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TMCNet:  GLASSESOFF INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.

[August 14, 2014]

GLASSESOFF INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.

(Edgar Glimpses Via Acquire Media NewsEdge) Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains "forward-looking statements".

Forward-looking statements include statements about our expectations, beliefs or intentions regarding our product offerings, business, financial condition, results of operations, strategies or prospects. You can identify such forward-looking statements by the words "expects," "intends," "plans," "projects," "believes," "estimates," "likely," "goal," "assumes," "targets" and similar expressions and/or the use of future tense or conditional constructions (such as "will," "may," "could," "should" and the like) and by the fact that these statements do not relate strictly to historical or current matters.


Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. We do not undertake any obligation to update forward-looking statements, except as required by applicable law. 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.

Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto that appear in Item 1 of this Quarterly Report on Form 10-Q.

The discussion and analysis of GlassesOff's financial condition and results of operations are based on GlassesOff's financial statements, which GlassesOff has prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires GlassesOff to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, GlassesOff evaluates such estimates and judgments, including those described in greater detail below.

GlassesOff bases its estimates on historical experience and on various other factors that GlassesOff believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Business GlassesOff is a development stage neuroscience software technology company, utilizing patented technology to develop and commercialize consumer-oriented software applications for improving, through exercise, near vision sharpness by improving the image processing function in the visual cortex of the brain.

GlassesOff delivers its products through a cloud-based client server architecture to hand-held devices, currently implemented on the Apple iOS platform (iPhone, iPod, iPad) and Android, and which are planned to be offered on additional platforms.

17 Plan of Operation During December 2013, GlassesOff completed development of the first commercial version of its consumer-oriented software application for improving, through exercise, near vision sharpness by improving the brain's image processing function, for the iOS platform and began marketing the product to end consumers via Apple's App Store. On June 30, 2014, GlassesOff launched the first version of its software application for the Android platform as a beta version. During 2014, GlassesOff plans to gradually increase its marketing and public relations campaigns, aiming to increase the awareness to its product and increase its number of customers. Additionally, GlassesOff plans to participate in various conferences and conventions around the world to further expose its product and technology to professional audience and potentially form business partnerships.

Critical Accounting Policies The financial statements contained in this Quarterly Report on Form 10-Q have been prepared in accordance with GAAP. The significant accounting policies followed in the preparation of the financial statements, on a consistent basis are: Use of estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While management believes that such estimates are fair when considered in conjunction with the consolidated financial position and results of operations taken as a whole, actual results could differ from those estimates and such differences may be material to the financial statements.

Financial statements in U.S. dollars: The functional currency of GlassesOff is the U.S. dollar, as the U.S. dollar is the primary currency of the economic environment in which GlassesOff has operated and expects to continue to operate in the foreseeable future. The majority of the operations of Eyekon E.R.D. Ltd., which is GlassesOff's wholly owned subsidiary, are currently conducted in Israel, and most of the Israeli expenses are currently paid in New Israeli Shekels, or NIS; however, the subsidiary's operations do not generate any positive cash flow to cover its expenses and is not able to exist without the parent company's funding. Therefore, the currency which is used in operating, financing and investing activities, including loans and equity transactions, is the U.S. dollar.

Accordingly, the functional and reporting currency of GlassesOff is the U.S.

dollar. Monetary accounts maintained in currencies other than the U.S. dollar are remeasured into U.S. dollars. All transaction gains and losses from the remeasurement of monetary balance sheet items are reflected in the statements of operations as financial income or expenses, as appropriate.

Principles of consolidation: The consolidated financial statements include the accounts of GlassesOff and its wholly owned direct and indirect subsidiaries: Ucansi Inc. and Eyekon E.R.D. Ltd. Intercompany transactions and balances have been eliminated upon consolidation.

Cash equivalents: For purposes of reporting within the statement of cash flows, GlassesOff considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less to be cash and cash equivalents.

Concentrations of credit risk: Financial instruments that potentially subject GlassesOff and its subsidiaries to concentrations of credit risk consist principally of cash and cash equivalents. Cash and cash equivalents are invested in major banks in Israel and in the U.S. Such deposits in Israel and the U.S.

are not insured. Management believes that the financial institutions that hold GlassesOff's investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments. GlassesOff has no off-balance-sheet concentration of credit risk such as foreign exchange contracts or any other hedging arrangements.

18 Revenue recognition: Revenues are derived from subscription fees for access to and use of GlassesOff's on-demand application services. Under such subscription arrangements for its on-demand application services, the customer does not have the contractual right to take possession of the software at any time during the subscription period. Thus, revenue for GlassesOff's subscription services will be recognized in accordance with accounting standards for service contracts.

