The accompanying notes are an integral part of the unaudited consolidated financial statements.
The accompanying notes are an integral part of the unaudited consolidated financial statements.
The accompanying notes are an integral
part of the unaudited consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(Unaudited)
InnoVision Labs, Inc. (the
“Company”), was incorporated on December 8, 2004 under the laws of the State of Nevada. On December 29, 2015, the
Company changed its name from GlassesOff Inc. to InnoVision Labs, Inc.
The Company is 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.
The Company has developed
a non-invasive neuroscience platform technology that can potentially be utilized on computers, tablets and mobile devices in the
following areas:
|
1.
|
Improvement,
through visual stimulation exercises, of vision sharpness and vision performance by improving
the image processing function in the visual cortex of the brain. The Company used this
technology in its first app, GlassesOff™, which aims to eliminate, through exercise,
the dependency on reading glasses by 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 and The Google Play store.
|
|
2.
|
Improvement,
through visual stimulation exercises, of image processing speed by improving the image
processing function in the visual cortex of the brain. The Company believes that this
could be used to improve the ability to process visual information faster within the
context of sports or other situations requiring swift responses to visual events, such
as in the military defense context. The Company used this technology to develop a new
app, Game Vision, which is based on a sports theme, and was introduced to the public
on March 3, 2016, but the Company has since ceased marketing this app.
|
|
3.
|
Detection,
through visual stimulation tasks, of anomalies in vision performance that could potentially
be attributable to certain diseases, such as glaucoma and diabetic retinopathy, as well
as dyslexia and attention deficit disorders.
|
The Company has accumulated
various intellectual property assets, including several granted patents and patents currently under examination. In the second
quarter of 2016, the Company decided to modify its business strategy and focus on licensing its products, intellectual property
and technologies or otherwise entering into partnerships, in each case with parties who have strategic interests in any of the
three areas of focus outlined above. The Company plans to continue supporting its first app, GlassesOff™, and cease its
independent marketing and development efforts with respect to Game Vision for the currently foreseeable future.
Given its change in strategic
focus, the Company reduced its headcount to two full-time employees and three part-time employees which the Company believes will
both reduce demands on its cash resources while still allowing the Company to continue to support its GlassesOff™ app. In
addition, the Company moved to smaller offices.
The Company conducts its activity
through its wholly owned Israeli subsidiary, Eyekon E.R.D Ltd.
The
Company started generating revenues in 2014; however, the Company has not yet generated significant revenue from operations and
is devoting efforts to licensing its products or otherwise entering into partnerships, in each case as described above. The Company’s
accumulated deficit during the development stage aggregated $24,055 through September 30, 2016. 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.
INNOVISION LABS, INC. AND SUBSIDIARIES
U.S DOLLARS IN THOUSANDS (except shares
and per share amounts)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(Unaudited)
|
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, 2015
and the notes thereto filed with the SEC on Form 10-K on March 31, 2016.
|
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.
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, revenues 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, revenues 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.
|
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.
InnoVision 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. Impairment losses
for the three and nine months ended September 30, 2016 and 2015 were $0, $0, $92 and $0, respectively. The losses were related
to the termination of marketing and development of the Game Vision App. See Note 5.
INNOVISION LABS, INC. AND SUBSIDIARIES
U.S DOLLARS IN THOUSANDS (except shares
and per share amounts)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(Unaudited)
|
NOTE 2 -
|
SIGNIFICANT
ACCOUNTING POLICIES (continued)
|
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.
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.
For the three months and for
the nine months ended September 30, 2016, the Company excluded from the calculations of diluted loss per share 5,252,537 and 5,184,545
weighted average number of shares of common stock related to outstanding restricted stock, options, warrants and convertible notes,
respectively. For the three months and for the nine months ended September 30, 2015, the Company excluded from the calculations
of diluted loss per share 2,247,901 and 2,112,653 weighted average number of shares of common stock related to outstanding restricted
stock, options, warrants and convertible notes, respectively.
