Indicate by check mark if the registrant is
a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
¨
No
þ
Indicate by check mark if the registrant is
not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
¨
No
þ
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
þ
No
¨
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted 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
such files). Yes
þ
No
¨
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.
¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by
check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act). Yes
¨
No
þ
The aggregate market value of the voting and
non-voting common equity held by non-affiliates computed by reference to the closing price as of the last business day of the
registrant’s most recently completed second fiscal quarter is $20,786,954.
As of March 22, 2019, the registrant
had outstanding 36,821,173 shares of common stock, $0.0001 par value per share.
This Annual Report on
Form 10-K contains “forward-looking statements,” which includes information relating to future events, future financial
performance, financial projections, strategies, expectations, competitive environment and regulation. Words such as “may”,
“should”, “could”, “would”, “predicts”, “potential”, “continue”,
“expects”, “anticipates”, “future”, “intends”, “plans”, “believes”,
“estimates”, and similar expressions, as well as statements in future tense, identify forward-looking statements.
Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications
of when such performance or results will be achieved. Forward-looking statements are based on information we have when those statements
are made or management’s good faith belief as of that time with respect to future events, and are subject to significant
risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested
by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:
The foregoing does not
represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors
that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. Please
see “Risk Factors” for additional risks which could adversely impact our business and financial performance.
Moreover, new risks regularly
emerge and it is not possible for our management to predict or articulate all the risks we face, nor can we assess the impact
of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from
those contained in any forward-looking statements. All forward-looking statements included in this Annual Report are based on
information available to us on the date of this Annual Report. Except to the extent required by applicable laws or rules, we undertake
no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events
or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are
expressly qualified in their entirety by the cautionary statements contained above and throughout this Annual Report.
When used in this Annual
Report, the terms “DarioHealth,” “the Company,” “we,” “our,” and “us”
refer to DarioHealth Corp., a Delaware corporation and our subsidiary LabStyle Innovation Ltd., an Israeli company. “Dario”
is registered as a trademark in the United States, Israel, China, Canada, Hong Kong, South Africa, Japan, Costa Rica, and Panama.
“DarioHealth” is registered as a trademark in the United States and Israel.
PART I
Item 1.
Business
Overview
We are a leading global
Digital Therapeutics (DTx) company revolutionizing the way people manage their health across the chronic condition spectrum. By
delivering evidence-based interventions that are driven by data, high quality software and coaching, we developed a novel approach
that empowers individuals to adjust their lifestyle in a personalized way. Our cross -functional team operates at the intersection
of biology, behavioral science and software technology to deliver highly engaging therapeutic interventions. Already the highest
rated diabetes solution by more than tens of thousands of consumers who love our user-centered approach, DarioHealth is rapidly
moving into new chronic conditions and geographic markets.
Our flagship product,
Dario, which we also refer to as our Dario Smart Diabetes Management Solution, is a mobile, real-time, cloud-based, diabetes management
solution based on an innovative, multi-feature software application to track and monitor all facets of diabetes, combined with
a stylish, ‘all-in-one’, pocket-sized, blood glucose monitoring device, which we call the Dario Blood Glucose Monitoring
System, that essentially turns a smartphone into a glucometer. In addition, our product offerings will focus on the newly launched
DarioEngage software platform, where we, or any care giver, can digitally engage with Dario users, assist them in monitoring their
chronic conditions and provide them with coaching, support, digital communications, and real-time alerts, trends and pattern analysis.
The DarioEngage platform can be leveraged by our potential partners, such as clinics, health care service providers, employers,
and payers for scalable monitoring of people with diabetes in a cost-effective manner, which we expect will open for us additional
revenue streams. Finally, we intend to utilize the data we obtain from our Dario Smart Diabetes Management Solution and the DarioEngage
platform to develop our upcoming healthcare analytics program, Dario Intelligence, which will provide our users with evidence-based
therapeutic intervention to assist them and enhance their diabetes management skills. As such, our solutions will span the full
spectrum of disease monitoring, real-time response, user-centric engagement, motivational tools, nutritional data and content,
coaching tools, and big data and intelligence solutions. We have obtained regulatory clearance or approval for the Dario Blood
Glucose Monitoring System in the U.S., Canada, the E.U., Israel and Australia. We believe that our targeted health platform is
a highly personalized preventative and proactive approach to health improvement based on individual behavior and treatment, that
provides care independent of a user’s schedule and in their private environment, tailored to each person’s unique
profile.
Our principal operating
subsidiary, LabStyle Innovation Ltd., is an Israeli company with its headquarters in Caesarea, Israel. We were formed on August
11, 2011, as a Delaware corporation with the name LabStyle Innovations Corp. On July 28, 2016, we changed our name to DarioHealth
Corp.
Diabetes is a disease
where insufficient levels, or a total absence, of the hormone insulin, or if the individual has insulin resistance, produces high
levels of glucose in the bloodstream, which can lead to long term adverse effects on a patient’s blood vessels, which in
turn can lead to heart attack, stroke, high blood pressure, blindness, kidney disease and nerve damage. As part of controlling
blood sugar, many patients must self-monitor their blood glucose levels using home testing kits (called glucose meters) and treat
high and low blood sugar episodes accordingly to avoid the complications from the disease. We believe that allowing patients to
properly monitor the disease, provide actionable insights in real-time and create an online link to healthcare providers, will
ultimately improve patient outcomes and reduce healthcare costs - both critical advantages for the healthcare industry.
The latest studies released
by the Centers for Disease Control and Prevention (CDC) report that in 2015 over 30.3 million Americans have diabetes. More alarming
is that in 2015, an addition 84.1 million Americans age 18 or older have what is known as prediabetes, which when left unmanaged
will most likely become diabetes in a matter of a few years. The number of people with diabetes or prediabetes equates to 35%
of the adult population in the U.S. In addition, there is a strong correlation between obesity and the development of diabetes.
Many believe, including the National Center for Biotechnology Information (NCBI), that diabetes is one of the worst epidemics
of the 21st century. The diabetes epidemic is not only felt in terms of its impact on health but also represents a financial burden
on the U.S. and global healthcare system.
Importantly, one out of
three American adults with prediabetes can, in fact, reverse the condition if they take action, and the health of people with
diabetes can be improved through measurement adherence and medication. Furthermore, studies have shown that a 1% reduction in
the concentration of glycated hemoglobin (also known as HbA1c or A1c) in human blood goes beyond better diabetes control. That
reduction may translate into a 15% to 20% decrease in heart attack and stroke risk and a 25% to 40% lower risk of diabetes-related
eye or kidney disease. Better diabetes management may result in substantial savings in the costs related to diabetes and healthcare
in general, through the avoidance of health complications and related expense savings. A 2013 NCBI study found that improved A1c
levels are associated with healthcare savings.
Based on data we have
extracted from our user database, using the Dario Smart Diabetes Management Solution leads to an improvement in glucose level
of the users and lowers their A1c levels over time. This data also indicated that higher engagement of users with the Dario Smart
Diabetes Management Solution increased the level of A1c improvement. Specifically, we found A1c improvements during a period of
3 months, 6 months, and 9-months for people who began the study with A1c levels of more than 8%, 9%, and 10%. The key finding
was that, on average, every segment of the users showed an improvement compared to their A1c level when they started to use the
Dario Smart Diabetes Management Solution, while 75% of participants which started to use the Dario Smart Diabetes Management Solution
with A1c levels higher than 9% were able to lower their A1cC levels during that period with as little as 3 glucose level measurements
per day.
Beginning in September
2013, the Dario Smart Diabetes Management Solution has been reviewed and approved or cleared by various global regulatory authorities.
We received the CE Mark in 2013 which allowed the Dario Smart Diabetes Management Solution to be marketed and sold in 32 countries
across Europe as well as in certain other countries worldwide. This clearance was followed by approval received from Israel’s
Ministry of Health in July 2014, and we received Therapeutic Goods Administration (TGA) certification to market the Dario Smart
Diabetes Management Solution in Australia in December 2014, followed by approval from Health Canada in May 2015.
In December 2015, we announced
that we received 510(k) clearance for the Dario Blood Glucose Monitoring System from the U.S. Food and Drug Administration (FDA),
including its components, and the Dario Smart Diabetes Management app on the Apple iOS 6.1 platform and higher. Achieving FDA
clearance was a significant milestone and we commenced marketing and commercialization of the Dario Smart Diabetes Management
Solution in the United States in the first quarter of 2016. On September 7, 2017, we announced that the FDA granted 510(k) clearance
for the Dario Blood Glucose Monitoring System to be used with certain leading Android smart mobile devices. This FDA clearance
allowed us to widen our potential customer base in the United States commencing in the last quarter of 2017.
During 2017, we completed
the development of a version of the Dario Blood Glucose Monitoring System that connects to an iPhone 7 through the Lightning connector,
which we refer to as our Lightning meter, instead of the eliminated 3.5 mm audio jack. On May 18, 2017, we completed the Notice
of Change for the CE Mark for the Apple Lightning connector to connect to Apple smart mobile devices that do not come with 3.5
mm audio jack. Additionally, we have registered with the TGA in Australia for the Lightning-enabled Dario Blood Glucose Monitoring
System. Sales of this version of the device in Australia commenced during January 2018. In March 2018, we received FDA clearance
to market this version of the device in the U.S.
We intend to continue
to generate demand through a digital direct-to-consumer marketing campaign. Customers are currently able to purchase the Dario
Blood Glucose Monitoring System directly through our proprietary e-store where they can also subscribe to a subscription-based
service. In July 2016, we signed an agreement with GEMCO Medical, an established healthcare distributor and a pioneer in the diabetes
supply industry, to become the first authorized United States distributor of the Dario Blood Glucose Monitoring System and to
complement our direct-to-consumer model to further expand and strengthen its presence in the United States. Also during July 2016,
we launched our Australian proprietary e-store where customers may subscribe to a subscription-based service, and in September
2017 we launched our proprietary e-store in Germany offering our product to customers in Germany.
Although we are initially
targeting only the large and growing Blood Glucose Monitoring System, or BGMS, market, we believe our invention has the potential
to cover dozens of laboratory tests of bodily fluids (including blood, urine, and saliva) that could potentially be undertaken
using a smart mobile device, including blood coagulation, cholesterol, HIV and others. Our goal is to develop additional interfaces
for other chronic illnesses and health conditions, thereby empowering people around the globe to put themselves in control of
managing their medical conditions while leveraging our platform. By doing so, we believe that we will be positioned to make a
dramatic impact on the lives of millions of people that face daily lifestyle and medical challenges. Our technology provides a
body-fluid testing apparatus for performing metered measurement of samples utilizing: (i) a lancing device to obtain a test sample
(blood in the case of the Dario Blood Glucose Monitoring System); and (ii) an adaptor specifically designed to connect a strip
devised to absorb the sample, which then produces an electric signal indicating the level of the substance tested for in the sample.
The adaptor is then connected to a smart mobile device via the 3.5 mm audio jack or Lightning connector, which allows the test
signal to be transmitted to the smart mobile device, which will then utilize our software application to obtain and display the
test result on the device. This is coupled with a set of software features available via a smart mobile device application as
well as cloud-based services, in real-time. We are presently pursuing patent applications in multiple jurisdictions covering the
specific processes related to blood glucose level measurement as well as more general methods of rapid tests of body fluids using
mobile devices and cloud-based services. On August 5, 2014, we were issued a U.S. patent (No. 8,797,180) relating to how the Dario
Blood Glucose Monitoring System draws power from and transmits data to a smartphone via the audio jack port, on September 8, 2015,
we were issued a U.S. patent (No. 9,125,549) that broadens our registered patent No. 8,797,180 to include testing of other bodily
fluids through an audio jack connection, and on November 11, 2017, we were issued a U.S. patent (No. 9,832,301) that enhances
the way the Dario Blood Glucose Monitoring System communicates with users’ smartphone devices. We believe these represent
critical intellectual property recognition and a significant initial validation of our intellectual property efforts.
DarioHealth’s Solutions
Our DTx products are centered
around our users and include the Dario Blood Glucose Monitoring System, the Dario Smart Diabetes Management Solution (provided
to our users in the form of a smart phone application that enables the delivery of valuable content and periodical evidence based
reports that are intended to be utilized by our users to better control and improve their diabetes), the DarioEngage platform
(which provides support and two-way real time connectivity between our users and their care givers) and Dario Intelligence (which
utilizes user data and is intended to be an analytics tool that can assist healthcare providers in the treatments and predictability
of diseases).
Dario Smart Diabetes Management Solution
The Dario Blood Glucose
Monitoring System is the original, all-in-one smart glucose meter. It syncs with the Dario Smart Diabetes Management app to measure,
record and track blood glucose levels. In addition, the app records carbohydrate intake, insulin medication, and physical activity.
The flagship brand of
DarioHealth, the Dario Smart Diabetes Management Solution, was initially launched in the United Kingdom in the first quarter of
2015 and has since expanded to Canada, Australia, the United States, and Germany. We earn a majority of our revenues in the United
States. We manufacture our products using subcontractors and distribute our proprietary device ourselves. We believe this control
over end to end production allows us to maintain high standards of quality control. To that end, we are the owner of several patents
relating to our technology and processes.
We use our patented technology
to enhance the way our Dario Blood Glucose Monitoring System communicates with users’ smartphone devices. In the U.S. market,
the Dario Blood Glucose Monitoring System connects to a smartphone via a sugar-cube dongle that does not require a battery for
operation; rather, it relies on the smartphone’s battery as its power source. In the effort to reduce battery-dependence
and ensure 100% real-time data capture, the application is able to monitor and adjust power levels on smartphones accordingly
to enable sufficient output with minimal reliance.
The benefits and features
of our product include:
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Comfort
-
Sleek, pocket-sized all-in-one smart glucose
meter simplifies diabetes management
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Record
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Automatically records every blood glucose
measurement without ever having to sync your meter
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Share
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Easily share results with loved ones and your
healthcare team takes diabetes management to a new level
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Emergency Hypo Alerts
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Built-in, emergency hypo alert
feature with GPS location adds an extra safety measure
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Track
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Tracking activity and counting carbs are made
easy with a scanner feature that syncs with a database of over 1 million verified items across more than 50 unique countries.
|
Available worldwide in
the Apple App Store and Google Play Store, our user-friendly Dario Smart Diabetes Management mobile app is known for its accuracy
and ease-of-use. The Dario Smart Diabetes Management Solution is accessible with affordable pricing models, including subscription
plans. Our pricing is often in line with current co-payments, and sometimes it may even be less than current out of pocket costs.
In addition, many of our customers in the United States get coverage through their flexible spending accounts (FSA) or health
savings accounts (HSA) or with our third-party healthcare integrations.
Items for sale in the Dario Shop
Customers can purchase the Dario Blood Glucose
Monitoring System through our direct to consumer online shopping experience, where we offer:
Dario Blood Glucose Monitoring System
All-in-one pocket size glucose meter, with
10 Disposable Covers and 10 Lancets.
Dario Blood Glucose Test Strips
Blood Glucose Test strips for use with the
Dario Blood Glucose Monitoring System. Test strips come in boxes of 25, 50 and 100. In addition, test strips are available on
a pay-as-you-go basis or a subscription plan.
Dario Glucose Control Solutions
Level M and Level H control solutions for
use with the Dario Blood Glucose Monitoring System.
Dario Sterile Lancets
Sterile Lancets for use with the Dario Blood
Glucose Monitoring System.
Dario Disposable Covers
Protects the mobile device from direct contact
with blood while measuring with the Dario Blood Glucose Monitoring System.
Our revenues are derived
from sales of Dario’s components, including the
Dario Blood Glucose Monitoring
System
itself, and principally from the recurring sale of our disposable cartridges of test strips and other consumables. Our
customers receive access to the Dario Smart Diabetes Management application, which incorporates tools to help people with diabetes
manage their condition. Importantly, our revenue model is driven by the fact that only our test strips, purchased through
us and our partners, can be utilized with the Dario Blood Glucose Monitoring System and software, so we expect that
we will be the sole source for Dario Blood Glucose Monitoring System compatible test strips.
During the second
half of 2018, we have begun to offer our U.S. users the opportunity to register for our membership programs by purchasing 3 month
and 1 year membership plans. In addition to our products, these plans include an unlimited supply of test strips, subject to the
user’s active measurement of his glucose level, and a weekly digital progress report about the user’s measurements,
in order to help the users understand the progress made in their diabetes management. Our members are also provided with personalized
diabetes programs – including lifestyle changes, healthy eating and advanced tracking, and live coaching seminars.
In addition, we anticipate
generating revenues in the future from our second revenue pillar that we call the DarioEngage platform, our software platform
for health coaches. We plan to offer this software platform to healthcare providers such as insurers, self-insured employers,
diabetes clinics, certified diabetes educators and other third-party providers of coaching and monitoring services for people
with diabetes for a monthly service fee. Our third revenue pillar, which we are planning to introduce at a later stage, is the
Dario Intelligence platform. The Dario Intelligence platform will take advantage of a large amount of data that will be collected
through our servers through the use of our Dario Smart Diabetes Management Solution and the DarioEngage platform, in order to
develop predictive models and artificial intelligence algorithms as detailed below.
We believe the following
features of our Dario Smart Diabetes Management Solution and the manner in which we plan to market and distribute the product
will help position Dario to gain users and drive revenue growth:
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Look
and Feel
. While utilizing the same state of the art electrochemical, blood-based
measurement techniques as standard glucose monitors offer familiar usability, the
Dario Blood Glucose Monitoring System is easily integrated with the patient’s own
smart mobile device that offers a distinctive look and feel. Furthermore,
unlike the market standards, the Dario
Blood
Glucose Monitoring System
has an integrated lancing device and a disposable
strip cartridge. This eliminates the need for a separate glucose monitor,
lancing device and strip vial and, we believe, makes the Dario Blood Glucose Monitoring
System among the smallest footprint in the market. Furthermore, Dario
has novel applications incorporating software tools to help diabetic patients manage
their disease.
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Large Market of Potential Users
. Our reliance on diabetics
within the massive smart mobile device market gives us an established potential user-base. According to recently published
Mobile Fact Sheet by Pew Research Center, or PRC, 81% of Americans own a smartphone, up just 35% in PRC’s first survey
of smartphone ownership conducted in 2011. Between the ages of 18 to 34, 95% have a smartphone, and between the age of 34
to 49, 92% own a smartphone. We believe that it is reasonable to assume that the percentage of smart mobile device users with
diabetes mirrors that of the general population.
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Marketing and Distribution
. In the U.S., Germany, and
Australia we have our own direct to consumer marketing channel to support our sales efforts. In the U.S. we also plan to contract
with partners to provide coaching services to employers and health care providers. In the United Kingdom and Canada, we use
distribution partners to market and sell the Dario Blood Glucose Monitoring System. This approach enables a direct communication
channel with the market and the diabetic community. This approach is also designed to effectively create brand awareness with
a significantly reduced use of our capital resources versus the amounts required via the traditional, offline retail channels.
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“Expanding the Pie.”
Our goal is to obtain
significant market share using technological innovations and by expanding the total BGMS market size “pie” by
offering a user-friendly diabetes management solution that utilizes an existing platform and installed potential user base
(smart mobile devices and smart mobile device users, respectively). We will endeavor to emphasize the user-friendly nature
of the Dario Smart Diabetes Management Solution to expand the total BGMS market size by encouraging existing diabetes patients
to test their glucose levels more frequently and by encouraging the “non-testing” population to adopt glucose
monitoring.
|
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●
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Competitive Cost of Goods Sold.
Based on our market research
and discussions with our test strip manufacturer, we believe that our anticipated outsourced manufacturing cost of the test
strips is similar to our estimate of our competitors’ cost for existing single-use disposable strips. In addition, we
believe the manufacturing costs of our Dario Blood Glucose Monitoring System are competitive with those of the leading glucose
meters.
|
|
●
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Opportunities for Commercialization Partnerships.
Healthcare and pharmaceutical company entrants into the BGMS market (such as Perrigo and Sanofi) are licensing and/or acquiring
technologies, seeking differentiation, thereby providing us with opportunities for more rapid commercialization through partnerships. Therefore,
we plan to explore the possibility of entering into commercialization agreements, including upfront payment, a supply agreement,
and royalty payments, with strategic partners.
|
Currently,
there are a few new market entrants in the BGMS space that are attempting to utilize computer or smart mobile device connectivity,
including Sanofi iBGStar, Medisana GlucoDock, Philosys Gmate Smart, One Drop, and iHealth Align. We believe that none of these
devices offer the integration of an all-in-one unit that includes a lancing device and strip cartridge as the Dario Blood Glucose
Monitoring System does. We further believe that these competitors provide limited capabilities over their diabetes management
apps as compared to the Dario Smart Diabetes Management application.
In summary, we believe we
bring an entirely new dynamic to the BGMS device market. We believe that our primary business model for the Dario
Smart Diabetes Management Solution is clean and simple - sales of proprietary glucose test strips (the disposable component) directly
to consumers, leveraging an installed base of mobile phones. The entire mechanism consists of a small and simple adaptor combined
with a strip which is connected to the smart mobile device’s headphone jack, or Lightning connector, with the strip test
results being read by the smart mobile device.
We
also believe that this business model is the foundation for a broader push to improve the health care system. An application that
is always in your pocket and used multiple times per day is an ideal platform to support people living with diabetes, their health
care providers, and health systems. Our application is designed to improve health outcomes and reduce costs through increased
insights, motivating tools and automation.
DarioEngage
DarioEngage represents
our new customer engagement management software platform, which is intended to help healthcare providers in all aspects of user
engagement, including enrollment, coaching and ongoing communications with the end-users based on user consent. DarioEngage was
developed in order to allow for a one stop scalable management tool to improve efficacy and outcomes of caregivers. We believe
that DarioEngage will assist healthcare providers and employers by offering them an open platform, thereby empowering them to
implement their own clinical expertise in a more digital, user-centric and efficient way. We believe this approach can address
two burgeoning issues: improving the quality of health for individuals, which in turn will lower healthcare costs across the spectrum.
The DarioEngage platform empowers health providers
offering diabetes services with:
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·
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Monitoring
-
100% data capture, access to users’ real-time clinical and behavioral data
|
|
·
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Engagement
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Personalized coaching in response to users’ habits and needs, response to
user events, and enhanced communication and support
|
|
·
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Management
-
Clinical program integration, automated processes, scheduling tools and reporting
|
The DarioEngage platform
provides care givers with real-time access to data collected by a user such as, glucose level, carb counting, physical activity,
weight tracking and other parameters. Such access allows care givers to prioritize user intervention based on real-time data and
alerts and allows for multi-channel digital interaction with the user (chat, in-app messages, email and text). DarioEngage is
a cloud-based SaaS solution that also includes open APIs for platform integration.
We believe that the DarioEngage
platform is a user-centric, data-driven health solution which allows people with Diabetes to get the right care, at the right
time, and allows for the effective monitoring, coaching and management of their chronic conditions, such as type 1 and 2 diabetes,
gestational diabetes, and prediabetes.
Dario Intelligence
The last pillar in our
planned suite of product offerings is Dario Intelligence. We are planning to offer Dario Intelligence, which utilizes the large
amount of data that will be collected on our servers through the use of our Dario Smart Diabetes Management Solution and the DarioEngage
platform, to develop predictive models and artificial intelligence algorithms to meet the potential demand of intelligence-driven
analytics that healthcare providers will be looking to improve their services.
We believe the future
development of Dario Intelligence will present an opportunity in the chronic disease management field and will help us leverage
our data capturing platform, to be used for big data analytics, research, EMRs (Electronic Medical Record) / EHRs (Electronic
Health Records), and the development of real-time and predictive-based health management solutions.
|
·
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Data
Collection -
Real-time data collections and aggregation
|
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·
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Analytics -
Dario big data analytics solution
|
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Discovery -
Data discovery and analysis
|
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Insights -
Predictive models and AI driven insights
|
Through Dario Intelligence,
we believe we may be able to develop innovative artificial intelligence and machine learning approaches that will enable us to
transform big data into individual and specific predictive models to meet the demands of both consumers and the health care providers.
We believe that by coupling data and algorithmic development, Dario Intelligence may offer in the future the way to detect, predict
and intervene most effectively for each individual using our platform.
Our Vision for Dario Intelligence
We intend to offer solutions
built from a foundation of rich and robust data, ultimately transforming our revenue model from simple product volume to product
value. We believe that the current ineffective care of diabetes and other chronic conditions reflects a need for more intelligent
and nuanced approaches relating to predictive behaviors and real-time care. We believe that financial incentives tied to patient
outcomes have the potential to generate sizeable revenue growth for us and position us as a leader in transforming the management
of diabetes. Achieving the strategic vision of Dario Intelligence requires multiple steps and evolutions in order to harness the
power from the data generated by a connected community, and subsequently impact individual behavior.
Phase 1 – Collect & Analyze
As the Dario Smart Diabetes
Management Solution user-base has grown, we have collected a significant amount of user data and information. Initial efforts
in Phase 1 are centered around an understanding of our user-base. Compiling basic demographic data such as age, gender, country
geography, etc., and establishing links to test strip usage and blood glucose control are critically important. Further, examining
variation amongst population cohorts in both utilization and blood glucose outcomes is fundamental to future targeting and retention
campaigns. We intend to generate analytical insights on individuals who achieve improvement in blood glucose levels in order to
develop an in-depth understanding of those who maintain such an improvement over time, which we believe will form the backbone
of interventional program development that we intend to generate with our potential partners.
Phase 2 – Expand Collection of Data Types, Experiment
with Outreach Campaigns
As continued growth of
users accelerates globally, concerted efforts will be undertaken at expanding the collection of highly relevant data types. In
addition, we intend to expand data collection on user data points such as carbohydrate intake, exercise, and physical activity,
medication and medication adherence, GPS location, time stamps, insurance coverage type/status. When more data elements are gathered,
the intention is for Dario Intelligence to apply its artificial intelligence and machine learning capabilities to enhance understanding
of individuals and detailed profiles that will be generated with comprehensive user information such as the type of advertising
that was used to recruit patients or how frequently an individual interacts with the Dario Smart Diabetes Management app. The
result is intended to be a cohort-specific predictive model that can be used to develop interventional programs on a wide basis.
Phase 3 – Monetize De-Identified Data, Learn, Expand Intervention
Programs
We believe that pharmaceutical
companies, device manufacturers, insurers, governments, researchers, advertisers, and start-up companies would be willing to pay
for the de-identified data that we will obtain through our Dario Intelligence platform. As such, we believe there is an opportunity
to develop a consistent revenue stream from this data.
In addition to data that
reports on the activity and performance of the population as a whole, we believe that will be able to provide access to a globally
connected community of patients and consumers. We are planning to monetize access to specific patient cohorts, designing programs
to improve utilization, engagement, and outcomes. These future programs will be adapted, modified, and enhanced based on continuous
learning and additional data inputs from external third parties that we are planning to engage with in the future. Pay for performance
models will be developed and experimented with, as we will implement next-generation artificial intelligence and machine learning
programs designed to influence user’s behavior.
Background on Diabetes
Diabetes
is a chronic disease that arises when the pancreas does not produce enough (or ceases to produce) insulin, or when the body cannot
effectively use the insulin it produces (insulin resistance). Insulin is a hormone made by the pancreas that enables cells to
take in glucose from the blood and use it for energy. Failure to produce insulin, or of insulin to act properly, or both, leads
to raised glucose (sugar) levels in the blood (hyperglycemia), which can be detected with a blood test. Excess glucose in the
blood has been shown to cause damage to blood vessels and is thus associated with long-term damage to the body and failure of
various organs and tissues, including the retina and the kidneys. There are three main types of diabetes:
Type 1 diabetes
,
sometimes called insulin-dependent, or juvenile, diabetes, is caused by an auto-immune reaction where the body’s defense
system attacks the insulin-producing cells located in a person’s pancreas. The reason why this occurs is not
fully understood. People with Type 1 diabetes produce very little or no insulin. The disease can affect
people of any age but usually occurs in children or young adults. People with this form of diabetes need injections
or infusions of insulin several times a day in order to control the levels of glucose in their blood. The use of insulin
may lead to excessively low levels of glucose in the blood, also known as hypoglycemia, leading to other health problems. Type
1 diabetes patients constitute approximately 10% of the overall number of patients, but are much more extensive users of BGMS,
as these diabetics need to measure their glucose levels 4-10 times a day to avoid both hyperglycemia and hypoglycemia (versus
once or twice a day for most Type 2 non-insulin dependent diabetic patients). The vast majority of Type 1 diabetes patients are
insulin dependent.
Type 2 diabetes
is
sometimes called adult-onset diabetes and accounts for at least 90% of all cases of diabetes. It is characterized by
insulin resistance and relative insulin deficiency, either of which may be present at the time that diabetes becomes clinically
manifest. The diagnosis of Type 2 diabetes usually occurs after the age of 40 but can occur earlier, especially in populations
with high diabetes incidence. Type 2 diabetes can remain undetected for many years, and the diagnosis is often made
from associated complications or incidentally through abnormal blood or urine glucose test. It is often, but not always,
associated with obesity, which may contribute to insulin resistance and lead to elevated blood glucose levels. A portion
of the Type 2 diabetes patients are insulin dependent or use insulin as part of their treatment.
Gestational diabetes
(GDM)
is a form of diabetes consisting of high blood glucose levels during pregnancy. It
develops in one in 25 pregnancies worldwide and is associated with complications in the time period immediately before and after
birth. GDM usually disappears after pregnancy but women with GDM and their offspring are at an increased risk of developing
Type 2 diabetes later in life. Approximately half of women with a history of GDM go on to develop Type 2 diabetes within
five to ten years after delivery.
We
also believe we will be able to support patients with
pre-diabetes
, also called metabolic syndrome. Metabolic
syndrome is a combination of medical disorders that increase the risk of developing cardiovascular disease and diabetes. According
to the American Diabetes Association, in 2015, 84.1 million Americans age 18 and older had pre-diabetes. This population is typically
prescribed with periodic lab-based glucose level testing (which requires a doctor visit, significantly reducing the compliance
level) and typically does not involve the utilization of self-monitoring glucose devices.
The Diabetes and BGMS Markets and the Dario Smart Diabetes Management
Solution
Diabetes is a growing
epidemic for which no cure exists, but for which treatments (including a regimen of frequent blood glucose testing) are available.
The medical journal Lancet has reported that the number of worldwide diabetics has doubled over the past thirty years. While
about 70% of the increase has been attributed in the Lancet report to population growth and aging, the balance was linked to changing
diets, rising obesity levels, and less physical activity.
According to the information
published in 2017 by the International Diabetes Foundation (IDF), in its 8
th
edition of the “IDF Diabetes Atlas,”
approximately 425 million people worldwide were estimated to have diabetes in 2017, or one in eleven adults worldwide. The greatest
numbers are between 40 and 59 years old. If these trends continue, by 2045, some 629 million people are forecasted by the IDF
to have diabetes. According to the IDF Diabetes Atlas, in Europe, there were 58 million adults over the age of 20 with diabetes
in 2017 and approximately 30.2 million adults over the age of 20 with diabetes in the U.S. in 2017. As of 2017, approximately
187 million adults with diabetes live in China and India, with approximately 12.4 million in Brazil and 8.5 million in Russia.
It is estimated that the
costs of diabetes complications account for between 5% and 10% of total healthcare spending in the world. In the United States,
the ADA estimated that the total cost of diagnosed diabetes has risen from $174 billion in 2007 to $245 billion in 2012. Early
diagnosis of warning signs and ongoing monitoring of diabetes are the keys to the prevention and treatment of the disease, with
blood glucose monitoring being the primary method of diagnosis and disease management, coupled with matching blood glucose readings
with food (i.e., carbohydrate) and insulin or another medication intake.
Since blood glucose self-monitoring
is a key part of managing diabetes, the market for BGMS products required to service these many patients is also large. As
reported in a press release published by Allied Market Research, the blood glucose self-monitoring market was estimated to be
$7.76 billion in 2017 and is expected to grow to an estimated $10.82 billion by 2025. The biggest drivers for growth
in the diabetes device market will be the increased prevalence and awareness of diabetes. The U.S. is the largest market,
contributing close to 40% of the global market for these devices.
Key factors driving market
growth include an increasing number of people with diabetes, growing patient awareness, technological advancements and the increasing
number of patients adopting blood glucose self-monitoring. In addition, the affordable cost of blood glucose test strips,
and increase in daily monitoring, are also expected to contribute to market growth. As such, BGMS represents a large
market that has grown significantly over the past 30 years and is expected to continue to grow.
It is important to note
that the diabetic market is the first point of entry for the Dario Smart Diabetes Management Solution and we believe that our
goal of providing mHealth health solutions for a variety of chronic and wellness related conditions based on mobile device testing
will grant us access to a much larger market. The Dario Smart Diabetes Management Solution is targeted at the digital health market,
which was estimated by Zion Market Research at around $122 billion globally in 2017, and is expected to reach $423 billion by
2024.
