Mawson Infrastructure Group Inc. - Quarter Report: 2012 September (Form 10-Q)

FORM 10-Q Quarterly Report September 30 2012

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

X . QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

. 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: 000-52545

OPHTHALIX INC.

(Exact name of registrant as specified in its charter)

Delaware

88-0445167

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


1656 Reunion Avenue, Suite 250, South Jordan, UT	84095
(Address of principal executive offices)	(Zip Code)

+(972) 36133372

(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.


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 .

The number of shares outstanding of the registrant’s common stock on November 12, 2012, was 46,985,517.

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	12

Item 3. Quantitative and Qualitative Disclosures About Market Risk	16

Item 4. Controls and Procedures	16

PART II—OTHER INFORMATION	17

Item 5. Other Information	17

Item 6. Exhibits	17

SIGNATURES	17

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

OPHTHALIX INC. AND ITS SUBSIDIARY

(A development stage company)

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2012

U.S. DOLLARS IN THOUSANDS

UNAUDITED

INDEX


	Page


Consolidated Balance Sheets	4

Consolidated Statements of Comprehensive Income	5

Statements of Changes in Stockholders' Equity	6

Consolidated Statements of Cash Flows	7

Notes to Consolidated Financial Statements	8

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands, except share and per share data


		September 30, 2012		December 31, 2011
		Unaudited
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	1,574	$	3,441
Investment in parent company		697		172
Other accounts receivable and prepaid expenses		391		3

Total current assets		2,662		3,616

LONG-TERM ASSETS:
Investment in parent company		732		1,336

Total long-term assets		732		1,336

Total assets	$	3,394	$	4,952

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Related company		98		140
Other accounts payables and accrued expenses		119		160

Total current liabilities		217		300

NON-CURRENT LIABILITIES:
Derivative related to service agreement		449		1,436

Total non-current liabilities		449		1,436

STOCKHOLDERS' EQUITY:
Share capital
Preferred Stock - Authorized: 1,000,000 shares at September 30, 2012 and December 31, 2011; Issued and Outstanding: 0 shares at September 30, 2012 and December 31, 2011
		-		-
Common Stock of $ 0.001 par value - Authorized: 100,000,000 shares at September 30, 2012 and December 31, 2011; Issued and Outstanding: 46,985,517 shares at September 30, 2012 and December 31, 2011
		47		47
Additional Paid-in capital		4,796		4,614
Accumulated other comprehensive loss		(123)		(44)
Accumulated deficit		(1,992)		(1,401)

Total stockholders' equity		2,728		3,216

Total liabilities and stockholders' equity	$	3,394	$	4,952

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

U.S. dollars in thousands, except share and per share data


		Nine months ended September 30,		Period from June 27, 2011 (inception date) to September 30,		Three months ended September 30,				Period from June 27, 2011 (inception date) to September 30,
		2012		2011		2012		2011		2012
		Unaudited

Operating expenses:
Research and development	$	1,102	$	-	$	357	$	-	$	1,318
General and administrative		481		*)		145		*)		616

Total operating expenses		1,583		*)		502		*)		1,934

Financial expenses (income), net		(992)		-		(2,662)		-		58

Net income (loss)	$	(591)	$	*)	$	2,160	$	*)	$	(1,992)

Net earnings (loss) per share:
Basic	$	(0.01)	$	(0.00)	$	0.05	$	(0.00)

Diluted	$	(0.08)	$	(0.00)	$	(0.01)	$	(0.00)

Weighted average number of Common Shares used in per share computations of net earnings (loss):
Basic		46,985,517		36,000,000		46,985,517		36,000,000

Diluted		47,861,925		36,000,000		48,255,849		36,000,000

Comprehensive loss	$	(670)	$	*)	$	2,134	$	*)	$	(2,115)

Represents an amount lower than $ 1.

