cash flows from operating activities
Net (loss)		$	(3,321	)		$	(4,154	)
Adjustments to reconcile net (loss) to net cash (used in)
Operating activities:
Depreciation			26				25
Amortization of other assets			140				37
Stock based compensation  related to employees and nonemployees			389				1,262
Issuance of common stock in satisfaction of SEDA commitments fees			-				150
Amortization of discount and debt offering costs on convertible notes payable			8				-
Changes in operating assets and liabilities:
(Increase) in trade receivable			(16	)			(26	)
(Increase) decrease in other  receivables and prepaid expenses			(224	)			(20	)
Increase (decrease)  in trade payables			52				75
Increase (decrease) in related parties payables			100				(29	)
Increase (decrease)  in accrued expenses and other liabilities			84				210
Accrued interest on convertible notes payable			3				-
Net cash (used in) operating activities		$	(2,759	)		$	(2,470	)
Cash flows from investing activities
Purchase of property and equipment			(2	)			(98	)
Investment  in other assets, net			(46	)			(426	)
Investment in deposits			(1	)			-
Net cash (used in) investing activities		$	(49	)		$	(524	)
Cash flows from financing activities
Proceeds from issuance of convertible notes payable, net of transaction costs of $5			623				-
Proceeds from issuance of warrants, net of transaction costs of $8			1,114				-
Proceeds from issuance of options exercise			1				-
Proceeds from issuance of common stock and warrants, net			-				4,938
Net cash provided by financing activities		$	1,738			$	4,938
Increase (decrease) in cash and cash equivalents			(1,070	)			1,944
Cash and cash equivalents at the beginning of the period			2,570				1,526
Cash and cash equivalents at the end of the period		$	1,500			$	3,470

 

 

GLASSESOFF INC. AND SUBSIDIARIES

U.S DOLLARS IN THOUSANDS (Except shares and per share amounts)

 

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 

		For the nine months ended September 30,
		2015				2014
Non cash investing and financial transactions:
Capitalization of stock based compensation to intangible assets		$	7			$	102
Additional information:
Cash paid for income taxes		$	-			$	-
Cash paid for interest expense		$	1			$	-

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

 

GLASSESOFF INC. AND SUBSIDIARIES

U.S DOLLARS IN THOUSANDS (Except shares and per share amounts)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 (Unaudited)

 

NOTE 1 -   GENERAL

 

GlassesOff Inc. (“GlassesOff” or the “Company”) formerly named Autovative Products, Inc., was formed on December 8, 2004 under the laws of the State of Nevada. The Company is a visual neuroscience software technology company, utilizing patented technology to develop consumer-oriented software applications for improving, through exercise, vision sharpness and vision performance, 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 devotes significant efforts toward research and development activities. The Company started generating revenues in 2014; however, the Company has not yet generated significant revenue from operations and is still devoting significant efforts to development activities, such as raising capital and recruiting and training personnel. The Company’s accumulated deficit aggregated $20,228 through September 30, 2015. 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 its planned principal operations.

 

The Company’s ability to continue to operate as a going concern is dependent upon additional financial support. These financial statements do not include any adjustments relating to the recoverability and classification of assets’ carrying amounts or the amount and classification of liabilities that may be required should the Company be unable to continue as a going concern.

 

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 applicable 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 consolidated financial statements for the year ended December 31, 2014 and the notes thereto filed with the SEC on Form 10-K on March 31, 2015.

 

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 platform. 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 are 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.

 

 

GLASSESOFF INC. AND SUBSIDIARIES

U.S DOLLARS IN THOUSANDS (Except shares and per share amounts)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 (Unaudited)

 

NOTE 2 -   SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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:

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.

 

f.

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.

 

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, warrants and convertible notes have been excluded from the calculation of the diluted loss per share because all such securities are antidilutive.

 

The total weighted average number of shares of the Company’s common stock, par value $0.001 per share (“Common Stock”) related to outstanding restricted stock, options, warrants and convertible notes excluded from the calculations of diluted loss per share for the three months ended September 30, 2015 and 2014, and for the nine months ended September 30, 2015 and 2014 was 2,247,901, 2,049,661, 2,112,653 and 2,063,671, respectively.

 

The following data show 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,
		2015				2014				2015				2014
Basic & Diluted net (loss) per share:
(Loss) from continuing operations		$	(1,134	)		$	(1,348	)		$	(3,321	)		$	(4,154	)
Number of shares used in per share computation:
Common Stock			5,883,871				5,736,214				5,841,060				5,495,406
Basic & Diluted net (loss) per share		$	(0.19	)		$	(0.23	)		$	(0.57	)		$	(0.76	)

 

 

GLASSESOFF INC. AND SUBSIDIARIES

U.S DOLLARS IN THOUSANDS (Except shares and per share amounts)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 (Unaudited)

 

NOTE 2 -   SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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.

 

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, 2015
		Total				(Level 1)				(Level 2)				(Level 3)
Cash and cash equivalents		$	1,500				1,500			$	-			$	-
Restricted cash			65				65				-				-
Total assets at fair value, net		$	1,565				1,565			$	-			$	-

 

		Fair Value Measurements at December 31, 2014
		Total				(Level 1)				(Level 2)				(Level 3)
Cash and cash equivalents		$	2,570			$	2,570			$	-			$	-
Restricted cash			64				64				-				-
Total assets at fair value, net		$	2,634			$	2,634			$	-			$	-

 

i.