Industry Background and the Dario Smart Diabetes Management
Solution Opportunity
From a competition perspective,
four companies currently dominate the BGMS business, controlling a majority of the market: Roche Diagnostics (part of Hoffman-LaRoche),
LifeScan (a Johnson & Johnson company), Ascensia (formerly Diabetes care), and Abbott Laboratories. These “big
four” offer a wide variety of BGMS products and have led the market since the late 1990s. Numerous second-tier and third-tier
competitors, including several in Asia, hold the remaining 10% of the market. We believe that the BGMS offerings by all vendors
are comparable, with mild differentiation of the main feature sets of the devices. This is akin to the differentiation
among personal computers (PCs) during the 1990s and 2000s, where most of them had the same key feature set of Microsoft Windows
and Intel Processors.
We believe that the increasing
global adoption of mobile phones has created an opportunity for disruption in the BGMS market. The Dario Smart Diabetes Management
Solution, which features our compact all-in-one
Dario Blood Glucose Monitoring System device
coupled with iOS, Android and web-based apps, is intended to eliminate the need for separate glucose monitors, carb-calculators
and cumbersome dependency on wired, computer-based logging tools. Our intention is for Dario to not only deliver
the best blood glucose monitoring experience but also use the unique capabilities of mobile smart mobile devices to deliver better
health outcomes.
With respect to the U.S.
BGMS market, the principal barriers to entry (all of which we believe the features of the Dario Smart Diabetes Management
Solution can overcome) can be summarized as follows:
|
●
|
Achieving
significant product differentiation in the eyes of diabetes patients or insurance payers
. We
believe that Dario offers a novel design that is compatible with the usability of
the current devices yet offers a modern look and feel when compared to products in the
marketplace. Marketing of the product directly to consumers will emphasize
the product’s distinguishing attributes, without incurring the significant product
introduction expenses typically incurred for the marketing of a standard glucose meter
via traditional retail channels.
|
|
●
|
Costs.
We anticipate that low manufacturing
costs for the dongle (the part of the Dario Blood Glucose Monitoring System that attaches to the phone jack or Lightning connector)
and the similarity to our competitors’ estimated cost of manufacturing the strips, when coupled with our direct-to-consumer
marketing, creates the potential for providing us with a meaningful cost advantage versus most vendors of traditional glucose
meters.
|
|
●
|
Difficulty obtaining shelf space at the pharmacy
. With
many products on the market, a new entrant has to battle for visibility on the shelf or in e-commerce stores. The
Dario Smart Diabetes Management Solution will limit this obstacle by emphasizing internet based direct-to-consumer marketing
and sales.
|
|
●
|
The challenge of influencing diabetes specialists to recommend
another BGMS product to patients
. We make efforts to introduce and present the Dario Smart Diabetes Management
Solution to the medical community through our participation in academic and professional conferences. The Dario
Smart Diabetes Management Solution will continue to be marketed directly to our target users (“Business to Consumer,”
or B2C), who we believe are increasingly becoming the primary decision-makers in choosing their glucose monitoring equipment.
We have also started marketing our products in a “Business-to-Business,” or B2B, business model, selling to large
organizations that include distributors, retailers, pharmacies and hospitals.
|
We believe that Dario’s
specific features and trends in the marketplace create a significant opportunity to penetrate the market and effectively compete
with and gain market share against the established players.
Utilization of Mobile Health Applications
Smart mobile device applications
combine easy-to-use interfaces with continuous internet access to create transformational mobile health solutions (often called
mHealth, eHealth or digital health). Although the potential benefits of mHealth solutions have been widely discussed
for over a decade, the market is now starting to emerge from the trial phase. The need to reduce long waiting periods in
order to access health care facilities from specialists is the primary driver responsible for the adoption of mHealth. We believe
that Dario is designed to play directly into this market trend.
In addition, the Grand
View Research report states that the availability of applications for consumers is continuing to grow rapidly, especially healthcare
apps. These applications assist users in self-management of wellness, disease and chronic abnormalities. This has led to the patient
playing an important and active role in staying informed and updated on their own healthcare decisions, contributing to the rise
in adoption of mHealth apps globally.
Healthcare is gradually
transitioning towards a precision-based model, better known as a “personalized medicine” model. mHealth is becoming
a widespread trend due to the introduction of technologies such as electronic medical records, remote monitoring, and other communication
platforms. mHealth leverages the 4Ps of healthcare delivery: personalized, predictive, participatory, and preventive, to ensure
delivery of optimal care to its users. In addition, the growing penetration of smartphones, especially in low- & middle-income
countries and the growing focus on utilizing mobile technology to leverage healthcare delivery and ensure a population health
plan is anticipated to benefit the market.
The Dario Smart Diabetes
Management Solution includes the Dario Blood Glucose Monitoring System and software application for people with diabetes. Dario
currently allows users to easily record, analyze, transmit and store key data points such as glucose level, insulin, and carbohydrate
intake. Moreover, the Dario Smart Diabetes Management application provides knowledge and motivation with the aim of improving
health outcomes. In addition, we are developing software for health care providers and payers to help better support patients
and intelligently manage large patient populations.
Sales and Marketing
Our initial marketing
efforts in the United States were focused on the early adopter users who have diabetes and who are paying out of pocket for their
monitoring tools to manage their chronic condition, and we have concentrated our efforts in gaining market share and brand awareness
through direct to consumer marketing efforts.
In 2018, we began to expand
our marketing efforts to the insured population by offering our DarioEngage platform to a variety of healthcare providers who
are supporting and coaching individuals with diabetes. We believe this will help us to diversify our revenues, from only selling
our Dario Blood Glucose Monitoring System and its consumables, to revenues generated from providing online real-time monitoring,
supervising and coaching capabilities to all relevant healthcare providers who support individuals with diabetes. As part of these
efforts, we recently announced our planned cooperation with Attain Health, Giant Eagle, BestBuy, Canadian-based LMC Healthcare
and Better Living Now (BLN).
In Australia, we revised
our sales and marketing strategy during the third quarter of 2016 and moved to a hybrid direct to consumer model in combination
with an on the ground out-sourced channel sales organization staff focused on the pharmacies. This model will allow us to accelerate
our penetration into this market while building a diabetes community via direct engagement through our digital marketing campaigns
and online store.
In the U.K., the Dario
Blood Glucose Monitoring System is a fully reimbursed product distributed by a new distributor since the second quarter of 2016.
The Dario Blood Glucose Monitoring System is now available via all main pharmacies in the U.K. Our sales and marketing efforts
have been focused on wholesalers, pharmacies, HCP’s (Health Care Professionals), diabetes educators and hospitals via the
distributor. This has created awareness and understanding of the value proposition we offer to people with diabetes. In addition,
we will be focusing on increasing our presence in the U.K. market via our direct to consumer strategy, utilizing the countrywide
availability of the strips in pharmacy and clinical awareness of the product via the healthcare providers.
In Canada, the Dario Blood
Glucose Monitoring System is available through major pharmacy chains across Canada that includes brands like London Drugs. We
also offer consumers the ability to buy direct via our online platform or to get their prescriptions serviced online via Bayshore.
Similar to the U.K., in Canada, we work on both promoting and marketing Dario to the medical establishment via our distributor
and expanding its awareness via our direct to consumer strategy which we have been ramping up.
On the marketing side,
we primarily utilize online marketing in order to create awareness of Dario. Rather than solely rely on an online advertisement,
we will also consider revenue sharing with affiliate networks and a variety of other pay-for-performance methods commonly used
in online commerce.
As a precursor to the
DarioEngage platform, in December 2014, we entered into an agreement with Israel's leading healthcare HMO, Maccabi Healthcare,
to implement a comprehensive digital suite for patients and professionals. The agreement with MOMA (Maccabi TeleCare unit) represented
the beginning of an additional revenue channel. We believe the DarioEngage channel for revenues presents a significant potential
based on software licensing and added value services with HMOs and other strategic partners worldwide. The Dario application for
MOMA is a proprietary customized diabetes management solution that enables remote treatment for diabetes which aims to improve
overall outcomes for patients leveraging mHealth technology for effective engagement of health care professionals.
We also expect to collaborate
with the medical community to showcase what we expect will be the Dario Smart Diabetes Management Solution’s clinical equivalence
and usability superiority through DarioEngage and Dario Intelligence.
Manufacturing
As we do not directly
manufacture our products ourselves, we have supply agreements with manufacturers for the Dario Blood Glucose Monitoring System,
glucose test strips, lancing devices, and lancets. We have arrangements in place with commercial-scale manufacturers
for both the Dario Blood Glucose Monitoring System and for our test strips. As a result of investments we have made over
the past several years, we own the specialized equipment used to manufacture Dario Blood Glucose Monitoring System.
During 2015, we commenced
the manufacturing of our Dario Blood Glucose Monitoring System with a Chinese manufacturer as part of our efforts to further reduce
manufacturing cost. At the beginning of 2016, we transitioned our manufacturing to a new Chinese manufacturer as part of our effort
to increase our manufacturing capacity and improve cost savings.
Insurance Reimbursement
In the United States and
in other jurisdictions such as Germany and England, we expect that Dario’s test strips should generally be available
for full or partial patient reimbursement by third-party payers. We expect to work with third-party payers in the countries
into which we expect to market Dario in order to establish coverage for test strips, although we cannot be sure of coverage
being obtained. In April 2014, we announced the receipt of reimbursement coverage for the use of the Dario Blood Glucose
Monitoring System in Italy, making 600,000 Italians eligible for reimbursement coverage. In June 2014, we were
granted
(effective September 1, 2014) reimbursement status in England, Wales, Scotland and Northern Ireland for strips and lancets to
be utilized together with the Dario Blood Glucose Monitoring System. In December 2014, we were granted reimbursement
status
for the Dario test strips Australia. In May 2015 we launched Dario in Canada and the majority of Canadian medical plans are
now covering test strips for the Dario Blood Glucose Monitoring System with reimbursement. We expect the balance of Canadian insurance
plans to provide reimbursement coverage in the near future. We are planning to pursue reimbursement coverage in other jurisdictions.
Clinical Trials
As part of our CE Mark
clearance, in 2013 we conducted positive User Performance studies for the Dario Blood Glucose Monitoring System in Israel with
161 diabetic patients. This study aimed to collect measurement data from capillary blood with a defined distribution of glucose
concentrations in order to perform system accuracy evaluation according to ISO 15197:2013, the current international standard
requirements for BGMS systems. The results of this study showed that the test strips are well within limits for system accuracy
defined by ISO 15197:2013 in that 100% of results fell within zones A and B of the Consensus Error Grid for all systems, which
means that the system accuracy requirements of the ISO 15197:2013 have been met. The acceptance criteria for accuracy of BGMS
per ISO 15197:2013 is “95 % of the individual glucose measured values shall fall within ± 0,83 mmol/l (±15
mg/dl) of the measured values of the manufacturer’s measurement procedure at glucose concentrations < 5,55 mmol/l (<100
mg/dl) and within ± 15% at glucose concentrations ≥ 5,55 mmol/l (≥100 mg/dl)”.
In January 2015, we completed,
and in March 2015, we announced positive results from, a required User Performance evaluation study in the U.S. to evaluate the
accuracy of blood glucose level results obtained from fingertip using the Dario Blood Glucose Monitoring System compared
to reference equipment (YSI 2300 STATPLUS) and to evaluate the ease of use of the Dario Blood Glucose Monitoring System by
the first time user. This study was in connection with our regulatory submissions for the product in the U.S. and Canada
and accordance with ISO 15197:2013. The study was performed at Remington Davis Clinical Research in Columbus, Ohio
with the Dario Blood Glucose Monitoring System and included 368 participants with varying demographics. As required
by the FDA, the study was approved by the institutional review board (IRB) which supervises the clinical studies performed in
their institutions.
The purpose of the study
was to demonstrate the accuracy of the Dario Blood Glucose Monitoring System compared with the Yellow Springs Instruments
(“YSI”) reference standard and to evaluate how the first time users of the Dario Blood Glucose Monitoring System
(1) use it under the Dario guidance materials (i.e., quick user guide and video clip) in an effort to demonstrate how the use
of the Dario Blood Glucose Monitoring System and related software could potentially improve patient care and diabetic compliance,
(2) to understand the potential weaknesses of the device and introduce methods of overcoming them to the users and (3) to establish
the proposition that lay users can operate the device.
We evaluated the accuracy
and user performance in this clinical trial with 368 diabetic patients, each of whom tested fresh capillary finger prick blood
glucose levels while using the Dario Blood Glucose Monitoring System for the first time, as instructed by Dario's instruction
material. System accuracy was determined with samples obtained from each subject measured both on the Dario Blood Glucose Monitoring
System by individual subjects and by a reference YSI analyzer. We documented sample collection or measurement errors. When required,
repeated sampling by each subject was limited to three per subject. The interval of glucose levels tested was within BGMS range
43.0-477.0 mg/dL, and YSI range 42.3-435.5 mg/dL. There were no outliers. Accuracy for the Dario Blood Glucose Monitoring System
met ISO 15197:2013 criteria, as can be seen in the accuracy tables below. Below 100 mg/dL, 97.8% of values were within ±15mg/d
of YSI reference glucose values. For samples with glucose above or equal to 100 mg/dL, 96.4% of values were within ± 15%
of YSI glucose levels. Lay subject performance assessment of Dario’s instruction clarity and usefulness showed that 100%
successfully obtained a measurement result, and 97.1% of subjects found instructions easy to follow with 70.7% rating they were
very satisfied (5/5) and 26.4% rating they were satisfied (4/5). Reading the result on the smart mobile device was rated easy
to understand by 99.1% of lay subjects, with 86.1% rated it very easy (5/5) and 13% rated it easy (4/5). If an error message displayed
on the report screen, 100% of lay subjects were clear about how to resolve the error, with 56.5% reporting it was very clear (5/5)
and 43.5% reported it was clear (4/5).
System accuracy results: DBGMS platform
|
System accuracy results for glucose
concentrations <100 mg/dL
|
|
System accuracy results for glucose
concentrations ≥100 mg/dL
|
|
Within ± 5
mg/dL
|
|
Within ± 10
mg/dL
|
|
|
Within ± 15
mg/dL
|
|
|
Within ± 5
%
|
|
|
Within ± 10
%
|
|
|
Within ± 15
%
|
|
42/93
|
|
|
73/93
|
|
|
|
91/93
|
|
|
|
111/275
|
|
|
|
211/275
|
|
|
|
265/275
|
|
45.2
|
%
|
|
78.5
|
%
|
|
|
97.8
|
%
|
|
|
40.4
|
%
|
|
|
76.7
|
%
|
|
|
96.4
|
%
|
System accuracy results for glucose concentrations between 42.3 mg/dL and 435.5 mg/dL
|
|
Within ± 5 mg/dL or ± 5 %
|
|
|
Within ± 10 mg/dL or ± 10 %
|
|
|
Within ± 15 mg/dL or ± 15 %
|
|
|
153/368
|
|
|
|
284/368
|
|
|
|
356/368
|
|
|
41.5
|
%
|
|
|
77.2
|
%
|
|
|
96.7
|
%
|
To conclude, the Dario
Blood Glucose Monitoring System meets ISO 15197:2013 standards for clinical performance as determined by lay user accuracy and
by satisfactory experience with the Dario instructions clarity and system utility.
In November 2015, we completed
an additional User Performance evaluation study in the U.S. as requested by the FDA. We evaluated the accuracy of blood glucose
level results obtained from fingertip using the Dario Blood Glucose Monitoring System compared to reference equipment (YSI
2300 STATPLUS). We also assessed the usability of the Dario Blood Glucose Monitoring System by first-time users on iOS smart
mobile devices. The study was performed at the University of Colorado Barbara Davis Center for Diabetes in Aurora,
Colorado with the Dario Blood Glucose Monitoring System and included 100 participants with varying demographics. As
required by the FDA, the study was approved by the Western Institutional Review Board (WIRB) which supervises clinical studies
performed in their institutions.
The purpose of the study
was to demonstrate the accuracy of the Dario Blood Glucose Monitoring System compared with the YSI reference standard and
to evaluate how first time users of the Dario (1) use it under the Dario guidance materials (i.e., quick user guide and user
guide) in an effort to demonstrate how the use of the Dario Smart Diabetes Management Solution could potentially improve patient
care and diabetic compliance, (2) to understand the potential weaknesses of the device and introduce methods of overcoming them
to the users and (3) to establish the proposition that lay users can operate the device.
The acceptance criteria
for accuracy of BGMS per ISO 15197:2003 is “Ninety-five percent (95%) of the individual glucose results shall fall within
± 15mg/dL of the results of Dario’s measurement at glucose concentrations < 75mg/dL and within ± 20% at
glucose concentrations greater than or equal to 75mg/dL”. The study evaluated the accuracy and user performance in this
clinical trial with 100 diabetic patients, each of whom tested fresh capillary finger prick blood glucose levels while using Dario
for the first time, as instructed by Dario's instruction material. System accuracy was determined with samples obtained from each
subject measured both on the Dario by individual subjects and by a reference YSI analyzer. We documented sample collection or
measurement errors. When required, repeated sampling by each subject was limited to three per subject. The interval of glucose
levels tested was within BGMS range 42-396 mg/dL, and YSI range 37-386 mg/dL. There were no outliers. Accuracy for Dario met ISO
15197:2003 criteria, as can be seen in the accuracy tables below. Below 75 mg/dL, 100% of values were within ±15mg/dL of
YSI reference glucose values. For samples with glucose above or equal to 75 mg/dL, 98.88% of values were within ± 20% of
YSI glucose levels. Lay subject performance assessment of Dario’s instruction clarity and usefulness showed that 100% successfully
obtained a measurement result. The average rating of the users for successful operation of the Dario was 4.35 (out of 5 when 1
is “completely failed” and 5 is “very successful”) and an average rate of 3.66 (out of 5 when 1 is “very
hard” and 5 is “very easy”) for operating the Dario for the first time.
System accuracy results: DBGMS platform
|
|
System accuracy results for glucose
concentrations <75 mg/dL
|
|
|
System accuracy results for glucose
concentrations ≥75 mg/dL
|
|
Within ± 5
mg/dL
|
|
|
Within ± 10
mg/dL
|
|
|
Within ± 15
mg/dL
|
|
|
Within ± 5
%
|
|
|
Within ± 10
%
|
|
|
Within ± 15
%
|
|
|
Within ± 20
%
|
|
|
4/11
|
|
|
|
9/11
|
|
|
|
11/11
|
|
|
|
39/89
|
|
|
|
68/89
|
|
|
|
85/89
|
|
|
|
88/89
|
|
|
36.36
|
%
|
|
|
81.82
|
%
|
|
|
100
|
%
|
|
|
40.4
|
%
|
|
|
76.7
|
%
|
|
|
96.4
|
%
|
|
|
98.88
|
%
|
To conclude, the Dario
meets the requirements of ISO 15197:2003 for clinical performance as determined by lay user accuracy and by satisfactory experience
with the Dario instructions clarity and system utility.
In April 2017, we completed
a study in the U.S. as requested by FDA. We evaluated the accuracy of blood glucose level results obtained from fingertip using the
Dario Blood Glucose Monitoring System compared to reference equipment (YSI 2300 STATPLUS). We also assessed the usability of the
Dario Blood Glucose Monitoring System by first-time users on Android smart mobile devices. The study was performed at the University
of Colorado Barbara Davis Center for Diabetes in Aurora, Colorado with the Dario Blood Glucose Monitoring System and included
350 participants with varying demographics. As required by the FDA, the study was approved by the Western Institutional Review
Board (WIRB) which supervises clinical studies performed in their institutions.
The purpose of the study
was to demonstrate the accuracy of the Dario Blood Glucose Monitoring System compared with the YSI reference standard and
to evaluate how first time users of the Dario (1) use it under the Dario guidance materials (i.e., quick user guide and user
guide) in an effort to demonstrate how the use of the Dario Smart Diabetes Management Solution could potentially improve
patient care and diabetic compliance, (2) to understand the potential weaknesses of the device and introduce methods of overcoming
them to the users and (3) to establish the proposition that lay users can operate the device.
The acceptance criteria
for accuracy of BGMS according to FDA guidance “Self-Monitoring Blood Glucose Test Systems for Over-the-Counter Use - Guidance
for Industry and Food and Drug Administration Staff" 95% of all Self-Monitoring of Blood Glucose (“SMBG”) results
shall fall within ±15% of the YSI results across the entire claimed measuring range of the device and that 99% of all SMBG
results shall fall within ±20% of the YSI results across the entire claimed measuring range of the device. The study evaluated
the accuracy and user performance in this clinical trial with 350 diabetic patients, each of whom tested fresh capillary finger
prick blood glucose levels while using Dario for the first time, as instructed by Dario's instruction material. System accuracy
was determined with samples obtained from each subject measured both on the Dario by individual subjects and by a reference YSI
analyzer. We documented sample collection or measurement errors. When required, repeated sampling by each subject was limited
to three per subject. The interval of glucose levels tested was within the BGMS range:
Device
|
|
|
|
Min (mg/dL)
|
|
|
Max (mg/dL)
|
|
Samsung Note 3
|
|
Dario
|
|
|
43
|
|
|
|
410
|
|
|
|
YSI
|
|
|
37.5
|
|
|
|
423
|
|
Samsung S3
|
|
Dario
|
|
|
41
|
|
|
|
443
|
|
|
|
YSI
|
|
|
36.6
|
|
|
|
442
|
|
LGG2
|
|
Dario
|
|
|
40.0
|
|
|
|
432
|
|
|
|
YSI
|
|
|
36.2
|
|
|
|
414
|
|
There were two outliers per representative
device. Accuracy for Dario met the FDA criteria, as can be seen in the accuracy tables below:
Samsung Galaxy S3
Results for glucose concentrations across the
entire range
|
|
|
|
Within ±5 %
|
|
|
|
Within ±10%
|
|
|
|
Within ±15 %
|
|
|
|
Within ±20%
|
|
Subjects who used Samsung S3 first
|
|
|
59/117 (50.4
|
)%
|
|
|
93/117 (79.5
|
)%
|
|
|
114/117 (97.4
|
)%
|
|
|
117/117 (100
|
)%
|
All Samsung S3 measurements
|
|
|
176/350 (50.3
|
)%
|
|
|
276/350 (78.9
|
)%
|
|
|
338/350 (96.6
|
)%
|
|
|
348/350 (99.4
|
)%
|
Samsung Galaxy Note 3
Results for glucose concentrations across the
entire range
|
|
|
|
Within ±5 %
|
|
|
|
Within ±10%
|
|
|
|
Within ±15 %
|
|
|
|
Within ±20%
|
|
Subjects who used Samsung Note 3 first
|
|
|
58/117 (49.6
|
)%
|
|
|
96/117 (82.1
|
)%
|
|
|
113/117 (96.6
|
)%
|
|
|
117/117 (100
|
)%
|
All Samsung Note 3 measurements
|
|
|
162/350 (46.3
|
)%
|
|
|
278/350 (79.4
|
)%
|
|
|
336/350 (96
|
)%
|
|
|
348/350 (99.4
|
)%
|
LG G2
Results for glucose concentrations across the
entire range
|
|
|
|
Within ±5 %
|
|
|
|
Within ±10%
|
|
|
|
Within ±15 %
|
|
|
|
Within ±20%
|
|
Subjects who used LG G2 first
|
|
|
60/116 (51.7
|
)%
|
|
|
96/116 (82.8
|
)%
|
|
|
111/116 (95.7
|
)%
|
|
|
116/116 (100
|
)%
|
All Samsung LG G2 measurements
|
|
|
159/350 (45.4
|
)%
|
|
|
284/350 (81.1
|
)%
|
|
|
334/350 (95.4
|
)%
|
|
|
348/350 (99.4
|
)%
|
Lay subject performance assessment of
Dario’s instruction clarity and usefulness showed the following results:
|
|
Rating
of successfully
obtained measurement
results using Dario
|
|
|
Rating
success in
operating Dario
|
|
|
Rating
how easy was it to
operate Dario for the first
time
|
|
Acceptance criteria
|
|
Over 90%
answered "Yes"
|
|
|
Average
score of 3.5 or above
|
|
|
Average
score of 3 or above
|
|
Samsung Galaxy S3
|
|
|
100
|
%
|
|
|
4.6
|
|
|
|
4.4
|
|
Samsung Galaxy Note 3
|
|
|
100
|
%
|
|
|
4.6
|
|
|
|
4.3
|
|
LG G2
|
|
|
100
|
%
|
|
|
4.6
|
|
|
|
4.3
|
|
In 2017, as part of our
510(k) submission to the FDA relating to the Lightning meter, a user evaluation study was conducted at the University of Colorado,
Barbara Davis Center for Diabetes. The acceptance criteria for accuracy of BGMS with a Lightning meter according to FDA guidance
contained in “Self-Monitoring Blood Glucose Test Systems for Over-the-Counter Use - Guidance for Industry and Food and Drug
Administration Staff" requires that 95% of all SMBG results shall fall within ±15% of the YSI results across the entire
claimed measuring range of the device and that 99% of all SMBG results shall fall within ±20% of the YSI results across
the entire claimed measuring range of the device. The study evaluated accuracy and user performance in this clinical trial with
350 diabetic patients, each of whom tested fresh capillary finger prick blood glucose levels while using the Dario meter for the
first time, as instructed by Dario's instruction materials. System accuracy was determined with samples obtained from each subject
measured both on the Dario meter by individual subjects, using iPhone 5 as the iOS representative device, and by a reference YSI
analyzer. We documented sample collection or measurement errors. When required, repeated sampling by each subject was limited
to three per subject. The interval of glucose levels tested was within BGMS range:
Device
|
|
|
|
Min (mg/dL)
|
|
Max (mg/dL)
|
iPhone 5
|
|
Dario
|
|
|
40
|
|
|
|
465
|
|
|
|
YSI
|
|
|
35.6
|
|
|
|
466.5
|
|
Two outliers were found and evaluated
during the study. Accuracy for Dario met the FDA criteria, as can be seen in the accuracy tables below:
Results for glucose concentrations across the entire range
|
|
|
|
Within
±5 %
|
|
|
|
Within
±10%
|
|
|
|
Within
±15 %
|
|
|
|
Within
±20%
|
|
iPhone 5 measurements
|
|
|
191/350 (54.5
|
)%
|
|
|
295/350
(84.3
|
)%
|
|
|
338/350 (96.6
|
)%
|
|
|
349/350 (99.7
|
)%
|
Lay subject performance assessment
of Dario’s instruction clarity and usefulness showed the following results:
|
|
Rating of successfully
obtained measurement
results using Dario
|
|
|
Rating success in
operating Dario
|
|
|
Rating how easy was it
to
operate Dario for the first
time
|
|
Acceptance criteria
|
|
Over 90% answered "Yes"
|
|
|
Average score of 3.5
or above
|
|
|
Average score of 3 or
above
|
|
iPhone 5
|
|
|
100
|
%
|
|
|
4.5
|
|
|
|
3.9
|
|
In conclusion, Dario
with the Lightning meter meets the requirements of the FDA guidance “Self-Monitoring Blood Glucose Test Systems for Over-the-Counter
Use - Guidance for Industry and Food and Drug Administration Staff" for clinical performance as determined by lay user accuracy
and by satisfactory experience with the Dario instructions clarity and system utility.
Government Regulation
The principal markets
that we have initially targeted for Dario are the United States, Canada, the European Union, Australia, and New Zealand.
The following is an overview of the regulatory regimes in these jurisdictions.
United States Regulation
Generally
In the United States,
devices are subject to varying levels of regulatory control, the most comprehensive of which requires that a clinical evaluation
is conducted before a device receives clearance for commercial distribution. Under Section 201(h) of the Food, Drug,
and Cosmetic Act, a medical device is an article, which, among other things, is intended for use in the diagnosis of disease or
other conditions, or in the cure, mitigation, treatment or prevention of disease, in man or other animals. The Dario
Blood Glucose Monitoring System is classified as a medical device and subject to regulation by numerous agencies and legislative
bodies, including the FDA and its foreign counterparts. FDA regulations govern product design and development, pre-clinical
and clinical testing, manufacturing, labeling, storage, pre-market clearance or approval, advertising and promotion, and sales
and distribution. Specifically, the FDA classifies medical devices into one of three classes. Class I devices
are relatively simple and can be manufactured and distributed with general controls. Class II devices are somewhat
more complex and require greater scrutiny. Class III devices are new and frequently help sustain life.
Unless an exemption
applies, each medical device commercially distributed in the United States will require a 510(k) clearance, 510(k)+ “de-novo”
clearance, or pre-market approval (or PMA) from the FDA.
510(k) Clearance
Process.
After a device receives 510(k) clearance, any modification that could significantly affect its safety
or effectiveness, or that would constitute a major change in its intended use, requires a new 510(k) clearance or could even require
a premarket application approval. The FDA requires each manufacturer to make this determination in the first instance,
but the FDA can review any such decision. If the FDA disagrees with the determination, the agency may retroactively
require the manufacturer to seek 510(k) clearance or premarket application approval. The FDA also can require the manufacturer
to cease marketing and/or recall the modified device until 510(k) clearance or premarket application approval is obtained.
De Novo Classification
. If
the FDA denies 510(k) clearance of a device because it is novel and an adequate predicate device does not exist, the “de
novo classification” procedure can be invoked based upon reasonable assurance that the device is safe and effective for
its intended use. This procedure approximates the level of scrutiny in the 510(k) process but may add several months
to the clearance process. If the FDA grants the request, the device is permitted to enter commercial distribution in the same
manner as if 510(k) clearance had been granted.
Premarket Application
Approval Process
. After approval of a premarket application, a new premarket application or premarket application
supplement is required in the event of a modification to the device, its labeling or its manufacturing process. The
premarket application approval pathway is much more costly, lengthy and uncertain. It generally takes from one to three
years or longer.
European and Non-European
Regulation Generally
Sales of medical devices
outside the United States are subject to foreign regulatory requirements that vary widely from country to country. These laws
and regulations range from simple product registration requirements in some countries to complex clearance and production controls
in others. As a result, the processes and time periods required to obtain foreign marketing clearance may be longer
or shorter than those necessary to obtain FDA clearance.
Commercialization
of medical devices in Europe is regulated by the European Union. The European Union presently requires that all medical products
bore the CE mark, an international symbol of adherence to quality assurance standards and demonstrated clinical effectiveness. Compliance
with the Medical Device Directive (MDD) or the Active Implantable Medical Device Directive (AIMD) or the In Vitro Diagnostic Medical
Device Directive (IVDD) as audited by a notified body and certified by a recognized European Competent Authority, permits the
manufacturer to affix the CE mark on its products.
In September 2013,
we obtained ISO 13485 certification for our quality management system and CE Mark certification to market Dario, and
in May 2015 Dario was cleared to fulfill the criteria according to EN ISO 15197:2013 The granting of the CE Mark allows Dario to
be marketed and sold in 32 countries across Europe as well as in certain other countries worldwide. On November 21, 2014, MDSS,
our European Authorized Representative, completed the registration of the Dario Blood Glucose Monitoring System with the German
Authority as required by Article 10 of Directive 98/79/EC on in vitro diagnostic medical devices. We commenced an initial soft
launch of the product in Europe in 2014, created initial demand for the product and established brand awareness and marketing techniques
to reach our target market with a goal to continue expansion to new markets and territories.
We achieved regulatory
clearance to market Dario in other countries that do not rely on the CE Mark. To date, the non-CE Mark jurisdictions which we
have begun to market Dario include the United States, New Zealand, Canada, and Australia.
In January 2014, we
completed the registration with Medsafe, the New Zealand Medicines and Medical Devices Safety Authority, through their WAND (Web-Assisted
Notification of Devices) system allowing us to sell the Dario in New Zealand. We also have completed the process of registering
the Dario with the Australian TGA, in the ARTG (Australian Register of Therapeutic Goods), which is required in order to bring
and sell the Dario in Australia and effective March 3, 2015, our product is approved for reimbursement in Australia. In February
2015, we also gained National Pharmaceutical Product Interface (known as NAPPI) approval and registered the Dario in South Africa.
In May 2015, we also received Health Canada approval to market the Dario blood glucose monitoring system and commenced marketing
the product. We have also received reimbursement status from the majority of insurance plans in Canada.
To the extent that
we seek to market our product in other non-CE Mark countries in the future, we will be required to comply with the applicable
regulatory requirements in each such country. Such regulatory requirements vary by country and may be tedious. As
a result, no assurance can be given that we will be able to satisfy the regulatory requirements to sell our products in any such
country.
Clinical Studies
Even when a clinical
study has an approved Investigational Device Exemption (IDE) from the FDA under significant risk (SR) determination, has been
approved by an Institutional Review Board (IRB) under non-significant risk (NSR) determination and/or has been approved by local
or regional Ethics Committee, the study is subject to factors beyond a manufacturer’s control, including, but
not limited to the fact that the institutional review board at a given clinical site might not approve the study, might decline
to renew approval which is required annually, or might suspend or terminate the study before the study has been completed. There
is no assurance that a clinical study at any given site will progress as anticipated; the interim results of a study may not be
satisfactory leading the sponsor or others to terminate the study, there may be an insufficient number of patients who qualify
for the study or who agree to participate in the study or the investigator at the site may have priorities other than the study. Also,
there can be no assurance that the clinical study will provide sufficient evidence to assure regulatory authorities that the product
is safe, effective and performs as intended as a prerequisite for granting market clearance. See “Clinical Trials”
above for clinical trials performed to date.