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

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

U.S. dollars in thousands, except share and per share data


	Common Stock				Additional paid-in		Other Comprehensive		Accumulated		Total shareholders'
	Number		Amount		capital		Loss		deficit		equity

Balance as of June 27, 2011 (inception date)	36,000,000	$	36	$	(36)	$	-	$	-	$	-

Net loss	-		-		-		-		(21)		(21)
Shares of common stock issued with respect to reverse acquisition of OphthaliX Inc.	5,540,431		6		(6)		-		-		-
Issuance of shares of common stock and warrants, net (a)	5,445,086		5		4,656		-		-		4,661
Change in unrealized loss on investments, net	-		-		-		(44)		-		(44)

Net loss	-		-		-		-		(1,380)		(1,380)

Balance as of December 31, 2011	46,985,517		47		4,614		(44)		(1,401)		3,216

Stock based compensation	-		-		182		-		-		182
Change in unrealized loss on investments, net	-		-		-		(79)		-		(79)

Net loss	-		-		-		-		(591)		(591)

Balance as of September 30, 2012 (unaudited)	46,985,517		47		4,796		(123)		(1,992)		2,728

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands, except share and per share data


		Nine months ended September 30,		Period from June 27, 2011 (inception date) to September 30,		Period from June 27, 2011 (inception date) to September 30,
		2012		2011		2012
		Unaudited

Cash flows from operating activities:

Net loss	$	(591)	$	*)	$	(1,992)
Adjustments to reconcile net loss to net cash used in operating activities:
Increase in other account receivables and prepaid expenses		(388)		-		(391)
Increase in other payables and accrued expenses		(41)		*)		119
Increase in related company		(42)				98

Changes in fair value of the derivative related to service agreement		(987)		-		61
Stock based compensation		182		-		182

Net cash used in operating activities		(1,867)		*)		(1,923)

Cash flows from financing activities:

Proceeds from issuance of Common stock and warrants, net		-		-		3,497

Net cash provided by financing activities		-		-		3,497

Change in cash and cash equivalents		(1,867)		-		1,574
Cash and cash equivalents at the beginning of the period		3,441		-		-

Cash and cash equivalents at the end of the period	$	1,574	$	-	$	1,574

Represents an amount lower than $ 1.

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

NOTE 1:-

GENERAL

OphthaliX Inc. (the "Company" or "OphthaliX") (formerly: "Denali Concrete Management Inc." or "Denali"), originally incorporated in the State of Nevada on December 10, 1999 under the name Bridge Capital.com Inc. Bridge Capital.com Inc., was a nominally capitalized corporation that did not commence its operations until it changed its name to Denali Concrete Management in March 2001. The Company was a concrete placement company specializing in providing concrete improvements in the road construction industry. Denali operated primarily in Anchorage, Alaska, placing curb and gutter, sidewalks and retaining walls for state, municipal and military projects.

In December 2005, the Company ceased its principal business operations and focused its efforts on seeking a business opportunity, remaining as a public shell company in the US.

Eye-Fite Ltd. ("Eye-Fite" or the "Subsidiary") was founded on June 27, 2011 in contemplation with the execution of the transaction, between Can-Fite Biopharma Ltd. (the "Parent Company" or "Can Fite") a public company in Israel and the Company, as further detailed in Note 1b below.

The Company and the Subsidiary conduct research and development activities using an exclusive worldwide license for a therapeutic drug CF101 solely for the field of ophthalmic diseases after the consummation of the following transaction. See also Note 1b2.

Following the transaction, the Company changed its name to OphthaliX Inc.

Reverse recapitalization transaction and related arrangements:

Recapitalization:

On November 21, 2011, (the "Closing Date") the Company acquired all the outstanding shares of Eye-Fite, in consideration for the issuance by OphthaliX to Can-Fite of 36,000,000 shares of common stock (and warrants to purchase shares of common stock) of OphthaliX representing, approximately 87% of the fully diluted issued and outstanding stock capital of the Company. Immediately prior and as a condition to the closing of the transaction, OphthaliX entered into subscription agreements with new investors (the "New Investors") pursuant to which, OphthaliX received additional funds in amount of $3,330,000 (excluding $333,000 of issuance expenses paid in cash) in consideration for issuing of 2,910,456 shares of Common stock of OphthaliX at a price per stock of $ 1.144.