There are four basic criteria which must be met to recognize revenue: 1) persuasive evidence of an arrangement exists; 2) delivery of the product has occurred; 3) a fixed or determinable fee; and 4) the collection of the fee is reasonably assured. The application of the relevant accounting standards will require GlassesOff to exercise significant judgment related to specific transactions and transaction types.

Research and development costs:Research and development, or R&D, costs are expensed as they are incurred and consist of salaries, stock-based compensation, benefits and other personnel-related costs, fees paid to consultants, clinical trials and related clinical manufacturing costs, license and milestone fees, and facilities and overhead costs.

Long lived assets: GlassesOff reviews the carrying value of its long-lived assets, including intangible assets subject to amortization , for impairment whenever events and circumstances indicate that the carrying value of the assets may not be recoverable. Recoverability of these assets is measured by comparing the carrying value of the assets to the undiscounted cash flows estimated to be generated by those assets over their remaining economic life. If the undiscounted cash flows are not sufficient to recover the carrying value of the assets, the assets are considered impaired. The impairment loss is measured by comparing the fair value of the assets to their carrying value.

Other Assets:R&D costs are expensed as incurred with the exception of software development costs incurred subsequent to establishing technological feasibility and up to the general release of the software products, which costs are capitalized. Technological feasibility is demonstrated by the completion of a working model or a detailed program design. The capitalized costs with a finite life are amortized using the straight-line method over the estimated useful life of the assets. The amortization period is three years for software and technology related assets. Intangible assets with a finite life are tested for impairment upon the occurrence of certain triggering events. The Company has not yet recorded amortization or impairment expenses as of June 30, 2014.

(Loss) per share: Basic and Diluted losses per share are presented in accordance with ASC 260-10 "Earnings per share". Outstanding restricted stock, options and warrants have been excluded from the calculation of the diluted loss per share because all such securities are antidilutive.

Results of Operations Three and Six Months Ended June 30, 2014 Compared to the Three and Six Months Ended June 30, 2013 Revenue GlassesOff generated no revenue for either the three or six month periods ended June 30, 2013. GlassesOff generated revenues for the first time in 2014, and it recorded revenues in the sum of $18,000 and $37,000 for the three and six month periods ended June 30, 2014, respectively.

Research and Development Expenses GlassesOff expects its research and development, or R&D, expenses to increase as it continues to develop its products and increase headcount. R&D expenses consist of: · internal costs associated with R&D activities; 19 · personnel-related expenses, including salaries and stock-based compensation expenses, benefits, travel, and related costs for the personnel involved in the R&D; · internal and external costs associated with scientific studies, including payment to investigators and labs participating in the studies, payments to purchase and/or use equipment required for such studies and payment to subjects for participating in the subject; · outsource services associated with R&D activities; and · facilities and other expenses, which include expenses for rent and maintenance of facilities.

GlassesOff expects its R&D expenses to increase most significantly in the near future in connection with the development efforts for new device platforms, new operating systems and potentially new product applications. GlassesOff intends to continue to hire new employees in R&D in order to meet its operation goals and expedite the development of new product versions for the iOS platform and Android platform, introduce a new product version for a new platform and potentially start working on new products. GlassesOff believes that significant investment in product development is a competitive necessity and plans to continue these investments in an effort to realize the potential of its product.

For the six months ended June 30, 2014 and 2013 and for the period from February 5, 2007 (inception date) through June 30, 2014, GlassesOff incurred R&D expenses in the aggregate of $900,000, $690,000 and $7,521,000, respectively. The increase in R&D expenses for the six month period ended June 30, 2014 as compared to the 2013 period resulted primarily from stock-based compensation expenses for options granted to employees and consultants of $470,000 in 2014 as compared to $176,000 in 2013, which was partially offset by payroll expenses of $183,000 in 2014 as compared to $288,000 in 2013. The decrease in payroll expenses is due to capitalization of payroll expenses for the 2014 period.

For the three months ended June 30, 2014 and 2013, GlassesOff incurred R&D expenses in the aggregate of $407,000 and $417,000, respectively.

Sales and Marketing Expenses Sales and marketing expenses consist primarily of salaries and other related costs for employees of GlassesOff and external service providers for services, such as search engine optimization and public relations services. During 2013 and the six month period ended June 30, 2014, GlassesOff invested in building marketing infrastructure in anticipation of the launch of the GlassesOff product, which included, among other things, developing public relations networks to generate awareness of the GlassesOff's product and launch date, preparing marketing materials and conducting search engine optimization for GlassesOff's website to improve its ranking in search engine search results for certain relevant key words searches.

For the six month periods ended June 30, 2014 and 2013 and for the period from February 5, 2007 (inception date) through June 30, 2014, GlassesOff incurred sales and marketing expenses of $724,000, $80,000 and $1,143,000, respectively.