Post-Clearance Matters
Even if the FDA or
other non-US regulatory authorities approve or clear a device, they may limit its intended uses in such a way that manufacturing
and distributing the device may not be commercially feasible. After clearance or approval to market is given, the FDA and foreign
regulatory agencies, upon the occurrence of certain events, are authorized under various circumstances to withdraw the clearance
or approval or require changes to a device, its manufacturing process or its labeling or additional proof that regulatory requirements
have been met.
A manufacturer of
a device approved through the premarket approval application process is not permitted to make changes to the device
which affects its safety or effectiveness without first submitting a supplement application to its premarket approval application
and obtaining FDA clearance for that supplement. In some instances, the FDA may require a clinical trial to support
a supplement application. A manufacturer of a device cleared through a 510(k) submission or a 510(k)+ “de-novo”
submission must submit another premarket notification if it intends to make a change or modification in the device that could
significantly affect the safety or effectiveness of the device, such as a significant change or modification in design, material,
chemical composition, energy source or manufacturing process. Any change in the intended uses of a premarket approval application
device or a 510(k) device requires an approval supplement or cleared premarket notification. Exported devices are subject
to the regulatory requirements of each country to which the device is exported, as well as certain FDA export requirements.
Mobile Medical Applications Guidance
On September 23, 2013,
the FDA issued final guidance for developers of mobile medical applications, or apps, which are software programs that run on
mobile communication devices and perform the same functions as traditional medical devices. The guidance outlines the
FDA’s tailored approach to mobile apps. The FDA plans to exercise enforcement discretion (meaning it will not enforce
requirements under the Federal Food, Drug & Cosmetic Act) for the majority of mobile apps as they pose minimal risk to consumers. The
FDA plans to focus its regulatory oversight on a subset of mobile medical apps that present a greater risk to patients if they
do not work as intended. The FDA is focusing its oversight on mobile medical apps that:
|
●
|
are intended to be used as an accessory to a regulated medical
device – for example, an application that allows a health care professional to make a specific diagnosis by viewing
a medical image from a picture archiving and communication system (PACS) on a smart mobile device or a mobile tablet; or
|
|
●
|
transform a mobile platform into a regulated medical device
– for example, an application that turns a smart mobile device into an electrocardiography (ECG) machine to detect abnormal
heart rhythms or determine if a patient is experiencing a heart attack.
|
Ongoing Regulation by FDA
Even after a device
receives clearance or approval and is placed on the market, numerous regulatory requirements apply. These include:
|
●
|
establishment registration and device listing;
|
|
●
|
quality system regulation, which requires manufacturers, including
third-party manufacturers, to follow stringent design, testing, control, documentation, and other quality assurance procedures
during all phases of the product life-cycle;
|
|
●
|
labeling regulations and FDA prohibitions against the promotion
of products for uncleared, unapproved or “off-label” uses, and other requirements related to promotional activities;
|
|
●
|
medical device reporting regulations, which require that manufacturers
report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that
would likely cause or contribute to a death or serious injury if the malfunction were to recur;
|
|
●
|
corrections and removals reporting regulations, which require
that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health
posed by the device or to remedy a violation of the Federal Food, Drug and Cosmetic Act that may present a risk to health; and
|
|
●
|
post-market surveillance regulations, which apply when necessary
to protect the public health or to provide additional safety and effectiveness data for the device.
|
Failure to comply
with applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following sanctions:
fines, injunctions, civil or criminal penalties, recall or seizure of our current or future products, operating restrictions,
partial suspension or total shutdown of production, refusing our request for 510(k) clearance or PMA approval of new products,
rescinding previously granted 510(k) clearances or withdrawing previously granted PMA approvals.
We may be subject
to announced and unannounced inspections by the FDA, and these inspections may include the manufacturing facilities of our subcontractors.
If, as a result of these inspections, the FDA determines that our or our subcontractor’s equipment, facilities, laboratories
or processes do not comply with applicable FDA regulations and conditions of product clearance, the FDA may seek civil, criminal
or administrative sanctions and/or remedies against us, including the suspension of our manufacturing and selling operations.
Ongoing Regulation
by International Regulators
International sales
of medical devices are subject to foreign government regulations, which may vary substantially from country to country.
In order to maintain
the right to affix the CE Mark to sell medical devices in the European Union, an annual surveillance audit in the company premises
and, if needed, at major subcontractors’ premises needs to be carried out by the notified body. Additionally,
European Directives dictate the following requirements:
|
●
|
Vigilance system, which requires the manufacturer to immediately
notify the relevant Competent Authority when a company product has been involved in an incident that led to a death; led to
a serious injury or serious deterioration in the state of health of a patient, user or another person; or might have led to
death, serious injury or serious deterioration in health; and
|
|
●
|
Post-market surveillance including a documented procedure to
review experience gained from devices on the market and to implement any necessary corrective action, commensurate with nature
and risks involved with the product.
|
Failure to comply
with applicable regulatory requirements can result in enforcement action by the regulatory agency, which may include any of the
following sanctions: fines, injunctions, civil or criminal penalties, recall or seizure of our current or future products, operating
restrictions, partial suspension or total shutdown of production, refusing our request for renewing clearance and/or registration
of our products or granting clearance/registration for new products.
State Licensure
Requirements
Several states require
that Durable Medical Equipment (“DME”) providers be licensed in order to sell products to patients in that state.
Certain of these states require that DME providers maintain an in-state location. If these rules are determined to be applicable
to us and if we were found to be noncompliant, we could lose our licensure in that state, which could prohibit us from selling
our current or future products to patients in that state.
Federal Anti-Kickback
and Self-Referral Laws
The Federal Anti-Kickback
Statute prohibits the knowing and willful offer, payment, solicitation or receipt of any form of remuneration in return for, or
to induce the:
|
●
|
furnishing or arranging for the furnishing of items or services
reimbursable under Medicare, Medicaid or other governmental programs; or
|
|
●
|
purchase, lease, or order of, or the arrangement or recommendation
of the purchasing, leasing, or ordering of any item or service reimbursable under Medicare, Medicaid or other governmental
programs.
|
To the extent we are
required to comply with these regulations, it is possible that regulatory authorities could allege that we have not complied,
which could subject us to sanction. Noncompliance with the federal anti-kickback legislation can result in exclusion
from Medicare, Medicaid or other governmental programs, restrictions on our ability to operate in certain jurisdictions, as well
as civil and criminal penalties, any of which could have an adverse effect on our business and results of operations.
Federal law also includes
a provision commonly known as the “Stark Law”, which prohibits a physician from referring Medicare or Medicaid patients
to an entity providing “designated health services”, including a company that furnishes durable medical equipment,
in which the physician has an ownership or investment interest or with which the physician has entered into a compensation arrangement.
Violation of the Stark Law could result in denial of payment, disgorgement of reimbursements received under a noncompliant arrangement,
civil penalties, and exclusion from Medicare, Medicaid or other governmental programs.
Federal False Claims
Act
The Federal False
Claims Act provides, in part, that the federal government may bring a lawsuit against any person whom it believes has knowingly
presented, or caused to be presented, a false or fraudulent request for payment from the federal government, or who has made a
false statement or used a false record to get a claim approved. In addition, amendments in 1986 to the Federal False
Claims Act have made it easier for private parties to bring “qui tam” whistleblower lawsuits against companies. Penalties
include fines ranging from $5,500 to $11,000 for each false claim, plus three times the number of damages that the federal government
sustained because of the act of that person.
Civil Monetary
Penalties Law
The Federal Civil
Monetary Penalties Law prohibits the offering or transferring of remuneration to a Medicare or Medicaid beneficiary that the person
knows or should know likely to influence the beneficiary’s selection of a particular supplier of Medicare or Medicaid payable
items or services. Noncompliance can result in civil money penalties of up to $10,000 for each wrongful act, assessment of three
times the amount claimed for each item or service and exclusion from the Federal healthcare programs.
State Fraud and Abuse Provisions
Many states have also
adopted some form of anti-kickback and anti-referral laws and false claims acts. A determination of liability under such laws
could result in fines and penalties and restrictions on our ability to operate in these jurisdictions.
Administrative
Simplification of the Health Insurance Portability and Accountability Act of 1996
The Health Insurance
Portability and Accountability Act of 1996, or HIPAA, mandated the adoption of standards for the exchange of electronic health
information in an effort to encourage overall administrative simplification and enhance the effectiveness and efficiency of the
healthcare industry. Ensuring the privacy and security of patient information is one of the key factors driving the legislation.
Intellectual Property
Patent applications
On May 8, 2011, certain
of our founders filed a Patent Cooperation Treaty (PCT) Application No. PCT/IL2011/000369, titled “Fluids Testing Apparatus
and Methods of Use.” This PCT took priority from two preceding U.S. provisional applications filed by our founders,
with the earliest priority date being May 9, 2010. The PCT application was transferred to us by our founders on October 27, 2011.
This application covers
the novel blood glucose measurement device, comprising the glucose meter; and an adaptor that connects the glucose meter to a
smart-phone to receive power supply and data display, storage, and analysis. A PCT search report and written opinion
on patentability that we received from World Intellectual Property Organization (known as WIPO) were very positive, including
only two “Y” citations, meaning no significant prior art was found with regards to novelty and inventiveness of the
application. Corresponding national applications of our PCT were filed in November 2012 in the U.S., Europe, and other
major territories.
On May 1, 2014, we
announced the receipt of a U.S. Notice of Allowance for a key patent relating to how the Dario Blood Glucose Monitoring System
draws power from and transmits data to a smartphone via the audio jack port. This patent was issued as U.S. Patent No. 8,797,180
in August 2014, and in September 2015, we have issued a U.S. patent (No. 9,125,549) that broadens our registered patent No. 8,797,180
to include testing of other bodily fluids through an audio jack connection. We believe this represents critical intellectual property
recognition and a significant initial validation of our intellectual property efforts. Further, a corresponding European patent
was granted to us in May 2016, as European patent No. 2569622 for testing of fluids through an audio jack connection. Additional
corresponding patents were granted in Israel. Corresponding applications for this invention are still pending in the U.S., China,
and Australia. On November 11, 2017, U.S. patent No. 9,832,301 titled “Systems and methods for adjusting power levels on
a monitoring device” was granted. This latest patent enhances the way the Dario Blood Glucose Monitoring System communicates
with users’ smartphone devices.
Additionally, a U.S.
non-provisional and corresponding PCT application were filed, and are still pending, which cover new connection related technologies.
Additional patent
applications are in the process of being prepared for filing, and we believe that we have a rich pipeline of future technologies
that we are actively developing.
We are further seeking
to develop and protect new intellectual property around future generations of our hardware and software with the goal of achieving
enhanced functionality, user interface and data usability.
Design patents
and patent applications on the Dario Blood Glucose Monitoring System
To further protect
our market distinction and branding for the Dario Blood Glucose Monitoring System, three U.S. Design Applications have been filed
and granted covering the glucose meter, the cartridge, and connection dongle. These applications were granted and registered in
the United States. We have also filed national applications for the cartridge in many other jurisdictions, the great majority
of which have been granted.
Design patents
and patent applications on the Dario Smart Diabetes Management App
In addition, three
U.S. Design Applications have been filed and granted covering our smart mobile device display screens with the graphical user
interface. These design applications were also filed in several major jurisdictions, all of which have been granted.
Trademark applications
We have also filed
three trademark applications covering the “Dario” name and logo, and our company’s name “DarioHealth.” “Dario”
is registered as a trademark in the United States, Israel, China, Canada, Hong Kong, South Africa, Japan, Costa Rica, and Panama.
“DarioHealth” is registered as a trademark in the United States and Israel.
Utility Models
We have been granted
Utility Models for our core invention in Japan and Germany.
Other intangible
assets
As the number of Dario
users grows, a large amount of data will be collected from diabetic patients, comprising their blood sugar levels, meal composition,
and timing, physical exercise (intensity and duration) as well as many other factors, which are useful for creating meaningful
correlations between these factors and insulin use. We expect that this database will be highly valuable and may be
capitalized in many ways. The accumulation of this type of know-how and related algorithms are protected as trade secrets using
specialized confidentiality protocols.
Competition
We face competition
in each segment of our offering (device, applications, coaching and analytics) and more importantly from competitors integrating
these four components.
Blood Glucose Monitors
(BGM).
Our device competes directly and primarily with other BGM suppliers including, but not limited to, Abbott Laboratories,
Ascensia (formerly Bayer Diabetes Care), Johnson & Johnson LifeScan, Roche Diabetes and a large number of low-price private
label manufacturers. Some of these devices connect to smartphones and tablets, such as, but not limited to, the Sanofi
iBGStar, Medisana GlucoDock, Philosys Gmate Smart, One Drop, and iHealth Align.
Continuous blood
Glucose Monitors
(CGM)
.
Continuous blood glucose monitors have made significant market progression in the last
few years. More insulin-using patients are using them on a continuing basis rather than an intermittent basis.
While the market is
highly competitive, we believe that we have important comparative advantages.
|
-
|
We offer an all-in-one glucose monitoring system, including a small form factor glucose reader,
lancing device and a strip cartridge connected to existing smart mobile devices
|
|
-
|
We cover largely non-insulin using patients and therefore do not compete with CGM. A large percentage
of insulin-using patients prefer to test with a BGM rather than a CGM
|
|
-
|
Most importantly, in our opinion, is our integrated solution separates us from BGM and CGM competitors.
|
Diabetes management
applications.
There are hundreds of diabetes management applications available for download (such as Glucose Buddy, mySugr
(now part of Roche Diabetes), Carb Manager, Sugar Sense and Welldoc). We believe that the existing diabetes management application
do not offer a good value and users quickly stop using them.
We believe that our application is differentiated
as compared to our competitors by the high level of engagement by our users, coming from a unique know-how in terms of user experience,
as well as the nature of our integrated solution.
Coaching services.
Pure coaching services such as Cecilia Health (formerly Fit4D), or services delivered by medical distributors or healthcare
providers are often relatively expensive and mostly offered on a limited time basis (e.g. one month after the discharge of a patient,
or three months for onboarding of a new drug). We believe that our coaching services is differentiated as compared to our competitors
in that our coaching services are an essential part of our solution and is maintained throughout a patient’s use of our application.
Digital health integrated
competitors
. Several digital health competitors integrate several, or all of, the four components of our offering, including
but not limited to: Livongo, Glooko, Omada, OneDrop. In practice, we believe that the closest competitor in terms of an integrated
offering is Livongo.
Our differentiation
versus such integrated competitors includes
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Proven and significant results, placing us in the category of “Digital Therapeutics”
(DTx);
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Open platform (capable of integrating non-proprietary devices and coaching services);
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Operating in the U.S., Canada, Europe and Australia/New Zealand;
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Small form factor glucose reader whereas most devices from competitors have the size of another
cell phone that the user needs to carry around;
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Instant connection of the reader with the phone, thus maximizing opportunities to engage with the
user; and
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Flexibility of our product to integrate with the workflows of its business partners (e.g. with
the health communication generated by a retailer, with the coaches operating from a diabetes clinic).
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Employees
We currently have 69
full-time employees and 7 part-time employees. We have employment agreements with our three executive officers. See
“Management – Employment Agreements.”
Investing in our
securities is highly speculative and involves a high degree of risk. You should carefully consider the following factors and other
information in this Annual Report and our other SEC filings before making a decision to invest in our securities. Additional risks
and uncertainties that we are unaware of may become important factors that affect us. If any of the following events occur, our
business, financial conditions and operating results may be materially and adversely affected. In that event, the trading price
of our common stock and warrants may decline, and you could lose all or part of your investment.
Risks Related
to Our Financial Position and Capital Requirements
We were formed in August 2011 and are thus subject to
the risks associated with new businesses.
We were formed in
August 2011 as a new business and only recently entered the commercialization stage of our technology. As such, this limited operating
history may not be adequate to enable you to fully assess our ability to develop and commercialize the Dario Smart Diabetes Management
Solution, achieve market acceptance of the Dario Smart Diabetes Management Solution and respond to competition. We commenced a
commercial launch of the free Dario Smart Diabetes Management application in the United Kingdom in late 2013 and commenced an
initial soft launch of the full Dario Smart Diabetes Management Solution (including the app and the Dario Blood Glucose Monitoring
System) in selected jurisdictions in March 2014 with the goal of collecting customer feedback to refine our longer-term roll-out
strategy and continued to scale up launch during 2014 in the United Kingdom, the Netherlands and New Zealand, in 2015 in Australia,
Israel and Canada and in 2016 in the United States. These efforts have not generated material revenues, and it is still too early
to predict if we will be able to generate significant revenues over the next years. Therefore, we are, and expect for the foreseeable
future to be, subject to all the risks and uncertainties, inherent in a new business and the development and sale of new medical
devices and related software applications. As a result, we may be unable to fully develop, obtain regulatory approval for, commercialize,
manufacture, market, sell and derive material revenues in the timeframes we project, if at all, and our inability to do so would
materially and adversely impact our viability as a company. In addition, we still must establish many functions necessary to operate
a business, including finalizing our managerial and administrative structure, continuing product and technology development, assessing
and commencing our marketing activities, implementing financial systems and controls and personnel recruitment.
Accordingly, you should
consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in their
initial revenue generating stages, particularly those in the medical device and mobile health fields. In particular, potential
investors should consider that there is a significant risk that we will not be able to:
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implement or execute our current business plan, or that our
business plan is sound;
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maintain our management team and Board of Directors;
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raise sufficient funds in the capital markets or otherwise to effectuate our business plan;
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determine that our technologies that we have developed are commercially viable; and/or
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attract, enter into or maintain contracts with, and retain customers.
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In the event that
we do not successfully address these risks, our business, prospects, financial condition, and results of operations could be materially
and adversely affected.
Given
our limited revenue and lack of positive cash flow, we will need to raise additional capital, which may be unavailable to us or,
even if consummated, may cause dilution or place significant restrictions on our ability to operate.
According to our management’s
estimates, based on our current cash on hand and further based on our budget and the assumption that initial commercial sales
will commence during our anticipated timeframes, we believe that we will have sufficient resources to continue our activities
only into March 2020.
Since we might be
unable to generate sufficient revenue or cash flow to fund our operations for the foreseeable future, we will need to seek additional
equity or debt financing to provide the capital required to maintain or expand our operations. We may also need additional funding
for developing products and services, increasing our sales and marketing capabilities, and promoting brand identity, as well as
for working capital requirements and other operating and general corporate purposes. Moreover, the regulatory compliance arising
out of being a publicly registered company has dramatically increased our costs.
We do not currently
have any arrangements or credit facilities in place as a source of funds, and there can be no assurance that we will be able to
raise sufficient additional capital on acceptable terms, or at all. If such financing is not available on satisfactory terms,
or is not available at all, we may be required to delay, scale back or eliminate the development of business opportunities and
our operations and financial condition may be materially adversely affected.
If we raise additional
capital by issuing equity securities, the percentage ownership of our existing stockholders may be reduced, and accordingly these
stockholders may experience substantial dilution. We may also issue equity securities that provide for rights, preferences and
privileges senior to those of our common stock. Given our need for cash and that equity raising is the most common type of fundraising
for companies like ours, the risk of dilution is particularly significant for stockholders of our company.
Debt financing, if
obtained, may involve agreements that include liens on our assets, covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, could increase our expenses and require that our assets be provided as a security
for such debt. Debt financing would also be required to be repaid regardless of our operating results.
If we raise additional
funds through collaborations and licensing arrangements, we may be required to relinquish some rights to our technologies or candidate
products, or to grant licenses on terms that are not favorable to us.
Funding from any source
may be unavailable to us on acceptable terms, or at all, particularly due to certain offering participation rights afforded to
a lead investor that participated in our January 2017 private placement. If we do not have sufficient capital to fund our operations
and expenses, we may not be able to achieve or maintain competitiveness, which could lead to the failure of our business and the
loss of your investment.
We have incurred significant losses
since inception. As such, you cannot rely upon our historical operating performance to make an investment decision regarding our
company.
Since our inception,
we have engaged primarily in research and development activities and in 2015 entered the commercialization stage. We have financed
our operations primarily through private placements of common stock and have incurred losses in each year since inception including
net losses of $17,803,000 and $15,743,000 in 2018 and 2017, respectively. Our accumulated deficit at December 31, 2018 was approximately
$89,254,000. We do not know whether or when we will become profitable. Our ability to generate revenue and achieve profitability
depends upon our ability, alone or with others, to launch Dario in additional European countries, and elsewhere and manufacture,
market and sell Dario where approved. We may be unable to achieve any or all of these goals.
Our independent registered public
accounting firm has expressed in its report to our 2018 audited consolidated financial statements a substantial doubt about our
ability to continue as a going concern
.
We only recently entered
the commercialization stage, and the development and commercialization of Dario is uncertain and expected to require substantial
expenditures. We have not yet generated sufficient revenues from our operations to fund our activities and are therefore dependent
upon external sources for financing our operations. There is a risk that we will be unable to obtain the necessary financing to
continue our operations on terms acceptable to us or at all. As a result, our independent registered public accounting firm has
expressed in its auditors’ report on the consolidated financial statements for December 31, 2018, a substantial doubt regarding
our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result
from the outcome of the uncertainty regarding our ability to continue as a going concern. This going concern opinion could materially
limit our ability to raise additional funds through the issuance of equity or debt securities or otherwise. Future reports on our
financial statements may include an explanatory paragraph with respect to our ability to continue as a going concern. If we cannot
continue as a going concern, our stockholders may lose their entire investment in the common stock.
We may be subject to claims for
rescission or damages in connection with certain sales of shares of our securities.
In March 2016, the
Securities and Exchange Commission declared effective a registration statement that we filed to cover the sale of 1,333,333 shares
of common stock, 1,533,333 warrants to purchase common stock, 1,533,333 shares of common stock underlying such warrants, and underwriters’
warrants to purchase up to 143,333 shares of common stock. Sales of approximately 55,555 shares of common stock, approximately
255,555 shares of common stock underlying warrants and approximately 25,555 shares of common stock underlying underwriters’
warrants may not have been made in accordance with Section 5 of the Securities Act of 1933, as amended. Accordingly, the purchasers
of those securities may have rescission rights or be entitled to damages. The amount of such liability, if any, is uncertain.
In the event that we are required to make payments to investors as a result of these unregistered sales of securities, our liquidity
could be negatively impacted.
Risks Related to Our Business
We only recently began commercializing
Dario, and our success will depend on the acceptance of Dario in the healthcare market.
Dario
has been CE marked since 2013, enabling us to commercialize
in 32 countries across Europe as well as in certain other countries
worldwide
. It was also approved by the regulatory authorities in Australia, New Zealand,
Canada, Israel and South Africa, and most recently in December 2015, we received FDA clearance. As a result, we have a limited
history of commercializing Dario and commenced selling Dario in the United States in 2016. We have limited experience engaging
in commercial activities and limited established relationships with physicians and hospitals as well as third-party suppliers
on whom we depend for the manufacture of our product.
We are faced with the risk that the marketplace will not be
receptive to Dario over competing products and that we will be unable to compete effectively. Factors that could affect our ability
to establish Dario or any potential future product include:
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the development of products or devices which could result in
a shift of customer preferences away from our device and services and significantly decrease revenue;
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the increased use of improved diabetes drugs that could encourage
certain diabetics to test less often, resulting in less usage of a self-monitoring test device for certain types of diabetics;
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the challenges of developing (or acquiring externally-developed)
technology solutions that are adequate and competitive in meeting the requirements of next-generation design challenges;
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the significant number of current competitors in the BGMS market
who have significantly greater brand recognition and more recognizable trademarks and who have established relationships with
diabetics healthcare providers and payors; and
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intense competition to attract acquisition targets, which may
make it more difficult for us to acquire companies or technologies at an acceptable price or at all.
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We cannot assure you
that Dario or any future product will gain broad market acceptance. If the market for Dario or any future product fails to develop
or develops more slowly than expected, or if any of the technology and standards supported by us do not achieve or sustain market
acceptance, our business and operating results would be materially and adversely affected.
There is no assurance that our recently
launched DarioEngage software platform will success or be adopted by Dario users.
We have recently launched
a new product offering of our DarioEngage software platform, where we digitally engage with Dario users, assist them in monitoring
their chronic illnesses and provide them with coaching, support, digital communications, and real-time alerts, trends and pattern
analysis. We expect that the DarioEngage software platform may be leveraged by our potential partners, such as clinics, health
care service providers, employers, and payers for scalable monitoring of people with diabetes in a cost-effective manner, which
we expect will open for us additional revenue streams. However, the success of our DarioEngage software platform will depend entirely
on our Dario user’s adoption of the platform and we cannot assure you that our Dario users will do so. If we cannot encourage
Dario users to utilize our DarioEngage software platform we may not succeed in marketing the product to our potential partners,
the failure of which may materially and adversely affect our business and operating results.
We may not be successful in launching
Dario Intelligence and even if we are successful in doing so, there is no assurance that we will be successful in marketing and/or
selling our product in the marketplace.
We intend to launch
our Dario Intelligence program, which will utilize a large amount of data collected on our servers to develop predictive models
and artificial intelligence algorithms to meet the potential demand of intelligence-driven analytics that healthcare providers
may be looking for to improve their services. However, the launch of Dario Intelligence will require significant financial and
technical resources. There is no assurance that we will successfully develop or launch Dario Intelligence. Even if we are successful
in doing so, there is no assurance that the marketplace will accept or adopt the usage of Dario Intelligence. If we cannot successfully
develop Dario Intelligence, or encourage the use and adoption of Dario Intelligence by market participants, our business and operating
results may be materially and adversely affected.
We cannot accurately predict the
volume or timing of any future sales, making the timing of any revenues difficult to predict.
We may be faced with
lengthy customer evaluation and approval processes associated with Dario. Consequently, we may incur substantial expenses and
devote significant management effort and expense in developing customer adoption of Dario which may not result in revenue generation.
We must also obtain regulatory approvals of Dario in certain jurisdictions as well as approval for insurance reimbursement in
order to initiate sales of Dario, each of which is subject to risk and potential delays, and neither of which may actually occur.
As such, we cannot accurately predict the volume or timing of any future sales.
If Dario fails to satisfy current
or future customer requirements, we may be required to make significant expenditures to redesign the product, and we may have
insufficient resources to do so.
Dario is being designed
to address an evolving marketplace and must comply with current and evolving customer requirements in order to gain market acceptance.
There is a risk that Dario will not meet anticipated customer requirements or desires. If we are required to redesign our products
to address customer demands or otherwise modify our business model, we may incur significant unanticipated expenses and losses,
and we may be left with insufficient resources to engage in such activities. If we are unable to redesign our products, develop
new products or modify our business model to meet customer desires or any other customer requirements that may emerge, our operating
results would be materially adversely affected and our business might fail.
We expect to derive substantially
all of our revenues from our principal technology, which leaves us subject to the risk of reliance on such technology.
We expect to derive
substantially all of our revenues from sales of products derived from our principal technology. Our initial product utilizing
this technology is Dario. As such, any factor adversely affecting sales of Dario, including the product release cycles, regulatory
issues, market acceptance, product competition, performance and reliability, reputation, price competition and economic and market
conditions, would likely harm our operating results. We may be unable to develop other products utilizing our technology, which
would likely lead to the failure of our business. Moreover, in spite of our efforts related to the registration of our technology,
if patent protection is not available for our principal technology, the viability of Dario and any other products that may be
derived from such technology would likely be adversely impacted to a significant degree, which would materially impair our prospects.
We
are dependent upon third-party manufacturers and suppliers making us vulnerable to supply shortages and problems and price fluctuations,
which could harm our business.
We
do not own or operate manufacturing facilities for clinical or commercial production of the Dario Blood Glucose Monitoring System
and we lack the resources and the capability to manufacture the Dario Blood Glucose Monitoring System on a commercial scale. Therefore,
we rely on a limited number of suppliers who manufacture and assemble certain components of the Dario Blood Glucose Monitoring
System. Our suppliers may encounter problems during manufacturing for a variety of reasons, including, for example, failure to
follow specific protocols and procedures, failure to comply with applicable legal and regulatory requirements, equipment malfunction
and environmental factors, failure to properly conduct their own business affairs, and infringement of third-party intellectual
property rights, any of which could delay or impede their ability to meet our requirements. Our reliance on these third-party
suppliers also subjects us to other risks that could harm our business, including:
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we are not a major customer of many of our suppliers, and these suppliers may therefore
give other customers’ needs higher priority than ours;
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third parties may threaten or enforce their intellectual property
rights against our suppliers, which may cause disruptions or delays in shipment, or may force our suppliers to cease conducting
business with us;
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we may not be able to obtain an adequate supply in a timely
manner or on commercially reasonable terms;
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our suppliers, especially new suppliers, may make errors in
manufacturing that could negatively affect the efficacy or safety of the Dario Blood Glucose Monitoring System or cause delays
in shipment;
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we may have difficulty locating and qualifying alternative suppliers;
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switching components or suppliers may require product redesign
and possibly submission to FDA, European Economic Area Notified Bodies, or other foreign regulatory bodies, which could significantly
impede or delay our commercial activities;
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one or more of our sole- or single-source suppliers may be unwilling
or unable to supply components of the Dario Blood Glucose Monitoring System;
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other customers may use fair or unfair negotiation tactics and/or
pressures to impede our use of the supplier;
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the occurrence of a fire, natural disaster or other catastrophe
impacting one or more of our suppliers may affect their ability to deliver products to us in a timely manner; and
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our suppliers may encounter financial or other business hardships
unrelated to our demand, which could inhibit their ability to fulfill our orders and meet our requirements.
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We
may not be able to quickly establish additional or alternative suppliers if necessary, in part because we may need to undertake
additional activities to establish such suppliers as required by the regulatory approval process. Any interruption or delay in
obtaining products from our third-party suppliers, or our inability to obtain products from qualified alternate sources at acceptable
prices in a timely manner, could impair our ability to meet the demand of our customers and cause them to switch to competing
products. Given our reliance on certain single-source suppliers, we are especially susceptible to supply shortages because we
do not have alternate suppliers currently available.
We rely in part on a small group
of third-party distributors to effectively distribute our products.
We
depend in part on medical device distributors for the marketing and selling of our products in certain territories in which we
have launched product sales. We depend on these distributors’ efforts to market our products, yet we are unable to control
their efforts completely. These distributors typically sell a variety of other, non-competing products that may limit the resources
they dedicate to selling Dario. In addition, we are unable to ensure that our distributors comply with all applicable laws regarding
the sale of our products. If our distributors fail to effectively market and sell Dario, in full compliance with applicable laws,
our operating results and business may suffer. Recruiting and retaining qualified third-party distributors and training them in
our technology and product offering requires significant time and resources. To develop and expand our distribution, we must continue
to scale and improve our processes and procedures that support our distributors. Further, if our relationship with a successful
distributor terminates, we may be unable to replace that distributor without disruption to our business. If we fail to maintain
positive relationships with our distributors, fail to develop new relationships with other distributors, including in new markets,
fail to manage, train or incentivize existing distributors effectively, or fail to provide distributors with competitive products
on attractive terms, or if these distributors are not successful in their sales efforts, our revenue may decrease and our operating
results, reputation and business may be harmed.
Failure in our online and digital
marketing efforts could significantly impact our ability to generate sales.
In several of our
principal target markets, we utilize online and digital marketing in order to create awareness to Dario. Our management believes
that using online advertisement through affiliate networks and a variety of other pay-for-performance methods will be superior
for marketing and generating sales of Dario rather than utilizing traditional, expensive retail channels. However, there is a
risk that our marketing strategy could fail. Because we plan to use non-traditional retail sales tools and to rely on healthcare
providers to educate our customers about Dario, we cannot predict the level of success, if any, that we may achieve by marketing
Dario via the internet. The failure of our online marketing efforts would significantly and negatively impact our ability to generate
sales.
Our Dario Smart Diabetes Management
application, which is a key to our business model, is available via Apple’s iOS and via Google’s Android platforms
and maybe in the future via additional platforms. If we are unable to achieve or maintain a good relationship with each of Apple
and Google or similar platforms, or if the Apple App Store or the Google Play Store or any other applicable platform were unavailable
for any prolonged period of time, our business will suffer.
A key component of
the Dario Smart Diabetes Management Solution is an iPhone or Android application which includes tools to help diabetic patients
manage their disease. This application is compatible with Apple’s iOS and with Google’s Android platforms and may
in the future become compatible via additional platforms. If we are unable to make our Dario Smart Diabetes Management application
compatible with these platforms, or if there is any deterioration in our relationship with either Apple or Google or others after
our application is available, our business would be materially harmed.
We are subject to
each of Apple’s and Google’s standard terms and conditions for application developers, which govern the promotion,
distribution, and operation of games and other applications on their respective storefronts. Each of Apple and Google has broad
discretion to change its standard terms and conditions, including changes which could require us to pay to have our Dario Smart
Diabetes Management application available for downloading. In addition, these standard terms and conditions can be vague and subject
to changing interpretations by Apple or Google. We may not receive any advance warning of such changes. In addition, each of Apple
and Google has the right to prohibit a developer from distributing its applications on its storefront if the developer violates
its standard terms and conditions. In the event that either Apple or Google ever determines that we are in violation of its standard
terms and conditions, including by a new interpretation, and prohibits us from distributing our Dario Smart Diabetes Management
application on its storefront, it would materially harm our business.