In addition, OphthaliX issued to Can-Fite, 2,097,626 shares of Common stock of the Company, in exchange for ordinary shares of Can-Fite valued, at such time of grant, at $2,400,000.

Consequently, the Company holds 17,873,054 shares of Can-Fite's outstanding ordinary shares, (approximately 7% of Can-Fite's issued and outstanding share capital).

In accordance with the Israeli Securities Law (1968), Section 15C and related Securities Regulations, the shares issued by Can-Fite to OphthaliX, have a Resale Restriction Period, which consists of one (1) year of full restriction and a liquidation period of eight (8) consecutive quarters, thus OphthaliX will be able to sell 12.5% of Can-Fite's issued shares, every quarter starting from November 21, 2012.

As part of the recapitalization arrangement, Can-Fite made an additional equity investment in OphthaliX in amount of $500,000 in consideration with the issuance of an aggregate of 437,005 shares of common stock of OphthaliX at a price per share of $ 1.144.

In relation with the subscription mentioned above, the Company agreed to apply full-ratchet anti-dilution protective provision for the benefit of the investors (including Can-Fite) for their issued shares of common stock solely in the event that OphthaliX enters into another financing during the 12 months following the transaction date, at a price which is lower than $ 1.144 per common stock of OphthaliX.

NOTE 1:-

GENERAL (Cont.)

In contemplation with the recapitalization transaction, it was agreed that for each two shares of common stock purchased by the New Investors and Can-Fite, they will be granted by the Company one warrant to acquire one share of common stock of the Company. The exercise price of the warrants is $ 1.72 per share. The warrants are exercisable for a period of five years from their date of grant. The warrants do not contain non standard anti-dilution provisions.

The Transaction was accounted for as a reverse recapitalization which is outside the scope ASC 805, Business Combinations. Under reverse capitalization accounting, Eye-Fite is considered the acquirer for accounting and financial reporting purposes, and acquired the assets and assumed the liabilities of the Company. Assets acquired and liabilities assumed are reported at their historical amounts. Consequently, the consolidated financial statements of the Company reflect the operations of the acquirer for accounting purposes together with a deemed issuance of shares, equivalent to the shares of common stock held by the former stockholders of the legal acquirer and a recapitalization at the equity of the accounting acquirer. These consolidated financial statements include the accounts of the Company since the effective date of the reverse capitalization and the accounts of Eye-Fite since inception.

License and research and development services from Can-Fite:

In connection with consummation of the transaction, the Company and Can-Fite entered into a license agreement, pursuant to which Can-Fite granted Eye-Fite a sole and exclusive worldwide license for the use of CF101, solely in the field of ophthalmic diseases ("CF101"). Eye-Fite shall be obligated to make to the USA National Institutes of Health ("NIH"), which its patents are included in the license to Eye-Fite, for as long as the PHS Agreement is in effect, a nonrefundable minimum annual royalty fees and potential future royalties of 4.0% to 5.5% on net sales.

In addition the Company will be obligated to certain milestone payments ranging from $25,000 to $500,000 upon the achievement of various development milestones for each indication. Eye-Fite will also be required to make payments of 20% of sublicensing revenues, excluding royalties and net of the required milestone payments. As of September 30, 2012 the Company has not reached any milestone or earned revenue that would trigger such payments to Can-Fite.