The increase for the six month period ended June 30, 2014 as compared to the 2013 period resulted primarily from payroll expenses of $203,000 in 2014 as compared to $33,000 in 2013, consulting expenses of $247,000 in 2014 as compared to $21,000 in 2013 and marketing expenses of $235,000 in 2014 as compared to $18,000 in 2013.

For the three month periods ended June 30, 2014 and 2013, GlassesOff incurred sales and marketing expenses of $414,000 and $80,000, respectively. The increase for the three month period ended June 30, 2014 as compared to the 2013 period resulted primarily from payroll expenses of $133,000 in 2014 as compared to $33,000 in 2013, consulting expenses of $87,000 in 2014 as compared to $21,000 in 2013 and other marketing expenses of $175,000 in 2014 as compared to $18,000 in 2013.

20 The increases for the three and six month periods ended June 30, 2014 as compared to the 2013 periods resulted primarily from an increase in GlassesOff's marketing efforts as it commenced commercialization of its initial product.

Marketing expenses are expected to increase significantly in the near future as the company commenced generating revenues.

General and Administrative Expenses General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation expenses for persons serving in GlassesOff's executive and administration functions. Other general and administrative expenses include facility-related costs not otherwise included in R&D expenses, and professional fees for legal and accounting services, including those associated with reporting obligations applicable to public companies in the United States. GlassesOff expects that its general and administrative expenses will increase as it adds additional personnel in response to the increased responsibilities and reporting obligations imposed on GlassesOff as a publicly traded company and in connection with new product development.

For the six month periods ended June 30, 2014 and 2013 and for the period from February 5, 2007 (inception date) through June 30, 2014, GlassesOff incurred general and administrative expenses of $1,203,000, $428,000 and $4,102,000, respectively. The increase for the six month period ended June 30, 2014 as compared to the 2013 period resulted primarily from stock-based compensation expenses for options granted to employees and directors of $277,000 in 2014 as compared to $117,000 in 2013, payroll expenses of $148,000 in 2014 as compared to $95,000 in 2013 and an professional services expenses of $670,000 in 2014 as compared to $169,000 in 2013, which resulted primarily from the Company becoming a publicly traded company in July 2013.

For the three month periods ended June 30, 2014 and 2013, GlassesOff incurred general and administrative expenses of $515,000 and $268,000, respectively. The increase for the three month period ended June 30, 2014 as compared to the 2013 period resulted primarily from stock-based compensation expenses for options granted to employees and directors of $161,000 in 2014 as compared to $58,000 in 2013 and from professional services expenses of $262,000 in 2014 as compared to $142,000 in 2013.

Financial Expenses and Income Financial expenses and income consist of the following: · interest earned on the GlassesOff's cash and cash equivalents; · bank fees and commissions; and · expenses or income resulting from fluctuations of the NIS, in which a portion of GlassesOff's assets and liabilities is denominated, against the U.S. Dollar.

For the six month periods ended June 30, 2014 and 2013 and for the period from February 5, 2007 (inception date) through June 30, 2014, GlassesOff incurred net financial expenses (income) of $16,000, $(1,000) and $97,000, respectively.

Financial expenses for the six month period ended June 30, 2014 increased as compared to the 2013 period primarily due to currency fluctuations of the NIS.

For the three month periods ended June 30, 2014 and 2013, GlassesOff incurred net financial expenses (income) of $11,000 and $(7,000), respectively. Financial expenses for the three month period ended June 30, 2014 increased as compared to the 2013 period primarily due to currency fluctuations of the NIS.

Stock-based Compensation GlassesOff's stock-based compensation expenses with respect to employees are recorded according to ASC 718, which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees and directors, including employee stock options under GlassesOff's stock plans, based on estimated fair values.

21 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 six month periods ended June 30, 2014 and 2013 and for the period from February 5, 2007 (inception date) through June 30, 2014, GlassesOff's stock-based compensation expenses were $1,039,000, $390,000 and $4,356,000, respectively. Stock-based compensation expenses for the six months ended June 30, 2014 increased as compared to the 2013 period primarily due to 164,108 stock options granted to employees or non-employees in 2013, compared to 1,449,000 stock options granted to employees and non-employees in 2014.

For the three month periods ended June 30, 2014 and 2013, GlassesOff's stock-based compensation expenses were $569,000 and $290,000, respectively.

Stock-based compensation expenses for the three months ended June 30, 2014 increased as compared to the 2013 period primarily due to the increase in stock options granted during the three months ended June 30, 2014 as compared to the number of stock options granted during the three months ended June 30, 2013.

Cash Flows Six Months Ended June 30, 2014 Compared to the Six Months Ended June 30, 2013 For the six months ended June 30, 2014 and 2013 and for the period from February 5, 2007 (inception date) through June 30, 2014, net cash used in operations was $1,323,000, $658,000 and $7,412,000, respectively. Cash was used primarily for salaries, subcontractors and software development expenses. The increase in cash used in operating activities for the six months ended June 30, 2014 as compared to the 2013 period resulted primarily from the hiring of new employees and an increase in subcontractor expenses. It is expected that cash used in operating activities will increase as we plan to continue to develop new product versions for new territories (localization), new devices and new platforms, and potentially development of new products.