Additionally, we will
rely on the continued function of the Apple App Store and the Google Play Store as digital storefronts where our Dario Smart Diabetes
Management application may be obtained. There have been occasions in the past when these digital storefronts were unavailable
for short periods of time or where there have been issues with the in-app purchasing functionality within the storefront. In the
event that either the Apple App Store or the Google Play Store is unavailable or if in-app purchasing functionality within the
storefront is non-operational for a prolonged period of time, it would have a material adverse effect on the ability of our customers
to secure the Dario Smart Diabetes Management application, which would materially harm our business.
Our products are subject to technological
changes which may impact their use.
Our Dario Blood Glucose
Monitoring System is currently designed to be plugged into the audio jack of a mobile device. In addition, we have recently completed
the development of a version of the Dario Blood Glucose Monitoring System that connects to an iPhone 7 and later models through
the Lightning jack instead of the missing audio jack. As a result, our products are subject to future technological changes to
mobile devices that may occur in the future. If we are unable to modify our products to keep pace with such technological changes,
it would have a material adverse effect the ability of our customers to use our products, which would materially harm our business.
As we conduct business internationally,
we are susceptible to risks associated with international relationships.
Outside of the United
States, we operate our business internationally, presently in Europe, Australia and Canada. The international operation of our
business requires significant management attention, which could negatively affect our business if it diverts their attention from
their other responsibilities. In the event that we are unable to manage the complications associated with international operations,
our business prospects could be materially and adversely affected. In addition, doing business with foreign customers subjects
us to additional risks that we do not generally face in the United States. These risks and uncertainties include:
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management, communication and integration problems resulting from cultural differences and
geographic dispersion;
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localization of products and services, including translation
of foreign languages;
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delivery, logistics and storage costs;
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longer accounts receivable payment cycles and difficulties in
collecting accounts receivable;
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difficulties supporting international operations;
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difficulties supporting customer services;
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changes in economic and political conditions;
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impact of trade protection measures;
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complying with import or export licensing requirements;
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exchange rate fluctuations;
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competition from companies with international operations, including
large international competitors and entrenched local companies;
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potentially adverse tax consequences, including foreign tax
systems and restrictions on the repatriation of earnings;
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maintaining and servicing computer hardware in distant locations;
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keeping current and complying with a wide variety of foreign
laws and legal standards, including local labor laws;
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securing or maintaining protection for our intellectual property;
and
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reduced or varied protection for intellectual property rights,
including the ability to transfer such rights to third parties, in some countries.
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The occurrence of
any or all of these risks could adversely affect our international business and, consequently, our results of operations and financial
condition.
We expect to be exposed to fluctuations
in currency exchange rates, which could adversely affect our results of operations.
Because we expect
to conduct a material portion of our business outside of the United States but report our financial results in U.S. Dollars, we
face exposure to adverse movements in currency exchange rates. Our foreign operations will be exposed to foreign exchange rate
fluctuations as the financial results are translated from the local currency into U.S. Dollars upon consolidation. Specifically,
the U.S. Dollar cost of our operations in Israel is influenced by any movements in the currency exchange rate of the New Israeli
Shekel (NIS). Such movements in the currency exchange rate may have a negative effect on our financial results. If the U.S. Dollar
weakens against foreign currencies, the translation of these foreign currencies denominated transactions will result in increased
revenue, operating expenses and net income. Similarly, if the U.S. Dollar strengthens against foreign currencies, the translation
of these foreign currencies denominated transactions will result in decreased revenue, operating expenses and net income. As exchange
rates vary, sales and other operating results, when translated, may differ materially from our or the capital market’s expectations.
Non-U.S. governments often impose
strict price controls, which may adversely affect our future profitability.
We intend to seek
approval to market Dario and any future product in both the U.S. and in non-U.S. jurisdictions. If we obtain approval in one or
more non-U.S. jurisdictions, we will be subject to rules and regulations in those jurisdictions relating to our products. In some
countries, particularly countries of the European Union, each of which has developed its own rules and regulations, pricing may
be subject to governmental control under certain circumstances. In these countries, pricing negotiations with governmental authorities
can take considerable time after the receipt of marketing approval for a medical device candidate. To obtain reimbursement or
pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our
product to other available products.
If reimbursement of our product candidates is unavailable or limited in scope
or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.
Our Dario Smart Diabetes Management
Solution and associated business processes may contain undetected errors, which could limit our ability to provide our services
and diminish the attractiveness of our service offerings.
The Dario Smart Diabetes
Management Solution may contain undetected errors, defects or bugs. As a result, our customers or end users may discover errors
or defects in our products, software or the systems we design, or the products or systems incorporating our designs and intellectual
property may not operate as expected. We may discover significant errors or defects in the future that we may not be able to fix.
Our inability to fix any of those errors could limit our ability to provide our products, impair the reputation of our brand and
diminish the attractiveness of our product offerings to our customers.
In addition, we may
utilize third-party technology or components in our products and we rely on those third parties to provide support services to
us. Failure of those third parties to provide necessary support services could materially adversely impact our business.
Our future performance will depend
on the continued engagement of key members of our management team.
Our future performance
depends to a large extent on the continued services of members of our current management including, in particular, Erez Raphael,
our Chief Executive Officer and a member of our Board of Directors, Zvi Ben David, our Chief Financial Officer, Treasurer and
Secretary and Olivier Jarry, our President and Chief Commercial Officer. In the event that we lose the continued services of such
key personnel for any reason, this could have a material adverse effect on our business, operations, and prospects.
If we are not able to attract and
retain highly skilled managerial, scientific and technical personnel, we may not be able to implement our business model successfully.
We believe that our
management team must be able to act decisively to apply and adapt our business model in the rapidly changing markets in which
we will compete. In addition, we will rely upon technical and scientific employees or third party contractors to effectively establish,
manage and grow our business. Consequently, we believe that our future viability will depend largely on our ability to attract
and retain highly skilled managerial, sales, scientific and technical personnel. In order to do so, we may need to pay higher
compensation or fees to our employees or consultants than we currently expect and such higher compensation payments would have
a negative effect on our operating results. Competition for experienced, high-quality personnel is intense and we cannot assure
that we will be able to recruit and retain such personnel. We may not be able to hire or retain the necessary personnel to implement
our business strategy. Our failure to hire and retain such personnel could impair our ability to develop new products and manage
our business effectively.
Risks Related to Product Development
and Regulatory Approval
The regulatory clearance process
which we must navigate is expensive, time-consuming, and uncertain and may prevent us from obtaining clearance for the commercialization
of Dario
or our any future product.
We are not permitted
to market Dario until we receive regulatory clearance. To date, we have received regulatory clearance in Australia, Canada, Israel,
Italy, the Netherlands, New Zealand, the United Kingdom, and the United States.
The research, design,
testing, manufacturing, labeling, selling, marketing and distribution of medical devices are subject to extensive regulation by
the FDA and non-U.S. regulatory authorities, which regulations differ from country to country.
There
can be no assurance that even after such time and expenditures, we will be able to obtain necessary regulatory approvals for clinical
testing or for the manufacturing or marketing of any products. In addition, during the regulatory process, other companies
may develop other technologies with the same intended use as our products.
We are also subject
to numerous post-marketing regulatory requirements, which include labeling regulations and medical device reporting regulations,
which may require us to report to different regulatory agencies if our device causes or contributes to a death or serious injury,
or malfunctions in a way that would likely cause or contribute to a death or serious injury. In addition, these regulatory requirements
may change in the future in a way that adversely affects us. If we fail to comply with present or future regulatory requirements
that are applicable to us, we may be subject to enforcement action by regulatory agencies, which may include, among others, any
of the following sanctions:
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untitled letters, warning letters, fines, injunctions, consent
decrees, and civil penalties;
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customer notification, or orders for repair, replacement or
refunds;
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voluntary or mandatory recall or seizure of our current or future
products;
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imposing operating restrictions, suspension or shutdown of production;
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refusing our requests for 510(k) clearance or pre-market approval
of new products, new intended uses or modifications to Dario or future products;
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rescinding 510(k) clearance or suspending or withdrawing pre-market
approvals that have already been granted; and
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The occurrence of
any of these events may have a material adverse effect on our business, financial condition and results of operations.
In addition, on September
23, 2013, the FDA issued final guidance (which we refer to herein as the Guidance) for developers of mobile medical applications,
or apps, which are software programs that run on mobile communication devices and perform the same functions as traditional medical
devices. The Guidance outlines the FDA’s tailored approach to mobile apps. The FDA plans to exercise enforcement discretion
(meaning it will not enforce requirements under the Federal Food, Drug and Cosmetic Act) for the majority of mobile apps as they
pose minimal risk to consumers. The FDA plans to focus its regulatory oversight on a subset of mobile medical apps that present
a greater risk to patients if they do not work as intended. We anticipate that the Dario Smart Diabetes Management application
will be subject to the FDA regulation as a “mobile medical app.”
We
have conducted limited clinical studies of Dario. Clinical and pre-clinical data is susceptible to varying interpretations, which
could delay, limit or prevent additional regulatory clearances.
To
date, we have conducted limited clinical studies on Dario. There can be no assurance that we will successfully complete
additional clinical studies necessary to receive additional regulatory approvals in certain jurisdictions. While studies conducted
by us have produced results we believe to be encouraging and indicative of the potential efficacy of Dario, data already obtained,
or in the future obtained, from pre-clinical studies and clinical studies do not necessarily predict the results that will be
obtained from later pre-clinical studies and clinical studies. Moreover, pre-clinical and clinical data are susceptible to varying
interpretations, which could delay, limit or prevent additional regulatory approvals. A number of companies in the medical device
and pharmaceutical industries have suffered significant setbacks in advanced clinical studies, even after promising results in
earlier studies. The failure to adequately demonstrate the safety and effectiveness of an intended product under development could
delay or prevent regulatory clearance of the device, resulting in delays to commercialization, and could materially harm our business. Even
though we have received CE mark and FDA clearance of Dario, there can be no assurance that we will be able to receive approval
for other potential applications of our principal technology, or that we will receive regulatory clearances from other targeted
regions or countries.
We may be unable to complete required
clinical trials, or we may experience significant delays in completing such clinical trials, which could significantly delay our
targeted product launch timeframe and impair our viability and business plan.
The completion of
any future clinical trials for Dario or other trials that we may be required to undertake in the future could be delayed, suspended
or terminated for several reasons, including:
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our failure or inability to conduct the clinical trial in accordance
with regulatory requirements;
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sites participating in the trial may drop out of the trial,
which may require us to engage new sites for an expansion of the number of sites that are permitted to be involved in the
trial;
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patients may not enroll in, remain in or complete, the clinical
trial at the rates we expect; and
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clinical investigators may not perform our clinical trial on
our anticipated schedule or consistent with the clinical trial protocol and good clinical practices.
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If our clinical trial
is delayed it will take us longer to further commercialize Dario and generate additional revenues. Moreover, our development costs
will increase if we have material delays in our clinical trial or if we need to perform more or larger clinical trials than planned.
We may be faced with similar risks in connection with future trials we conduct. See “Business - Clinical Trials” for
a description of our clinical trials performed to date.
If we or our manufacturers fail
to comply with the FDA’s Quality System Regulation or any applicable state equivalent, our operations could be interrupted
and our operating results could suffer.
We, our manufacturers
and suppliers must, unless specifically exempt by regulation, follow the FDA’s Quality System Regulation (QSR) and are also
subject to the regulations of foreign jurisdictions regarding the manufacturing process. If our affiliates, our manufacturers
or suppliers are found to be in significant non-compliance or fail to take satisfactory corrective action in response to adverse
QSR inspectional findings, the FDA could take enforcement actions against us and our manufacturers which could impair our ability
to produce our products in a cost-effective and timely manner in order to meet our customers’ demands. Accordingly, our
operating results could suffer.
We are subject to the risk of reliance
on third parties to conduct our clinical trial work.
We depend on independent
clinical investigators to conduct our clinical trials. Contract research organizations may also assist us in the collection and
analysis of data. These investigators and contract research organizations will not be our employees and we will not be able to
control, other than by contract, the number of resources, including the time that they devote to products that we develop. If
independent investigators fail to devote sufficient resources to our clinical trials, or if their performance is substandard,
it will delay the approval or clearance and commercialization of any products that we develop. Further, the FDA and other regulatory
bodies around the world require that we comply with standards, commonly referred to as good clinical practice, for conducting,
recording and reporting clinical trials to assure that data and reported results are credible and accurate and that the rights,
integrity, and confidentiality of trial subjects are protected. If our independent clinical investigators and contract research
organizations fail to comply with good clinical practice, the results of our clinical trials could be called into question and
the clinical development of our product candidates could be delayed. Failure of clinical investigators or contract research organizations
to meet their obligations to us or comply with federal regulations could adversely affect the clinical development of our product
candidates and harm our business. Moreover, we intend to have several clinical trials in order to support our marketing efforts
and business development purposes. Such clinical trials will be conducted by third parties as well. Failure of such clinical trials
to meet their primary endpoints could adversely affect our marketing efforts.
Legislative
reforms to the United States healthcare system may adversely affect our revenues and business.
From
time to time, legislative reform measures are proposed or adopted that would impact healthcare expenditures for medical services,
including the medical devices used to provide those services. For example, in March 2010, U.S. President Barack Obama signed the
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively referred
to as the Affordable Care Act. The Affordable Care Act made a number of substantial changes in the way health care is financed
by both governmental and private insurers and the way that Medicare providers are reimbursed. Among other things, the Affordable
Care Act requires certain medical device manufacturers and importers to pay an excise tax equal to 2.3% of the price for which
such medical devices are sold, beginning January 1, 2013.
In
addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. On August 2,
2011, the President signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee
on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve a targeted
deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering the legislation’s automatic reduction
to several government programs. This includes reductions to Medicare payments to providers of 2.0% per fiscal year. On January 2,
2013, President Obama signed into law the American Taxpayer Relief Act of 2012, or the ATRA, which delayed for another two months
the budget cuts mandated by these sequestration provisions of the Budget Control Act of 2011. On March 1, 2013, the President
signed an executive order implementing sequestration, and on April 1, 2013, the 2% Medicare payment reductions went into
effect. The Bipartisan Budget Act of 2013, enacted on December 26, 2013, extends these cuts to 2023. The ATRA also, among
other things, reduced Medicare payments to several providers, including hospitals, imaging centers, and cancer treatment centers,
and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
In December 2014, Congress passed an omnibus funding bill (the Consolidated and Further Continuing Appropriations Act, 2015) and
a tax extenders bill, both of which may negatively impact coverage and reimbursement of healthcare items and services. We
expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the
amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand
for our products or additional pricing pressure. For example, U.S. President Donald Trump has recently publicly indicated an intent
to lower healthcare costs through various potential initiatives. In addition, President Trump and other U.S. lawmakers have made
statements about potentially repealing and/or replacing the Affordable Care Act, although specific legislation for such repeal
or replacement has not yet been introduced. While we are unable to predict what changes may ultimately be enacted, to the extent
that future changes affect how our products are paid for and reimbursed by government and private payers our business could be
adversely impacted.
Government
and private sector initiatives to limit the growth of health care costs, including price regulation, competitive pricing, coverage
and payment policies, comparative effectiveness reviews of therapies, technology assessments, and managed-care arrangements, are
continuing. Government programs, including Medicare and Medicaid, private health care insurance and managed-care plans have attempted
to control costs by limiting the amount of reimbursement they will pay for particular procedures or treatments, tying reimbursement
to outcomes, and other mechanisms designed to constrain utilization and contain costs, including delivery reforms such as expanded
bundling of services. Hospitals are also seeking to reduce costs through a variety of mechanisms, which may increase price sensitivity
among customers for our products, and adversely affect sales, pricing, and utilization of our products. Some third-party payors
must also approve coverage for new or innovative devices or therapies before they will reimburse health care providers who use
medical devices or therapies. We cannot predict the potential impact of cost-containment trends on future operating results.
We may be subject to federal, state
and foreign healthcare fraud and abuse laws and regulations.
Many federal, state
and foreign healthcare laws and regulations apply to the BGMS business and medical devices. We may be subject to certain federal
and state regulations, including the federal healthcare programs’ Anti-Kickback Law, the federal Health Insurance Portability
and Accountability Act of 1996, and other federal and state false claims laws. The medical device industry has been under heightened
scrutiny as the subject of government investigations and enforcement actions involving manufacturers who allegedly offered unlawful
inducements to potential or existing customers in an attempt to procure their business, including arrangements with physician
consultants. If our operations or arrangements are found to be in violation of such governmental regulations, we may be subject
to civil and criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs and the curtailment of our
operations. All of these penalties could adversely affect our ability to operate our business and our financial results.
Product liability suits, whether
or not meritorious, could be brought against us due to an alleged defective product or for the misuse of Dario or our potential
future products. These suits could result in expensive and time-consuming litigation, payment of substantial damages, and an increase
in our insurance rates.
If Dario or any of
our future products are defectively designed or manufactured contain defective components or are misused, or if someone claims
any of the foregoing, whether or not meritorious, we may become subject to substantial and costly litigation. Misusing our device
or failing to adhere to the operating guidelines or the device producing inaccurate meter readings could cause significant harm
to patients, including death. In addition, if our operating guidelines are found to be inadequate, we may be subject to liability.
Product liability claims could divert management’s attention from our core business, be expensive to defend and result in
sizable damage awards against us. While we maintain product liability insurance, we may not have sufficient insurance coverage
for all future claims. Any product liability claims brought against us, with or without merit, could increase our product liability
insurance rates or prevent us from securing continuing coverage, could harm our reputation in the industry and could reduce revenue.
Product liability claims in excess of our insurance coverage would be paid out of cash reserves harming our financial condition
and adversely affecting our results of operations.
If we are found to have violated
laws protecting the confidentiality of patient health information, we could be subject to civil or criminal penalties, which could
increase our liabilities and harm our reputation or our business.
Part of our business
plan includes the storage and potential monetization of medical data of users of Dario. There are a number of federal and state
laws protecting the confidentiality of certain patient health information, including patient records, and restricting the use
and disclosure of that protected information. In particular, the U.S. Department of Health and Human Services promulgated
patient privacy rules under the Health Insurance Portability and Accountability Act of 1996 (which we refer to as HIPAA). These
privacy rules protect medical records and other personal health information by limiting their use and disclosure, giving individuals
the right to access, amend and seek accounting of their own health information and limiting most use and disclosures of health
information to the minimum amount reasonably necessary to accomplish the intended purpose. We may face difficulties in holding
such information in compliance with applicable law. If we are found to be in violation of the privacy rules under HIPAA, we could
be subject to civil or criminal penalties, which could increase our liabilities, harm our reputation and have a material adverse
effect on our business, financial condition and results of operations.
Risks Related to Our Intellectual Property
The failure to obtain or maintain
patents, licensing agreements and other intellectual property could materially impact our ability to compete effectively.
In order for our business
to be viable and to compete effectively, we need to develop and maintain, and we will heavily rely on, our proprietary position
with respect to our technologies and intellectual property. We filed a Patent Cooperation Treaty (or PCT) application for a “Fluids
Testing Apparatus and Methods of Use” in May 2011 which incorporates two U.S. provisional applications submitted in the
preceding year. The PCT covers the specific processes related to blood glucose level measurement as well as more general methods
of rapid tests of body fluids and has subsequently been converted into several national phase patent applications. We have also
filed patent applications for other aspects of the Dario Blood Glucose Monitoring Solution. We have also obtained numerous Web
domains.
However, to date,
we have only been issued four patents (three of which were issued in the United States) relating to how the Dario Blood Glucose
Monitoring System draws power from and transmits data to a smartphone via the audio jack port. None of our other patents have
been granted by a patent office. In addition, there are significant risks associated with our actual or proposed intellectual
property. The risks and uncertainties that we face with respect to our pending patent and other proprietary rights principally
include the following:
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pending patent applications we have filed or
will file may not result in issued patents or may take longer than we expect to result in issued patents;
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we may be subject to interference proceedings;
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we may be subject to opposition proceedings in foreign countries;
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any patents that are issued to us may not provide meaningful
protection;
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we may not be able to develop additional proprietary technologies
that are patentable;
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other companies may challenge patents licensed or issued to
us;
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other companies may have independently developed and/or patented
(or may in the future independently develop and patent) similar or alternative technologies, or duplicate our technologies;
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other companies may design their technologies around technologies
we have licensed or developed; and
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enforcement of patents is complex, uncertain and very expensive.
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We cannot be certain
that patents will be issued as a result of any of our pending or future applications, or that any of our patents, once issued,
will provide us with adequate protection from competing products. For example, issued patents may be circumvented or challenged,
declared invalid or unenforceable, or narrowed in scope. In addition, since the publication of discoveries in scientific or patent
literature often lags behind actual discoveries, we cannot be certain that we were the first to make our inventions or to file
patent applications covering those inventions.
It is also possible
that others may have or may obtain issued patents that could prevent us from commercializing our products or require us to obtain
licenses requiring the payment of significant fees or royalties in order to enable us to conduct our business. As to those patents
that we have licensed, our rights depend on maintaining our obligations to the licensor under the applicable license agreement,
and we may be unable to do so.
Costly litigation may be necessary
to protect our intellectual property rights and we may be subject to claims alleging the violation of the intellectual property
rights of others.
We may face significant
expense and liability as a result of litigation or other proceedings relating to patents and intellectual property rights of others.
In the event that another party has also filed a patent application or been issued a patent relating to an invention or technology
claimed by us in pending applications, we may be required to participate in an interference proceeding declared by the United
States Patent and Trademark Office to determine priority of invention, which could result in substantial uncertainties and costs
for us, even if the eventual outcome was favorable to us. We, or our licensors, also could be required to participate in interference
proceedings involving issued patents and pending applications of another entity. An adverse outcome in an interference proceeding
could require us to cease using the technology, substantially modify it or to license rights from prevailing third parties.
The cost to us of
any patent litigation or other proceeding relating to our licensed patents or patent applications, even if resolved in our favor,
could be substantial, especially given our early stage of development. Our ability to enforce our patent protection could be limited
by our financial resources and may be subject to lengthy delays. A third party may claim that we are using inventions claimed
by their patents and may go to court to stop us from engaging in our normal operations and activities, such as research, development
and the sale of any future products. Such lawsuits are expensive and would consume significant time and other resources. There
is a risk that a court will decide that we are infringing the third party’s patents and will order us to stop the activities
claimed by the patents. In addition, there is a risk that a court will order us to pay the other party damages for having infringed
their patents.
Moreover, there is
no guarantee that any prevailing patent owner would offer us a license so that we could continue to engage in activities claimed
by the patent, or that such a license if made available to us, could be acquired on commercially acceptable terms. In addition,
third parties may, in the future, assert other intellectual property infringement claims against us with respect to our services,
technologies or other matters.
We have limited foreign intellectual
property rights and may not be able to protect our intellectual property rights throughout the world.
We have limited intellectual
property rights outside the United States. Filing, prosecuting and defending patents on devices in all countries throughout the
world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be
less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property
to the same extent as laws in the United States. Consequently, we may not be able to prevent third parties from practicing our
inventions in all countries outside the United States, or from selling or importing products made using our inventions in and
into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained
patents to develop their own products and further, may export otherwise infringing products to territories where we have patents,
but enforcement is not as strong as that in the United States.
Many companies have
encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems
of certain countries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade
secrets and other intellectual property, particularly those relating to medical devices and biopharmaceutical products, which
could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our
proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreign jurisdictions. Proceedings
to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from
other aspects of our business could put our patents at risk of being invalidated or interpreted narrowly and our patent applications
at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we
initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. The requirements for patentability
may differ in certain countries, particularly developing countries. Certain countries in Europe and developing countries, including
China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties.
In those countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled
to grant a license to a third party, which could materially diminish the value of those patents. This could limit our potential
revenue opportunities. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate
to obtain a significant commercial advantage from the intellectual property that we develop or license.
We rely on confidentiality agreements
that could be breached and may be difficult to enforce, which could result in third parties using our intellectual property to
compete against us.
Although we believe
that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the non-disclosure
of confidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us
of the rights to the ideas, developments, discoveries and inventions of our employees and consultants while we employ them, the
agreements can be difficult and costly to enforce. Although we seek to enter into these types of agreements with our contractors,
consultants, advisors and research collaborators, to the extent that employees and consultants utilize or independently develop
intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated
with our technology. If a dispute arises, a court may determine that the right belongs to a third party. In addition, enforcement
of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary know-how that we seek to protect
in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective
measures we employ, we still face the risk that:
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these agreements may be breached;
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these agreements may not provide adequate remedies for the applicable
type of breach;
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our proprietary know-how will otherwise become known; or
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our competitors will independently develop similar technology or proprietary information.
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We may be subject to claims challenging
the inventorship of our patents and other intellectual property.
We may be subject
to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property
as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants
or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other
claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose
valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an
outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation
could result in substantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court
ruled in 2012 that an employee who receives a patent or contributes to an invention during his employment may be allowed to seek
compensation for such contributions from his or her employer, even if the employee’s contract of employment specifically
states otherwise and the employee has transferred all intellectual property rights to the employer. The Israeli Supreme Court
ruled that the fact that a contract revokes an employee’s right for royalties and compensation, does not rule out the right
of the employee to claim their right for royalties. As a result, it is unclear whether and, if so, to what extent our employees
may be able to claim compensation with respect to our future revenue. We may receive less revenue from future products if any
of our employees successfully claim for compensation for their work in developing our intellectual property, which in turn could
impact our future profitability.
Risks Related to Our Industry
We face intense competition in the
self-monitoring of blood glucose market, and as a result we may be unable to effectively compete in our industry.
With our first product,
Dario, we compete directly and primarily with large pharmaceutical and medical device companies such as Abbott Laboratories, Asensia
(formerly Bayer Diabetes Care), Johnson & Johnson LifeScan, Roche Diagnostics and Sanofi. The first four of these companies
has a combined majority market share of the BGMS business and strong research and development capacity for next-generation products.
Their dominant market position since the late 1990s, and significant control over the market could significantly limit our ability
to introduce Dario or effectively market and generate sales of the product. We will also compete with numerous second-tier and
third-tier competitors.
We only recently commenced
sales of our products, and most of our competitors have long histories and strong reputations within the industry. They have significantly
greater brand recognition, financial and human resources than we do. They also have more experience and capabilities in researching
and developing testing devices, obtaining and maintaining regulatory clearances and other requirements, manufacturing and marketing
those products than we do. There is a significant risk that we may be unable to overcome the advantages held by our competition,
and our inability to do so could lead to the failure of our business and the loss of your investment.
Competition in the
BGMS markets is extremely intense, which can lead to, among other things, price reductions, longer selling cycles, lower product
margins, loss of market share and additional working capital requirements. To succeed, we must, among other critical matters,
gain consumer acceptance for Dario and potential future devices incorporating our principal technology and offer better strategic
concepts, technical solutions, prices and response time, or a combination of these factors, than those of other competitors. If
our competitors offer significant discounts on certain products, we may need to lower our prices or offer other favorable terms
in order to compete successfully. Moreover, any broad-based changes to our prices and pricing policies could make it difficult
to generate revenues or cause our revenues, if established, to decline. Some of our competitors may bundle certain software products
offering competing applications for diabetes management at low prices for promotional purposes or as a long-term pricing strategy.
These practices could significantly reduce demand for Dario or potential future products or constrain prices we can charge. Moreover,
if our competitors develop and commercialize products that are more effective or desirable than Dario or the other products that
we may develop, we may not convince our customers to use our products. Any such changes would likely reduce our commercial opportunity
and revenue potential and could materially adversely impact our operating results.
If we fail to respond quickly to
technological developments our products may become uncompetitive and obsolete.
The BGMS market and
other markets in which we plan to compete experience rapid technological developments, changes in industry standards, changes
in customer requirements and frequent new product introductions and improvements. If we are unable to respond quickly to these
developments, we may lose competitive position, and Dario or any other device or technology may become uncompetitive or obsolete,
causing revenues and operating results to suffer. In order to compete, we must develop or acquire new devices and improve our
existing device on a schedule that keeps pace with technological developments and the requirements for products addressing a broad
spectrum and designers and designer expertise in our industries. We must also be able to support a range of changing customer
preferences. For instance, as non-invasive technologies become more readily available in the market, we may be required to adopt
our platform to accommodate the use of non-invasive or continuous blood glucose sensors. We cannot guarantee that we will be successful
in any manner in these efforts.
If
third-party payors do not provide adequate coverage and reimbursement for the use of Dario, our revenue will be negatively impacted.
In
the United States and other jurisdictions such as Germany and England, we expect that Dario’s test strips should generally
be available for full or partial patient reimbursement by third-party payers. Our success in marketing Dario depends and
will depend in large part on whether U.S. and international government health administrative authorities, private health insurers
and other organizations adequately cover and reimburse customers for the cost of our products.
In
the United States, we expect to derive nearly all our sales from sales of Dario from direct to consumer cash sales as well as
retail pharmacy and DME distributors who typically bill various third-party payors, including Medicare, Medicaid, private commercial
insurance companies, health maintenance organizations and other healthcare-related organizations, to cover all or a portion of
the costs and fees associated with Dario and bill patients for any applicable deductibles or co-payments. Access to adequate coverage
and reimbursement for Center for Medicare and Medicaid Services (CMS) procedures using Dario (and our other products in development)
by third-party payors is essential to the acceptance of our products by our customers.
Third-party
payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling
healthcare costs. In addition, in the United States, no uniform policy of coverage and reimbursement for medical device products
and services exists among third-party payors. Therefore, coverage and reimbursement for medical device products and services can
differ significantly from payor to payor. In addition, payors continually review new technologies for possible coverage and can,
without notice, deny coverage for these new products and procedures. As a result, the coverage determination process is often
a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products
to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained, or maintained if obtained.
Reimbursement
systems in international markets vary significantly by country and by region within some countries, and reimbursement approvals
must be obtained on a country-by-country basis. In many international markets, a product must be approved for reimbursement before
it can be approved for sale in that country. Further, many international markets have government-managed healthcare systems that
control reimbursement for new devices and procedures. For example, the government healthcare system in the Netherlands, New Zealand
and Israel have not yet approved reimbursement of Dario. In most markets, there are private insurance systems as well as government-managed
systems. If sufficient coverage and reimbursement are not available for our current or future products, in either the United States
or internationally, the demand for our products and our revenues will be adversely affected.
Risks Related to Our Operations in Israel
Potential political, economic and
military instability in the State of Israel, where our management team and our research and development facilities are located,
may adversely affect our results of operations.
Our operating subsidiary,
along with our management team and our research and development facilities, is located in Israel. Accordingly, political, economic
and military conditions in Israel and the surrounding region may directly affect our business and operations. Since the establishment
of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries. Any
hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely
affect our operations and results of operations. The hostilities involved missile strikes against civilian targets in various
parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected business
conditions in Israel. Our offices, located in Caesarea, Israel, are within the range of the missiles and rockets that have been
fired at Israeli cities and towns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation
in July 2014) during which there were a substantially larger number of rocket and missile attacks aimed at Israel. In addition,
since February 2011, Egypt has experienced political turbulence and an increase in terrorist activity in the Sinai Peninsula.
Such political turbulence and violence may damage peaceful and diplomatic relations between Israel and Egypt, and could affect
the region as a whole. Similar civil unrest and political turbulence has occurred in other countries in the region, including
Syria which shares a common border with Israel, and is affecting the political stability of those countries. This instability
and any outside intervention may lead to deterioration of the political and economic relationships that exist between the State
of Israel and some of these countries, and may have the potential for causing additional conflicts in the region. In addition,
Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed to have a
strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia
groups in Syria. Additionally, a violent jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities
in Iraq and Syria and have been growing in influence. Although ISIL’s activities have not directly affected the political
and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. These
situations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts,
terrorist activities or political instability in the region could adversely affect business conditions and could harm our results
of operations and could make it more difficult for us to raise capital. Parties with whom we do business may decline to travel
to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary in order
to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties
with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments
under those agreements pursuant to force majeure provisions in such agreements. Further, in the past, the State of Israel and
Israeli companies have been subjected to economic boycotts. Several countries still restrict business with the State of Israel
and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial
condition or the expansion of our business.
Our commercial insurance
does not cover losses that may occur as a result of events associated with the security situation in the Middle East. Although
the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts
of war, we cannot assure you that this government coverage will be maintained. Any losses or damages incurred by us could have
a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively
affect business conditions and could harm our results of operations.
Further, the State
of Israel and Israeli companies have been subjected to an economic boycott. Several countries still restrict business with the
State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results,
financial condition or the expansion of our business.
Our operations may be disrupted
as a result of the obligation of Israeli citizens to perform military service.
Many Israeli citizens
are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the
age of 40 (or older, for reservists who are military officers or who have certain occupations) and, in the event of a military
conflict, may be called to active duty. In response to increases in terrorist activity, there have been periods of significant
call-ups of military reservists. It is possible that there will be military reserve duty call-ups in the future. Our operations
could be disrupted by such call-ups, which may include the call-up of members of our management. Such disruption could materially
adversely affect our business, financial condition and results of operations.