Reclassifications:

Certain prior year amounts have been reclassified to conform with the current year presentation.

 

j.

Recent accounting pronouncements:

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“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.

 

 

GLASSESOFF INC. AND SUBSIDIARIES

U.S DOLLARS IN THOUSANDS (Except shares and per share amounts)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 (Unaudited)

 

NOTE 2 -   SIGNIFICANT ACCOUNTING POLICIES (continued)

 

j.

Recent accounting pronouncements (continued):

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. The Company adopted this standard prospectively as of January 1, 2015. The adoption of ASU No. 2014-10 did not have a material impact on its 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 significant 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 an impact on our financial statements or disclosures.

 

In January 2015, the FASB issued ASU 2015-01, “Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” ASU 2015-01 eliminates from U.S. GAAP the concept of an extraordinary item. The Board released the new guidance as part of its simplification initiative, which is intended to “identify, evaluate, and improve areas of U.S. GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements.” The ASU is effective for annual periods beginning after December 15, 2015, and interim periods within those annual periods. The Company does not believe this pronouncement will have a material impact on its consolidated financial statements.

 

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The ASU is effective for annual periods beginning after December 15, 2015, and interim periods within those annual periods. This ASU is not expected to have an impact on our financial statements or disclosures.

 

 

GLASSESOFF INC. AND SUBSIDIARIES

U.S DOLLARS IN THOUSANDS (Except shares and per share amounts)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 (Unaudited)

 

NOTE 2 -   SIGNIFICANT ACCOUNTING POLICIES (continued)

 

j.

Recent accounting pronouncements (continued):

In April 2015, the FASB issued ASU 2015-05 “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement”. The amendments in this ASU provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer’s accounting for service contracts. All software licenses within the scope of this ASU will be accounted for consistent with other licenses of intangible assets. For public entities, the amendments will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted for all entities. This ASU is not expected to have an impact on our financial statements or disclosures.

 

In August 2015, the FASB issued Update 2015-14 “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”. The amendments in this Update defer the effective date of Update 2014-09 for all entities by one year. Public entities, certain not-for-profit entities and certain employee benefit plans should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the impact this Update will have on our consolidated financial statements and related 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,
		2015				2014
Israeli government authorities		$	35			$	60
Prepaid expenses			310				60
		$	345			$	120

 

 

GLASSESOFF INC. AND SUBSIDIARIES

U.S DOLLARS IN THOUSANDS (Except shares and per share amounts)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 (Unaudited)

 

NOTE 4 -   PROPERTY AND EQUIPMENT, NET

 

		September 30,				December 31,
		2015				2014
Cost:
Office furniture and equipment		$	42			$	42
Computers and electronic equipment			120				118
Laboratory equipment			35				35
Leasehold improvements			67				67
		$	264			$	262
Accumulated depreciation:
Office furniture and equipment		$	15			$	11
Computers and electronic equipment			86				70
Laboratory equipment			29				27
Leasehold improvements			16				12
			146				120
Depreciated cost		$	118			$	142

 

Depreciation expenses for the three and nine months ended September 30, 2015 and 2014 were $9, $8, $26 and $25, respectively.

 

NOTE 5 -   OTHER ASSETS, NET

 

Data with respect to GlassesOff’s intangible assets associated with its first product version for the Android platform and significant enhancement for its product for both the Android and iOS platforms are as set forth below:

 

		September 30,				December 31,
		2015				2014
Cost		$	581			$	528
Accumulated amortization			213				73
Net carrying amount		$	368			$	455

 

Amortization expenses for these intangible assets for the three and nine months ended September 30, 2015 and 2014 were $48, $37, $140 and $37 respectively.

 

NOTE 6 –  CONVERTIBLE NOTES PAYABLE

 

On September 21, 2015, the Company issued and sold to investors in a private placement (the “Private Placement”) $1,750 aggregate principal amount of the Company’s 8.0% Senior Convertible Notes (the “Notes”), which were issued together with warrants (“Warrants”) to acquire an aggregate of 1,198,631 shares of Common Stock at an exercise price of $2.19 per share. The Company’s Chairman of the Board of Directors, Mr. Shai Novik, participated in the Private Placement on the same terms as all other investors, acquiring, for $500, a Note in an aggregate principal amount of $500 and Warrants to acquire an aggregate of 342,466 shares. Refer to Note 8.

 

 

GLASSESOFF INC. AND SUBSIDIARIES

U.S DOLLARS IN THOUSANDS (Except shares and per share amounts)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 (Unaudited)

 

NOTE 6 –  CONVERTIBLE NOTES PAYABLE (continued)

 

The Notes are general senior unsecured obligations of the Company and rank equal in right of payment with all of the Company’s existing and future unsubordinated indebtedness. The Notes accrue interest at 8.00% per annum, payable at maturity. The Notes mature on March 20, 2018 unless earlier converted or redeemed. The Company may, at its option, redeem all, but not less than all, of the then issued and outstanding Notes at any time prior to maturity by delivering notice thereof to the holders not less than 30 nor more than 60 days prior to the date of redemption.