For the six months ended June 30, 2014 and 2013 and for the period from February 5, 2007 (inception date) through June 30, 2014, net cash used in investing activities was $407,000, $7,000 and $632,000, respectively. The increase in cash used in investing activities for the six month period ended June 30, 2014 as compared to the 2013 period resulted primarily from the purchase of property and equipment and from payroll and subcontractors expenses capitalized in the period.

For the six months ended June 30, 2014 and 2013 and for the period from February 5, 2007 (inception date) through June 30, 2014, net cash provided by financing activities was $4,938,000 $0 and $12,778,000, respectively. This increase in cash provided by financing activities for the six month period ended June 30, 2014 as compared to the 2013 period resulted primarily from GlassesOff's issuance and sale of 4,000,000 shares of common stock in a private placement during the 2014 period.

Liquidity and Capital Resources GlassesOff expects to incur losses from operations for the foreseeable future, and GlassesOff expects to incur increasing R&D expenses, including expenses related to the hiring of personnel and outsourcing of certain development projects. GlassesOff expects that general and administrative expenses will also increase as it expands its finance and administrative staff and adds infrastructure. GlassesOff also expects that sales and marketing expenses will increase significantly in connection with the commercialization activities related to its product. GlassesOff's future capital requirements will depend on a number of factors, including the continued progress of R&D of its current product and potential products and the total average cost of customer acquisition, comprising initial acquisition cost and customer retention cost.

22 GlassesOff plans to continue to finance its operations with the issuance of equity securities and, in the longer term, revenues from operations. There are no assurances, however, that GlassesOff will be successful in obtaining the financing necessary for the long-term development of its current product or future products. GlassesOff's future capital requirements will depend on many factors, including investment in developing new product versions for new territories (localization), new devices and new platforms, and potentially development of new product candidates. Furthermore, the expected ramp-up in sales and marketing activities will require significantly higher resources.

GlassesOff did not generate product revenues during 2013, and it generated only limited revenue for the first half of 2014. GlassesOff expects continuing operating losses to result in increases in cash used in operations over the next 12 months. Management believes that GlassesOff's current cash on hand will enable it to continue its planned operations for at least the next twelve months with no need for additional funding. To the extent that GlassesOff's current capital resources are insufficient to meet its future capital requirements, GlassesOff will need to finance its future cash needs through public or private equity offerings, debt financings, or corporate collaboration and licensing arrangements.

On July 1, 2014, GlassesOff entered into a standby equity distribution agreement (the "SEDA") with YA Global Master SPV Ltd., a Cayman Islands exempt limited partnership (the "Investor"), pursuant to which GlassesOff may, at its election and in its sole discretion, issue and sell to the Investor, from time to time as provided in the SEDA, and the Investor has agreed to purchase up to $15,000,000 of Common Stock. In accordance with the terms, and subject to the conditions, of the SEDA, GlassesOff may elect from time to time, in its sole discretion, to sell to the Investor shares of Common Stock at a per share price equal to 98.5% of the lowest daily volume weighted average price of the Common Stock as quoted by Bloomberg, L.P. (the "Market Price") during the five consecutive trading days commencing immediately subsequent to the date on which the GlassesOff delivers to the Investor a notice of GlassesOff's election to effect an Advance (each, an "Advance Notice"). In no event will the Market Price be less than 85% of the daily volume weighted average price of the Common Stock on the trading day immediately preceding the date of the Advance Notice. The amount of each Advance may not exceed the lesser of (x) $500,000 or (y) the Daily Value Traded (as defined in the SEDA) for the five consecutive trading days immediately prior to the date of the applicable Advance Notice. Pursuant to the SEDA, the Investor is obligated to purchase the Common Stock under the SEDA subject to certain conditions, including, among others, GlassesOff's filing of a registration statement with the SEC to register the resale by the Investor of the shares of Common Stock acquired pursuant to the SEDA and the SEC declaring such registration statement effective.

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.

23 Effects of Inflation and Currency Fluctuations Inflation generally affects GlassesOff by increasing its cost of labor and other development costs. GlassesOff does not believe that inflation had a material effect on its results of operations for the three and six month periods ended June 30, 2014 or 2013.

Currency fluctuations may affect GlassesOff by increasing or decreasing costs.

Currency fluctuations had no material effect on GlassesOff's results of operations for the three and six month periods ended June 30, 2014 or 2013.

GlassesOff does not purchase forward currency contracts or engage in other hedging arrangements for either hedging or speculative purposes.

Off-Balance Sheet Arrangements GlassesOff has no off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

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