Investors may have difficulties
enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws,
against us, or our executive officers and directors or asserting U.S. securities laws claims in Israel.
Certain of our directors
and officers are not residents of the United States and whose assets may be located outside the United States. Service of process
upon us or our non-U.S. resident directors and officers and enforcement of judgments obtained in the United States against us
or our non-U.S. our directors and executive officers may be difficult to obtain within the United States. We have been informed
by our legal counsel in Israel that it may be difficult to assert claims under U.S. securities laws in original actions instituted
in Israel or obtain a judgment based on the civil liability provisions of U.S. federal securities laws. Israeli courts may refuse
to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not be
the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine
that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable
U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be
governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israeli courts might
not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our
officers and directors.
Moreover, among other
reasons, including but not limited to, fraud or absence of due process, or the existence of a judgment which is at variance with
another judgment that was given in the same matter if a suit in the same matter between the same parties was pending before a
court or tribunal in Israel, an Israeli court will not enforce a foreign judgment if it was given in a state whose laws do not
provide for the enforcement of judgments of Israeli courts (subject to exceptional cases) or if its enforcement is likely to prejudice
the sovereignty or security of the State of Israel.
Risks Related to the Ownership of Our
Common Stock and Warrants
Our officers, directors and founding
stockholders may exert significant influence over our affairs, including the outcome of matters requiring stockholder approval.
As of the date of
this Annual Report, our officers, directors and affiliated stockholders (including
Dicilyon
Consulting and Investment Ltd., or Dicilyon,
an affiliate of David Edery) collectively have an approximately 25.5%
beneficial ownership of our company. As a result, such individuals will have the ability, acting together, to control the election
of our directors and the outcome of corporate actions requiring stockholder approval, such as: (i) a merger or a sale of our company,
(ii) a sale of all or substantially all of our assets, and (iii) amendments to our certificate of incorporation and bylaws. This
concentration of voting power and control could have a significant effect in delaying, deferring or preventing an action that
might otherwise be beneficial to our other stockholders and be disadvantageous to our stockholders with interests different from
those individuals. Certain of these individuals also have significant control over our business, policies and affairs as officers
or directors of our company. Therefore, you should not invest in reliance on your ability to have any control over our company.
Our common stock has less liquidity
than many other stocks listed on the Nasdaq Capital Market.
Historically, the
trading volume of our common stock has been relatively low when compared to larger companies listed on the Nasdaq Capital Market
or other stock exchanges. While we have experienced increased liquidity in our stock during the year ended December 31, 2018,
we cannot say with certainty that a more active and liquid trading market for our common stock will continue to develop. Because
of this, it may be more difficult for shareholders to sell a substantial number of shares for the same price at which shareholders
could sell a smaller number of shares.
If we fail to
continue to meet all applicable Nasdaq requirements, Nasdaq may delist our common stock, which could have an adverse impact on
the liquidity and market price of our common stock.
Our common stock is
currently listed on Nasdaq, which has qualitative and quantitative listing criteria. If we are unable to meet any of the Nasdaq
listing requirements in the future, including, for example, if the closing bid price for our common stock falls below $1.00 per
share for 30 consecutive trading days, Nasdaq could determine to delist our common stock, which could adversely affect the market
liquidity of our common stock and the market price of our common stock could decrease. In that regard, on December 28, 2018, we
received a written notice from Nasdaq indicating that we were not in compliance with Nasdaq Listing Rule 5550(a)(2), as the closing
bid price for our common stocks was below $1.00 per share for the preceding 30 consecutive business days. If our closing bid price
again falls below $1.00 per share for 30 consecutive trading days, we may be subject to delisting and such delisting could also
adversely affect our ability to obtain financing for the continuation of our operations and could result in the loss of confidence
by investors, customers and employees.
If securities or industry analysts
do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations
regarding our common stock or warrants adversely, the price of our common stock or warrants and trading volume could decline.
The trading market
for our common stock or warrants may be influenced by the research and reports that securities or industry analysts may publish
about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding
our common stock or warrants adversely, or provide more favorable relative recommendations about our competitors, the price of
our common stock or warrants would likely decline. If any analyst who may cover us were to cease coverage of our company or fail
to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the price of
our common stock or warrants or trading volume to decline.
The market price of our common stock and warrants may
be significantly volatile.
The market price for
our common stock and warrants may be significantly volatile and subject to wide fluctuations in response to factors including
the following:
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·
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actual or anticipated fluctuations in our quarterly or annual
operating results;
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·
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changes in financial or operational estimates or projections;
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conditions in markets generally;
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changes in the economic performance or market valuations of
companies similar to ours; and
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·
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general economic or political conditions in the United States
or elsewhere.
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In particular, the
market prices for securities of mHealth and medical device have historically been particularly volatile. Some of the factors that
may cause the market price of our common stock and warrants to fluctuate include:
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any delay in or the results of our clinical trials;
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·
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any delay in manufacturing of our products;
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·
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any delay with the approval for reimbursement for the patients from their insurance companies;
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our failure to comply with regulatory requirements;
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·
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the announcements of clinical trial data, and the investment
community’s perception of and reaction to those data;
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·
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the results of clinical trials conducted by others on products
that would compete with ours;
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·
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any delay or failure to receive clearance or approval from regulatory
agencies or bodies;
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our inability to commercially launch products or market and
generate sales of our products, including Dario;
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·
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failure of Dario or any other products, even if approved for
marketing, to achieve any level of commercial success;
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our failure to obtain patent protection for any of our technologies
and products (including those related to Dario) or the issuance of third party patents that cover our proposed technologies
or products;
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developments or disputes concerning our product’s intellectual
property rights;
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·
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our or our competitors’ technological innovations;
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general and industry-specific economic conditions that may affect
our expenditures;
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changes in market valuations of similar companies;
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announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures, capital commitments, new technologies, or patents;
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future sales of our common stock or other securities, including
shares issuable upon the exercise of outstanding warrants or otherwise issued pursuant to certain contractual rights;
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period-to-period fluctuations in our financial results; and
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low or high trading volume of our common stock due to many factors,
including the terms of our financing arrangements.
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In addition, if we
fail to reach important research, development or commercialization milestone or result by a publicly expected deadline, even if
by only a small margin, there could be a significant impact on the market price of our common stock and warrants. Additionally,
as we approach the announcement of anticipated significant information and as we announce such information, we expect the price
of our common stock and warrants to be particularly volatile, and negative results would have a substantial negative impact on
the price of our common stock and warrants.
In some cases, following
periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities
litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management
attention and resources, which could significantly harm our business operations and reputation.
Shares eligible for future sale may adversely affect
the market for our common stock and warrants.
From time to time,
certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage
transactions in the open market pursuant to Rule 144, promulgated under the Securities Act, subject to certain limitations. In
general, pursuant to Rule 144, after satisfying a six month holding period: (i) affiliated stockholder (or stockholders whose
shares are aggregated) may, under certain circumstances, sell within any three month period a number of securities which does
not exceed the greater of 1% of the then outstanding shares of common stock or the average weekly trading volume of the class
during the four calendar weeks prior to such sale and (ii) non-affiliated stockholders may sell without such limitations, provided
we are current in our public reporting obligations. Rule 144 also permits the sale of securities by non-affiliates that have satisfied
a one year holding period without any limitation or restriction. Any substantial sale of our common stock pursuant to Rule 144
or pursuant to any resale report may have a material adverse effect on the market price of our securities.
Our compliance with complicated
U.S. regulations concerning corporate governance and public disclosure is expensive. Moreover, our ability to comply with all
applicable laws, rules and regulations is uncertain given our management’s relative inexperience with operating U.S. public
companies.
As a publicly reporting
company, we are faced with expensive and complicated and evolving disclosure, governance and compliance laws, regulations and
standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act and the Dodd-Frank Act, and,
to the extent we complete our anticipated public offering, the rules of the Nasdaq Stock Market. New or changing laws, regulations
and standards are subject to varying interpretations in many cases due to their lack of specificity, and, as a result, their application
in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing
uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
As a result, our efforts to comply with evolving laws, regulations and standards of a U.S. public company are likely to continue
to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating
activities to compliance activities.
Moreover, our executive
officers have little experience in operating a U.S. public company, which makes our ability to comply with applicable laws, rules
and regulations uncertain. Our failure to company with all laws, rules and regulations applicable to U.S. public companies could
subject us or our management to regulatory scrutiny or sanction, which could harm our reputation and stock price.
If we fail to maintain effective
internal control over financial reporting, the price of our common stock may be adversely affected.
Our internal control
over financial reporting may have weaknesses and conditions that could require correction or remediation, the disclosure of which
may have an adverse impact on the price of our common stock. We are required to establish and maintain appropriate internal
control over financial reporting. Failure to establish those controls, or any failure of those controls once established,
could adversely affect our public disclosures regarding our business, prospects, financial condition or results of operations.
In addition, management’s assessment of internal control over financial reporting may identify weaknesses and conditions
that need to be addressed in our internal control over financial reporting or other matters that may raise concerns for investors.
Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or
disclosure of management’s assessment of our internal control over financial reporting may have an adverse impact on the
price of our common stock.
Anti-takeover provisions in our
charter documents and Delaware law could discourage, delay or prevent a change in control of our company and may affect the trading
price of our common stock and warrants.
We are a Delaware
corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change
in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years
after the person becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders.
In addition, our certificate of incorporation and bylaws may discourage, delay or prevent a change in our management or control
over us that stockholders may consider favorable. Our certificate of incorporation and bylaws:
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authorize the issuance of “blank check” preferred
stock that could be issued by our Board of Directors to thwart a takeover attempt;
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provide that vacancies on our Board of Directors, including
newly created directorships, may be filled only by a majority vote of directors then in office;
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provide that special meetings of stockholders may only be called
by our Chairman, Chief Executive Officer and/or President or other executive officer, our Board of Directors or a super-majority
(66 2/3%) of our stockholders;
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place restrictive requirements (including advance notification
of stockholder nominations and proposals) on how special meetings of stockholders may be called by our stockholders;
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do not provide stockholders with the ability to cumulate their
votes; and
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provide that our Board of Directors or a super-majority of our
stockholders (66 2/3%) may amend our bylaws.
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We do not currently intend to pay
dividends on our common stock in the foreseeable future, and consequently, your ability to achieve a return on your investment
will depend on appreciation in the price of our common stock.
We have never declared
or paid cash dividends on our common stock and do not anticipate paying any cash dividends to holders of our common stock in the
foreseeable future. Consequently, investors must rely on sales of their common stock after price appreciation, which may never
occur, as the only way to realize any future gains on their investments. There is no guarantee that shares of our common stock
will appreciate in value or even maintain the price at which our stockholders have purchased their shares.
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Item 1B.
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Unresolved Staff Comments
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Not applicable.
We
do not own any real property. Currently, we maintain our headquarters at
8 HaTokhen St.
,
Caesarea Industrial Park, 3088900, Israel
. On September 8, 2016, we signed a lease agreement for these headquarters facilities
for a period of 5 years commencing upon the completion of construction of the new office building. We moved into these offices
during November 2017. The rental agreement will be extended automatically for an additional 60 months following expiration of
the initial term. The monthly rent and management services under this lease are approximately $17,920. In December 2017 we signed
a lease agreement for our new U.S. headquarters facilities in New York, New York for a monthly rent and management services of
approximately $4,160.
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Item 3.
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Legal Proceedings
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We are currently not
a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that we believe is not
ordinary routine litigation incidental to our business or otherwise material to the financial condition of our business.
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Item 4.
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Mine Safety Disclosures
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Not applicable.
PART III
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Item 10.
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Directors, Executive Officers and Corporate Governance
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The following sets forth
information regarding our executive officers and the members of our Board of Directors as of the date of this Annual Report. All
directors hold office for one-year terms until the election and qualification of their successors. Officers are appointed by our
Board of Directors and serve at the discretion of our Board of Directors, subject to applicable employment agreements.
Name
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Age
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Position(s)
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Erez Raphael
|
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46
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Chief Executive Officer and Director
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Zvi Ben David
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58
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Chief Financial Officer, Treasurer and Secretary
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Dror Bacher
|
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44
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Chief Operating Officer
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Olivier Jarry
|
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58
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President and Chief Commercial Officer
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Yoav Shaked
|
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47
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Chairman of the Board of Directors
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Yalon Farhi
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57
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Director
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Allen Kamer
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48
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Director
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Hila Karah
|
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50
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Director
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Dennis M. McGrath
|
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62
|
|
Director
|
Glen D. Moller
|
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47
|
|
Director
|
Prof. Richard B. Stone
|
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76
|
|
Director
|
Erez Raphael
has
served as our Chief Executive Officer since August 9, 2013 and as a director of our company since December 2013. Mr. Raphael served
as Chairman of the Board of Directors from November 2014 to July 2018, and as a director from November 2014 to the present. He
previously and until October 2012 served as our Vice President of Research and Development. Mr. Raphael has over 17 years of industry
experience, having been responsible in his career for product delivery, technology and business development. Prior to joining
us, from 2010 to 2012, Mr. Raphael served as Head of Business Operations for Nokia Siemens Networks, where he was responsible
for establishing and implementing a new portfolio business unit directed towards marketing and sales of complimentary products.
Prior to that, from 1998 to 2010, he held increasingly senior positions at Amdocs Limited (NYSE:DOX) where he was ultimately responsible
for advising the Chief Technology Officer and implementing matters of overall business strategy. Mr. Raphael holds a B.A. in economics
and business management from Haifa University. We believe Mr. Raphael is qualified to serve on our Board of Directors because
of his extensive experience with technology companies and in sales and marketing.
Zvi Ben David
has
served as our Chief Financial Officer, Treasurer and Secretary since January 7, 2015. Mr. Ben David has over 25 years of experience
in corporate and international financial management, including at both publicly-listed and private companies. Since 2012, he has
acted as an independent entrepreneur with, and investor in, various medical device ventures. From 2005 to 2012, Mr. Ben David
served as the Chief Financial Officer of UltraShape Medical Ltd., a developer, manufacturer and marketer of innovative non-invasive
technologies for fat cell destruction and body sculpting. While with UltraShape, he helped lead the company through $35 million
in private financing, followed by the company’s merger with a Tel Aviv Stock Exchange company and ultimately the company’s
sale to Syneron Medical Ltd. (Nasdaq:ELOS). From 2000 to 2005,
he served as Vice President
and Chief Financial Officer of Given Imaging Ltd., where he was part of the management team that led that company’s 2001
initial public offering and 2004 follow-on offering, and served as a director of that company from its establishment in 1998 to
2000. From 1995 to June 2000, Mr. Ben David served as Vice President and Chief Financial Officer of RDC Rafael Development Corporation,
one of Given Imaging Ltd.’s principal shareholders. From 1994 to 1995, Mr. Ben David served as manager of the finance division
of Electrochemical Industries (Frutarom) Ltd., an Israeli company traded on the Tel-Aviv Stock Exchange and the American Stock
Exchange, and from 1989 to 1993, Mr. Ben David served as the manager of that company’s economy and control department. From
1984 to 1988, Mr. Ben David worked at Avigosh & Kerbs, an accounting firm in Haifa, Israel. Mr. Ben David is a certified public
accountant in Israel and holds a B.A. in economics and accounting from Haifa University.
Dror Bacher
has
served as our Chief Operating Officer since July 25, 2017. Mr. Bacher previously served as our Vice President of Research and
Development as well as Vice President of Operations since 2013 where he worked on product development as well as building a scalable
supply chain. Mr. Bacher has over 18 years of experience in various technological companies and his expertise includes product
management, product development and business operations in multi disciplinary environments. Between 2008 and 2013, Mr. Bacher
Served in several leadership roles at Amdocs Limited (NYSE:DOX), including working as a part of the Chief Technology Office, managing
enterprise development. programs for a variety of software products associated with service delivery, as well as serving as head
of process Prior to Amdocs, Mr. Bacher served in a senior role at Tower Semiconductor (Nasdaq:TSEM), the global specialty foundry
leader for IC manufacturing, where he was responsible for business operations and commercialization expansion. Mr. Bacher holds
a B.Sc. in computer science and an MBA degree from Haifa University.
Olivier Jarry
has served as our President and Chief Commercial Officer since August 30, 2018. Mr. Jarry has served on our Advisory Board and
as a Strategic Advisory consultant since 2017. Between 2015 and 2016, Mr. Jarry served as Senior Vice-President of the Consumer
Sector and Officer at Intrexon Corp. (NYSE:XON), a biotechnology company focused on engineering biological systems to enable DNA-based
control over the function and output of living cells. Prior to Intrexon, from 2011 to 2012, Mr. Jarry served as the Head of Strategy,
Operations and Market Access, focusing on Emerging Markets, for Bristol-Myers Squibb (NYSE:BMY), where he oversaw the product
launch and growth of innovative medicines relating to oncology, virology, rheumatology, cardiovascular, and diabetes. Prior to
that, between 2009 and 2010, Mr. Jarry served as the Global Business Unit Head of Bayer Diabetes Care, a division of Bayer HealthCare
Pharmaceuticals LLC. Prior to his time at Bayer HealthCare, from 2001 to 2009, Mr. Jarry served in several leadership roles at
Novartis International AG (NYSE:NVS), including working as Global Division Head of Strategy, Business Development & Licensing
at Novartis Headquarters in Switzerland, Senior Vice President and Region Head for Latin America and for Asia-Pacific for Novartis’
Consumer Health Division, Head of India Rural Business and Head of Western/Eastern Europe, Russia, CIS - Vaccines division. Mr.
Jarry holds a M.Sc. degree from Ecole Centrale de Paris, a MEng. degree from Délégation Générale pour
l’Armement, and a Trium Executive MBA degree jointly awarded by NYU Stern School of Business, London School of Economics
and Political Science and Hautes Études Commerciales Paris.
Yoav Shaked
has served as the Chairman of our Board of Directors since July 5, 2018. Since 2011, Mr. Shaked has served as a partner at Sequoia
Capital, a leading global venture capital firm. In 2005, he co-founded Medpoint Ltd., a private medical device distribution company
offering a wide range of medical products. Previously, he founded and served as Chief Executive Officer of Y-Med Inc. from May
2004 through November 2009, until its sale to C.R. Bard, Inc. After the sale of Y-Med Inc., Mr. Shaked served as the director
of research at ThermopeutiX, a developer of innovative products for strokes and peripheral artery disease. Mr. Shaked currently
serves on the board of directors of several biotechnology companies, including Endospan, Vibrant Gastro, B-Lite (G&G Biotechnology)
and Orasis Pharmaceuticals, the latter of which he serves as Chairman of the Board. Mr. Shaked has a B.A. in biology from The
Hebrew University of Jerusalem. The Company believes that Mr. Shaked is qualified to serve as Chairman of the Board because of
his extensive experience both in biotechnology companies and in the venture capital realm.
Yalon Farhi
has
been a director of our company since May 31, 2016. Since 1998, Mr. Farhi, a Colonel in the Israeli Defense Forces (reserves),
has served as a motivational lecturer and educator at Bnei-David Institutions, a pre-army and post-army educational program in
Israel. From 1998 to January 2016, Mr. Farhi worked as an administrative manager for El-Ami, a non-governmental organization in
Israel. Previously, from 1988 to 1992, Mr. Farhi served as a private security consultant to several security companies in Israel.
In addition, for the past thirty years, Mr. Farhi has been the owner of a private gardening and land development services company
based in Israel. Mr. Farhi received a degree in Education Studies and holds a Teaching Certificate from the Moreshet Yaacov College
in Jerusalem. We believe Mr. Farhi is qualified to serve on our Board of Directors because of his business expertise and experience.
Allen Kamer
has
been a director of our company since February 28, 2017. Since September 2016, Mr. Kamer serves as a managing partner at OurCrowd,
a digital health fund. From January 2014 until June 2016, Mr. Kamer served as Chief Commercial Officer, or CCO, of Optum Analytics,
a division within Optum, Inc., United Healthcare’s health services unit. Optum Analytics was focused on converting health
information to health intelligence and delivering solutions that improve care delivery, quality and cost-effectiveness. As the
CCO, Mr. Kamer led the group’s commercialization efforts of analytics software products and solutions, including the award-winning
Optum OneTM, to U.S. provider and payer organizations. In July 2008, Mr. Kamer was co-founder of the Humedica Inc., which was acquired
by United Healthcare in January 2013. As co-founder, Mr. Kamer helped lead efforts to raise capital, hire the management team,
and launch the business. Mr. Kamer led Corporate Development & Marketing at Humedica, Inc., and was responsible for formulating
and managing the company’s strategic partnerships, all marketing & branding activities, and new business opportunities.
Mr. Kamer has a B.A. from Brandeis University. We believe Mr. Kamer is qualified to serve on our Board of Directors because of
his business expertise and experience with life sciences companies.
Hila Karah
has
been a director of our company since November 23, 2014. Ms. Karah is an independent business consultant and an investor in several
high-tech, biotech and internet companies. From 2006 to 2013, she served as a partner and Chief Investment Officer of Eurotrust
Ltd., a family office. From 2002 to 2005, she served as a research analyst at Perceptive Life Sciences Ltd., a New York-based
hedge fund. Prior to that, Ms. Karah served as research analyst at Oracle Partners Ltd., a health care-focused hedge fund.
Ms. Karah has served as a director in several private and public companies including Intec Pharma, since 2009 and Cyren Ltd since
2008. We believe Ms. Karah is qualified to serve on our Board of Directors because of her experience as an investor in and advisor
to high-tech, biotech and internet companies. Ms. Karah holds a B.A. in Molecular and Cell Biology from the University of California,
Berkeley, and studied at the University of California, Berkeley-University of California, San Francisco Joint Medical Program.
Dennis M. McGrath
has
been a director of our company since November 12, 2013. Mr. McGrath is a seasoned medical device industry executive with extensive
public company leadership experience possessing a broad range of skills in corporate finance, business development, corporate
strategy, operations and administration. After an 18 year career at PhotoMedex, Inc. (Nasdaq: PHMD), he recently joined PAVmed,
Inc (Nasdaq: PAVM, PAVMW) as the its Executive Vice President and Chief Financial Officer. Previously, from 2000 to 2017 Mr. McGrath
served in several senior level positions of PhotoMedex, Inc. (Nasdaq: PHMD), a global manufacturer and distributor of medical
device equipment and services, including from 2011 to 2017 as director, President, and Chief Financial Officer. Prior to PhotoMedex’s
reverse merger with Radiancy, Inc. in December 2011, he also served as Chief Executive Officer from 2009 to 2011 and served as
Vice President of Finance and Chief Financial Officer from 2000 to 2009. He received honors as a P.A.C.T. (Philadelphia Alliance
for Capital and Technology) finalist for the 2011 Investment Deal of the Year, award winner for the SmartCEO Magazine 2012 CEO
of the Year for Turnaround Company, and finalist for the Ernst & Young 2013 Entrepreneur of the Year. He has extensive experience
in mergers and acquisitions, both domestically and internationally, and particularly involving public company acquisitions, including
Surgical Laser Technologies, Inc, (formerly, Nasdaq: SLTI), ProCyte Corporation (formerly, Nasdaq: PRCY), LCA Vision, Inc. (formerly,
Nasdaq: LCAV) and Think New Ideas, Inc. (formerly, Nasdaq: THNK). Prior to PhotoMedex, he served in several senior level positions
of AnswerThink Consulting Group, Inc. (then, Nasdaq: ANSR, now, The Hackett Group, Nasdaq: HCKT), a business consulting and technology
integration company, including from 1999 to 2000 as Chief Operating Officer of the Internet Practice, the largest division of
AnswerThink Consulting Group, Inc., while concurrently during the merger of the companies, serving as the acting Chief Financial
Officer of Think New Ideas, Inc. (then, Nasdaq: THNK, now, Nasdaq: HCKT), an interactive marketing services and business solutions
company. Mr. McGrath also served from 1996 until 1999 as Chief Financial Officer, Executive Vice President and director of TriSpan,
Inc., an internet commerce solutions and technology consulting company, which was acquired by AnswerThink Consulting Group, Inc.
in 1999. During his tenure at Arthur Andersen & Co., where he began his career, he became a Certified Public Accountant in
1981 and he holds a B.S., maxima cum laude, in accounting from LaSalle University. In addition to serving as a director of PhotoMedex,
he serves as the audit chair and a director of several medical device companies, including Noninvasive Medical Technologies, Inc.
and Cagent Vascular, LLC, and as an advisor to the board of an orphan drug company, Palvella Therapeutics, LLC. Formerly from
2007 to 2009, Mr. McGrath served as a director of Embrella Cardiovascular, Inc. (sold to Edwards Lifesciences Corporation, NYSE:
EW). He also serves on the Board of Trustees for Manor College and the Board of Visitors for Taylor University. We believe Mr.
McGrath is qualified to serve on our Board of Directors because of his accounting expertise and his experiences serving as an
officer and director of public and private companies.
Glen D. Moller
has been a director of our company since October 16, 2018. Mr. Moller has 25-year career leading healthcare and technology businesses,
including a background in managed care and in technology enabled health services. Since April 2018, Mr. Moller has been an Operating
Partner at Frazier Healthcare Partners. Previously, from 2011 to 2017, he served as the Chief Executive Officer and Director of
ArroHealth, Inc. ArroHealth’s services included population health analytics, mass medical data aggregation, and human- and
computer-assisted medical chart analysis. Prior to ArroHealth, from 2010 to 2011, Mr. Moller served as the interim Chief Executive
Officer of Centene Corporation. From 2008 to 2010, he served as the President of Fidelis SecureCare, a growth equity-backed Medicare
Institutional Special Needs Plan providing a holistic care experience and insurance plan for nursing home-eligible enrollees with
multiple chronic conditions. Prior to Fidelis, he served as Chief Operations Officer of the Express Scripts Insurance Company,
where he launched and grew the company’s Medicare program, including its national prescription drug plan, now a multi-billion-dollar
business and the largest in the U.S. Earlier in his career, Mr. Moller held the position of Chief Marketing Officer at consumer-directed
pioneer, HealthMarkets Inc., and at regional operating units of Oxford Health Plans, where he started his career. Mr. Moller is
a board member of 340(b) Technologies. Mr. Moller has a B.A. in Economics and English from Boston College and M.B.A. from Harvard
Business School. We believe Mr. Moller is qualified to serve on our Board of Directors because of his accounting expertise and
his experiences serving as an officer and director of public and private companies.
Prof. Richard
B. Stone
has been a director of our company since July 7, 2014. For more than twenty-five years, Prof. Stone has been active
participant in early stage business enterprises as a director or investor, including technology and biotechnology companies. He
currently serves on the board of directors of multiple technology companies, including Powermat, Espro-Accoustiguide Group, Wellsense
Technologies, NanoX Imaging Plc, Illumigyn Ltd, Cardiologic Innovations, Quality Inflow Ltd., and Check-Cap. Since 1974, Prof.
Stone has been a member of the faculty of Columbia Law School, where he held the Wilbur Friedman Chair in Tax Law for twenty years.
In addition to basic and advanced tax courses, Prof. Stone has taught in the areas of contracts, business planning and real estate
planning. Among other not-for-profit organizations he has been associated with, from 2011 to 2013, Prof. Stone served as Chairman
of the Conference of Presidents of Major American Jewish Organizations. Prof. Stone began his career in 1967 in private practice
in Washington, D.C, and thereafter joined the staff of the Solicitor General of the United States, where from 1969 to 1973 he was
Assistant to the Solicitor General. He is a graduate of Harvard College and Harvard Law School. We believe Prof. Stone is qualified
to serve on our Board of Directors because of his legal expertise and experience with life sciences companies.
Scientific Advisory Board
We have established a
Scientific Advisory Board (SAB), whose members will be available to us to advise on our scientific and business plans and operational
strategies. Below are the biographies of our SAB members.
Prof. Itamar Raz
is
a world renowned expert in diabetes care and research. He currently services as the head of the Diabetes Unit of Hadassah Hebrew
University Medical Center in Jerusalem, the head of the Israel National Council of Diabetes of the Israel Ministry of Health (which
is responsible for formulating Israeli national policies), the President of D-Cure, a diabetes not-for-profit organization and
the head of the Israel Diabetes Research Group. He also serves as a member of Advisory Boards at Novo Nordisk (NYSE:
ADR), Astra Zeneca/Bristol-Myers Squibb (NYSE: BMY), Sanofi (NYSE: SNY), Merck Sharp & Dohme (NYSE: MRK), and Eli Lilly (NYSE:
LLY) and as a consultant for InsuLine Medical Ltd, Andromeda Biotech Ltd and Astra Zeneca/Bristol-Myers Squibb. Prof. Raz has
published over 260 research papers including biennial publications of a Supplement to Diabetes Care summarizing proceedings of
the European Controversies to Consensus in Obesity, Diabetes and Hypertension (CODHy) meeting. He also holds editorial
positions on a number of medical journals. Prof. Raz’s medical career began in 1985 at Hadassah University Hospital
as Senior Physician, specializing in Internal Medicine. From 1986 to 1992, Prof. Raz was head of Hebrew University
Student Services, and in 1988 he was appointed Senior Lecturer at Hadassah University Hospital’s Department of Internal
Medicine. In 1989, Prof. Raz was appointed Chief Physician of Internal Medicine, and as head of the Diabetes Clinic
at Hadassah University Hospital in 1992. In 1995, Prof. Raz became an Associate Professor at the Department of Internal
Medicine, Hadassah University Hospital. In 2001, he was appointed Director of the hospital’s Center for Prevention
of Diabetes and its Complications. Since 2003, Prof. Raz has served as Professor of Internal Medicine at the Department
of Internal Medicine, Hadassah University Hospital. Prof. Raz graduated from Hebrew University & Hadassah School
of Pharmacy with a Bachelor of Science in 1973. In 1981, he graduated from Hebrew University & Hadassah School
of Medicine with an M.D. and completed his residency at Hadassah University Hospital from 1981 to 1985, specializing in internal
medicine.
Mr. Robert G. Faissal
is a Managing Partner of Lebita Consulting Services LLC, a Toronto based business development and investment group with
emphasis on commercial relationships in North America, Europe, Africa and the Middle East. Lebita Consulting focuses on healthcare,
technology, finance, oil and gas and real estate. Mr. Faissal was the Managing Partner of Richmond Development, an Abu Dhabi based
multi-disciplinary investment group. From 1997 until 2000, Mr. Faissal served as the Managing Director/Middle East & Africa
for the Philadelphia based Wharton Econometrics Forecasting Associates (WEFA Group, currently IHS Global Insight) advising various
governments and private sector clients on economics and financial matters in the Middle East and Africa. He holds a Master of
Arts degree in Economics & International Finance from McMaster University in Canada and an undergraduate Honors Degree in
Economics from the University of Western Ontario.
Board Composition
Our business is managed
under the direction of our Board of Directors. Our Board of Directors currently consists of nine members.
Under the terms of the
Securities Purchase Agreement of the September 2014 Private Placement, for so long as David Edery or his controlled affiliates
held 25%, 15% and 10% of the outstanding shares of our common stock, Mr. Edery had the right to nominate, respectively, three,
two or one member of our seven-member Board of Directors. Mr. Edery has waived his director nomination rights effective February
28, 2016. Mr. Yehudiha and Ms. Karah were appointed to our Board of Directors as nominees of Mr. Edery. Mr. Yehudiha resigned
from our Board of Directors effective as of October 15, 2018.
Under the terms of the
Securities Purchase Agreement relating to our January 2017 Private Placement, our lead investor in the offering, OurCrowd Digital
Health L.P., was given the right to appoint two members to our Board of Directors with such Board designees to serve on the Company’s
Nominating and Corporate Governance Committee. Messrs. Kamer and Bahagon were appointed to our Board of Directors as nominees
of OurCrowd. Mr. Bahagon resigned from our Board of Directors effective as of March 15, 2018. As of November 29, 2018, OurCrowd
Digital Health L.P.’s right to appoint members to our Board of Directors expired.
Except for the appointment
of Yalon Farhi, whose nomination was suggested by Shmuel Farhi, a significant stockholder of the company and a cousin of Yalon
Farhi, there are no family relationships between any of our directors or executive officers.
Except for the foregoing,
there are no arrangements between our directors and any other person pursuant to which our directors were nominated or elected
for their positions.
Board Committees
Our Board of Directors
has three standing committees: an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.
Audit Committee
Our Audit Committee is
comprised of Messrs. Shaked, McGrath and Stone, each of whom is an independent director. Mr. McGrath is the Chairman of the Audit
Committee. Mr. McGrath is an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K.
Our Audit Committee oversees
our corporate accounting, financial reporting practices and the audits of financial statements. For this purpose, the Audit
Committee has a charter (which is reviewed annually) and performs several functions. The Audit Committee charter is available
on our website at www.mydario.com under the Investors / Governance section. The Audit Committee:
|
·
|
evaluates the independence and performance of, and assesses
the qualifications of, our independent auditor and engage such independent auditor;
|
|
·
|
approves the plan and fees for the annual audit, quarterly reviews,
tax and other audit-related services and approve in advance any non-audit service to be provided by our independent auditor;
|
|
·
|
monitors the independence of our independent auditor and the
rotation of partners of the independent auditor on our engagement team as required by law;
|
|
·
|
reviews the financial statements to be included in our Annual
Report on Form 10-K and Quarterly Reports on Form 10-Q and reviews with management and our independent auditor the results
of the annual audit and reviews of our quarterly financial statements; and
|
|
·
|
oversees all aspects our systems of internal accounting control
and corporate governance functions on behalf of the board.
|
Compensation Committee
Our Compensation Committee
is comprised of Messrs. Shaked, McGrath and Ms. Karah. Mr. McGrath is the Chairman of the Compensation Committee.
