On August 14, 2014, GlassesOff (GLSO) filed its Form 10-Q with financial results for the second quarter of 2014. The company reported revenues of $0.018 million and had a net loss of $1.329 million, or $0.02 per share. Research & Development costs totaled $0.407 million. General & Administrative costs totaled $0.515 million. Sales & Marketing expenses totaled $0.414 million. GlassesOff used $0.849 million in cash to fund operations in the second quarter and the company exited June 2014 with approximately $4.734 million in cash on the books. We believe that the current cash position should be sufficient to fund the company for the next 12 months.
The current cash position was recently strengthened in part to a private placement of 4.0 million shares of common stock to new and existing shareholders that took place in May 2014. This provided net proceeds to the company of $4.938 million. Included in the placement were the company’s Chairman and Vice Chairman of the Board of Directors, who acquired 335,000 and 160,000 shares, respectively. The lead investor in the offering was an affiliate of Cowen Group. No warrants were issued as part of the private placement.
The company secured an additional means of raising capital when it announced a committed equity financing facility that would enable the company to sell up to $15 million of its shares of common stock to YA Global Master SPV Ltd. over a period of up to 36 months. The company is not obligated to use the facility and may still initiate other financing transactions.
We have been somewhat disappointed with the level of sales thus far since the launch of the GlassesOff App in December 2013. This is no doubt due to the lack of significant sales and marketing efforts by the company. We expect these initiatives to begin in the third quarter 2014.; however, are taking a “wait and see” approach to the effectiveness of these initiatives and have revised our financial model to a far more conservative stance. The company believes many of these initiatives – discussed below – will drive a meaningful increase in sales in the coming quarters.
One meaningful delay during the first half of the year was the availability of the App on the Android platform. The company has been holding off on significant marketing and advertising efforts while waiting to finalize the Android version of the App. However, on June 30, 2014, the company announced The GlassesOff App is now available on Android devices. This was certainly an important step for the company as the vast majority of mobile devices run on the Android platform (~75% of newly purchased smartphones on a global basis). Combined with the iOS platform, we believe GlassesOff should be able to target roughly 90% of the global smartphone user market.
We believe that one of the areas the company has struggled with since the launch of the GlassesOff App is in terms of pricing. We the company initiated the soft commercial launch that began in December 2013 the App was available for the introductory price of $9.99. However, in April 2014 the App moved to the full list price of $59.99, making it one of the more expensive Apps in the market. We believe the company is still looking for the optimal pricing parameters, and we would not be surprised to see changes in the pricing structure during the second half of 2014. This admittedly makes building a financial model a bit difficult – hence our now “wait and see” approach to the story.
Nevertheless, now that the App is available on both the iOS and Android platform, the company is going to turn its attention to launching a marketing and advertising campaign. One of the things the company has talked about previously is an interest in getting a celebrity endorser who has used the GlassesOff App to successfully alleviate their dependence on reading glasses. The goal is to have this person give a first hand testimonial of their experience, and thus help drive downloads from the App store. We are hoping to see a celebrity-endorsed campaign kick-off here in the third quarter 2014, and envision appearances by this endorser on morning talk shows such as Today, Good Morning America, Fox and Friends, etc... and/or on syndicated shows such as Dr. Oz. We see this as a highly effective strategy, particularly if the endorser has successfully used the App, as this will likely generate significant interest in the application. We are eagerly awaiting this announcement and intrigued to see whom the celebrity endorser(s) is or are.
Looking ahead, the company has a number of potential applications for the general population in its pipeline. One of the most intriguing of these could be the application to those individuals who participate in sports, particularly in things like baseball or tennis. For example, the decision whether to swing at a baseball thrown by a professional player occurs in a time span of approximately 150 milliseconds. The ability to speed up reaction time through optimization of visual processing, even if it were only an improvement of 50 milliseconds, could have a profound impact on a player’s ability to hit the ball. Please see our Seeking-Alpha article: Can GlassesOff Make You A Better Ballplayer? for more info on the science behind the App.
There are approximately 5.6 million baseball players aged 6-18 in the U.S., and this represents a sizable market as players are continually looking for any advantage, however slight that could propel them to the next level. In addition, an endorsement from a Major League Baseball player who found the application useful could significantly contribute to both increasing awareness of the application and help to drive sales. This would be a "home run" (pun intended).
An additional potential application has to do with the use of the company’s App to aid patients suffering from a traumatic brain injury (TBI). TBI is a serious public health problem in the U.S., with an estimated 1.7 million TBI events annually. With an average cost of $30,000 per event, the annual direct cost of TBI in the U.S. is estimated at $51 billion. On March 20, 2014, GlassesOff scientists presented results from a study at the 10th World Congress On Brain Injury in San Francisco, CA. The study was conducted for The Telemedicine & Advanced Technology Research Center (TATRC) of the U.S. Army Medical Research and Materiel Command (USAMRMC).
In the study, conducted over three years, participants were trained with specialized perceptual learning technology provided by GlassesOff, with periodic visual skills evaluations. The study included volunteers who have suffered TBI at least one year before study inclusion and who had visual dysfunctions commonly associated with TBI. After 12 months from the occurrence of a TBI, the effects of spontaneous vision improvement are no longer expected, and there is no known vision rehabilitation treatment. Data from this six-case cohort study show improvement in the sensory levels of vision, with a 100% improvement in visual acuity, 200% increase in contrast sensitivity, highly significant improvements in reading accuracy from 80% to 95%, and an increase of more than 100% in reaction time (from about 1,300 to 600 milliseconds).
These effects are also generalized to high-level daily tasks, such as visual fixation and responsiveness to rapid visual events, including in the peripheral vision, which is relevant to orientation in space. The study’s results are statistically significant and we believe GlassesOff will continue to develop a commercial application to help improve the quality of life for the millions of individuals who suffer from TBI.
In short, we think the GlassesOff App has tremendous potential, whether it is to help aging individuals alleviate their dependence on reading glasses, helping a young adult improve their performance on the athletic field, or helping an individual regain visual process functioning after a traumatic brain injury. That being said, the lack of significant revenues generated to date, along with some key issues the company will need to work through in the second half of 2014 (pricing, initiating marketing campaign, etc.), result in us changing our recommendation on the stock to “Hold”. Before jumping back in, we want to see that the initiatives the company has in place for the second half of 2014 can begin to ramp up sales at a much faster clip than has occurred over the past six months.
It seems almost obvious that sales will ramp once significant marketing and advertising begin, especially with the aid of a celebrity endorser. However, there are still lots of questions that need answering:
- Who will be the celebrity endorser (or endorsers)?
- How will the initial advertising campaign work?
- When will this begin?
- What will it cost?
- What will the App cost?
- How quickly will the App ramp based on the initial target “Go Glasses Off” campaign?
- When will the Sports App become available?
- What exactly will this look like?
- Will there be a professional athlete endorser?
- When we additional versions of the App become available?
We continue to believe that the GlassesOff app is an exciting technology and we will certainly keep a close eye on the marketing and advertising campaign as it gets underway in the next couple of months. The GlassesOff application is likely one that will benefit greatly from word of mouth, thus it will take a large influx of early adapters in order to drive significant sales. The initial marketing campaign should get that process started. We are hoping to see a material ramp in revenues starting in 2015.