|
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,
2016
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Cash and cash equivalents
|
|
$
|
209
|
|
|
$
|
209
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Restricted cash
|
|
|
31
|
|
|
|
31
|
|
|
|
-
|
|
|
|
-
|
|
Total assets at fair value, net
|
|
$
|
240
|
|
|
$
|
240
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
Fair Value Measurements at December 31,
2015
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Cash and cash equivalents
|
|
$
|
630
|
|
|
$
|
630
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Restricted cash
|
|
|
65
|
|
|
|
65
|
|
|
|
-
|
|
|
|
-
|
|
Total assets at fair value, net
|
|
$
|
695
|
|
|
$
|
695
|
|
|
$
|
-
|
|
|
$
|
-
|
|
INNOVISION LABS, INC. AND SUBSIDIARIES
U.S DOLLARS IN THOUSANDS (except shares
and per share amounts)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(Unaudited)
|
NOTE 2 -
|
SIGNIFICANT
ACCOUNTING POLICIES (continued)
|
|
i.
|
Recent
accounting pronouncements:
|
In August 2016, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016-15— Classification of Certain Cash
Receipts and Cash Payments (“ASU 2016-15”), which eliminates the diversity in practice related to the classification
of certain cash receipts and payments for debt prepayment or extinguishment costs, the maturing of a zero coupon bond, the settlement
of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain
equity method investees and beneficial interests obtained in a financial asset securitization. ASU 2016-15 designates the appropriate
cash flow classification, including requirements to allocate certain components of these cash receipts and payments among operating,
investing and financing activities. The retrospective transition method, requiring adjustment to all comparative periods presented,
is required unless it is impracticable for some of the amendments, in which case those amendments would be prospectively adjusted
as of the earliest date practicable. This update is effective for annual periods beginning after December 15, 2017, and interim
periods within those fiscal years, with early adoption permitted, including adoption in an interim period. The Company does not
expect the adoption to have any significant impact on its consolidated financial statements.
In June 2016, the FASB issued
Accounting Standards Update 2016-13—Financial Instruments – Credit Losses, which changes the accounting for recognizing
impairments of financial assets. Under the new guidance, credit losses for certain types of financial instruments will be estimated
based on expected losses. The new guidance also modifies the impairment models for available-for-sale debt securities and for
purchased financial assets with credit deterioration since their origination. The new guidance will be effective for the Company
starting in the first quarter of fiscal 2021. Early adoption is permitted starting in the first quarter of fiscal 2020. The Company
does not expect the adoption to have any significant impact on its consolidated financial statements.
In April 2016, FASB issued
Update 2016-10—Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The
amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update
clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance,
while retaining the related principles for those areas. The amendments in this Update affect the guidance in Accounting Standards
Update 2014-09, Revenue from Contracts with Customers (Topic 606).
In March 2016, the FASB issued
guidance revising certain elements of the accounting for share-based payments - Update 2016-09—Compensation—Stock
Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The new standard is intended to simplify several
aspects of the accounting for share-based payment award transactions including: (a) income tax consequences; (b) classification
of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The new guidance will be effective
in the first quarter of 2017, with early adoption permitted. The Company is currently evaluating the impact of adoption of this
guidance. Based on the Company’s initial analysis, the adoption of this update is not expected to have a significant impact
on its consolidated financial statements and disclosures.
INNOVISION LABS, INC. AND SUBSIDIARIES
U.S DOLLARS IN THOUSANDS (except shares
and per share amounts)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(Unaudited)
|
NOTE 2 -
|
SIGNIFICANT
ACCOUNTING POLICIES (continued)
|
Recent accounting pronouncements:
In February 2016, the FASB
issued revised guidance on accounting for leases - Update 2016-02—Leases (Topic 842). The new standard requires a lessee
to recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing
its right to use the underlying asset for the lease term for all leases with terms longer than 12 months. Leases with a term of
12 months or less will be accounted for similar to existing guidance for operating leases. Recognition, measurement and presentation
of expenses will depend on classification as a finance or operating lease. The new guidance will be effective for us in our first
quarter of 2019 and early adoption is permitted. A modified retrospective transition approach is required for lessees for capital
and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial
statements. The Company is currently evaluating the impact of adoption of this guidance. Based on the Company’s initial
analysis, the adoption of this update is not expected to have a significant impact on its consolidated financial statements and
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 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 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. The adoption of this ASU did not have an impact on the Company’s 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 FASB 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 adoption
of this pronouncement did not have a material impact on the Company’s consolidated financial statements.