The Compensation Committee
reviews or recommends the compensation arrangements for our management and employees and also assists our Board of Directors in
reviewing and approving matters such as company benefit and insurance plans, including monitoring the performance thereof. The
Compensation Committee has a charter (which is reviewed annually) and performs several functions. The Compensation Committee charter
is available on our website at www.mydario.com under the Investors / Governance section.
The Compensation Committee
has the authority to directly engage, at our expense, any compensation consultants or other advisers as it deems necessary to
carry out its responsibilities in determining the amount and form of employee, executive and director compensation.
Nominating and Corporate Governance Committee
Our Nominating and Corporate
Governance Committee is currently comprised of Prof. Stone and Messrs. Kamer and Shaked. Prof. Stone is the Chairman of the Nominating
and Corporate Governance Committee.
The Nominating and Corporate
Governance Committee is charged with the responsibility of reviewing our corporate governance policies and with proposing potential
director nominees to the Board of Directors for consideration. This committee also has the authority to oversee the hiring of
potential executive positions in our company. The Nominating and Corporate Governance Committee operates under a written charter,
which will be reviewed and evaluated at least annually.
Director Independence
Our Board of Directors
has reviewed the materiality of any relationship that each of our directors has with us, either directly or indirectly. Based
on this review, our Board of Directors has determined that Prof. Stone, Messrs. Kamer, Shaked, Moller, Farhi and McGrath and Ms.
Karah are “independent directors” as defined in the Nasdaq Listing Rules and Rule 10A-3 promulgated under the Exchange
Act.
Code of Ethics
On March 5, 2013, our
Board of Directors adopted a Code of Business Conduct and Ethics and Insider Trading Policy. Our Code of Business Conduct and
Ethics is available on our website at www.mydario.com under the Investors/Governance section.
Limitation of Directors Liability and Indemnification
The Delaware General Corporation
Law authorizes corporations to limit or eliminate, subject to certain conditions, the personal liability of directors to corporations
and their stockholders for monetary damages for breach of their fiduciary duties. Our certificate of incorporation limits the
liability of our directors to the fullest extent permitted by Delaware law.
We have director and officer
liability insurance to cover liabilities our directors and officers may incur in connection with their services to us, including
matters arising under the Securities Act. Our certificate of incorporation and bylaws also provide that we will indemnify our
directors and officers who, by reason of the fact that he or she is one of our officers or directors, is involved in a legal proceeding
of any nature.
There is no pending litigation
or proceeding involving any of our directors, officers, employees or agents in which indemnification will be required or permitted.
We are not aware of any threatened litigation or proceeding that may result in a claim for such indemnification.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Exchange
Act requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding
ownership of, and transactions in, our securities with the SEC and to provide us with copies of those filings. Based solely on
our review of the copies of such forms received by us, or written representations from certain reporting persons, except for the
Form 3 filed by Shehnee Lawrence Farhi on February 14, 2018, we believe that during fiscal year ended December 31, 2018, all filing
requirements applicable to our officers, directors and ten percent beneficial owners were complied with.
|
Item 11.
|
Executive Compensation
|
The following table summarizes compensation
of our named executive officers, as of December 31, 2018 and 2017.
Summary Compensation Table
Name and
Principal Position
|
|
Year
|
|
Salary ($)*
|
|
|
Bonus ($)
|
|
|
Stock Awards
|
|
|
Option
Awards
($)**
|
|
|
Non-equity
incentive plan
compensation
|
|
|
Non-qualified
incentive plan
compensation
|
|
|
All Other
Compensation ($)
|
|
|
Total
($)
|
|
Erez Raphael
|
|
2018
|
|
$
|
204,762
|
(1)
|
|
$
|
120,336
|
(2)
|
|
$
|
1,320,931
|
(3)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
$
|
94,098
|
(5)
|
|
$
|
1,740,127
|
|
(Chief Executive Officer)
|
|
2017
|
|
$
|
146,679
|
(1)
|
|
|
|
|
|
$
|
1,063,401
|
(3)
|
|
$
|
389,406
|
(4)
|
|
|
|
|
|
|
|
|
|
$
|
75,341
|
(5)
|
|
$
|
1,674,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zvi Ben David
|
|
2018
|
|
$
|
131,610
|
(6)
|
|
|
|
|
|
$
|
387,649
|
(7)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,328
|
(9)
|
|
$
|
560,587
|
|
(Chief Financial Officer)
|
|
2017
|
|
$
|
131,136
|
(6)
|
|
|
|
|
|
$
|
398,500
|
(7)
|
|
$
|
86,559
|
(8)
|
|
|
|
|
|
|
|
|
|
$
|
43,786
|
(9)
|
|
$
|
659,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dror Bacher
|
|
2018
|
|
$
|
139,060
|
(10)
|
|
$
|
26,203
|
(11)
|
|
$
|
382,231
|
(12)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
$
|
60,955
|
(14)
|
|
$
|
608,449
|
|
(Chief Operating Officer)
|
|
2017
|
|
$
|
130,011
|
(10)
|
|
|
|
|
|
$
|
304,970
|
(12)
|
|
$
|
95,878
|
(13)
|
|
|
|
|
|
|
|
|
|
$
|
59,254
|
(14)
|
|
$
|
590,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Olivier Jarry
|
|
2018
|
|
$
|
43,577
|
(15)
|
|
|
|
|
|
$
|
63,885
|
(16)
|
|
$
|
62,400
|
(17)
|
|
|
|
|
|
|
|
|
|
$
|
8,060
|
(18)
|
|
$
|
177,922
|
|
(President and Chief
Commercial Officer)
|
|
2017
|
|
$
|
|
|
|
|
|
|
|
$
|
22,500
|
(16)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
22,500
|
|
*
|
Certain
compensation paid by the company is denominated in New Israeli Shekel (or the NIS). Such
compensation is calculated for purposes of this table based on the annual average currency
exchange for such period.
|
**
|
Amount shown does not reflect dollar amount actually received. Instead, this amount reflects the aggregate grant date fair value of each stock option granted in the fiscal years ended December 31, 2018 and December 31, 2017, computed in accordance with the provisions of ASC 718 “Compensation-Stock Compensation,” or ASC 718. Assumptions used in accordance with ASC 718 are included in Note 9 to our consolidated financial statements included in this Annual Report.
|
|
(1)
|
In accordance with his second amendment
to the employment agreement with our company effective August 11, 2013, Mr. Raphael was
entitled to a monthly salary of NIS 44,000, commencing April 1, 2016, his monthly salary
was increased to NIS 80,000 (approximately $22,038 per month). On June 1,
2018, his monthly salary was increased to NIS 134,167 (approximately $36,960). During
2017 and 2018, Mr. Raphael agreed to a waiver of 45% of his cash salary according to
our salary program (see further details in “Employment and Related Agreements”
below).
|
|
(2)
|
On June 2018, Mr. Raphael was paid
a bonus of $120,336 for his performance during 2017.
|
|
(3)
|
On January 10, 2017, Mr. Raphael was
granted 11,205 shares of our common stock under our 2012 Equity Incentive Plan against
waiver of cash salary for the period from October to December 2016. On January 30, 2017,
Mr. Raphael was granted 11,381 shares of our common stock under our 2012 Equity Incentive
Plan against waiver of cash salary for the period from January to March 2017. On April
13, 2017, Mr. Raphael was granted 10,369 shares of our common stock under our 2012 Equity
Incentive Plan against waiver of cash salary for the period from April to June 2017.
On July 10, 2017, Mr. Raphael was granted 17,036 shares of our common stock under our
2012 Equity Incentive Plan against waiver of cash salary for the period from July to
September 2017. On October 23, 2017, Mr. Raphael was granted 21,128 shares of our common
stock under our 2012 Equity Incentive Plan against waiver of cash salary for the period
from October to December 2017. On January 30, 2017, Mr. Raphael was granted 227,616 shares
of our common stock under our 2012 Equity Incentive Plan, and on April 20, 2017, Mr.
Raphael was granted 50,000 shares of our common stock under our 2012 Equity Incentive
Plan, as a bonus for the 2016 achievements of the Company.
|
On
January 4, 2018, Mr. Raphael was granted 25,439 shares of our common stock under our 2012 Equity Incentive plan against waiver
of cash salary for the period from January to March 2018. On April 23, 2018, Mr. Raphael was granted 25,536 shares of our common
stock under our 2012 Equity Incentive plan against waiver of cash salary for the period from April to June 2018. On July 9, 2018,
Mr. Raphael was granted 49,942 shares of our common stock under our 2012 Equity Incentive plan against waiver of cash salary for
the period from July to September 2018. On October 3, 2018, Mr. Raphael was granted 64,392 shares of our common stock under our
2012 Equity Incentive plan against waiver of cash salary for the period from October to December 2018. On June 6, 2018, Mr. Raphael
was granted 649,414 shares of our common stock under our 2012 Equity Incentive Plan, and 56,880 shares of our common stock under
our 2012 Equity Incentive Plan, as a bonus, in lieu of cash, for the 2017 achievements of the Company.
|
(4)
|
During 2017, Mr. Raphael was granted
143,164 options to purchase shares of our common stock. The balance shall vest in twelve
equal quarterly installments from the grant date during a three-year period. We may grant
Mr. Raphael additional options to purchase shares of common stock from time to time at
the discretion of our Board of Directors or the Compensation Committee thereof (see further
details in “Employment and Related Agreements” below).
|
|
(5)
|
In addition to his salary, Mr. Raphael
is entitled to receive a leased automobile and mobile phone during his employment as
well as reimbursements for expenses accrued. These benefits, as well as other social
benefits under Israeli law, are included as part of his “All Other Compensation.”
|
|
(6)
|
In accordance with his employment
agreement with our company effective January 8, 2015, Mr. Ben David was initially entitled
to a monthly salary and additional compensation (excluding social benefits under applicable
Israeli law) of NIS 31,200 (approximately $8,595) for providing eighty percent of his
working time to our company. Beginning on March 1, 2015, Mr. Ben David began working
for us on a full-time basis pursuant to the terms of his employment agreement at which
point Mr. Ben David’s salary was increased to NIS 39,000 (approximately $10,744
per month, commencing April 1, 2016, his monthly salary was updated to NIS 60,000 (approximately
$16,529), and commencing June 1, 2018, his monthly salary was updated to NIS 67,200 (approximately
$18,512). During 2017 and 2018, Mr. Ben David agreed to a waiver of 35% and 39% respectively
of his cash salary according to our salary program (see further details in “Employment
and Related Agreements” below).
|
|
(7)
|
On January 10, 2017, Mr. Ben David
was granted 6,536 shares of our common stock under our 2012 Equity Incentive Plan against
waiver of cash salary for the period from October to December 2016. On January 30, 2017,
Mr. Ben David was granted 6,639 shares of our common stock under our 2012 Equity Incentive
Plan against waiver of cash salary for the period from January to March 2017. On April
13, 2017, Mr. Ben David was granted 6,049 shares of our common stock under our 2012 Equity
Incentive Plan against waiver of cash salary for the period from April to June 2017.
On July 10, 2017, Mr. Ben David was granted 9,938 shares of our common stock under our
2012 Equity Incentive Plan against waiver of cash salary for the period from July to
September 2017. On October 23, 2017, Mr. Ben David was granted 12,325 shares of our common
stock under our 2012 Equity Incentive Plan against waiver of cash salary for the period
from October to December 2017. On January 30, 2017, Mr. Ben David was granted 74,896
shares of our common stock under our 2012 Equity Incentive Plan, and on April 20, 2017,
Mr. Ben David was granted 20,000 shares of our common stock under our 2012 Equity Incentive
Plan, as a bonus for the 2016 achievements of the Company.
|
On
January 4, 2018, Mr. Ben David was granted 14,839 shares of our common stock under our 2012 Equity Incentive plan against waiver
of cash salary for the period from January to March 2018. On April 23, 2018, Mr. Ben David was granted 14,896 shares of our common
stock under our 2012 Equity Incentive plan against waiver of cash salary for the period from April to June 2018. On July 9, 2018,
Mr. Ben David was granted 22,279 shares of our common stock under our 2012 Equity Incentive plan against waiver of cash salary
for the period from July to September 2018. On October 3, 2018 Mr. Ben David was granted 30,075 shares of our common stock under
our 2012 Equity Incentive plan against waiver of cash salary for the period from October to December 2018. On June 6, 2018, Mr.
Ben David was granted 155,861 shares of our common stock under our 2012 Equity Incentive Plan, and 21,682 shares of our common
stock under our 2012 Equity Incentive Plan, as a bonus, in lieu of cash, for the 2017 achievements of the Company.
|
(8)
|
During 2017, Mr. Ben David was granted
31,823 options to purchase shares of our common stock. The balance shall vest in twelve
equal quarterly installments from the grant date during a three-year period. We may grant
Mr. Ben David additional options to purchase shares of common stock from time to time
at the discretion of our Board of Directors or the Compensation Committee thereof (see
further details in “Employment and Related Agreements” below).
|
|
(9)
|
In addition to his salary, Mr. Ben
David is entitled to receive a mobile phone during his employment as well as reimbursements
for expenses accrued. These benefits, as well as other social benefits under Israeli
law, are included as part of his “All Other Compensation.”
|
|
(10)
|
In accordance with his second amendment
to the employment agreement with our company effective April 2016, Mr. Bacher was entitled
to a monthly salary of NIS 48,000 (approximately $13,223 per month), commencing July
1, 2017, Mr. Dror was appointed as our Chief Operating Officer and his monthly salary
was increased to NIS 55,000 (approximately $15,151 per month) and commencing June 1,
2018 his monthly salary was increased to NIS 61,490 (approximately $16,939 per month).
During 2017 and 2018, Mr. Bacher agreed to a waiver of 24% and 29% of his cash salary
respectively, according to our salary program (see further details in “Employment
and Related Agreements” below).
|
|
(11)
|
On June 2018, Mr. Bacher was paid
a bonus of $26,203 for his performance during 2017.
|
|
(12)
|
On January 30, 2017, Mr. Bacher was
granted 2,845 shares of our common stock under our 2012 Equity Incentive Plan against
waiver of cash salary for the period from January to March 2017. On April 13, 2017, Mr.
Bacher was granted 2,592 shares of our common stock under our 2012 Equity Incentive Plan
against waiver of cash salary for the period from April to June 2017. On July 10, 2017,
Mr. Bacher was granted 7,572 shares of our common stock under our 2012 Equity Incentive
Plan against waiver of cash salary for the period from July to September 2017. On October
23, 2017, Mr. Bacher was granted 9,390 shares of our common stock under our 2012 Equity
Incentive Plan against waiver of cash salary for the period from October to December
2017. On January 30, 2017, Mr. Bacher was granted 49,745 shares of our common stock under
our 2012 Equity Incentive Plan, on April 20, 2017 Mr. Bacher was granted 20,000 shares
of our common stock under our 2012 Equity Incentive Plan, as a bonus for the 2016 achievements
of the Company, on July 25, 2017 Mr. Bacher was granted 10,000 shares of our common stock
under our 2012 Equity Incentive Plan, upon his promotion to COO of the Company, and on
October 23, 2017, Mr. Bacher was granted 8,080 shares of our common stock under our 2012
Equity Incentive Plan as a bonus for getting FDA clearance for certain Android smartphone
devices in the U.S.
|
On
January 4, 2018, Mr. Bacher was granted 11,306 shares of our common stock under our 2012 Equity Incentive plan against waiver
of cash salary for the period from January to March 2018. On April 23, 2018, Mr. Bacher was granted 11,349 shares of our common
stock under our 2012 Equity Incentive plan against waiver of cash salary for the period from April to June 2018. On July 9, 2018,
Mr. Bacher was granted 13,464 shares of our common stock under our 2012 Equity Incentive plan against waiver of cash salary for
the period from July to September 2018. On October 3, 2018, Mr. Bacher was granted 19,080 shares of our common stock under our
2012 Equity Incentive plan against waiver of cash salary for the period from October to December 2018. On June 6, 2018, Mr. Bacher
was granted 159,832 shares of our common stock under our 2012 Equity Incentive Plan, and 6,183 shares of our common stock under
our 2012 Equity Incentive Plan, as a bonus, in lieu of cash, for the 2017 achievements of the Company, and on April 23, 2018,
Mr. Bacher was granted 32,452 shares of our common stock under our 2012 Equity Incentive Plan as a bonus in obtaining an FDA clearance
for iPhone 7, 8 and X smartphone devices in the U.S.
|
(13)
|
During January 2017, Mr. Bacher was
granted 27,492 options to purchase shares of our common stock which will vest in twelve
equal quarterly installments over a three-year period from the grant date. During July
2017, Mr. Bacher was granted 10,000 options to purchase shares of our common stock which
will vest in twelve equal quarterly installments over a three-year period from the grant
date. We may grant Mr. Bacher additional options to purchase shares of common stock from
time to time at the discretion of our Board of Directors or the Compensation Committee
thereof (see further details in “Employment and Related Agreements” below).
|
|
(14)
|
In addition to his salary, Mr. Bacher
is entitled to receive a leased automobile and mobile phone during his employment as
well as reimbursements for expenses accrued. These benefits, as well as other social
benefits under Israeli law, are included as part of his “All Other Compensation.”
|
|
(15)
|
In accordance with his employment
agreement, effective in September 2018, Mr. Jarry was entitled to a monthly salary of
$11,000. Mr. Jarry agreed to a waiver of 47% of his cash salary, according to our salary
program (see further details in “Employment and Related Agreements” below).
|
|
(16)
|
As part of his consulting agreement,
commencing in March 2017 and expiring in August 2018, Mr. Jarry received a monthly consulting
fee of $2,500 that was paid to him in shares of common stock. On July 11, 2017, Mr. Jarry
was granted 2,437 shares of our common stock under our 2012 Equity Incentive Plan against
waiver of cash consulting fee for the period from March to May 2017. On December 14,
2017, Mr. Jarry was granted 7,404 shares of our common stock under our 2012 Equity Incentive
Plan against waiver of cash consulting fee for the period from June to November 2017.
On April 23, 2018, Mr. Jarry was granted 6,552 shares of our common stock under our 2012
Equity Incentive Plan against waiver of cash consulting fee for the period from December
2017 to March 2017. On July 23, 2018, Mr. Jarry was granted 4,621 shares of our common
stock in restricted shares against waiver of cash consulting fee for the period from
April to June 2018. On November 22, 2018, Mr. Jarry was granted 4,103 shares of our common
stock in restricted shares against waiver of cash consulting fee for the period July
to August 2018, together with additional 3,000 shares granted to him a signature fee
for signing his consulting agreement in 2017. On October 3, 2018, Mr. Jarry was granted
30,000 shares of our common stock under our 2012 Equity Incentive Plan, against waiver
of cash salary for the period from September to December 2018.
|
|
(17)
|
On November 22, 2018, Mr. Jarry was
granted 120,000 options to purchase shares of our common stock which will vest over a
three-year period from the grant date. One-third of the options will become fully vested
and exercisable on the first anniversary elapsed from the grant date, and the balance
will vest in eight equal quarterly installments following the first anniversary of the
grant date, subject to Mr. Jarry’s continued employment by the Company. We may
grant Mr. Jarry additional options to purchase shares of common stock from time to time
at the discretion of our Board of Directors or the Compensation Committee thereof (see
further details in “Employment and Related Agreements” below).
|
|
(18)
|
In addition to
his salary, Mr. Jarry is entitled to participate in any and other benefit plans and programs
that the Company may offer to its employees from time to time according to the terms
of such plans and the Company’s practices and policies as well as reimbursements
for expenses accrued. These benefits are included as part of his “All Other Compensation.”
|
All compensation awarded to our
executive officers was independently reviewed by our Compensation Committee.
Employment and Related Agreements
Except as set forth below,
we currently have no other written employment agreements with any of our officers and directors. The following is a description
of our current executive employment agreements:
Erez Raphael
,
Chief
Executive Officer and a Member of the Board of Directors
– On August 30, 2013, LabStyle Innovation Ltd., our Israeli
subsidiary, entered into an amendment to a Personal Employment Agreement with Mr. Raphael in connection with his August 2013 appointment
as our President and Chief Executive Officer. Pursuant to the terms of his employment agreement as amended, Mr. Raphael is entitled
to a monthly salary of NIS 134,167 (approximately $36,960 per month). During 2017 and 2018, Mr. Raphael agreed to a waiver of
45% of his cash salary according to our salary program pursuant to which Mr. Raphael received compensation shares of restricted
common stock as consideration for cash salary waived.
On July 25, 2017, we,
through our Israeli subsidiary, LabStyle Innovation Ltd., executed an Amended and Restated Employment Agreement with Mr. Raphael.
Pursuant to the agreement, Mr. Raphael kept his monthly salary and shall be eligible for an annual bonus equal to up to 60% of
his annual base salary. Mr. Raphael’s employment agreement expires on December 31, 2020. In the event Mr. Raphael’s
employment agreement is terminated by us at will, by Mr. Raphael for good reason as provided thereby, or in conjunction with a
change of control, Mr. Raphael shall be entitled to receive 24 months base salary and severance payment pursuant to applicable
Israeli severance law, provided, however, that in the event such termination occurs during the final year of the term, or within
the last 6 months of a renewal period of the term, Mr. Raphael shall be entitled to receive 12 months base salary and severance
payment pursuant to applicable Israeli severance law. In the event the employment agreement is terminated by us for cause, Mr.
Raphael will only be entitled to a severance pay under applicable Israeli severance law. Mr. Raphael’s employment agreement
also includes a one-year non-competition and non-solicitation provision, certain confidentiality covenants and assignment of any
of his company-related inventions. Under the terms of the agreement, Mr. Raphael is entitled to certain expense reimbursements
and other standard benefits, including vacation, sick leave, contributions to a manager’s insurance policy and study fund
and car and mobile phone allowances.
On January 10, 2017, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Raphael of 11,205 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $35,961 salary otherwise payable to Mr. Raphael
from October to December 2016.
On January 30, 2017, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Raphael of 11,381 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $36,444 salary otherwise payable to Mr. Raphael
from January to March 2017.
On April 13, 2017, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Raphael of 10,369 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $37,953 salary otherwise payable to Mr. Raphael
from April to June 2017.
On July 10, 2017, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Raphael of 17,036 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $39,389 salary otherwise payable to Mr. Raphael
from July to September 2017.
On October 23, 2017, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Raphael of 21,128 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $39,222 salary otherwise payable to Mr. Raphael
from October to December 2017.
On January 4, 2018, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Raphael of 25,439 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $39,923 salary otherwise payable to Mr. Raphael
from January to March 2018.
On April 23, 2018, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Raphael of 25,536 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $39,344 salary otherwise payable to Mr. Raphael
from April to June 2018.
On July 8, 2018, the Compensation
Committee of our Board of Directors approved the issuance to Mr. Raphael of 49,942 shares of our common stock under our 2012 Equity
Incentive Plan. Such shares were issued in lieu of the waiver of $72,725 salary otherwise payable to Mr. Raphael from July to
September 2018.
On October 3, 2018, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Raphael of 64,392 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $64,003 salary otherwise payable to Mr. Raphael
from October to December 2018.
Zvi Ben David
,
Chief Financial Officer, Treasurer and Secretary
– On January 8, 2015, LabStyle Innovation Ltd., our Israeli subsidiary,
entered into a Personal Employment Agreement with Mr. Ben David. Pursuant to his employment agreement, Mr. Ben David was initially
entitled to a monthly salary and additional compensation (excluding social benefits under applicable Israeli law) of NIS 31,200
(approximately $8,595) for providing eighty percent of his working time to our company. Beginning on March 1, 2015, Mr. Ben David
began working for us on a full-time basis pursuant to the terms of his employment agreement at which point Mr. Ben David’s
salary was increased to NIS 39,000 (approximately $10,744). Commencing April 1, 2016, Mr. Ben David’s Salary was updated
to NIS 60,000 (approximately $16,529) per month and commencing June 1, 2018, his monthly salary was updated to NIS 67,200 (approximately
$18,512). During 2017 and 2018, Mr. Ben David agreed to a waiver of 35% and 39% respectively of his cash salary according to our
salary program pursuant to which Mr. Ben David received compensation shares of restricted common stock as consideration for cash
salary waived.
Mr. Ben David's employment
agreement may be terminated by either party at will upon 90 days prior written notice or terminated by us for cause, as defined
under the employment agreement. In the event the employment agreement is terminated by us at will, Mr. Ben David shall be entitled
to receive 6 months base salary and severance payment pursuant to applicable Israeli severance law. In the event the employment
agreement is terminated by us at will, Mr. Ben David shall be entitled to receive 90 days of severance plus any required
severance payment pursuant to applicable Israeli severance law. In the event the employment agreement is terminated by us for
cause, Mr. Ben David will only be entitled to a severance pay under applicable Israeli severance law. The employment agreement
also includes a twelve-month non-competition and non-solicitation provision, certain confidentiality covenants and assignment
of any of his company-related inventions to the company. Under the terms of the employment agreement, Mr. Ben David is entitled
to certain expense reimbursements and other standard benefits, including vacation, sick leave, contributions to a manager’s
insurance policy and study fund and mobile phone allowances.
On January 10, 2017, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Ben David of 6,536 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $20,977 salary otherwise payable to Mr. Ben David
from October to December 2016.
On January 30, 2017, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Ben David of 6,639 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $21,259 salary otherwise payable to Mr. Ben David
from January to March 2017.
On April 13, 2017, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Ben David of 6,049 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $ $22,139 salary otherwise payable to Mr. Ben
David from April to June 2017.
On July 10, 2017, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Ben David of 9,938 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $22,977 salary otherwise payable to Mr. Ben David
from July to September 2017.
On October 23, 2017, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Ben David of 12,325 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $22,879 salary otherwise payable to Mr. Ben David
from October to December 2017.
On January 4, 2018, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Ben David of 14,839 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $23,288 salary otherwise payable to Mr. Ben David
from January to March 2018.
On April 23, 2018, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Ben David of 14,896 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $ $22,951 salary otherwise payable to Mr. Ben
David from April to June 2018.
On July 8, 2018, the Compensation
Committee of our Board of Directors approved the issuance to Mr. Ben David of 22,279 shares of our common stock under our 2012
Equity Incentive Plan. Such shares were issued in lieu of the waiver of $32,442 salary otherwise payable to Mr. Ben David from
July to September 2018.
On October 3, 2018, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Ben David of 30,075 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $29,893 salary otherwise payable to Mr. Ben David
from October to December 2018.
Dror Bacher, Chief
Operating Officer
– On August 30, 2013, LabStyle Innovation Ltd., our Israeli subsidiary, entered into an employment
agreement with Mr. Bacher, pursuant to which Mr. Bacher receives an annual base salary of NIS 55,000 (approximately $15,151),
effective as of July 2017, and commencing June 1, 2018 his monthly salary was increased to NIS 61,490 (approximately $16,939 per
month).. Pursuant to Mr. Bacher’s existing personal employment agreement as amended, either Mr. Bacher or we may terminate
his employment agreement upon thirty days notice, provided, however, that in the event of a termination for cause, Mr. Bacher’s
employment may be terminated immediately. Mr. Bacher’s employment agreement also includes a twelve (12) month non-competition
and non-solicitation provision, certain confidentiality covenants and assignment of any of his company-related inventions. Under
the terms of Mr. Bacher’s employment agreement, Mr. Bacher is entitled to certain expense reimbursements and other standard
benefits, including vacation, sick leave, life, and disability insurance and car and mobile phone allowances. In addition, in
conjunction with his appointment as Chief Operating Officer, we issued Mr. Bacher 10,000 shares of common stock, and 10,000 options
that will vest in 12 equal quarterly installments over a three-year period with an exercise price of $2.46 per share, all issued
pursuant to the Registrant’s Amended and Restated 2012 Equity Incentive Plan.
During the years 2017
and 2018, Mr. Bacher agreed to waive approximately 24% and 29% of his cash salary, respectively, pursuant to our shares for salary
program and its 2012 Equity Incentive Plan, and as a result Mr. Bacher received shares of common stock in lieu of a portion of
his annual cash salary.
On January 10, 2017, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Bacher of 2,801 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $8,990 salary otherwise payable to Mr. Bacher
from October to December 2016.
On January 30, 2017, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Bacher of 2,845 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $9,111 salary otherwise payable to Mr. Bacher
from January to March 2017.
On April 13, 2017, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Bacher of 2,592 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $9,488 salary otherwise payable to Mr. Bacher
from April to June 2017.
On July 10, 2017, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Bacher of 7,572 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $17,506 salary otherwise payable to Mr. Bacher
from July to September 2017.
On October 23, 2017, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Bacher of 9,390 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $17,432 salary otherwise payable to Mr. Bacher
from October to December 2017.
On October 23, 2017, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Bacher of 8,080 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $15,000 of a cash bonus otherwise payable to
Mr. Bacher for his efforts in obtaining FDA clearance for certain Android smartphone devices in the U.S.
On January 4, 2018, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Bacher of 11,306 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $17,744 salary otherwise payable to Mr. Bacher
from January to March 2018.
On April 23, 2018, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Bacher of 11,349 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $ $17,486 salary otherwise payable to Mr. Bacher
from April to June 2018.
On April 23, 2018, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Bacher of 32,452 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $50,000 of a cash bonus otherwise payable to
Mr. Bacher for his efforts in obtaining FDA clearance for iPhone 7, 8 and X smartphone devices in the U.S.
On July 8, 2018, the Compensation
Committee of our Board of Directors approved the issuance to Mr. Bacher of 13,464 shares of our common stock under our 2012 Equity
Incentive Plan. Such shares were issued in lieu of the waiver of $19,606 salary otherwise payable to Mr. Bacher from July to September
2018.
On October 3, 2018, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Bacher of 19,080 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $18,964 salary otherwise payable to Mr. Bacher
from October to December 2018.
Olivier Jarry, President
and Chief Commercial Officer
– On August 30, 2018, we appointed Mr. Jarry as our President and Chief Commercial Officer.
In connection with Mr. Jarry’s appointment, we agreed to pay Mr. Jarry an annual base salary of $252,000 out of which $132,000
is paid in cash and the balance is paid in our shares of common stock. Mr. Jarry’s employment is subject to a one (1) year
non-competition and non-solicitation provision, certain confidentiality covenants and assignment of any of his company-related
inventions. Mr. Jarry is also entitled to certain expense reimbursements and other standard benefits, including vacation and sick
leave. In addition, Mr. Jarry is entitled to receive an annual incentive bonus of up to 35,000 shares of common stock and an annual
over performance bonus of up to 20,000 shares of common stock, with each such bonus subject to certain milestones and performance
targets to be determined by our Board of Directors. In addition, and in conjunction with Mr. Jarry’s appointment as President
and Chief Commercial Officer, we agreed to issue Mr. Jarry a stock option to purchase up to 120,000 shares of common stock at
a future date and at the discretion of our Board of Directors.
During the fiscal year
ended December 31, 2018, Mr. Jarry agreed to waive approximately 47% of his cash salary pursuant to our shares for salary program
and its 2012 Equity Incentive Plan, and as a result, Mr. Jarry received shares of common stock in lieu of a portion of his annual
cash salary.
On October 3, 2018, the
Compensation Committee of our Board of Directors approved the issuance to Mr. Jarry of 39,237 shares of our common stock under
our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $39,000 salary otherwise payable to Mr. Jarry
from September to December 2018.