 

The Notes may be converted into shares of Common Stock (the “Conversion Shares”) at an initial conversion price of $2.19 per share, or approximately 457 shares for each $1 principal amount of Notes (not including accrued and unpaid interest). The conversion price is subject to adjustment for stock splits, recapitalizations, reorganizations and certain fundamental transactions involving the Company, as set forth in the Notes. Except as described below, upon any conversion of the Notes, the holders thereof would receive a number of Conversion Shares equal to (i) the sum of aggregate principal amount of the Notes converted plus all accrued and unpaid interest thereon, divided by (ii) the conversion price then in effect.

 

The Notes will convert automatically if (i) at any time prior to the maturity date the closing price of the Common Stock exceeds 500% of the conversion price for any 90 days in any 120 consecutive trading day period or (ii) the Company consummates a new round of financing providing gross cash proceeds to the Company (before deduction of any underwriters’ or placement agents’ discounts or commissions) of not less than $2.5 million, in which case holders of Notes may either convert their respective Notes into Conversion Shares, as described above, or they may elect to convert their respective Notes into such round of financing.

 

The Notes provide for customary events of default which include (subject in certain cases to customary grace and cure periods), among others, the following: nonpayment of principal or interest; breach of covenants or other agreements in the Notes; and certain events of bankruptcy or insolvency. Generally, if an event of default occurs and is continuing under a Note, the holder thereof may declare the principal of, and accrued interest on, such Note immediately due and payable. In the case of certain events of bankruptcy or insolvency, all amounts outstanding under the Notes, together with accrued and unpaid interest thereon, would automatically become due and payable.

 

The Warrants are exercisable for shares of Common Stock (the “Warrant Shares”) at any time during the five-year period following the date of issuance. Any Warrant exercise effected during the first year following issuance must be in cash, following which period, if a registration statement covering the Warrant Shares has not been filed with and declared effective by the SEC, then a holder of a Warrant may exercise such Warrant through a cashless exercise. The number of Warrant Shares underlying the outstanding Warrants is subject to adjustment for stock splits, recapitalizations, reorganizations and certain fundamental transactions involving the Company, as set forth in the Warrant.

 

The Notes and Warrants were accounted for under ASC 470-20, Debt with Conversion and Other Options. Under ASC 470-20, Proceeds from the sale of a debt instrument with stock purchase warrants shall be allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds so allocated to the warrants was accounted for as paid-in capital. The remainder of the proceeds was allocated to the debt instrument portion of the transaction.

 

The Company estimated the relative fair value of the Warrants to be $1,122 and the relative fair value of the Notes to be $628.

 

The fair value of the Warrants at issuance date was estimated using the Black-Scholes option-pricing model using the following assumptions:

 

 

GLASSESOFF INC. AND SUBSIDIARIES

U.S DOLLARS IN THOUSANDS (Except shares and per share amounts)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 (Unaudited)

 

NOTE 6 –  CONVERTIBLE NOTES PAYABLE (continued)

 

Weighted average risk-free interest rate	1.54%
Weighted average expected life of grants in years	5
Weighted average expected volatility of underlying stock	128%
Dividends	0

 

The fair value of the Notes at issuance date was estimated using a discount rate (a rate of return) to convert a future monetary sum into present value at various next round and liquidation scenarios estimated by the Company’s management. The Company used a discount rate of 35%, which, according to various empirical studies, is the rate of return expected by venture capital investors for start-up companies that have achieved pilot product as well as bridge financing.

 

Under ASC 470-20, the Company determined that a beneficial conversion feature (“BCF”) was present on the issuance dates of the Notes. A conversion feature is beneficial if, on the issuance dates, the effective conversion price is less than the fair value of the issuer’s capital stock. Because the effective conversion price of $0.79 per share is less than the $2.49 per share fair value of the Common Stock on the dates the Notes were issued, a beneficial conversion feature equal to the intrinsic value is present.

 

In accordance with ASC 470-20-30-8, if the intrinsic value of the BCF is greater than the proceeds allocated to the convertible instrument, the amount of the discount assigned to the BCF is limited to the amount of the proceeds allocated to the convertible instrument. The BCF is recorded as an addition to equity with a corresponding reduction to the carrying value of the convertible debt instrument. In the case of the Notes, the BCF reduction represents a debt discount equal to the principal amount of $628 less the issuance costs of $5, totaling $623 on the issuance date.

 

The Company paid transaction costs of $13, of which $5 was allocated to the Notes and $8 to the Warrants. The total aggregate discount on the Notes of $628 including the BCF and transaction costs are being amortized as non-cash interest expense over the 2.5-year term of the debt using the effective interest method, representing an approximate effective annual interest rate of 63.19%. As of September 30, 2015, the carrying value of the Notes was $631 (principal of $628 and accrued interest of $3), net of unamortized debt discount and issuance costs of $620.

 

NOTE 7 -   ACCRUED EXPENSES AND OTHER LIABILITIES

 

		September 30,				December 31,
		2015				2014
Employees and payroll accruals		$	213			$	273
Accrued expenses			268				133
Deferred revenues			26				21
Others			4				-
		$	511			$	427

 

 

GLASSESOFF INC. AND SUBSIDIARIES

U.S DOLLARS IN THOUSANDS (Except shares and per share amounts)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 (Unaudited)

 

NOTE 8 -   RELATED PARTIES

 

The Company classified $242 of unpaid salaries due to certain of the Company’s officers to long term liabilities.