INNOVISION LABS, INC. AND SUBSIDIARIES
U.S DOLLARS IN THOUSANDS (except shares
and per share amounts)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(Unaudited)
|
NOTE 2 -
|
SIGNIFICANT
ACCOUNTING POLICIES (continued)
|
Recent accounting pronouncements:
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. The
adoption of this ASU did not have a significant impact on the Company’s 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,
|
|
|
|
2016
|
|
|
2015
|
|
Israeli government authorities
|
|
$
|
11
|
|
|
$
|
50
|
|
Prepaid expenses
|
|
|
114
|
|
|
|
297
|
|
|
|
$
|
125
|
|
|
$
|
347
|
|
NOTE 4 - PROPERTY AND EQUIPMENT, NET
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Cost:
|
|
|
|
|
|
|
|
|
Office furniture and equipment
|
|
$
|
31
|
|
|
$
|
42
|
|
Computers and electronic equipment
|
|
|
57
|
|
|
|
122
|
|
Laboratory equipment
|
|
|
35
|
|
|
|
35
|
|
Leasehold improvements
|
|
|
-
|
|
|
|
67
|
|
|
|
$
|
123
|
|
|
$
|
266
|
|
Accumulated depreciation:
|
|
|
|
|
|
|
|
|
Office furniture and equipment
|
|
$
|
14
|
|
|
$
|
16
|
|
Computers and electronic equipment
|
|
|
45
|
|
|
|
92
|
|
Laboratory equipment
|
|
|
32
|
|
|
|
30
|
|
Leasehold improvements
|
|
|
-
|
|
|
|
18
|
|
|
|
|
91
|
|
|
|
156
|
|
Depreciated cost
|
|
$
|
33
|
|
|
$
|
110
|
|
|
|
|
|
|
|
|
|
|
INNOVISION LABS, INC. AND SUBSIDIARIES
U.S DOLLARS IN THOUSANDS (except shares
and per share amounts)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(Unaudited)
NOTE 4 - PROPERTY AND EQUIPMENT,
NET
(continued)
Depreciation expenses for
the three and nine months ended September 30, 2016 and 2015 were $19, $9, $69 and $26, respectively.
The increase in depreciation
expenses derived primarily from the reevaluation of the expected life of leasehold improvements, resulting in additional depreciation
expenses of $44 in connection with the Company’s decision to move to smaller offices.
During the nine month period
ended September 30, 2016, the Company disposed of fixed assets primarily consisting of computer equipment and furniture due to
the decrease in the Company’s headcount and its relocation to new offices. The net loss on disposal of fixed assets for
the nine months ended September 30, 2016 was $7.
NOTE
5 - OTHER ASSETS, NET
The Company’s
intangible assets are associated with the capitalization of the costs of producing product masters incurred subsequent to establishing
technological feasibility of GlassesOff app and Game Vision app. These costs include coding, testing and product design.
In accordance
with applicable accounting guidance, we perform impairment tests when events occur or circumstances change that indicate that
the carrying amount of long-lived assets may not be recoverable. Based on the revenue generated in the second quarter of 2016
from our Game Vision app, which we launched in March 2016, we concluded that sufficient indicators of impairment existed to require
the performance of an interim assessment of the capitalized value of that app. The Company assessed the recoverability of the
net capitalized amount related to the Game Vision app by determining whether the carrying value of the app may be recoverable
by undiscounted expected future cash flow. Based on this assessment, the Company determined that the implied value of the app
was zero, as the cash flow from offering the app was negligible. The Company ceased marketing and development of the app in June
2016, and the app is unlikely to produce future cash flow.
The Company
recognized an impairment of the Game Vision app’s entire net capitalized amount of $92, and recorded the impairment loss
as a cost of revenues in the Company’s statement of operations.
Amortization
expenses for the three and nine months ended September 30, 2016 and 2015 were $49, $49, $148 and $140, respectively.