In addition, following the closing of the transaction, an agreement was signed between Can-Fite, OphthaliX and Eye-Fite (the "Service Agreement"). According to the Service Agreement, Can-Fite will manage the research and development activities relating to pre-clinical and clinical studies for the development of the ophthalmic indications of CF101. According to the Service Agreement, in consideration for Can-Fite's services, Eye-Fite shall pay to Can-Fite a service fee (consisting of all expenses and costs incurred by Can-Fite plus 15%). In addition, the Company is committed to future additional payments equal to 2.5% of any and all proceeds received by Eye-Fite relating to the activities regarding the drug (the "Additional Payment").

According to the Service Agreement, Can-Fite will have the right, at any time until the expiry of 5 years from the closing of the transaction, to convert the Additional Payment into an additional 2,160,102 shares of common stock of the Company (subject to adjustment in certain circumstances).

Prior to the consummation of the transaction, Can Fite incurred in its research and development activities of the above assets direct costs that amounted to approximately $1,001,000.

The Company devotes all of its efforts toward research and development activities. As of September 30, 2012 the Company has no sufficient capital resources to carry its research and development activities until commercialization of the underlying products. The Company is addressing its liquidity issues by implementing initiatives to allow the coverage of its anticipated budget deficit. Such initiatives may include monetizing part of Company's assets, such as the Company's investment in Can-Fite's shares. In addition, in the event that the Company will not have sufficient liquidity resources after taking the above initiatives, Can-Fite committed not to bill the Company for research and development services, in order to overcome any potential budget deficit.

There are no assurances that the Company will be successful in obtaining an adequate level of financing needed for its long-term research and development activities. If the Company will not have sufficient liquidity resources, the Company may not be able to continue the development of all of its products or may be required to delay part of the development programs.

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies applied in the annual financial statements of the Company as of December 31, 2011, are applied consistently in these financial statements.

NOTE 3:-

UNAUDITED INTERIM FINANCIAL STATEMENTS

The accompanying unaudited interim financial statements have been prepared in accordance with the Standards of the Public Company Accounting Oversight Board (United States) for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months period ended September 30, 2012, are not necessarily indicative of the results that may be expected for the year ended December 31, 2012.

NOTE 4:-

FAIR VALUE MEASUREMENTS

The Company considers an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and views an inactive market as one in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers. Since the quoted market value of the Company’s common stock was based on a sporadically traded stock with little or no volume, the Company's management determined the Company's stock price fair value based on ASC 820 Fair Value Measurement using the income approach assisted by a third party specialist. Consequently, the Company used the estimates stock price fair value in the underlying assumptions of the computation of the fair value of the derivative related to the Service Agreement.

In accordance with ASC 820, the Company measures its marketable securities and embedded derivatives at fair value. Marketable securities fair value is based on quoted prices for identical assets in active markets and other inputs (such as risk free interest and volatility) that are directly or indirectly observable in the marketplace. The assets are classified within Level 2 on the fair value hierarchy. Derivatives are classified within Level 3 because they are valued using valuation techniques. Some of the inputs to these models are unobservable in the market and are significant.

The following table provides information by value level for financial assets and liabilities that are measured at fair value, as defined by ASC 820, on a recurring basis as of September 30, 2012.


		December 31, 2011
		Fair value measurements
Description		Fair Value		Level 1		Level 2		Level 3

Investment in Parent Company	$	172	$	-	$	172	$	-
Derivative related to Service Agreement		(1,436)		-		-		(1,436)

Total Financial Assets, net	$	(1,264)	$	-	$	172	$	(1,436)

NOTE 4:-

FAIR VALUE MEASUREMENTS (cont.)


		September 30, 2012
		Fair value measurements
Description		Fair Value		Level 1		Level 2		Level 3

Investment in Parent Company	$	697	$	-	$	697	$	-
Derivative related to Service Agreement		(449)		-		-		(449)

Total Financial Assets, net	$	248	$	-	$	697	$	(449)

The following table presents the changes in Level 3 instruments measured on a recurring basis for the nine months ended September 30, 2012. The Company's Level 3 instruments consist of derivatives related to Service Agreement (See also Note 1.b.2).