 

On September 21, 2015, the Company issued $1,750 aggregate principal amount of the Notes, together with the related Warrants, in the Private Placement. Refer to Note 6. The Company’s Chairman of the Board of Directors, Mr. Shai Novik, participated in the Private Placement on the same terms as all other investors, acquiring, for $500, a Note in an aggregate principal amount of $500 and Warrants to acquire an aggregate of 342,466 shares of Common Stock.

 

NOTE 9 -   STOCK OPTION PLAN

 

a.

In 2013, the Company adopted the GlassesOff Inc. 2013 Incentive Compensation Plan (the “Equity Incentive Plan”) under which 1,400,000 shares of the Company’s Common Stock are authorized for issuance.

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.

 

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, using the Black-Scholes Merton option-pricing model.

 

b.

The following table summarizes all stock options expenses included in the unaudited consolidated statements of operations related to grants under the Equity Incentive Plan to employees, directors and consultants:

 

		For the three months								For the nine months
		ended September 30,								ended September 30,
		2015				2014				2015				2014
Research & development		$	31			$	38			$	166			$	407
Sales & marketing			13				14				27				39
General & administrative			-				133				56				354
Total		$	44			$	185			$	249			$	800

 

c.

The following is a summary of the stock options granted to employees under the Equity Incentive Plan:

 

 

GLASSESOFF INC. AND SUBSIDIARIES

U.S DOLLARS IN THOUSANDS (Except shares and per share amounts)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 (Unaudited)

 

NOTE 9 -  STOCK OPTION PLANS (continued)

 

		For the nine months ended September 30, 2015
		Number of Options				Weighted Average Exercise Price
Outstanding at January 1, 2015			639,688			$	4.322
Issued			82,400			$	2.595
Exercised			(127,616	)		$	0.013
Forfeited			(17,606	)		$	14.479
Outstanding at September 30, 2015			576,866			$	4.719
Options exercisable at September 30, 2015			447,030			$	3.440

 

		For the nine months ended September 30, 2014
		Number of Options				Weighted Average Exercise Price
Outstanding at January 1, 2014			510,172			$	0.013
Issued			144,300			$	19.251
Forfeited			(16,363	)		$	1.149
Outstanding at September 30, 2014			638,109			$	4.334
Options exercisable at September 30, 2014			484,110			$	0.212

 

The total unrecognized estimated compensation cost related to employees’ non-vested stock options granted through September 30, 2015 was $249, which is expected to be recognized over a weighted average period of 1.30 years.

 

d.

The following is a summary of changes in the non-vested stock options granted to employees under the Equity Incentive Plan:

 

		For the nine months ended September 30, 2015
		Number of Options				Weighted Average Exercise Price
Outstanding at January 1, 2015			117,487			$	9.926
Granted			82,400			$	2.595
Vested			(55,165	)		$	12.112
Forfeited			(14,886	)		$	12.120
Outstanding at September 30, 2015			129,836			$	4.093

  

 

GLASSESOFF INC. AND SUBSIDIARIES

U.S DOLLARS IN THOUSANDS (Except shares and per share amounts)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 (Unaudited)

 

NOTE 9 - STOCK OPTION PLANS (continued)

 

		For the nine months ended September 30, 2014
		Number of Options				Weighted Average Exercise Price
Outstanding at January 1, 2014			26,242			$	2.955
Granted			144,300			$	19.247
Vested			(13,316	)		$	7.255
Forfeited			(3,227	)		$	9.359
Outstanding at September 30, 2014			153,999			$	17.715

 

e.

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, 2015
		Number of Options				Weighted Average Exercise Price
Outstanding at January 1, 2015			360,549			$	0.432
Issued			15,600			$	4.659
Outstanding at September 30, 2015			376,149			$	0.607
Options exercisable at September 30, 2015			361,155			$	0.415

 

		For the nine months ended September 30, 2014
		Number of Options				Weighted Average Exercise Price
Outstanding at January 1, 2014			391,828			$	0.370
Issued			600			$	18.600
Exercised			(31,879	)		$	0.013
Outstanding at September 30, 2014			360,549			$	0.432
Options exercisable at September 30, 2014			357,070			$	0.385

 

The total unrecognized estimated compensation cost related to non-employees for non-vested stock options granted through September 30, 2015 was $11, which is expected to be recognized over a weighted average period of 1.10 years.

 

f.

The following is a summary of changes in the non-vested stock options granted to non-employees under the Equity Incentive Plan:

 

 

GLASSESOFF INC. AND SUBSIDIARIES

U.S DOLLARS IN THOUSANDS (Except shares and per share amounts)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 (Unaudited)

 

NOTE 9 -  STOCK OPTION PLANS (continued)

 

		For the nine months ended September 30, 2015
		Number of Options				Weighted Average Exercise Price
Outstanding at January 1, 2015			600			$	18.600
Granted			15,600			$	4.659
Vested			(1,206	)		$	4.554
Outstanding at September 30, 2015			14,994			$	5.225

 

		For the nine months ended September 30, 2014
		Number of Options				Weighted Average Exercise Price
Outstanding at January 1, 2014			14,403			$	2.441
Granted			600			$	18.600
Vested			(11,524	)		$	2.441
Outstanding at September 30, 2014			3,479			$	5.228

 

g.