Data
with respect to Company’s intangible assets associated with its products were as follows:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
GlassesOff app:
|
|
|
|
|
|
|
|
|
Gross Carrying Value at the begging of the
period -
|
|
$
|
581
|
|
|
$
|
528
|
|
Capitalized during the period
|
|
|
-
|
|
|
|
53
|
|
Less: Accumulated Amortization
|
|
|
(407
|
)
|
|
|
(261
|
)
|
Net Carrying Value
|
|
$
|
174
|
|
|
$
|
320
|
|
|
|
|
|
|
|
|
|
|
Game Vision app:
|
|
|
|
|
|
|
|
|
Gross Carrying Value at the begging of the period
|
|
|
-
|
|
|
|
-
|
|
Capitalized during the period
|
|
|
92
|
|
|
|
-
|
|
Impairment of Game Vision app.
|
|
|
(92
|
)
|
|
|
-
|
|
Net Carrying Value
|
|
$
|
-
|
|
|
$
|
-
|
|
INNOVISION LABS, INC. AND SUBSIDIARIES
U.S DOLLARS IN THOUSANDS (except shares
and per share amounts)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(Unaudited)
NOTE 6 – CONVERTIBLE NOTES PAYABLE
On February
4, 2016, the Company issued and sold to investors in a private placement (the “Private Placement”) $1,060 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 726,031 shares of the Company’s common stock, par value $0.001
per share (“Common Stock”), at an exercise price of $2.19 per share.
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
August 3, 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 Company
accounted for the issuance of the Notes in accordance with ASC 470-20. The proceeds from the issuance of the Notes were assigned
between the Warrants and the Notes. Additionally, the instruments were evaluated for consideration of any beneficial conversion
features. It was concluded that a beneficial conversion feature existed for the Notes because the effective conversion price is
less than the fair value of the issuer’s capital stock. As a result, the proceeds of $1,058 (net of the transaction cost
of $2 from the sale of the Notes) were recorded net of debt discount of $705 due to the relative fair value of warrants and of
$247 due to a beneficial conversion feature. The warrant and beneficial conversion feature were recorded as additional paid in
capital. The debt discount is being amortized to interest expenses over the life of the Notes using the effective interest
method.
INNOVISION LABS, INC. AND SUBSIDIARIES
U.S DOLLARS IN THOUSANDS (except shares
and per share amounts)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(Unaudited)
NOTE 6 – CONVERTIBLE NOTES PAYABLE
(continued)
The fair value of the Warrants
at the issuance date was estimated using the Black-Scholes option pricing model using the following assumptions:
Weighted average risk-free interest rate
|
|
|
1.25
|
%
|
Weighted average expected life of grants in years
|
|
|
5.00
|
|
Weighted average expected volatility of underlying stock
|
|
|
1.08
|
|
Dividends
|
|
|
0.00
|
|
The fair value of the Notes at the issuance
date was estimated by the Company’s management by evaluating the present value of the monetary sum at various next round
and liquidation scenarios.
Amortization expenses recorded
as interest expense of debt discount and issuance costs for the three and nine months ended September 30, 2016 and 2015, were
$231, $8, $659 and $8, respectively.
For the three and nine months
ended September 30, 2016 and 2015, the Company recorded accrued interest at 8.00% per annum of $59, $3, $164 and $3, respectively.
The table below summarizes
the Notes activity during the three months ended September 30, 2016:
|
|
Principal
|
|
|
Debt
|
|
|
Accrued
|
|
|
|
|
|
|
Balance
|
|
|
Discount
|
|
|
Interest
|
|
|
Total
|
|
Balance at December 31,
2015
|
|
$
|
1,800
|
|
|
$
|
(1,602
|
)
|
|
$
|
39
|
|
|
$
|
237
|
|
Issued February 2016
|
|
|
1,060
|
|
|
|
(954
|
)
|
|
|
-
|
|
|
|
106
|
|
Amortization of debt discount
|
|
|
-
|
|
|
|
659
|
|
|
|
-
|
|
|
|
659
|
|
Interest accrued
|
|
|
-
|
|
|
|
-
|
|
|
|
164
|
|
|
|
164
|
|
Balance at
September 30, 2016
|
|
$
|
2,860
|
|
|
$
|
(1,897
|
)
|
|
$
|
203
|
|
|
$
|
1,166
|
|
NOTE 7 - ACCRUED EXPENSES AND OTHER
LIABILITIES
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Employees and payroll accruals
|
|
$
|
27
|
|
|
$
|
233
|
|
Accrued expenses and other
|
|
|
157
|
|
|
|
178
|
|
Deferred revenues
|
|
|
26
|
|
|
|
44
|
|
|
|
$
|
210
|
|
|
$
|
455
|
|
NOTE
8 - RELATED PARTIES
On January 11, 2016, the Company’s
board of directors (the “Board”) granted each of Mr. Shai Novik, the Company’s Chairman of the Board, and Mr.