Outstanding Equity Awards at December 31,
2018
Name
|
|
Number of
securities
underlying
unexercised
options (#)
exercisable
|
|
|
Number of
securities
underlying
unexercised
options (#)
unexercisable
|
|
|
Equity
incentive
plan awards:
Number of
securities
underlying
unexercised
unearned
options (#)
|
|
|
Option
exercise
price ($)
|
|
|
Option
expiration
date
|
|
Erez Raphael
|
|
|
2,001
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
121,50
|
|
|
|
March
14, 2023
|
|
(Chief Executive Officer)
|
|
|
223
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
270.00
|
|
|
|
June 5, 2023
|
|
|
|
|
3,334
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
240.30
|
|
|
|
August 28, 2023
|
|
|
|
|
889
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
166.50
|
|
|
|
January 6, 2024
|
|
|
|
|
4,667
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
88.20
|
|
|
|
July 6, 2024
|
|
|
|
|
168,904
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
5.76
|
|
|
|
September 3, 2021
|
|
|
|
|
83,512
|
|
|
|
59,652
|
(1)
|
|
|
-
|
|
|
$
|
3.202
|
|
|
|
January 30, 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zvi Ben David
|
|
|
43,073
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
5.76
|
|
|
|
September 3, 2021
|
|
(Chief Financial Officer, Secretary and Treasurer)
|
|
|
18,563
|
|
|
|
13,260
|
(1)
|
|
|
-
|
|
|
$
|
3.202
|
|
|
|
January 30, 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dror Bacher
|
|
|
1,334
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
166.50
|
|
|
|
January 6, 2024
|
|
(Chief Operating Officer)
|
|
|
1,334
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
88.20
|
|
|
|
July 6, 2024
|
|
|
|
|
25,338
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
5.76
|
|
|
|
September 3, 2021
|
|
|
|
|
9,584
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
7.02
|
|
|
|
December 17, 2021
|
|
|
|
|
16,037
|
|
|
|
11,455
|
(1)
|
|
|
-
|
|
|
$
|
3.202
|
|
|
|
January 30, 2023
|
|
|
|
|
4,170
|
|
|
|
5,830
|
(1)
|
|
|
-
|
|
|
$
|
2.46
|
|
|
|
July 25, 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Olivier Jarry
|
|
|
120,000
|
|
|
|
120,000
|
|
|
|
|
|
|
$
|
0.795
|
|
|
|
November 22, 2024
|
|
(President and Chief Commercial Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Option Shares
|
|
|
502,963
|
|
|
|
210,197
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
(1)
|
Vests in 12 equal quarterly installments over a three-year period.
|
Non-Employee Director Remuneration Policy
In March 2013, our Board of Directors adopted
the following non-employee director remuneration policy:
Cash Awards
Our non-employee directors
(currently Messrs. Shaked, Farhi, Kamer, McGrath and Moller, Prof. Stone and Ms. Karah) will receive the following cash payments
for each fiscal year: (i) $25,000 per year, to be paid quarterly in arrears and (ii) $16,000 for Board committee service, to be
paid quarterly in arrears;
provided, however,
that such quarterly payments and committee meeting fees shall accrue and
shall be payable upon the approval of Mr. Raphael at such time when our company is adequately capitalized in his reasonable discretion.
Stock and Option Awards
On January 10, 2017, the
Compensation Committee of our Board of Directors approved the issuance to each of Prof. Stone, Mr. Hoenlein, Mr. McGrath, Ms.
Karah and Mr. Yehudiha of 6,388 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu
of $20,500 in fees otherwise payable to each of Prof. Stone, Mr. Hoenlein, Mr. McGrath, Ms. Karah and Mr. Yehudiha for the period
from July 1, 2016, to December 31, 2016. In addition, the Compensation Committee of our Board of Directors approved the issuance
to Mr. Farhi of 4,544 shares of our common stock under the 2012 Equity Incentive Plan. Such shares were issued in lieu of $14,583.33
in fees otherwise payable to Mr. Farhi for the period June 1, 2016, to December 31, 2016.
On January 30, 2017, the
Compensation Committee of our Board of Directors approved a grant of an aggregate of 111,242 options to our non-employee directors.
These options have an exercise price of $3.202 per share. The options shall vest in 12 quarterly installments over a three-year
period from the grant date.
On April 13, 2017, the
Compensation Committee of our Board of Directors approved the issuance to each of Prof. Stone, Mr. Hoenlein, Mr. McGrath, Ms.
Karah and Mr. Yehudiha of 2,800 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu
of $10,250 in fees otherwise payable to each of Prof. Stone, Mr. Hoenlein, Mr. McGrath, Ms. Karah and Mr. Yehudiha for the period
from January 1, 2017, to March 31, 2017. In addition, the Compensation Committee of our Board of Directors approved the issuance
to Mr. Farhi of 1,708 shares of our common stock under the 2012 Equity Incentive Plan. Such shares were issued in lieu of $6,250
in fees otherwise payable to Mr. Farhi for the period January 1, 2017, to March 31, 2017. In addition, the Compensation Committee
of our Board of Directors approved the issuance to each of Mr. Kamer and Mr. Bahagon of 569 shares of our common stock under the
2012 Equity Incentive Plan. Such shares were issued in lieu of $2,083.33 in fees otherwise payable to each of Mr. Kamer and Mr.
Bahagon for the period March 1, 2017, to March 31, 2017.
On July 9, 2017, the
Compensation Committee of our Board of Directors approved the issuance to each of Prof. Stone, Mr. Hoenlein, Mr. McGrath, Ms.
Karah and Mr. Yehudiha of 4,433 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu
of $10,250 in fees otherwise payable to each of Prof. Stone, Mr. Hoenlein, Mr. McGrath, Ms. Karah and Mr. Yehudiha for the period
from April 1, 2017, to June 30, 2017. In addition, the Compensation Committee of our Board of Directors approved the issuance
to each of Mr. Farhi, Mr. Kamer and Mr. Bahagon of 2,703 shares of our common stock under the 2012 Equity Incentive Plan. Such
shares were issued in lieu of $6,250 in fees otherwise payable to Mr. Farhi, Mr. Kamer and Mr. Bahagon for the period April 1,
2017, to June 30, 2017.
On October 23, 2017,
the Compensation Committee of our Board of Directors approved the issuance to each of Prof. Stone, Mr. Hoenlein, Mr. McGrath,
Ms. Karah and Mr. Yehudiha of 5,521 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in
lieu of $10,250 in fees otherwise payable to each of Prof. Stone, Mr. Hoenlein, Mr. McGrath, Ms. Karah and Mr. Yehudiha for the
period from July 1, 2017, to September 30, 2017. In addition, the Compensation Committee of our Board of Directors approved the
issuance to each of Mr. Farhi, Mr. Kamer and Mr. Bahagon of 3,367 shares of our common stock under the 2012 Equity Incentive Plan.
Such shares were issued in lieu of $6,250 in fees otherwise payable to Mr. Farhi, Mr. Kamer and Mr. Bahagon for the period July
1, 2017, to September 30, 2017.
On January 4, 2018,
the Compensation Committee of our Board of Directors approved the issuance to each of Prof. Stone, Mr. Hoenlein, Mr. McGrath,
Ms. Karah and Mr. Yehudiha of 6,531 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in
lieu of $10,250 in fees otherwise payable to each of Prof. Stone, Mr. Hoenlein, Mr. McGrath, Ms. Karah and Mr. Yehudiha for the
period from October 1, 2017, to December 31, 2017. In addition, the Compensation Committee of our Board of Directors approved
the issuance to each of Mr. Farhi, Mr. Kamer and Mr. Bahagon of 3,983 shares of our common stock under the 2012 Equity Incentive
Plan. Such shares were issued in lieu of $6,250 in fees otherwise payable to Mr. Farhi, Mr. Kamer and Mr. Bahagon for the period
October 1, 2017, to December 31, 2017.
On April 23, 2018,
the Compensation Committee of our Board of Directors approved the issuance to each of Prof. Stone, Mr. Hoenlein, Mr. McGrath,
Ms. Karah and Mr. Yehudiha of 6,653 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in
lieu of $10,250 in fees otherwise payable to each of Prof. Stone, Mr. Hoenlein, Mr. McGrath, Ms. Karah and Mr. Yehudiha for the
period from January 1, 2018, to March 31, 2018. In addition, the Compensation Committee of our Board of Directors approved the
issuance to each of Mr. Farhi and Mr. Kamer of 4,057 shares of our common stock under the 2012 Equity Incentive Plan. Such shares
were issued in lieu of $6,250 in fees otherwise payable to Mr. Farhi and Mr. Kamer for the period January 1, 2018, to March 31,
2018. In addition, the Compensation Committee of our Board of Directors approved the issuance to Mr. Bahagon 3,335 shares of our
common stock under the 2012 Equity Incentive Plan. Such shares were issued in lieu of $5,139 in fees otherwise payable to Mr.
Bahagon for the period January 1, 2018, to March 15, 2018.
On July 9, 2018, the
Compensation Committee of our Board of Directors approved the issuance to each of Prof. Stone, Mr. Hoenlein, Mr. McGrath and Ms.
Karah of 7,039 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of $10,250 in
fees otherwise payable to each of Prof. Stone, Mr. Hoenlein, Mr. McGrath and Ms. Karah for the period from April 1, 2018, to June
30, 2018. In addition, the Compensation Committee of our Board of Directors approved the issuance to each of Mr. Farhi, Mr. Kamer,
Mr. Yehudiha and Mr. Zanco of 4,292 shares of our common stock under the 2012 Equity Incentive Plan. Such shares were issued in
lieu of $6,250 in fees otherwise payable to Mr. Farhi, Mr. Kamer, Mr. Yehudiha and Mr. Zanco for the period April 1, 2018, to
June 30, 2018.
On October 3, 2018,
the Compensation Committee of our Board of Directors approved the issuance to each of Prof. Stone, Mr. Shaked, Mr. McGrath, and
Ms. Karah of 10,312 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of $10,250
in fees otherwise payable to each of Prof. Stone, Mr. Shaked, Mr. McGrath, and Ms. Karah for the period from July 1, 2018, to
September 30, 2018. In addition, the Compensation Committee of our Board of Directors approved the issuance to each of Mr. Farhi,
Mr. Kamer, Mr. Yehudiha and Mr. Zanco of 6,288 shares of our common stock under the 2012 Equity Incentive Plan. Such shares were
issued in lieu of $6,250 in fees otherwise payable to Mr. Farhi, Mr. Kamer, Mr. Yehudiha and Mr. Zanco for the period July 1,
2018, to September 30, 2018.
On January 27, 2019,
the Compensation Committee of our Board of Directors approved the issuance to each of Prof. Stone, Mr. Shaked, Mr. McGrath, and
Ms. Karah of 10,250 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of $10,250
in fees otherwise payable to each of Prof. Stone, Mr. Shaked, Mr. McGrath, and Ms. Karah for the period from October 1, 2018,
to December 31, 2018. The Compensation Committee of our Board of Directors also approved the issuance to each of Mr. Farhi and
Mr. Kamer of 6,250 shares of our common stock under the 2012 Equity Incentive Plan. Such shares were issued in lieu of $6,250
in fees otherwise payable to Mr. Farhi and Mr. Kamer for the period October 1, 2018, to December 31, 2018. In addition, the Compensation
Committee of our Board of Directors approved the issuance to Mr. Moller 5,231 shares of our common stock under the 2012 Equity
Incentive Plan. Such shares were issued in lieu of $5,231 in fees otherwise payable to Mr. Moller for the period October 16, 2018,
to December 31, 2018.
Compensation Committee Review
The Compensation Committee
shall, if it deems necessary or prudent in its discretion, reevaluate and approve in January of each such year (or in any event
prior to the first board meeting of such fiscal year) the cash and equity awards (amount and manner or method of payment) to be
made to non-employee directors for such fiscal year. In making this determination, the Compensation Committee shall utilize such
market standard metrics as it deems appropriate, including, without limitation, an analysis of cash compensation paid to independent
directors of our peer group.
The Compensation Committee
shall also have the power and discretion to determine in the future whether non-employee directors should receive annual or other
grants of options to purchase shares of common stock or other equity incentive awards in such amounts and pursuant to such policies
as the Compensation Committee may determine utilizing such market standard metrics as it deems appropriate, including, without
limitation, an analysis of equity awards granted to independent directors of our peer group.
Participation of Employee Directors;
New Directors
Unless separately
and specifically approved by the Compensation Committee in its discretion, no employee director of our company shall be entitled
to receive any remuneration for service as a director (other than expense reimbursement as per prevailing policy).
New directors joining
our Board of Directors shall be entitled to a pro-rated portion (based on months to be served in the fiscal year in which they
join) of cash and stock option or other equity incentive awards (if applicable) for the applicable fiscal year at the time they
join the board.
Summary Director Compensation Table
The following table
summarizes the annual compensation paid to our non-employee directors for the fiscal year ended December 31, 2018:
Name and
Principal
Position
|
|
Year
|
|
Fees Paid
or
Earned in
Cash
($)
|
|
|
Stock
Awards
|
|
|
Option
Awards
($)*
|
|
|
Non-equity
incentive
plan
compensation
|
|
|
Non-
qualified
deferred
compensation
earnings
|
|
|
All other
compensation
($)
|
|
|
Total ($)
|
|
Yossi Bahagon (1)
|
|
2018
|
|
$
|
-
|
|
|
$
|
11,389
|
(2)
|
|
$
|
|
(3)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Malcolm Hoenlein (4)
|
|
2018
|
|
$
|
-
|
|
|
$
|
74,997
|
(5)
|
|
$
|
|
(6)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dennis McGrath
|
|
2018
|
|
$
|
-
|
|
|
$
|
78,747
|
(7)
|
|
$
|
|
(8)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prof. Richard B. Stone
|
|
2018
|
|
$
|
-
|
|
|
$
|
78,747
|
(9)
|
|
$
|
|
(10)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rami Yehudiha (11)
|
|
2018
|
|
$
|
-
|
|
|
$
|
44,039
|
(12)
|
|
$
|
|
(13)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yalon Farhi
|
|
2018
|
|
$
|
-
|
|
|
$
|
36,039
|
(14)
|
|
$
|
|
(15)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hila Karah
|
|
2018
|
|
$
|
-
|
|
|
$
|
78,747
|
(16)
|
|
$
|
-
|
(17)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allen Kamer
|
|
2018
|
|
$
|
-
|
|
|
$
|
65,061
|
(18)
|
|
$
|
|
(19)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ori Zanco (20)
|
|
2018
|
|
$
|
-
|
|
|
$
|
39,208
|
(21)
|
|
$
|
-
|
(22)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yoav Shaked
|
|
2018
|
|
$
|
-
|
|
|
$
|
10,250
|
(23)
|
|
$
|
|
(24)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glen D. Moller
|
|
2018
|
|
$
|
-
|
|
|
$
|
-
|
(25)
|
|
$
|
|
(26)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
|
|
|
*
|
Amount shown does not reflect
dollar amount actually received. Instead, this amount reflects the aggregate grant date fair value of each stock option granted
in the fiscal year ended December 31, 2018, computed in accordance with the provisions of ASC 718. Assumptions used in accordance
with ASC 718 are included in Note 9 to our consolidated financial statements included in this Annual Report.
|
|
(1)
|
Mr. Bahagon resigned from
our Board of Directors effective as of March 15, 2018.
|
|
(2)
|
13,957 stock awards are
outstanding as of December 31, 2018.
|
|
(3)
|
No option awards are outstanding
as of December 31, 2018.
|
|
(4)
|
Mr. Hoenlein resigned from
our Board of Directors effective as of July 5, 2018.
|
|
(5)
|
90,072 stock awards are
outstanding as of December 31, 2018.
|
|
(6)
|
2,223 option awards are
outstanding as of December 31, 2018.
|
|
(7)
|
88,036 stock awards are
outstanding as of December 31, 2018.
|
|
(8)
|
33,152 option awards are
outstanding as of December 31, 2018.
|
|
(9)
|
87,992 stock awards are
outstanding as of December 31, 2018.
|
|
(10)
|
32,874 option awards are
outstanding as of December 31, 2018.
|
|
(11)
|
Mr. Yehudiha resigned from
our Board of Directors effective as of October 15, 2018.
|
|
(12)
|
62,743 stock awards are
outstanding as of December 31, 2018.
|
|
(13)
|
23,203 option awards are
outstanding as of December 31, 2018.
|
|
(14)
|
38,064 stock awards are
outstanding as of December 31, 2018.
|
|
(15)
|
31,207 option awards are
outstanding as of December 31, 2018.
|
|
(16)
|
84,855 stock awards are
outstanding as of December 31, 2018.
|
|
(17)
|
31,207 option awards are
outstanding as of December 31, 2018.
|
|
(18)
|
51,105 stock awards are
outstanding as of December 31, 2018.
|
|
(19)
|
No option awards are outstanding
as of December 31, 2018.
|
|
(20)
|
Mr. Zanco resigned from
our Board of Directors effective as of October 15, 2018.
|
|
(21)
|
27,811 stock awards are
outstanding as of December 31, 2018.
|
|
(22)
|
No option awards are outstanding
as of December 31, 2018.
|
|
(23)
|
10,312 stock awards are
outstanding as of December 31, 2018.
|
|
(24)
|
No option stock awards
are outstanding as of December 31, 2018.
|
|
(25)
|
No stock awards are outstanding
as of December 31, 2018.
|
|
(26)
|
No option stock awards
are outstanding as of December 31, 2018.
|
|
Item 12.
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
|
The following table
sets forth information regarding the beneficial ownership of our common stock as of March 22, 2019 by:
|
·
|
each person known by us to be the beneficial owner of more than
5% of our outstanding shares of common stock;
|
|
·
|
each of our named executive officers and directors; and
|
|
·
|
all our executive officers and directors as a group.
|
Beneficial ownership
is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities.
Except as otherwise indicated, each person or entity named in the table has sole voting and investment power with respect to all
shares of our capital shown as beneficially owned, subject to applicable community property laws.
In computing the number
and percentage of shares beneficially owned by a person, shares that may be acquired by such person within 60 days of the date
of this Annual Report are counted as outstanding, while these shares are not counted as outstanding for computing the percentage
ownership of any other person. Unless otherwise indicated, the address of each person listed below is c/o DarioHealth Corp., 8
HaTokhen Street, Caesarea North Industrial Park, 3088900, Israel.
|
|
|
|
|
Percent of
|
|
|
|
Shares of
Common
|
|
|
Common
Stock
|
|
|
|
Beneficially
|
|
|
Beneficially
|
|
Name of Beneficial Owner
|
|
Stock Owned
|
|
|
Owned
(1)
|
|
Officers and Directors
|
|
|
|
|
|
|
|
|
Erez Raphael
(2)
|
|
|
2,442,335
|
|
|
|
6.6
|
%
|
Zvi Ben David
(3)
|
|
|
951,843
|
|
|
|
2.6
|
%
|
Dror Bacher
(4)
|
|
|
466,018
|
|
|
|
1.3
|
%
|
Olivier Jarry
(5)
|
|
|
97,354
|
|
|
|
*
|
|
Dennis M. McGrath
(6)
|
|
|
127,436
|
|
|
|
*
|
|
Prof. Richard B. Stone
(7)
|
|
|
286,448
|
|
|
|
*
|
|
Hila Karah
(8)
|
|
|
133,088
|
|
|
|
*
|
|
Yalon Farhi
(9)
|
|
|
67,719
|
|
|
|
*
|
|
Allen Kamer
(10) (12)
|
|
|
1,452,244
|
|
|
|
3.9
|
%
|
Yoav Shaked
(13)
|
|
|
83,637
|
|
|
|
*
|
|
Glen Moller
|
|
|
5,231
|
|
|
|
*
|
|
All Executive Officers and Directors as a group (10 persons)
|
|
|
6,113,353
|
|
|
|
16.5
|
%
|
5% Stockholders
|
|
|
|
|
|
|
|
|
David Edery
(11)
|
|
|
3,456,859
|
|
|
|
9.0
|
%
|
Agate JT Healthcare Fund L.P.
(12)
|
|
|
2,571,428
|
|
|
|
6.2
|
%
|
Nantahala Capital Partners SI, LP
(14)
|
|
|
3,500,494
|
|
|
|
9.1
|
%
|
Nantahala Capital Management, LLC
(15)
|
|
|
3,695,199
|
|
|
|
9.9
|
%
|
Shmuel Farhi
(16)
|
|
|
1,059,684
|
|
|
|
2.9
|
%
|
Shehnee Lawrence Farhi
(17)
|
|
|
1,917,445
|
|
|
|
5.1
|
%
|
|
(1)
|
Percentage ownership is
based on 36,821,173 shares of our common stock outstanding as of March 22, 2019 and, for each person or entity listed above, warrants
or options to purchase shares of our common stock which exercisable within 60 days of the such date.
|
|
(2)
|
Includes 287,390 vested
options. Excludes 35,792 options which are not vested. Also includes 757,509 shares of our Common Stock, held by Dicilyon Consulting
and Investment Ltd. Erez Raphael is the natural person with voting and dispositive power over our securities held by Dicilyon
Consulting and Investment Ltd. The address of Dicilyon Consulting and Investment Ltd. is 7 B'Chshvan St No. 8, Ramat HaSharon,
Israel.
|
|
(3)
|
Includes 66,940 vested
options to purchase common stock and 111,112 warrants to purchase common stock. Excludes 7,956 options which are not vested. Includes
35,716 shares and 28,573 warrants owned by his spouse, for which Mr. Ben David disclaims beneficial ownership except to the extent
of his pecuniary interest therein.
|
|
(4)
|
Includes 64,047 vested
options to purchase common stock. Excludes 11,035 options which are not vested.
|
|
(5)
|
Includes 0 vested options
to purchase common stock. Excludes 120,000 options which are not vested.
|
|
(6)
|
Includes 29,150 vested
options to purchase common stock. Excludes 4,002 options which are not vested.
|
|
(7)
|
Includes 25,000 warrants
to purchase common stock, and 28,872 vested options to purchase common stock. Excludes 4,002 options which are not vested.
|
|
(8)
|
Includes 27,005 vested
options to purchase common stock. Excludes 4,002 options which are not vested.
|
|
(9)
|
Includes 23,405 vested
options to purchase common stock. Excludes 7,802 options which are not vested.
|
|
(10)
|
Mr. Kamer is a Managing
Partner of OurCrowd Digital Health L.P. and therefore the securities held by OurCrowd Digital Health L.P. may be deemed to be
beneficially owned by Mr. Kamer. Mr. Kamer disclaims beneficial ownership of the securities owned by OurCrowd Digital Health L.P.
except to the extent of his pecuniary interest therein.
|
|
(11)
|
Based solely on information
contained in the filed Schedule 13G filed with the SEC on October 10, 2018, reporting beneficial ownership of David Edery. The
address of david Edery is 10 Nataf St., Ramat Hasharon 4704063, Israel.
|
|
(12)
|
Based on the Securities
Purchase Agreement executed by and between Agate JT Healthcare Fund L.P. and the Company dated February 28, 2018.
|
|
(13)
|
Includes 33,336 shares
and 26,669 warrants owned by his spouse, for which Mr. Shaked disclaims beneficial ownership except to the extent of his pecuniary
interest therein.
|
|
(14)
|
Based solely on information
contained in Form S-3 filed with the SEC on January 15, 2019. Includes 1,653,521 warrants to purchase common stock.
|
|
(15)
|
Based solely on information
contained in Form 13G filed with the SEC on February 14, 2019.
|
|
(16)
|
Based on information contained
in the filed Schedule 13D filed with the SEC on May 18, 2018, reporting beneficial ownership of Mr. Shmuel Farhi, as well as information
provided by Mr. Shmuel Farhi to the Company. Mr. Shmuel Farhi’s address is 484 Richmond St., London, England, N6A 3E6.
|
|
(17)
|
Based on information contained in the filed Schedule 13G filed with the SEC on February 14, 2018, reporting beneficial ownership of Ms. Farhi, as well as information provided by Ms. Farhi to the Company. Includes 616,445 warrants to purchase Common Stock issued to Ms. Farhi. Ms. Farhi’s address is 413 Grangeover Crt., London, Ontario, Canada.
|
|
Item 13.
|
Certain Relationships and Related Party Transactions
|
Executive Officers and Directors
We have entered into
employment and consulting agreements and granted stock awards to our executive officers and directors as more fully described
in “Executive Compensation” above.
Executive Officers and Directors
We have entered into
employment agreements and granted stock awards to our executive officers as more fully described in “Executive Compensation”
above.
September 2014 Private Placement
On September 23, 2014,
we entered into and closed the transactions contemplated by a definitive Securities Purchase Agreement. The lead investor in the
financing memorialized in such agreement was Dicilyon Consulting and Investment Ltd. (“Dicilyon”), an affiliate of
Israeli investor David Edery who invested $3 million in the private placement purchasing 1,667 shares of our Series A Convertible
Preferred Stock (which converted into 525,564 shares of our Common Stock on March 8, 2016 in conjunction with a closing of our
public offering) and 231,248 warrants to purchase Common Stock following the entry into a warrant replacement agreement with Dicilyon
whereby Dicilyon replaced 210,226 warrants issued in 2014 which contained a net settlement cash feature and liquidated damages
penalties with 231,248 warrants which contain a standard anti-dilution clause, both groups of warrants with an exercise price
of $8.559 per share and exercisable until September 23, 2018. Pursuant to the Securities Purchase Agreement, Mr. Edery and his
controlled affiliates were granted certain special rights, including, among other things, (i) a two year pre-emptive right to
participate in our future financings, subject to certain exceptions, in an amount which would allow Mr. Edery to maintain his
fully-diluted percentage ownership of the Company, and (ii) a right that, for so long as Mr. Edery holds 25%, 15% and 10% of the
outstanding shares of Common Stock, Mr. Edery shall have the right to appoint, respectively, three, two or one member of our seven-person
Board of Directors. The preemptive rights were waived in connection with the March 2016 public offering, and Mr. Edery has waived
his director nomination rights effective February 28, 2016. In connection with the closing of the transactions contemplated by
the Securities Purchase Agreement, Mr. Edery’s company appointed Rami Yehudiha to serve as a member of the Board of Directors
and on November 18, 2014, Mr. Edery’s company exercised its right to appoint two members to the Board of Directors by requesting
that Dr. Oren Fuerst and Dr. Steven A. Kaplan resign from the Board of Directors. Accordingly, Dr. Kaplan resigned from the Board
of Directors effective as of November 21, 2014, and Dr. Fuerst resigned from the Board of Directors effective as of November 23,
2014. On November 23, 2014, the remaining members of the Board of Directors acted by unanimous written consent to name two appointees
of Mr. Edery’s company, Dr. Peter M. Kash and Ms. Hila Karah, as members of the Board of Directors. On February 25, 2015,
Dr. Peter M. Kash resigned from his position as a member of the Board of Directors for personal reasons. On June 15, 2015, both
Mr. Yehudiha and Ms. Karah were elected to our Board of Directors by our shareholders. On March 1, 2016, Dicilyon irrevocably
granted voting and dispositive power over our shares held by it to Erez Raphael, our Chairman, and Chief Executive Officer.
January 2017 Private Placement
On January 9, 2017,
we held the initial closing of our private placement offering with OurCrowd Digital Health L.P., the lead investor, and an additional
investor, and issued and sold an aggregate of 1,113,922 shares of common stock and warrants to purchase 1,113,922 shares of our
common stock. Pursuant to the terms of the securities purchase agreement with OurCrowd Digital Health L.P., we granted OurCrowd
Digital Health L.P. the right to nominate two individuals to our Board of Directors for so long as the investor holds 13% and
5% of our outstanding shares of our common stock. We further agreed to permit such designees to serve on our Nominating and Corporate
Governance Committee. In addition, we granted OurCrowd Digital Health L.P. the right, for a two year period, to participate in
future securities offerings of the Company. On February 28, 2017, OurCrowd Digital Health L.P. appointed Allen Kamer and
Yossi
Bahagon to serve on our Board of Directors as well as appointed each of Messrs. Kamer and Bahagon to serve on our Nominating
and Corporate Governance Committee. Such investor no longer holds in excess of 5% of our outstanding shares of common stock and
currently has no right to appoint a director to our Board of Directors. Mr. Bahagon resigned from our Board of Directors effective
as of March 15, 2018.
Statement of Policy
All transactions (if
any) between us and our officers, directors or five percent stockholders, and respective affiliates will be on terms no less favorable
than could be obtained from unaffiliated third parties and will be approved by a majority of our independent directors who do
not have an interest in the transactions and who had access, at our expense, to our legal counsel or independent legal counsel.
To the best of our
knowledge, other than as set forth above, there were no material transactions, or series of similar transactions, or any currently
proposed transactions, or series of similar transactions, to which we were or are to be a party, in which the amount involved
exceeds the lesser of $120,000 or 1% of the average of our total assets at year end for the last two completed fiscal years, and
in which any director or executive officer, or any security holder who is known by us to own of record or beneficially more than
5% of any class of our common stock, or any member of the immediate family of any of the foregoing persons, has an interest (other
than compensation to our officers and directors in the ordinary course of business).
|
Item 14.
|
Principal Accounting Fees and Services
|
The following table
sets forth fees billed to us by Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, our independent registered
public accounting firm, during the fiscal years ended December 31, 2018 and December 31, 2017 for: (i) services rendered for the
audit of our annual financial statements and the review of our quarterly financial statements; (ii) services by our independent
registered public accounting firms that are reasonably related to the performance of the audit or review of our financial statements
and that are not reported as audit fees; (iii) services rendered in connection with tax compliance, tax advice and tax planning;
and (iv) all other fees for services rendered.
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Audit Fees
|
|
$
|
86,000
|
|
|
$
|
86,000
|
|
Audited Related Fees
|
|
$
|
-
|
|
|
$
|
-
|
|
Tax Fees (1)
|
|
$
|
9,000
|
|
|
$
|
12,000
|
|
All Other Fees (2)
|
|
$
|
15,000
|
|
|
$
|
56,000
|
|
Total
|
|
$
|
110,000
|
|
|
$
|
154,000
|
|
|
(1)
|
Consists of fees relating to our tax compliance and tax planning.
|
|
(2)
|
Consists of fees relating to our private placements.
|
Audit Committee Policies
The Audit Committee
of our Board of Directors is solely responsible for the approval in advance of all audit and permitted non-audit services to be
provided by the independent auditors (including the fees and other terms thereof), subject to the de minimus exceptions for non-audit
services provided by Section 10A(i)(1)(B) of the Exchange Act, which services are subsequently approved by the Board of Directors
prior to the completion of the audit. None of the fees listed above are for services rendered pursuant to such de minimus exceptions.
The accompanying notes are an integral
part of the consolidated financial statements.
The accompanying notes are an integral
part of the consolidated financial statements.
The accompanying notes are an integral
part of the consolidated financial statements.
The accompanying notes are
an integral part of the consolidated financial statements.
The accompanying notes are an integral
part of the consolidated financial statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands (expect stock and stock data)
|
a.
|
DarioHealth
Corp. (the “Company”) was incorporated in Delaware and commenced operations
on August 11, 2011. In July 2016, the Company’s Board of Directors approved the
change of the Company’s name to DarioHealth Corp., which became effective on July
28, 2016. The Company is a digital health (mHealth) company that is developing and commercializing
a patented and proprietary technology providing consumers with laboratory-testing capabilities
using smart phones and other mobile devices. The Company’s flagship product,
Dario™, also referred to as the Dario™ Smart Diabetes Management Solution,
is a mobile, real-time, cloud-based, diabetes management solution based on an innovative,
multi-feature software application combined with a stylish, ‘all-in-one’,
pocket-sized, blood glucose monitoring device, which is called the Dario™ Smart
Meter.
|
|
b.
|
The Company’s
wholly owned subsidiary, LabStyle Innovation Ltd. (“Ltd.” or “Subsidiary”),
was incorporated and commenced operations on September 14, 2011 in Israel. Its principal
business activity is to hold the Company’s intellectual property and to perform
research and development, manufacturing, marketing and other business activities. Ltd.
has a wholly-owned subsidiary, LabStyle Innovations US LLC, a Delaware limited liability
company (“LabStyle US”), which was established in 2014, however it has not
started its operations to date and was dissolved by the end of 2017.
|
|
c.
|
During the year ended December 31, 2018, the Company
incurred recurring operating losses and negative cash flows from operating activities
amounting to $17,803 and $11,470, respectively. The Company will be required to obtain
additional liquidity resources in the near term in order to support the commercialization
of its products and maintain its research and development activities. The Company is
addressing its liquidity needs by seeking additional funding from public and/or private
sources and by ramping up its commercial sales. There are no assurances, however, that
the Company will be able to obtain an adequate level of financial resources that are
required for the short and long-term development and commercialization of its product.
|
|
|
These conditions
raise substantial doubt about the Company’s ability to continue as a going concern.
The accompanying consolidated financial statements do not include any adjustments to
reflect the possible future effects on recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome of this
uncertainty.
|
|
d.
|
In December
2015, the United States Food and Drug Administration (“FDA”) granted the
Subsidiary 510(k) clearance for the Dario Blood Glucose Monitoring System, including
its components, the Dario Blood Glucose Meter, Dario Blood Glucose Test Strips, Dario
Glucose Control Solutions and the Dario app on the Apple iOS 6.1 platform and higher.
|
|
e.
|
On March 4,
2016, the Company’s Common Stock and warrants were approved for listing on the
Nasdaq Capital Market under the symbols “DRIO” and “DRIOW,” respectively.
|
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands (expect stock and stock data)
|
NOTE 2:
-
|
SIGNIFICANT
ACCOUNTING POLICIES
|
The consolidated financial
statements are prepared according to United States generally accepted accounting principles (“U.S. GAAP”).
The preparation of the consolidated
financial statements and related disclosures in conformity with U.S. GAAP and requires the Company’s management to make judgments,
assumptions and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. Management
bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may
differ from these estimates, and such differences may be material.
Management believes the
Company’s critical accounting policies and estimates are reasonable based upon information available at the time they are
made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
|
b.
|
Financial statements
in U.S. dollars (“$”, “dollar” or “dollars”):
|
The
accompanying consolidated financial statements have been prepared in dollars.
The Company’s financing
activities are incurred in U.S. dollars. Although a portion of the Subsidiary’s expenses is denominated in New
Israeli
Shekels
(“NIS”) (mainly cost of personnel), a substantial portion of its expenses is denominated in dollars.