Options outstanding as of September 30, 2015 have been separated by exercise prices, as follows:

 

Exercise Price				# of Options Outstanding				Average Remaining Contractual Life (years)				# of Options Exercisable
$	2.440				57,610				4.73				57,610
$	0.013				662,725				6.53				662,725
$	19.300				126,900				8.36				76,146
$	18.600				2,280				8.69				1,224
$	4.600				10,000				9.22				7,500
$	5.100				31,500				9.32				1,980
$	1.660				62,000				9.84				1,000
					953,015								808,185

 

 

GLASSESOFF INC. AND SUBSIDIARIES

U.S DOLLARS IN THOUSANDS (Except shares and per share amounts)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 (Unaudited)

 

NOTE 10 – WARRANTS

 

In the Private Placement, the Company issued Warrants to acquire an aggregate of 1,198,631 shares of Common Stock.

 

The following is a summary of warrants outstanding as of September 30, 2015:

 

		Number of outstanding warrants				Weighted Average Exercise Price				Weighted Average Life (years)
Outstanding at January 1, 2015			1,001,369			$	9.96				2.29
Issued in Private Placement			1,198,631			$	2.19				4.98
Outstanding at September 30, 2015			2,200,000			$	5.72				3.75

 

The following is a summary of warrants outstanding as of September 30, 2014:

 

		Number of outstanding warrants				Weighted Average Exercise Price				Weighted Average Life (years)
Outstanding at January 1, 2014			1,001,369			$	9.96				3.29
Outstanding at September 30, 2014			1,001,369			$	9.96				3.29

 

NOTE 11 - COMMITMENTS AND CONTINGENT LIABILITIES

 

Aggregate minimum rental commitments, under non-cancelable leases as of September 30, 2015 were as follows:

 

Period ended September 30,
2016		$	97
2017			17
Total		$	114

 

NOTE 12 - STOCK CAPITAL

 

a.

On March 30, 2015, the Company effected a 1-for-10 reverse split of its authorized and issued and outstanding shares of Common Stock (the “Reverse Split”). Following the Reverse Split, the number of shares of the Company’s issued and outstanding Common Stock was reduced from approximately 58.4 million shares to approximately 5.8 million shares. Additionally, proportional adjustments were made to its authorized shares of Common Stock and its outstanding options and warrants. Any fractional shares resulting from the Reverse Split were rounded up to the next whole share.

 

b.

Restricted Shares

 

In the third quarter of 2015, the Company granted 10,000 shares of restricted Common Stock to a consultant, which vested immediately, and 40,000 shares of restricted Common Stock to two employees, vesting ratably in yearly installments over a weighted average period of 1.89 years.

 

The total unrecognized estimated compensation cost related to non-vested restricted stock granted through September 30, 2015 was $117, which is expected to be recognized over a weighted average period of 1.43 years.

 

 

GLASSESOFF INC. AND SUBSIDIARIES

U.S DOLLARS IN THOUSANDS (Except shares and per share amounts)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 (Unaudited)

 

NOTE 12 - STOCK CAPITAL

 

The following is a summary of compensation expenses related to restricted shares of Common Stock:

 

		For the three months								For the nine months
		ended September 30,								ended September 30,
		2015				2014				2015				2014
Research and development		$	16			$	(45	)		$	63			$	34
General and administrative			8				40				34				381
Sales and marketing			38				40				43				47
		$	62			$	35			$	140			$	462

 

c.

The Company issued shares of Common Stock during 2015 in connection with exercise of stock options as follows:

 

		Number of shares				Number of options				Exercise  price
First quarter			3,965				3,965			$	0.013
Second quarter			61,450				61,450			$	0.013
Third quarter			62,201				62,201			$	0.013

 

 

NOTE 13 - FINANCIAL (EXPENSES) INCOME, NET

 

		For the three months								For the nine months
		ended September 30,								ended September 30,
		2015				2014				2015				2014
Financial income		$	-			$	-			$	-			$	-
Financial (expenses) and  bank fees			(14	)			(1	)			(17	)			(5	)
Exchange rate differences gain (loss)			3				16				27				4
		$	(11	)		$	15			$	10			$	(1	)

 

NOTE 14 - SUBSEQUENT EVENTS

 

On October 19, 2015, the Company issued to an investor a Note for an aggregate principal amount of $50, together with a Warrant to acquire an aggregate of 34,247 shares of Common Stock. The Note and Warrant have the same terms as the Notes and Warrants issued in the Private Placement on September 21, 2015.

 

 

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 such statements 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. Please see Item 1A “Risk Factors” contained in our most recently filed Annual Report on Form 10-K, as updated by our subsequently filed Quarterly Reports on Forms 10-Q, for important factors that could cause actual results to differ materially from those in the forward-looking statements.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Introduction

 

Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to “GlassesOff”, “we,” “us” and “our” refer to GlassesOff Inc., a Nevada corporation, including its direct and indirect wholly owned subsidiaries, Ucansi Inc., a Delaware corporation, which we refer to as Ucansi, and EYEKON E.R.D. Ltd, an Israeli company, which comprise our operating subsidiaries and all of our operations as of the date of this Quarterly Report on Form 10-Q.