Ram Shaffir, the Company’s Chief Technology Officer and a director, 20,000 shares of Common Stock valued at $64. In addition,
the Board granted Mr. Yuval Bar-Gil, a director of the Company, 10,000 shares of Common Stock valued at $16. All of the grants
vest in substantially equal monthly installments over a period of 12 months following the date of grant.
Effective as of June 1, 2016,
the Company’s Chief Executive Officer and President, Mr. Nimrod Madar, Chief Scientific Officer, Dr. Uri Polat, and Chief
Technology Officer, Mr. Ram Shaffir, and Chief Financial Officer, Mr. Steve Schaeffer, agreed to waive their respective salaries
going forward. Mr. Steve Schaeffer also agreed to waive his fees in the amount of $36,000 that accrued since the third quarter
of 2015. Mr. Shai Novik, the Chairman of the Board, agreed to waive his annual director fee, effective as of June 1, 2016.
INNOVISION LABS, INC. AND SUBSIDIARIES
U.S DOLLARS IN THOUSANDS (except shares
and per share amounts)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(Unaudited)
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 Common Stock are authorized for
issuance. In January 2016, the Company increased the number of shares of Common Stock
authorized for issuance under the Equity Incentive Plan from 1,400,000 to 2,000,000 shares.
|
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, 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 unaudited
consolidated statements of operations:
|
|
|
For the three months
|
|
|
For the nine months
|
|
|
|
ended September 30,
|
|
|
ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Research & development
|
|
$
|
15
|
|
|
$
|
31
|
|
|
$
|
11
|
|
|
$
|
166
|
|
Sales & marketing
|
|
|
(*)
|
|
|
|
13
|
|
|
|
(14
|
)
|
|
|
27
|
|
General & administrative
|
|
|
4
|
|
|
|
-
|
|
|
|
10
|
|
|
|
56
|
|
Total
|
|
$
|
19
|
|
|
$
|
44
|
|
|
$
|
7
|
|
|
$
|
249
|
|
In the second quarter of 2016,
following the decrease in headcount, 73,819 stock options, which had been granted to employees and consultants, were forfeited
in accordance with their respective terms. As a result, the Company recorded a reversal of $75 in stock-based compensation expense
related to the forfeited awards. In the third quarter additional 16,400 stock options were forfeited. As a result, the Company
recorded an additional reversal of $1 in stock-based compensation expense related to the forfeited awards.
|
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,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
|
|
Number
|
|
|
Exercise
|
|
|
of
|
|
|
Exercise
|
|
|
|
of Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
Outstanding at the beginning of the period
|
|
|
575,186
|
|
|
$
|
4.69
|
|
|
|
639,688
|
|
|
$
|
4.32
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
82,400
|
|
|
$
|
2.60
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
(127,616
|
)
|
|
$
|
0.01
|
|
Forfeited
|
|
|
(86,900
|
)
|
|
$
|
4.64
|
|
|
|
(17,606
|
)
|
|
$
|
14.48
|
|
Outstanding at the end of the period
|
|
|
488,286
|
|
|
$
|
4.70
|
|
|
|
576,866
|
|
|
$
|
4.72
|
|
Options exercisable at the end of the period
|
|
|
469,624
|
|
|
$
|
4.14
|
|
|
|
447,030
|
|
|
$
|
3.44
|
|
INNOVISION LABS, INC. AND SUBSIDIARIES
U.S DOLLARS IN THOUSANDS (except shares
and per share amounts)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(Unaudited)
NOTE 9 - STOCK OPTION PLAN (continued)
The
following is a summary of changes in non-vested options to employees under the Equity Incentive Plan:
|
|
For the nine months ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Number
of Options
|
|
|
Weighted
Average
Fair Value
|
|
|
Number
of Options
|
|
|
Weighted
Average
Fair Value
|
|
Balance at the beginning of the period
|
|
|
125,350
|
|
|
$
|
5.61
|
|
|
|
117,487
|
|
|
$
|
9.68
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
82,400
|
|
|
$
|
1.61
|
|
Vested
|
|
|
(33,926
|
)
|
|
$
|
9.10
|
|
|
|
(55,165
|
)
|
|
$
|
6.35
|
|
Forfeited
|
|
|
(72,762
|
)
|
|
$
|
2.22
|
|
|
|
(14,886
|
)
|
|
$
|
7.23
|
|
Balance at the end of the year
|
|
|
18,662
|
|
|
$
|
12.49
|
|
|
|
129,836
|
|
|
$
|
6.26
|
|
The total unrecognized estimated
compensation cost related to employees’ non-vested stock options granted through September 30, 2016 was $21, which is expected
to be recognized over a weighted average period of 0.4 year.