Fair value measurements using significant unobservable inputs (Level 3):


		Fair value of Derivatives

Balance at June 27, 2011	$	-

Fair value of derivatives		438
Change in fair value of derivatives		998

Balance at December 31, 2011		1,436

Change in fair value of derivatives		(987)

Balance at September 30, 2012	$	449

NOTE 5:-

EQUITY

In January 2012, the Company granted one of its board members, options to purchase 235,000 shares of common stock of the Company at $ 2.00 per share. The options will vest as follows: 19,583 on March 31, 2012 and 19,583 on the last day of each month thereafter so long as he remains a director until fully vested. The options will be granted under the Company's 2012 Stock Incentive Plan and shall expire 10 years from the grant date. The agreement prohibits the Board Member from employment or connection with, or holding any office in, any business or undertaking which competes with any business of the Company or is a customer or supplier of the Company.

The Company used a Black-Scholes option-pricing model with the following weighted-average assumptions: risk-free interest rates of 0.85%-1.03% dividend yield of 0%, volatility factors of the expected market price of the Parent Company's ordinary shares of 80% and expected life of the options of 5.23 years.

As of September 30, 2012, the total unrecognized estimated compensation cost related to non-vested stock options granted prior to that date was $156,000 which is expected to be recognized over a weighted average period of approximately 2.25 years.

NOTE 6:

SUBSEQUENT EVENTS

Management has evaluated subsequent events through November 12, 2012, which represents the date the unaudited interim consolidated financial statements were issued, and has determined that there were no subsequent events as of such date.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of our balance sheets and statements of income. This section should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2011, and our interim financial statements and accompanying notes to these financial statements. All amounts are in U.S. dollars.

Forward-Looking Statement Notice

The statements contained in this report that are not historical facts are forward-looking statements that represent management’s beliefs and assumptions based on currently available information. Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, need for financing, competitive position, potential growth opportunities, potential operating performance improvements, ability to retain and recruit personnel, the effects of competition and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believes,” “intends,” “may,” “should,” “anticipates,” “expects,” “could,” “plans,” or comparable terminology or by discussions of strategy or trends. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that these expectations will prove to be correct. Such statements by their nature involve risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such forward-looking statements.

Among the factors that could cause actual future results to differ materially are the risks and uncertainties discussed in this report. While it is not possible to identify all factors, we continue to face many risks and uncertainties including, but not limited to, risks and uncertainties associated with changes in regulatory environment, timing and results of clinical trials, OphthaliX’s success in implementing its research, development, sales, marketing and manufacturing plans, protection and validity of patents and other intellectual property rights, the impact of currency exchange rates and the effect of competition by other companies, global economic and political conditions, changes in foreign currency exchange rates, competitive technology positions and operating interruptions (including, but not limited to, labor disputes, leaks, fires, explosions, unscheduled downtime, transportation interruptions, war and terrorist activities) as well as other risks. Should one or more of these risks materialize (or the consequences of such a development worsen), or should the underlying assumptions prove incorrect, actual results could differ materially from those expected. We disclaim any intention or obligation to update publicly or revise such statements whether as a result of new information, future events or otherwise.

Description of Business

The Company is an advanced clinical-stage biopharmaceutical company focused on developing therapeutic products for the treatment of ophthalmic disorders. Our drug, CF101 (known generically as IB-MECA), is being developed to treat three ophthalmic indications: dry eye syndrome; glaucoma and uveitis. We are currently: (i) conducting a Phase III trial with respect to the development of CF101 for dry eye syndrome, under an Investigational New Drug, or IND, application with the United States Food and Drug Administration, or FDA; (ii) conducting a Phase II trial with respect to the development of CF101 for the treatment of glaucoma; and (iii) preparing for Phase II study of the development of CF101 for uveitis.