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited 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

 

We are a visual neuroscience software technology company, utilizing patented technology to develop and commercialize consumer-oriented software applications for improving, through exercise, vision sharpness and vision performance by improving the image processing function in the visual cortex of the brain. We deliver our scientific products through a game-like experience based on mobile applications (“apps”).

 

Our first app, GlassesOff™, aims to eliminate, through exercise, the dependency on reading glasses of people over the age of 40 who experience natural age-related changes in their near vision sharpness. The GlassesOff™ app is currently implemented on the Android and Apple iOS platforms (iPhone, iPod, iPad) and is available on the main app markets, such as the Apple App Store.

 

Our new app, currently under development, is based on sports themes, including basketball and baseball, with a go-to-market strategy of partnering with known athletes as “brand partners.” While our app is designed as a casual, fun-to-play game, it is based on extensive neuroscience research and patent pending technology that aim to enhance, through exercise, a user’s vision performance and brain processing speed. We expect that our new app, when available, will draw interest from athletes and sports enthusiasts of all ages.

 

Plan of Operation

 

During December 2013, we completed the development of the first commercial version of our 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, we launched the first version of our software application for the Android platform as a beta version and subsequently in final form.

 

In the third quarter of 2015, we signed an agreement with a well-known athlete as a brand partner for our first sports app. We plan to launch the beta version of the app by the end of 2015. We expect to advertise and market our app based on the popularity and reputation of this athlete, as a brand partner. Additionally, we plan to participate in various conferences and conventions internationally to further expose our products and technology to professionals, such as ophthalmologists, sports coaches and associations, and potentially form business partnerships.

 

During 2016, we plan to sign additional partnerships in additional sports, as well as re-launch the GlassesOff app under a new dynamic game-like technology.

 

We are not currently planning any major purchase or sale of equipment in 2015.

 

Critical Accounting Policies

 

A summary of our significant accounting policies is included in Note 2, “Significant Accounting Policies,” of the Notes to the audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2014 (the “2014 Form 10-K”).

 

Our unaudited interim financial statements are prepared in accordance with GAAP, which often requires that management make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts presented and disclosed in the financial statements. Management reviews these estimates and assumptions based on historical experience, changes in business conditions and other relevant factors they believe to be reasonable under the circumstances. In any given reporting period, our actual results may differ from the estimates and assumptions used in preparing our unaudited interim financial statements.

 

 

Critical accounting estimates are defined as follows: the estimate requires management to make assumptions about matters that were highly uncertain at the time the estimate was made; different estimates reasonably could have been used; or if changes in the estimate are reasonably likely to occur from period to period and the change would have a material impact on our financial condition or results of operations. We believe that our accounting policies and estimates associated with revenue recognition, convertible notes, intangible assets and stock based compensation are critical to understanding our historical and future performance as these policies involve a high degree of judgment and complexity. Therefore, we consider these to be our critical accounting policies and estimates. We believe there have been no material changes in our existing accounting policies and estimates from the disclosures included in the 2014 Form 10-K, except for the newly adopted accounting policies as disclosed in Note 2 to the unaudited interim financial statements contained in this Quarterly Report on Form 10-Q.

 

Recent Accounting Pronouncements

 

Information with respect to recent accounting pronouncements may be found in Note 2 to the interim financial statements contained in this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.

 

Results of Operations

 

Three and Nine Months Ended September 30, 2015 Compared to the Three and Nine Months Ended September 30, 2014

 

Revenue

 

GlassesOff generated revenues of $57,000 and $162,000 for the three and nine month periods ended September 30, 2015, as compared to revenues of $26,000 and $79,000 for the three and nine month periods ended September 30, 2014, respectively. The increase in revenues was mostly due to the launch of a French version of the GlassesOff™ app and significant media coverage in France, which resulted in increased sales.

 

Cost of Sales

 

Cost of sales consists primarily of commissions, royalties and amortization of intangible assets. For the three and nine month periods ended September 30, 2015, GlassesOff incurred costs of sales aggregating $68,000 and $195,000, respectively, as compared to $46,000 and $64,000 in the comparable 2014 periods, respectively. The increase in costs of sales for the three and nine month periods ended September 30, 2015 as compared to the 2014 periods resulted primarily from amortization of intangible assets of $49,000 and $140,000 for the three and nine month periods ended September 30, 2015, respectively, as compared to $37,000 and $37,000 for the comparable 2014 periods, and platform commissions and royalties of $55,000 and $19,000 for the three and nine month periods ended September 30, 2015 as compared to $27,000 and $9,000 for the comparable 2014 periods, respectively. The amortization of these intangible assets commenced in the third quarter of 2014. The increase in platform commissions and royalties resulted from the increase in revenues.

 

Research and Development Expenses

 

GlassesOff expects its research and development (“R&D”) expenses to increase as it continues to develop its products. 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 in the near future in connection with the development efforts for new product applications and the planned redesign of GlassesOff™. GlassesOff intends to expand the use of outsourced development services to expedite its development efforts. GlassesOff believes that investment in product development is a competitive necessity and plans to continue these investments in an effort to realize the potential of its current and planned products.