|
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,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Number
of Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at the beginning of the period
|
|
|
375,949
|
|
|
$
|
0.60
|
|
|
|
360,549
|
|
|
$
|
0.43
|
|
Granted
|
|
|
17,500
|
|
|
$
|
1.25
|
|
|
|
15,600
|
|
|
$
|
4.66
|
|
Forfeited
|
|
|
(23,000
|
)
|
|
$
|
3.36
|
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding at the end of the period
|
|
|
370,449
|
|
|
$
|
0.46
|
|
|
|
376,149
|
|
|
$
|
0.61
|
|
Options exercisable at the end of the period
|
|
|
365,199
|
|
|
$
|
0.42
|
|
|
|
361,155
|
|
|
$
|
0.42
|
|
The
following is a summary of changes in non-vested options to non-employees:
|
|
For the nine months ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Number
of Options
|
|
|
Weighted
Average
Fair Value
|
|
|
Number
of Options
|
|
|
Weighted
Average
Fair Value
|
|
Balance at the beginning of the period
|
|
|
13,030
|
|
|
$
|
0.89
|
|
|
|
600
|
|
|
$
|
0.25
|
|
Granted
|
|
|
17,500
|
|
|
$
|
0.14
|
|
|
|
15,600
|
|
|
$
|
0.33
|
|
Vested
|
|
|
(7,823
|
)
|
|
$
|
0.49
|
|
|
|
(1,206
|
)
|
|
$
|
0.81
|
|
Forfeited
|
|
|
(17,457
|
)
|
|
$
|
0.18
|
|
|
|
-
|
|
|
$
|
-
|
|
Balance at the end of the year
|
|
|
5,250
|
|
|
$
|
0.70
|
|
|
|
14,994
|
|
|
$
|
0.29
|
|
The total unrecognized estimated
compensation cost related to non-employees’ for non-vested stock options granted through September 30, 2016 was $1, which
is expected to be recognized over a weighted average period of 0.6 years.
INNOVISION LABS, INC. AND SUBSIDIARIES
U.S DOLLARS IN THOUSANDS (except shares
and per share amounts)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(Unaudited)
NOTE 9 - STOCK OPTION PLAN (continued)
|
e.
|
The
options outstanding to employees and non-employees as of September 30, 2016 have been
separated by exercise prices, as follows:
|
Exercise Price
|
|
|
Number of
Options
Outstanding
|
|
|
Average
Remaining
Contractual Life
(years)
|
|
|
Number of Options
Exercisable
|
|
$
|
0.01
|
|
|
|
662,725
|
|
|
|
5.53
|
|
|
|
662,725
|
|
$
|
2.44
|
|
|
|
57,610
|
|
|
|
7.36
|
|
|
|
57,610
|
|
$
|
19.30
|
|
|
|
115,720
|
|
|
|
7.36
|
|
|
|
97,568
|
|
$
|
4.60
|
|
|
|
10,000
|
|
|
|
8.21
|
|
|
|
10,000
|
|
$
|
5.10
|
|
|
|
5,180
|
|
|
|
8.32
|
|
|
|
3,170
|
|
$
|
1.25
|
|
|
|
7,500
|
|
|
|
9.31
|
|
|
|
3,750
|
|
|
|
|
|
|
858,735
|
|
|
|
|
|
|
|
834,823
|
|
NOTE
10 – WARRANTS
During the nine months ended
September 30, 2016, the Company issued Warrants to acquire an aggregate of 726,031 shares of Common Stock in connection with the
issuance of the Notes described in Note 6 —Convertible Notes Payable.