CF101 is a highly-selective, orally bioavailable small molecule synthetic drug, which targets the A₃ adenosine receptor (A₃AR). We believe that CF101 has a favorable safety profile and a potent anti-inflammatory activity, mediated via its capability to inhibit the production of inflammatory cytokines, such as TNF-α, MMPs, IL-1, and IL-6. This is mediated by activation of the A₃AR, which is highly expressed in inflammatory tissues in contrast to normal tissues where expression levels of the receptor are very low. We believe that the anti-inflammatory and neuroprotective effects of CF101 make it an attractive candidate for use in the treatment of a variety of ophthalmic diseases.

Business Developments

During the third quarter of 2012, we had no major developments.

Results of Operations –Three Months Ended September 30, 2012 Compared to the Three Months Ended September 30, 2011

For the period from June 27, 2011 (inception date of Eyefite) to September 30, 2012, we did not generate any revenues from operations. Expenses during the quarter ended September 30, 2012, were $502,000 with finance income of $2,662,000 for a net profit of $2,160,000. The explanation for the change in the finance income is described in Note 4 in the financial statements (Item 1). Expenses for the period mentioned above consisted of research and development of $357,000 and of general and administrative expenses of $145,000. These expenses were mainly due to professional, legal and accounting fees relating to our reporting requirements. The finance income was mainly for a change in fair value of derivatives in the amount of $2,661,000. There were no comparable expenses during the prior year quarter ended September 30, 2011 since no activity had then commenced.

Results of Operations –Nine Months Ended September 30, 2012 Compared to the Nine Months Ended September 30, 2011

We did not generate any revenues from operations during the nine-month periods ended September 30, 2012 and 2011. Expenses during the nine-month period ended September 30, 2012 were $1,583,000 with financial income of $992,000. Expenses for the period mentioned above consisted of research and development of $1,102,000 and of general and administrative expenses of $481,000. These expenses were mainly due to professional, legal and accounting fees relating to our reporting requirements.

As a result of the foregoing factors, we realized a net loss of $591,000 for the nine-month period ended September 30, 2012. There were no comparable profit and loss results during the prior year nine months period ended September 30, 2011 since no activity had then commenced.

Plan of Operation

We do not expect to generate any revenues over the next 12 months. Through our subsidiary, Eyefite, which holds all the intellectual property related to our technology, we hope to develop therapeutic products for the treatment of ophthalmic disorders. As of September 30, 2012 we had $1,574,000 in cash. We believe that such funds will be sufficient to effectuate our business for the next 12 months. We also had 17,873,054 ordinary shares of Can-Fite (traded on the Tel Aviv Stock exchange) presented in the Balance Sheet as $1,430,000. We will need to seek additional capital for the purpose of further testing our products and obtaining certifications necessary in order to market them. We expect to incur a minimum of approximately $1.5 million in expenses in order to effectuate our business for the next 12 months. We estimate that this will be comprised of $1 million towards the development of our product (including clinical trials), $0.1 million towards patents and royalties, $0.25 million for professional fees associated with being a public company, and the balance for general and administrative expenses.

Liquidity and Capital Resources

There can be no assurance that additional capital will be available to the Company. The Company currently has no agreements, arrangements, or understandings with any person to obtain funds through bank loans, lines of credit, or any other sources. Since the Company has no such arrangements or plans currently in effect, its inability to raise funds for the above purposes will have a severe negative impact on its ability to remain a viable company from 2013 onwards.

Critical Accounting Policies

Management’s discussion and analysis of its financial condition and results of operations are based upon our unaudited consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. Our financial statements reflect the selection and application of accounting policies which require management to make estimates and judgments. (See Note 1 to our unaudited consolidated condensed financial statements, “Summary of Significant Accounting Policies”). We believe that the following paragraphs reflect accounting policies that currently affect our financial condition and results of operations:

Holdings in Can-Fite

In accordance with ASC320, an accounting for the Company’s investment in the equity securities depends on the remaining period of the tradability restriction in its respective market of the shares.