 

For the nine month periods ended September 30, 2015 and 2014, GlassesOff incurred R&D expenses in the aggregate of $1,726,000 and $1,365,000, respectively. The increase in R&D expenses for the nine month period ended September 30, 2015 as compared to the 2014 period resulted primarily from payroll expenses of $671,000 for the 2015 period as compared to $446,000 for the 2014 period and consulting expenses of $582,000 for 2015 as compared to $253,000 for the 2014 period. The increase in payroll and consulting expenses for the 2015 period was mostly due to capitalization of a significant part of these expenses to intangible assets for the 2014 period. This was partially offset by stock-based compensation expenses of $229,000 for the nine months ended September 30, 2015 as compared to $441,000 for the comparable period in 2014.

 

For the three month periods ended September 30, 2015 and 2014, GlassesOff incurred R&D expenses in the aggregate of $589,000 and $467,000, respectively. The increase was primarily due to an increase in consulting expenses of $296,000 for the three months ended September 30, 2015, as compared to the 2014 period. This was partially offset by decreases in payroll expenses of $126,000 and stock-based compensation expenses of $54,000. The increase in consulting expenses and the decrease in payroll and stock-based compensation expenses was mostly due to engaging an outsource company for assistance with new product development.

 

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, public relations services, advertising costs and other expenses, which include expenses for rent and maintenance of facilities. During 2014 and the nine month period ended September 30, 2015, GlassesOff has continued to invest in building marketing infrastructure, which included, among other things, developing public relations networks to generate awareness of GlassesOff’s product, preparing marketing materials and building a network of eye care professionals to support and promote the GlassesOff technology and current and planned products.

 

For the nine month periods ended September 30, 2015 and 2014, GlassesOff incurred sales and marketing expenses of $696,000 and $876,000, respectively. The decrease for the nine month period ended September 30, 2015 as compared to the 2014 period resulted primarily from the decrease in consultants and advertising expenses of $217,000 for the nine months ended September 30, 2015, as compared to the 2014 period, resulting from reduced marketing expenses associated with the GlassesOff app pending its expected re-launch in the next year. This decrease was partially offset by an increase in payroll expenses of $42,000.

 

For the three month periods ended September 30, 2015 and 2014, GlassesOff incurred sales and marketing expenses of $267,000 and $152,000, respectively. The increase for the three month period ended September 30, 2015 as compared to the 2014 period resulted primarily from payroll expenses of $118,000 in 2015 as compared to $39,000 in 2014. The increase in salary expenses was mostly due to the costs associated with the preparation for the planned launch of our sports app.

 

 

General and Administrative Expenses

 

General and administrative (“G&A”) 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 G&A expenses include facility-related costs not otherwise included in R&D or sales and marketing 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 G&A 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, 2015 and 2014, GlassesOff incurred G&A expenses of $876,000 and $1,927,000, respectively. The decrease for the nine month period ended September 30, 2015 as compared to the 2014 period resulted primarily from stock-based compensation expenses to employees and directors of $90,000 in 2015 as compared to $735,000 in 2014, expenses related to investor relations services of $17,000 in 2015 as compared to $192,000 in 2014 as we stopped working with certain consultants and did not renew the related agreements yet, and commitment fees paid in connection with our standby equity distribution agreement (the “SEDA”) of $0 in 2015 as compared to $153,000 in 2014. The decrease in stock-based compensation was mostly due to 2,100 options granted to employees in 2015 as compared to 65,000 options granted in 2014.

 

For the three month periods ended September 30, 2015 and 2014, GlassesOff incurred G&A expenses of $256,000 and $724,000, respectively. The decrease for the three month period ended September 30, 2015 as compared to the 2014 period resulted primarily from stock-based compensation expenses to employees and directors of $8,000 in 2015 as compared to $173,000 in 2014, commitment fees paid in connection with the SEDA of $0 in 2015 as compared to $153,000 in 2014 and investor relations services of $5,000 in 2015 as compared to $81,000 in 2014.

 

Financial Expenses and Income

 

Financial expenses and income consist of the following:

 

·

interest earned on GlassesOff’s cash and cash equivalents;

·

bank fees and commissions;

·

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; and

·

interest expenses.

 

For the nine month periods ended September 30, 2015 and 2014, GlassesOff incurred net financial (income) expenses of $(10,000) and $1,000, respectively. The increase in financial income for the nine month period ended September 30, 2015 as compared to the 2014 period was primarily due to currency fluctuations of the NIS of $(27,000) in 2015 as compared to $(4,000) in 2014 and interest expenses of $13,000 in 2015 as compared to $0 in 2014. The interest expenses resulted primarily from the interest of $3,000 and amortization of the discount of $8,000 of the $1.75 million aggregate principal amount of our 8.0% Senior Convertible Notes that we issued to certain investors on September 21, 2015 (the “Notes”).

 

For the three month periods ended September 30, 2015 and 2014, GlassesOff incurred net financial (income) expenses of $11,000 and $(15,000), respectively. The decrease in financial income for the three month period ended September 30, 2015 as compared to the 2014 period was primarily due to currency fluctuations of the NIS of $(3,000) in 2015 as compared to $(16,000) in 2014 and interest expenses related to the Notes of $13,000 in 2015 as compared to $0 in 2014.