The following is a summary
of outstanding warrants:
|
|
September 30, 2016
|
|
|
September 30, 2015
|
|
|
|
Number of
outstanding
warrants
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number of
outstanding
warrants
|
|
|
Weighted
Average
Exercise Price
|
|
Outstanding at the beginning of the period
|
|
|
2,234,247
|
|
|
$
|
5.67
|
|
|
|
1,001,369
|
|
|
$
|
9.96
|
|
Issued
|
|
|
726,031
|
|
|
$
|
2.19
|
|
|
|
1,198,631
|
|
|
$
|
2.19
|
|
Outstanding at the end of the period
|
|
|
2,960,278
|
|
|
$
|
4.82
|
|
|
|
2,200,000
|
|
|
$
|
5.72
|
|
The warrants outstanding as of September
30, 2016 have been separated by exercise prices, as follows:
exercise price
|
|
|
Number of Warrants
Outstanding
|
|
|
Average Remaining
Contractual Life (years)
|
|
$
|
5.47
|
|
|
|
250,794
|
|
|
|
1.11
|
|
$
|
10.94
|
|
|
|
501,575
|
|
|
|
1.11
|
|
$
|
12.50
|
|
|
|
249,000
|
|
|
|
1.83
|
|
$
|
2.19
|
|
|
|
1,958,909
|
|
|
|
4.11
|
|
|
|
|
|
|
2,960,278
|
|
|
|
|
|
NOTE
11 - COMMITMENTS AND CONTINGENT LIABILITIES
On May 9, 2016 the Company terminated its Standby
Equity Distribution Agreement, dated July 1, 2014, with YA Global Master SPV Ltd., a Cayman Islands exempt limited partnership
Aggregate
minimum rental commitments, under non-cancelable leases as of September 30, 2016, were as follows:
Period ended September 30,
|
|
|
|
2017
|
|
$
|
7
|
|
INNOVISION LABS, INC. AND SUBSIDIARIES
U.S DOLLARS IN THOUSANDS (except shares
and per share amounts)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(Unaudited)
NOTE 12 - STOCK CAPITAL
In the first quarter of 2016,
the Company granted 20,000 shares of restricted Common Stock to a consultant, valued at $20, and 50,000 shares of restricted Common
Stock to three directors, valued at $80, vesting in substantially equal monthly installments over a period of 12 months following
the date of grant.
In the second quarter of 2016,
following the decrease in a headcount, 38,166 shares of restricted Common Stock, which had been granted to employees, were forfeited
in accordance with their respective terms. As a result the Company recorded a reversal of $48 in stock-based compensation expense
related to such forfeiture.
The total unrecognized estimated
compensation cost related to non-vested restricted shares of Common Stock granted through September 30, 2016 was $22, which is
expected to be recognized over a weighted average period of 0.3 year.
The following is a summary
of compensation expenses related to restricted shares of Common Stock for the three and nine-month periods ended September 30,
2016 and 2015, including the reversal of $48 as discussed above:
|
|
For the three months
|
|
|
For the nine months
|
|
|
|
ended September 30,
|
|
|
ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Research & development
|
|
$
|
11
|
|
|
$
|
16
|
|
|
$
|
29
|
|
|
$
|
63
|
|
Sales & marketing
|
|
|
-
|
|
|
|
8
|
|
|
|
(21
|
)
|
|
|
34
|
|
General & administrative
|
|
|
14
|
|
|
|
38
|
|
|
|
66
|
|
|
|
43
|
|
Total
|
|
$
|
25
|
|
|
$
|
62
|
|
|
$
|
74
|
|
|
$
|
140
|
|
NOTE 13
- FINANCIAL (EXPENSES) INCOME, NET
|
|
For the three months
|
|
|
For the nine months
|
|
|
|
ended September 30,
|
|
|
ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Financial income
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Financial (expenses) and bank fees
|
|
|
(299
|
)
|
|
|
(14
|
)
|
|
|
(835
|
)
|
|
|
(17
|
)
|
Exchange rate differences gain (loss)
|
|
|
5
|
|
|
|
3
|
|
|
|
(5
|
)
|
|
|
27
|
|
|
|
$
|
(294
|
)
|
|
$
|
(11
|
)
|
|
$
|
(840
|
)
|
|
$
|
10
|
|
NOTE
14 - SUBSEQUENT EVENTS
In October 2016, the Company granted 50,000
stock options to employees and consultants at an exercise price of $0.41 per share.