Shares that are restricted for less than one year should be re-measured to reflect fair value each cutoff date. These securities are classified as available-for-sale securities carried at fair value, with unrealized gains and losses reported as a separate component of shareholders’ equity under accumulated other comprehensive income in the consolidated balance sheet. The rest of the restricted shares that have trade restrictions for more than one year should be accounted as a financial asset, on a cost basis (based upon the valuation of an expert as of transaction date).

For investments classified as available-for-sale securities, unrealized gains and losses are recorded in accumulated other comprehensive income, a separate component of shareholders’ equity, realized gains and losses on sales of available-for-sale securities, as determined on a specific identification basis, are included in the consolidated statement of operations.

The Company recognizes an impairment charge when a decline in the fair value of its investments in debt securities is below the cost basis of such securities is judged to be other-than-temporary. Factors considered in making such a determination include the duration and severity of the impairment, the reason for the decline in value, the potential recovery period and the Company’s intent to sell, including whether it is more likely than not that the Company will be required to sell the investment before recovery of cost basis. For securities that are deemed other-than-temporarily impaired, the amount of impairment is recognized in “other than temporary impairment, net of gain on sale of marketable securities previously impaired” in the statement of income and is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income.

The Company currently holds 17,873,054 shares of Can-Fite’s outstanding ordinary shares that have certain resale restriction provisions.

As of September 30, 2012, the Company held $697,000 in marketable securities classified in short term assets, designated as available-for-sale and $733,000 as restricted marketable securities classified in long term assets, presented at cost basis as of November 21, 2011 (Can-Fite shares).

In estimating shares’ fair value, the Company used Black-Scholes option-pricing model with the following weighted-average assumptions for as of November 21, 2011, and September 30, 2012: risk-free interest rates ranging from 2.82% to 3.41% and from 2.21% to 2.18%, respectively; dividend yields of 0%; volatility factors of 76.26% and 75.60%, respectively; and a weighted-average contractual life of the options of between 1.01 and 2.75 years, and between 0.14 and 0.89 years.

As a result the fair value of the Company’s holdings in Can-Fite’s shares on the transaction date reflects the resale restriction. The fair values of these shares based on an external expert’s evaluation as of September 30, 2012 and November 21, 2011, were $1,430,000 and $1,552,000 respectively.

Income taxes

The Company and its subsidiary account for income taxes and uncertain tax positions in accordance with ASC 740, “Income Taxes”. ASC 740 prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on the differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

The Company and its subsidiary provide a full valuation allowance to reduce deferred tax assets to the amounts that are more likely-than-not to be realized.

The Company adopted ASC 740-10. ASC 740-10 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with ASC 740. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. As of September 30, 2012, this standard has no effect to the Company’s financial statements.

Concentrations of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, short-term bank deposits, marketable securities, trade receivables and other account receivables.

Cash and cash equivalents are deposited with major banks in Israel and major banks in the United States. Such deposits in the United States may be in excess of insured limits and are not insured in other jurisdictions. Management believes that the financial institutions that hold the Company’s investments are institutions with high credit standing, and accordingly, minimal credit risk exists with respect to these investments.

Derivative related to Service Agreement

In connection with the recapitalization transaction described in Note 1(b) of the Company’s financial unaudited statements, on November 21, 2011 the Company entered into a Service Agreement.

The arrangement includes compensation for the services being provided under the Service Agreement in a form of royalty of 15% to be paid to Can-Fite from all future proceeds received by OphthaliX or any of its affiliates in relation to CF101. Can-Fite has the right (the “Exchange Right”), at any time from November 21, 2011, until the 5^th year anniversary thereof, to convert its Exchange Right for royalties into a warrant (the “Warrant”) to purchase 2,160,102 shares of common stock of the Company. The exercise price for the Warrant is as follows: (i) in the event that within 12 months of November 21, 2011, the Company or any of its affiliates completes any transaction which has a “bio-dollar” value of more than $100 million, then the exercise price shall be the par value of the shares of common stock, and (ii) at any other time, then the exercise price for all the shares shall be an aggregate of $2.5 million, equal to a per share exercise price of $1.144.