 

 

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, 2015 and 2014, GlassesOff’s stock-based compensation expenses were $389,000 and $1,262,000, respectively. Stock-based compensation expenses for the nine months ended September 30, 2015 decreased as compared to the 2014 period, primarily due to 98,000 stock options and 50,000 restricted shares granted during the nine months ended September 30, 2015 as compared to 144,900 stock options and 5,000 restricted shares granted during the 2014 period. The decrease was primarily due to completion of the vesting of part of the options that were granted in 2013 and 2014 and forfeiture of part of the unvested options during the 2015 period.

 

For the three month periods ended September 30, 2015 and 2014, GlassesOff’s stock-based compensation expenses were $106,000 and $220,000, respectively. Stock-based compensation expenses for the three months ended September 30, 2015 decreased as compared to the 2014 period, primarily due to completion of the vesting of part of the options that were granted in 2014 and forfeiture of part of the unvested options during the 2015 period.

 

Cash Flows

 

Nine months Ended September 30, 2015 Compared to the Nine months Ended September 30, 2014

 

For the nine months ended September 30, 2015 and 2014, net cash used in operations was $2,759,000 and $2,470,000, respectively. Cash was used primarily for salaries, subcontractors and software development expenses, facility-related costs and professional fees. The increase in cash used in operating activities for the nine months ended September 30, 2015 as compared to the 2014 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 development of new products.

 

For the nine months ended September 30, 2015 and 2014, net cash used in investing activities was $49,000 and $524,000, respectively. The decrease in cash used in investing activities for the nine month period ended September 30, 2015 as compared to the 2014 period resulted primarily from capitalization of intangible assets of $46,000 in 2015, as compared to $426,000 in 2014, and from the purchase of property and equipment of $2,000 in 2015 as compared to $98,000 in 2014.

 

 

For the nine months ended September 30, 2015 and 2014, net cash provided by financing activities was $1,738,000 and $4,938,000, respectively. The decrease in cash provided by financing activities for the nine month period ended September 30, 2015 as compared to the 2014 period resulted primarily from GlassesOff’s issuance and sale of $1,750,000 aggregate principal amount of the Notes in 2015 as compared to the issuance and sale of 400,000 shares of common stock in a private placement that provided net proceeds of $4,938,000 during the 2014 period.

 

Liquidity and Capital Resources

 

GlassesOff expects to incur losses from operations for the foreseeable future and incur increasing R&D expenses, including expenses related to outsourcing of certain development projects. GlassesOff expects that G&A expenses will also increase as it expands its finance and administrative infrastructure. GlassesOff also expects that sales and marketing expenses will increase significantly in connection with the commercialization activities related to its new product. GlassesOff’s future capital requirements will depend on a number of factors, including the continued progress of R&D of its products, cost of partnering with known athletes, and the total average cost of customer acquisition, comprising initial acquisition cost and customer retention cost.

 

Based on our 2015 average monthly cash expenses and our cash balance as of September 30, 2015, we do not expect that we will require additional financing for the year ending December 31, 2015. GlassesOff plans to continue to finance its operations with the issuance of equity or debt 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 anticipated development of new products. Furthermore, the expected ramp-up in sales and marketing activities will require significantly higher resources. GlassesOff generated only limited revenues for 2014 and for the nine months ended September 30, 2015. GlassesOff expects continuing operating losses to result in increases in cash used in operations over the next 12 months. 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.

 

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 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 maintaining an effective registration statement with the SEC pursuant to which the Investor may resell the shares of Common Stock acquired pursuant to the SEDA.

 

 

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 month periods ended September 30, 2015 or 2014.

 

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 or nine month periods ended September 30, 2015 or 2014. 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.

 

 

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

 

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to include information otherwise required by this item.

 

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.

 

 

PART II

OTHER INFORMATION

 

ITEM 6.

Exhibits.

 

4.1	Form of 8.0% Senior Convertible Promissory Note, filed as Exhibit 4.1 to our Current Report on Form 8-K, filed with the SEC on September 23, 2015 and incorporated herein by reference.
4.2	Form of Warrant, filed as Exhibit 4.2 to our Current Report on Form 8-K, filed with the SEC on September 23, 2015 and incorporated herein by reference.
10.1	Form of Stock Purchase and Registration Rights Agreement, dated September 17, 2014, by among the Company and the Investors party thereto, filed as Exhibit 10.1 to our Current Report on Form 8-K, filed with the SEC on September 23, 2015 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 Chief 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 Chief 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.

 

  

SIGNATURES

 

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 16, 2015	Nimrod Madar
	President and Chief Executive Officer
	(Principal Executive Officer)
	/s/ Steve Schaeffer
Date: November 16, 2015	Steve Schaeffer
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

 

 

EXHIBIT INDEX

 

4.1	Form of 8.0% Senior Convertible Promissory Note, filed as Exhibit 4.1 to our Current Report on Form 8-K, filed with the SEC on September 23, 2015 and incorporated herein by reference.
4.2	Form of Warrant, filed as Exhibit 4.2 to our Current Report on Form 8-K, filed with the SEC on September 23, 2015 and incorporated herein by reference.
10.1	Form of Stock Purchase and Registration Rights Agreement, dated September 17, 2014, by among the Company and the Investors party thereto, filed as Exhibit 10.1 to our Current Report on Form 8-K, filed with the SEC on September 23, 2015 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 Chief 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 Chief 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.