The Company’s management has considered ASC 815 in order to evaluate whether the Exchange Right (contingent call option to holders) instrument is a financial instrument that has the characteristics of a derivative. In particular, the Company’s management has also evaluated ASC 815-10-15-74(a) scope exception.

Based on the analysis above, the Company’s management concluded that the Exchange Right does not have fixed settlement provisions, and therefore, should be classified as liability at inception. The Exchange Right will be re-measured at fair value each reporting period until the date of exercise or expiration with the change in value reported in the statement of operations (as part of financial income/expenses).

Consequently, the Company recorded as part of the recapitalization transaction a liability related to the Exchange Right in the amount of $438,000 based on its fair value. Issuance expenses that were allocated to this component, which amounted to $50,000, were expensed immediately and are included as part of financial expenses in the consolidated statements of operations (see Note 7 of the consolidated financial statements for the re-measurement at year end).

The fair value of the derivatives was determined using the binomial option-pricing model. This option-pricing model requires a number of assumptions, of which the most significant are the expected stock price volatility and the expected term.

For the period ended September 30, 2012 the fair value was $449,000 based on external expert’s evaluation as of September 30, 2012.

Fair value of financial instruments

The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, marketable securities, accounts receivable, accounts payable and accrued liabilities, approximate fair value because of their generally short-term maturities.

The Company adopted ASC 820, “Fair Value Measurements and Disclosures”. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1 -

Observable input that reflects quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 -

Include other inputs that are directly or indirectly observable in the marketplace.

Level 3 -

Unobservable inputs which are supported by little or no market activity.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Company has evaluated and implemented all new accounting pronouncements and accounting standards that are in effect and that may impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

Off-Balance Sheet Arrangements

As part of our ongoing business, we have not participated in transactions that generate material relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of September 30, 2012, we are not involved in any material unconsolidated SPEs.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we have elected not to provide the disclosure required by this item.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting

There has been no change in our internal control over financial reporting, as defined in Rules 13a-15(f) of the Exchange Act, during our most recent fiscal quarter ended September 30, 2012, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 5. Other Information

2013 Annual Shareholders’ Meeting

On November 12, 2012, the Board of Directors approved holding the Annual Shareholders' Meeting at 8:00 am local time on May 9, 2013, at 1656 Reunion Avenue, Suite 250, South Jordan, Utah 84095.

At the meeting, the Company will elect directors, ratify the appointment of the Company’s independent registered public accounting firm for its fiscal year ending December 31, 2013, and conduct such other business as may properly come before the annual meeting.

Rule 14a-8 Proposal Deadline

In accordance with Rule 14a-8 under the Securities Exchange Act of 1934, shareholder proposals for inclusion in the proxy or related materials for the meeting must be delivered to, or mailed to and received by the Corporate Secretary, OphthaliX Inc., 12 Abba Hillel Silver Road, Ramat Gan, Israel 52506, on or before January 18, 2013. Shareholder proposals must comply with the requirements of Rule 14a-8, and may be omitted otherwise.

Item 6. Exhibits


SEC Ref. No.	Title of Document
31.1	Rule 13a-14(a) Certification by Principal Executive Officer
31.2	Rule 13a-14(a) Certification by Principal Financial Officer
32.1	Section 1350 Certification of Principal Executive Officer
32.2	Section 1350 Certification of Principal Financial Officer
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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.

OphthaliX Inc.

Date: November 14, 2012

By: /s/ Pnina Fishman

Pnina Fishman, Chief Executive Officer

(Principal Executive Officer)

Date: November 14, 2012

By: /s/ Itay Weinstein

Itay Weinstein, Chief Financial Officer

(Principal Financial Officer)