Accordingly, the Company’s management believes that the currency of the primary economic environment in which the Company
and its subsidiary operate is the dollar; thus, the dollar is the functional currency of the Company. Transactions and balances
denominated in dollars are presented at their original amounts. Monetary accounts denominated in currencies other than the dollar
are re-measured into dollars in accordance with Accounting Standard Codification (“ASC”) 830, “Foreign Currency
Matters”. All transaction gains and losses of the re-measurement of monetary balance sheet items are reflected in the consolidated
statements of comprehensive loss as financial income or expenses, as appropriate.
|
c.
|
Principles of
consolidation:
|
The consolidated financial
statements include the accounts of the Company and its subsidiaries. Intercompany accounts and transactions have been eliminated.
|
d.
|
Cash and cash
equivalents:
|
The Company considers all
highly liquid investments, which are readily convertible to cash with a maturity of three months or less at the date of acquisition,
to be cash equivalents.
|
e.
|
Short-term restricted bank deposits:
|
Short-term bank deposits
are restricted deposits with maturities of up to one year and are pledged in favor of the bank as a security for the Company’s
rent and credit payments. The short-term bank deposits are denominated in NIS and bear interest at an average rate of 0.02% and
0.01% as of December 31, 2018 and 2017, respectively. The short-term bank deposits are presented at their cost, including accrued
interest.
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands (expect stock and stock data)
|
NOTE 2:-
|
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
Inventories are stated
at the lower of cost plus allocable indirect costs or net realized value. Cost is determined on a “moving average”
basis. Inventory write-down is provided to cover technological obsolescence, excess inventories and discontinued products. Inventory
write-down represents the difference between the cost of the inventory and net realizable value. Inventory write-down is charged
to the cost of revenues and ramp up of manufacturing when a new lower cost basis is established. Subsequent changes in facts and
circumstances do not result in the restoration or increase in that newly established cost basis.
Work-in-process is immaterial,
given the typically short manufacturing cycle, and therefore is disclosed in conjunction with raw materials.
Total write-offs during
the years ended December 31, 2018 and 2017 amounted to $41 and $190, respectively.
|
g.
|
Long-term lease
deposits:
|
Long-term lease deposits
include mainly long-term deposits for the Company’s leased vehicles.
|
h.
|
Property and
equipment:
|
Property and equipment
are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets at the following annual rates:
Property and equipment
(Cont.):
|
|
%
|
|
|
|
|
|
Computers,
and peripheral equipment
|
|
|
15-33
|
|
Office
furniture and equipment
|
|
|
6
|
|
Production
lines
|
|
|
33
|
|
Leasehold
improvements
|
|
|
Over
the shorter of the lease term or useful economic life
|
|
|
i.
|
Impairment of
long-lived assets:
|
Property and equipment
are reviewed for impairment in accordance with ASC 360, “Property, Plant and Equipment,” whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated
by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets.
Through December 31,
2018, no impairment was noted.
Revenues from product sales
are recognized in accordance with ASC 605-10 “Revenue Recognition”, when delivery has occurred, persuasive evidence
of an agreement exists, the vendor’s fee is fixed or determinable, no further obligation exists and collectability is probable.
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands (expect stock and stock data)
|
NOTE 2:-
|
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
Revenue recognition (Cont.):
The Company derives revenues
from the sale of its devices and its related device-specific disposables test strip cartridges and lancets through independent
distributors or directly to end users. The Dario software application is offered for a free download and the Company does not
obtain a recurring hosting commitment towards the end users relating specifically to the application.
The Company generally has
a standard contract with its distributors. According to the agreements, all sales to distributors are final, no rights of return
or price protection right is granted to such distributors and the Company is not a party of the agreements between distributors
and their customers.
When a sales arrangement
contains multiple elements, such as services and products, the Company allocates revenue to each element based on a selling price
hierarchy as required according to ASC 605-25, “Multiple-Element Arrangements”. The selling price for a deliverable
is based on its Vendor Specific Objective Evidence (“VSOE”), if available, third party evidence (“TPE”)
if VSOE is not available, or estimated selling price (“ESP”) if neither VSOE nor TPE is available. The best estimate
of selling price is established considering several internal factors including, but not limited to, historical sales, pricing
practices and geographies in which the Company offers its products.
Revenues from services
are recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred or the services have been
rendered, the fee is fixed or determinable and collectability is probable.
Cost of revenues is comprised
of the cost of production, shipping and handling inventory, personnel and related overhead costs, depreciation of production line
and related equipment costs and inventory write-downs.
|
l.
|
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 and trade receivables.
All of the cash and cash
equivalents and short-term bank deposits of the Company and its Subsidiary are invested in deposits and current accounts with
major U.S. and Israeli banks. Such cash and cash equivalents and short-term bank deposits may be in excess of insured limits and
are not insured in other jurisdictions. Generally, cash and cash equivalents and short-term bank deposits may be redeemed and
therefore a minimal credit risk exists with respect to these deposits and investments.
The Company’s trade
receivables are derived mainly from sales to distributers and to end-users world-wide. The Company performs ongoing credit evaluations
of its customers. An allowance for doubtful accounts is determined with respect to those specific amounts that the Company has
determined to be doubtful of collection.
The Company had no off-balance-sheet
concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands (expect stock and stock data)
|
NOTE 2:-
|
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
The Company accounts for
income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). This guidance prescribes the use
of the liability method whereby deferred tax asset and liability account balances are determined based on 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 provides a valuation allowance, if necessary, to reduce deferred
tax assets to amounts that are more likely than not to be realized. As of December 31, 2018 and 2017 a full valuation allowance
was provided by the Company.
ASC 740 contains a two-step
approach to recognizing and measuring a liability for uncertain tax positions. 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 December 31, 2018 and 2017, no liability for unrecognized tax benefits
was recorded as a result of the implementation of ASC 740.
|
n.
|
Research and
development costs:
|
Research and development
costs are charged to the consolidated statements of comprehensive loss, as incurred.
The Company accounts for
certain warrants held by investors and the Company’s previous placement agent and its permitted designees which include
certain net settlement cash features as a liability according to the provisions of ASC 815-40, “Derivatives and Hedging
- Contracts in Entity’s Own Equity” (“ASC 815”), which provides a new two-step model to be applied in
determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify
to be a derivative financial instrument. The Company measures the warrants at fair value by using Black-Scholes-Merton option-pricing
model in each reporting period until they are exercised or expired, with changes in the fair values being recognized in the Company’s
statement of comprehensive loss as financial income or expense.
|
p.
|
Accounting for
stock-based compensation:
|
The Company accounts for
stock-based compensation in accordance with ASC 718, “Compensation - Stock Compensation” (“ASC 718”),
which 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 an expense over the requisite
service periods in the Company’s consolidated statement of comprehensive loss.
The Company recognizes
compensation expenses for the value of its awards granted based on the straight-line method over the requisite service period
of each of the awards, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised,
if necessary, in subsequent periods if actual forfeitures differ from those estimates.
The Company estimates the
fair value of stock options granted using the Black-Scholes-Merton option-pricing model. The option-pricing model requires a number
of assumptions, of which the most significant are the expected stock price volatility and the expected option term. Expected volatility
was calculated based upon historical volatility of the Company. The expected option term represents the period that the Company’s
stock options are expected to be outstanding and is determined based on the simplified method until sufficient historical exercise
data will support using expected life assumptions. The risk-free interest rate is based on the yield from U.S. treasury bonds
with an equivalent term. The Company has historically not paid dividends and has no foreseeable plans to pay dividends.
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands (expect stock and stock data)
|
NOTE 2:-
|
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
The Company applies ASC
505-50, “Equity-Based Payments to Non-Employees” with respect to options and warrants issued to non-employees.
|
q.
|
Fair value of
financial instruments:
|
The Company applies ASC
820, “Fair Value Measurements and Disclosures” (“ASC 820”). Under this standard, fair value is defined
as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an
orderly transaction between market participants at the measurement date.
In determining fair value,
the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes
the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used
when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based
on market data obtained from sources independent from the Company. Unobservable inputs are inputs that reflect the Company’s
assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best
information available in the circumstances.
The hierarchy is broken
down into three levels based on the inputs as follows:
Level
1 - Valuations based on quoted prices in active markets for identical assets
that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments.
Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products
does not entail a significant degree of judgment.
Level
2 - Valuations based on one or more quoted prices in markets that
are not active or for which all significant inputs are observable, either directly or indirectly.
Level
3 - Valuations based on inputs that are unobservable and significant
to the overall fair value measurement.
The availability of observable
inputs can vary from investment to investment and is affected by a wide variety of factors, including, for example, the type of
investment, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is
based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more
judgment and the investments are categorized as Level 3.
The carrying amounts of cash and
cash equivalents, short-term bank deposits, trade receivables, other accounts receivable and prepaid expenses, trade payables and
other accounts payable and accrued expenses approximate their fair value due to the short-term maturity of such instruments. Warrants
were 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 Company has no financial assets or liabilities measured using Level 1, Level 2, or Level
3 inputs.
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands (expect stock and stock data)
|
NOTE 2:-
|
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
|
r.
|
Basic and diluted
net loss per share:
|
Basic net loss per share
is computed based on the weighted average number of shares of Common Stock outstanding during each year. Diluted net loss per
share is computed based on the weighted average number of shares of Common Stock outstanding during each year, plus dilutive potential
Common Stock considered outstanding during the year, in accordance with ASC 260, “Earnings Per Share”.
The total number of shares
related to the outstanding warrants and options excluded from the calculations of diluted net loss per share due to their anti-dilutive
effect was 1,787,801 and 1,434,924 for the year ended December 31, 2018 and 2017, respectively.
Since inception date, all
of Ltd.’s employees who are entitled to receive severance pay in accordance with the applicable law in Israel are included
under section 14 of the Israeli Severance Compensation Law (“Section 14”). Under this section, they are entitled only
to monthly deposits, at a rate of 8.33% of their monthly salary, made on their behalf with insurance companies. Payments in accordance
with Section 14 release Ltd. from any future severance payments in respect of those employees. Deposits under Section 14 are not
recorded as an asset in the Company’s balance sheet
|
t.
|
Legal and other
contingencies:
|
From time to time the Company
is involved in claims and legal proceedings. The Company reviews the status of each matter and assesses its potential financial
exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated,
the Company accrues a liability for the estimated loss.
|
u.
|
Impact of recently
issued accounting pronouncements:
|
In May 2014, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-09, “Revenue
from Contracts with Customers” Topic 606). This ASU provides a five-step approach to account for revenue arising from contracts
with customers. The ASU requires an entity to recognize revenue in a way that depicts the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services. This revenue standard will be effective for the Company starting the first quarter of 2019. The new revenue standard
permits companies to either apply the requirements retrospectively to all prior periods presented or apply the requirements in
the year of adoption through a modified retrospective approach with a cumulative adjustment. The Company will adopt the new standard
effective January 1, 2019, using the modified retrospective transition method. The Company expects the adoption of this guidance
will not have a material impact on its consolidated financial statements.
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands (expect stock and stock data)
|
NOTE 2:-
|
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
In February 2016, the FASB issued
ASU 2016-02, “Leases” (Topic 842) ("ASC 842"), relating to the recognition, measurement, presentation and
disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual
approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively
a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective
interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use
(“ROU”) asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification.
Leases with a term of 12 months or less will be accounted for in a manner similar to the accounting under existing guidance for
operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent
to existing guidance for sales-type leases, direct financing leases and operating leases. ASC 842 supersedes the previous leases
standard, ASC 840, "Leases". The guidance is effective for the interim and annual periods beginning on or after December 15,
2018, and the Company has adopted the standard on January 1, 2019. A modified retrospective transition approach is required, applying
the new standard to all leases existing at the date of initial application. The standard provides a number of optional practical
expedients in transition. The Company is electing the ‘package of practical expedients,’ which permits it not to reassess
under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company
expects adoption of the standard to have a material impact on its consolidated balance sheets which will result in the recognition
of ROU assets and lease liabilities of approximately $850 to $890 at January 1, 2019. The most significant
impact from the recognition of ROU assets and lease liabilities relates to its office space. However, the Company does not anticipate
that the adoption of this standard will have a material impact on the operating expenses in its consolidated statements of operations
since the expense recognition under this new standard will be similar to current practices. The Company's financial income (expenses),
net will be impacted by the revaluation of the lease liabilities in non-U.S. dollar denominated currencies.
In June 2018, the FASB issued ASU
2018-07, “Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.”
The updated guidance simplifies the accounting for nonemployee share-based payment transactions. The amendments in the new guidance
specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used
or consumed in a grantor’s own operations by issuing share-based payment awards. For public companies that file with the
Securities and Exchange Commission, the standard is effective for financial statements issued for fiscal years beginning after
December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than an entity’s
adoption date of Topic 606, “Revenue from Contracts with Customers.” The adoption of this guidance is not expected
to have a material impact on the Company’s financial statements.
In November 2016, the FASB
issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which requires
companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents
when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance will
be effective from the first quarter of 2019 and early adoption is permitted. The Company does not expect that the adoption of
this guidance will have a material impact on its consolidated financial statements and related disclosures.
|
NOTE 3:-
|
OTHER
ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
|
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
$
|
454
|
|
|
$
|
451
|
|
Deferred costs
|
|
|
71
|
|
|
|
-
|
|
Government authorities
|
|
|
66
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
591
|
|
|
$
|
604
|
|
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
424
|
|
|
$
|
323
|
|
Finished products
|
|
|
953
|
|
|
|
861
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,377
|
|
|
$
|
1,184
|
|
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands (expect stock and stock data)
|
NOTE 5:-
|
PROPERTY
AND EQUIPMENT, NET
|
Composition of assets, grouped
by major classification, is as follows:
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computers and peripheral equipment
|
|
$
|
180
|
|
|
$
|
285
|
|
Office furniture and equipment
|
|
|
114
|
|
|
|
106
|
|
Production lines
|
|
|
736
|
|
|
|
814
|
|
Leasehold improvement
|
|
|
143
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,173
|
|
|
|
1,346
|
|
Accumulated depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computers and peripheral equipment
|
|
|
97
|
|
|
|
208
|
|
Office furniture and equipment
|
|
|
25
|
|
|
|
20
|
|
Production lines
|
|
|
301
|
|
|
|
246
|
|
Leasehold improvement
|
|
|
17
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
440
|
|
|
|
477
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
733
|
|
|
$
|
869
|
|
Depreciation expenses for
the year ended December 31, 2018 and 2017 amounted to $207 and $195, respectively.
|
NOTE 6:-
|
OTHER
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Employees and payroll accruals
|
|
$
|
974
|
|
|
$
|
735
|
|
Accrued expenses
|
|
|
880
|
|
|
|
428
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,854
|
|
|
$
|
1,163
|
|
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands (expect stock and stock data)
|
NOTE 7:-
|
COMMITMENTS
AND CONTINGENT LIABILITIES
|
|
a.
|
The facilities
and motor vehicles of the Company and its Subsidiary are leased under several operating
lease agreements.
|
Ltd. is party to a lease agreement
in Israel for a period of 5 years starting from November 2017, with a renewal option for additional 60 months. In addition, Ltd.
is a party to a lease agreement expiring on November 2019.
Commencing November 13, 2011
and through the year ended 2021, Ltd. also entered into several motor vehicle lease agreements for a period of 36 months. As of
December 31, 2018, the Company maintains 11 leased cars.
|
b.
|
As of December
31, 2018, the future minimum aggregate lease commitments under non-cancelable operating
lease agreements are as follows:
|
As of
ended December 31,
|
|
Facilities
|
|
|
Motor
vehicles
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
215
|
|
|
|
87
|
|
|
|
302
|
|
2020
|
|
|
215
|
|
|
|
43
|
|
|
|
258
|
|
2021
|
|
|
215
|
|
|
|
13
|
|
|
|
228
|
|
2022
|
|
|
197
|
|
|
|
-
|
|
|
|
197
|
|
|
|
$
|
842
|
|
|
$
|
143
|
|
|
$
|
985
|
|
Facility and motor vehicle
lease expenses for the year ended December 31, 2018 and 2017 were $351 and $301, respectively.
|
c.
|
As of December
31, 2018, Ltd. established guarantees to cover rent agreements and credit cards commitments
that amounted to $118.
|
The
Company
and Ltd. are separately taxed under the domestic tax laws of the state of incorporation of each entity
On December 22, 2017, the U.S.
Tax Cuts and Jobs Act of 2017 (the “TCJA”) was signed into law. The TCJA makes broad and complex changes to the Internal
Revenue Code of 1986 (the “Code”) that impact the Company's provision for income taxes. The changes include, but are
not limited to:
|
·
|
Decreasing
the corporate income tax rate from 35% to 21% effective for tax years
beginning after December 31, 2017 (“Rate Reduction”);
|
|
·
|
The
Deemed Repatriation Transition Tax; and
|
|
·
|
Taxation of Global Intangible Low-Taxed Income (“GILTI”) earned by foreign subsidiaries beginning
after December 31, 2017. The GILTI tax imposes a tax on foreign income in excess of a deemed return on tangible assets
of foreign corporations.
|
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars
in thousands (expect stock and stock data)
NOTE 8:-
|
TAXES ON INCOME (Cont.)
|
Accounting for the
TCJA
In March 2018, the FASB issued
ASU 2018-05, "Income Taxes Topic (740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118"
("ASU 2018-05"), to address the application of GAAP in situations when a registrant does not have the necessary information
available, prepared or analyzed (including computations), in reasonable detail, to complete the accounting for certain income tax
effects of the TCJA.
The Company completed
the accounting treatment related to the tax effects of the TCJA. As a result:
|
·
|
The Company recognizes its accounting for changes in the U.S. federal rate and deferred tax impact for
the rate change to be complete.
|
|
·
|
The Company's analysis for the Deemed Repatriation Transition Tax has been filed with its December 31,
2017 tax return and the Company considered its accounting relating to the TCJA to be complete as of such date and did not make
any measurement-period adjustments related to it.
|
|
·
|
The Company accounted for the tax impact related to other areas of the TCJA and believes its analysis
to be completed and consistent with the guidance in ASU 2018-05. In particular, the Company concluded that for 2018, it should
not be subject to any tax on account of GILTI or base erosion and anti-abuse payments made by U.S. corporations to foreign related
parties.
|
The Company recognizes that the
Internal Revenue Service, the FASB and the Securities and Exchange Commission are continuing to publish and finalize ongoing guidance
with respect to the TCJA which may modify accounting interpretation for the TCJA, the Company will account for these impacts in
the period in which any changes are enacted.
|
b.
|
Tax rates applicable
to Ltd.:
|
Corporate tax rate in
Israel in 2017 was 24% and 2018 was 23%.
In December 2016, the
Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017
and 2018 Budget Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017
and to 23% effective from January 1, 2018.
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands (expect stock and stock data)
|
NOTE 8:-
|
TAXES
ON INCOME (Cont.)
|
|
c.
|
Net operating
loss carryforward:
|
Ltd. has accumulated
net operating losses for Israeli income tax purposes as of December 31, 2018 in the amount of approximately $47,233. The
net operating losses may be carried forward and offset against taxable income in the future for an indefinite period.
As of December 31, 2018, the
Company had a U.S. federal net operating loss carryforward of approximately $7,120 that can be carried forward and offset against
taxable income and that expires during the years 2031 to 2037. Utilization of U.S. loss carryforward may be subject to substantial
annual limitation due to the “change in ownership” provisions of the Code and similar state provisions. The annual
limitations may result in the expiration of losses before utilization.
The TCJA also modified the rules
regarding utilization of net operating losses (“NOL”) and NOLs generated subsequent to the TCJA can only be used
to offset 80% of taxable income with an indefinite carryforward period for unused carryforwards (i.e., they should not expire).
During 2018, the Company generated an additional $1,965 of NOLs which are not subject to the annual limitation described above.
Utilization of the federal and state net operating losses and credits may be subject to a substantial annual limitation due to
an additional ownership change. The annual limitation may result in the expiration of net operating losses and credits before utilization
and in the event we have a change of ownership, utilization of the carryforwards could be restricted.
|
d.
|
Deferred income
taxes:
|
Deferred income taxes
reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial purposes
and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows:
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carry
forward
|
|
$
|
10,294
|
|
|
$
|
10,794
|
|
Temporary differences
|
|
|
791
|
|
|
|
620
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets before valuation allowance
|
|
|
11,085
|
|
|
|
11,414
|
|
Valuation allowance
|
|
|
(11,085
|
)
|
|
|
(11,414
|
)
|
|
|
|
|
|
|
|
|
|
Net
deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
The deferred tax balances
included in the consolidated financial statements as of December 31, 2018 are calculated according to the tax rates that were
in effect as of the reporting date and do take into account the potential effects of the reduction in the tax rate.
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands (expect stock and stock data)
|
NOTE 8:-
|
TAXES
ON INCOME (Cont.)
|
The net change in the
total valuation allowance for the year ended December 31, 2018 was a decrease of $329 and is mainly relates to increase in deferred
taxes on net operating loss for which a full valuation allowance was recorded. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which
those temporary differences and tax loss carryforward are deductible. Management considers the projected taxable income and tax-planning
strategies in making this assessment. In consideration of the Company’s accumulated losses and the uncertainty of its ability
to utilize its deferred tax assets in the future, management currently believes that it is more likely than not that the Company
will not realize its deferred tax assets and accordingly recorded a valuation allowance to fully offset all the deferred tax assets.
|
e.
|
Loss before
taxes on income consists of the following:
|
|
|
Year
ended
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
3,801
|
|
|
$
|
5,144
|
|
Foreign
|
|
|
14,002
|
|
|
|
10,599
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,803
|
|
|
$
|
15,743
|
|
|
f.
|
The main reconciling
item between the statutory tax rate of the Company and the effective tax rate is the
recognition of valuation allowance in respect of deferred taxes relating to accumulated
net operating losses carried forward due to the uncertainty of the realization of such
deferred taxes.
|
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands (expect stock and stock data)
|
NOTE 9:-
|
STOCKHOLDERS’
EQUITY
|
|
a.
|
The holders
of Common Stock have the right to one vote for each share of Common Stock held of record
by such holder with respect to all matters on which holders of Common Stock are entitled
to vote, to receive dividends as they may be declared in the discretion of the Company’s
Board of Directors and to participate in the balance of the Company’s assets remaining
after liquidation, dissolution or winding up, ratably in proportion to the number of
shares of Common Stock held by them after giving effect to any rights of holders of preferred
stock. Except for contractual rights of certain investors, the holders of Common Stock
have no pre-emptive or similar rights and are not subject to redemption rights and carry
no subscription or conversion rights.
|
|
b.
|
On April 3,
2015, the Company’s Board of Directors approved stock for salary program pursuant
to which the Company will issue compensation shares of restricted Common Stock (“Compensation
Shares”) to directors, officers and employees of the Company as consideration for
a reduction in or waiver of cash salary, bonus or fees owed to such individuals. The
waiver of cash salary will be done upon the average closing price of the Common Stock
for the 30 trading days prior to the date the Compensation Shares are granted.
|
During the year ended
December 31, 2018 and 2017, the Company issued 765,695 and 271,880, respectively, Compensation Shares to certain members of the
Board of Directors, officers and employees as consideration for a waiver of cash owed to such individuals amounting to $1,055
and $707, respectively.
|
c.
|
On March 8,
2016, the Company closed a public offering (the “Public Offering”) of 1,333,333
shares of the Common Stock, at a purchase price of $4.50 per share, and 1,333,333 immediately
exercisable five-year warrants (the “March 2016 Warrants”) each to purchase
one share of Common Stock with an exercise price of $4.50 per share, at a purchase price
of $0.01 per Warrant for a consideration of $5,038, net of issuance costs. Out of the
above issuance, 111,112 shares of Common Stock were issued to the Chief Financial Officer
of the Company for gross proceeds of $500.
|
The March 2016 Warrants are exercisable
for cash or on a cashless basis if no registration statement covering the resale of the shares issuable upon exercise of the Warrants
is available. The March 2016 Warrant included an exercise price adjustment feature for a twelve months period from the issuance
date that will adjust the warrant exercise price in case the Company will issue securities in a price lower than $4.50 per share
and therefore accounted as a liability according to the provision of ASC 815-40 “Contracts in entity’s own equity”.
Following the January 2017 private placement, the exercise price of the warrant was adjusted to $4.34 per share.
On March 3, 2016, concurrent
with the Public Offering, the Company entered into securities purchase agreements (the “Securities Purchase Agreements”)
with certain existing shareholders (the “Investors”) with respect to the sale in a private placement (the “Private
Offering”) of 555,555 of the Company’s units (the “Units”). The purchase price per Unit was $4.50 and the
total consideration amounted to $2,500, net of issuance costs. Each Unit sold in the Private Offering is comprised of (i) one share
of Common Stock, and (ii) one warrant to purchase 1.2 shares of Common Stock (the “2016 Series A Warrant”) which is
immediately exercisable at an exercise price of $4.50 per share of Common Stock and expires 5 years from the date of issuance.
In total, in the Private Offering, the Company issued 555,555 shares of Common Stock and 2016 Series A Warrants exercisable for
an aggregate of 666,666 shares of Common Stock. The 2016 Series A Warrants are exercisable for cash or on a cashless basis if no
registration statement covering the resale of the shares issuable upon exercise of the 2016 Series A Warrants is available. The
2016 Series A Warrant included an exercise price adjustment feature for a twelve months period from the issuance date that will
adjust the warrant exercise price in case the Company will issue securities in a price lower than $4.50 per share and therefore
accounted as a liability according to the provision of ASC 815-40 “Contracts in entity’s own equity”. Following
the January 2017 private placement, the exercise price of the warrant was adjusted to $4.34 per share.
On March 8, 2017, the
March 2016 Warrant and 2016 Series A Warrant exercise price adjustment feature expired.
The Company
re-measured the warrant liability
on March 8, 2017 and recorded financial expense from revaluation of the warrant in an
amount of $1,066 and an amount of $7,644 was classified from liability to equity.
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands (expect stock and stock data)
|
NOTE 9:-
|
STOCKHOLDERS’
EQUITY (Cont.)
|
|
d.
|
On August 10, 2016, the Company entered into an agreement (the “Agreement”) with Dicilyon
Consulting and Investment Ltd., an existing stockholder (the “Stockholder”), and David Edery, who previously purchased
certain securities from the Company, which were granted certain registration right which required, among other things, the continued
effectiveness of certain registration statements. In consideration of the Stockholder waiving its registration right with respect
to the previously purchased securities, the Company agreed to issue to the Stockholder a warrant, or the Warrant, to purchase 300,000
shares of Common Stock at an exercise price of $4.50 per share exercisable for a period of 4.5 years from the date of the Agreement.
In addition, the Company also agreed to register the shares of Common Stock underlying the Warrant. The Warrant is exercisable
for cash or on a cashless basis if a registration statement covering the shares issuable upon exercise of the Warrants is unavailable.
The Warrant included an exercise price adjustment feature for a seven months period from the issuance date that will adjust the
warrant exercise price in case the Company will issue securities in a price lower than $4.50 per share and therefore accounted
as a liability according to the provision of ASC 815-40 “Contracts in entity’s own equity”. As a result of the
Agreement the Company recorded registration right waiver in the amount of $702 as financial expense, net in 2016. Following the
January 2017 private placement, the exercise price of the warrant was adjusted to $4.34 per share.
|
On March 8, 2017, the
Warrant exercise price adjustment feature expired.
The Company re-measured the warrant liability
on March 8, 2017 and recorded financial expense from revaluation of the warrant in an amount of $141 and an amount of $1,011
was classified from liability to equity.
|
e.
|
On January 9,
2017, the Company commenced a private placement offering of up to $5,100 consisting of
up to 1,821,437 shares of the Company’s Common Stock and warrants to purchase up
to 1,821,437 shares of Common Stock. The warrants are exercisable after the six-month
anniversary of each respective closing and will expire on the 5-year anniversary of their
issuance. On January 9, 2017, the Company held the initial closing of the offering with
a lead investor and an additional investor and issued 1,113,922 shares of Common Stock
and warrants to purchase 1,113,922 shares of Common Stock for aggregate gross proceeds
of approximately $3,119 ($2,936 net of issuance expenses). On January 11, 2017, the Company
entered into securities purchase agreements with certain investors for the future issuance
and sale of 707,515 shares of Common Stock and warrants to purchase 707,515 shares of
Common Stock, provided that the issuance and sale of such securities shall only occur
upon obtaining stockholder approval, pursuant to Nasdaq rules. The Company’s stockholders
approved the issuance and sale of the securities on March 9, 2017 and the closing of
the private placement offering, with aggregate gross proceeds of $1,981 ($1,878 net of
issuance expenses), occurred on March 9, 2017.
|
|
f.
|
During 2017,
the Company’s Compensation Committee of the Board of Directors approved the grants
of 756,561 shares of Common Stock to officers, employees, service providers and consultants
of the Company. 110,987 of these shares were issued to service provider in lieu of $298
owed in cash to them. The shares were issued under the 2012 Plan.
|
|
g.
|
On April 5,
2017, the Company closed a public offering (the “2017 Public Offering”) of
1,450,000 shares of Common Stock, at a purchase price of $3.10 per share, for an aggregate
consideration of $3,855, net of issuance costs. The shares were offered, issued and sold
pursuant to a shelf registration statement filed with the Securities and Exchange Commission.
In connection with the 2017 Public Offering, the Company agreed to issue to the representative
of the underwriters’ five-year warrants to purchase up to 36,250 shares of Common
Stock at an exercise price equal to $3.875 per share of Common Stock for cash or on a
cashless basis if no registration statement covering the resale of the shares issuable
upon exercise of the warrants is available.
|
|
h.
|
On August 22, 2017, the Company closed two concurrent private placements offerings consisting of 483,333
shares of the Company’s Common Stock, and 2,307,654 shares of the Company’s Series B Convertible Preferred Stock (the
“Series B Preferred Stock”), for aggregate gross proceeds of approximately $5,024 ($4,793 net of issuance expenses).
The shares of Series B Preferred Stock were convertible into an aggregate of 2,307,654 shares of Common Stock based on a conversion
price of $1.80 per share. Such conversion price was not subject to any future price-based anti-dilution adjustments except for
standard anti-dilution protection. The shares of Series B Preferred Stock were not redeemable nor contingently redeemable. The
holders of the Series B Preferred Stock were not entitled to convert such preferred stock into shares of the Company’s Common
Stock until the Company obtained stockholder approval for such issuance and upon obtaining such stockholder approval automatically
converted into shares of Common Stock. In addition, the holders of the Series B Preferred Stock were entitled to a 6% fixed dividend,
payable in shares of Common Stock, to be payable upon the automatic conversion of the Series B Preferred Stock. The holders of
the Series B Preferred Stock did not possess any voting rights but the Series B Preferred Stock did carry a liquidation preference
for each holder equal to the investment made by such holder in the Offering. In addition, the holders of Series B Preferred Stock
were eligible to participate in dividends and other distributions by the Company on an as converted basis.
|
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands (expect stock and stock data)
|
NOTE 9:-
|
STOCKHOLDERS’
EQUITY (Cont.)
|
Following the receipt of stockholders
approval in December 2017, all the Series B Preferred Stock were converted into 2,307,654 shares of Common Stock and the holders
of the Series B Preferred Stock were granted a 6% fixed dividend of 138,459 shares of Common Stock. The Company accounted for the
6% fixed dividend as a deemed dividend in a total amount of $255.
|
i.
|
In November
2017, the Company entered into an exchange agreement (the “Exchange Agreement”)
with certain Company warrant holders who were granted warrants to purchase shares of
Common Stock on August 10, 2016 and January 2017 private placement. Pursuant to the terms
of the Exchange Agreement, the warrant holders agreed to surrender and cancellation of
their warrants to purchase an aggregate of 1,871,436 shares of Common Stock and received,
as consideration for such cancellation, an aggregate of 1,039,676 shares of Common Stock,
creating no benefit to the warrant holders.
|
|
j.
|
During 2018,
the Company’s Compensation Committee of the Board of Directors approved the grants
of an aggregate of 369,993 shares of Common Stock in lieu of $504 owed to service providers
and the grant of an option to purchase 201,818 shares of Common Stock in lieu of $298
owed to a service provider of the Company. 84,499 shares and the options were issued
under the 2012 Plan.
|
|
k.
|
On February 28, 2018 and March 6, 2018, the Company closed two concurrent private placements offerings
consisting of 2,262,269 shares of the Company’s Common Stock at $1.40 per share, 1,234,080 shares of the Company’s
Series C Convertible Preferred Stock (the “Series C Preferred Stock”), for aggregate gross proceeds of approximately
$6,623 ($6,034 net of issuance expenses) at $2.80 per share, and warrants to purchase up to 3,784,351 shares of Common Stock. The
shares of Series C Preferred Stock were convertible into an aggregate of 2,468,160 shares of Common Stock based on a conversion
price of $1.40 per share. Such conversion price was not subject to any future price-based anti-dilution adjustments except for
standard anti-dilution protection. The shares of Series C Preferred Stock were not redeemable nor contingently redeemable. The
holders of the Series C Preferred Stock were not be entitled to convert such preferred stock into shares of the Company’s
Common Stock until the Company obtained stockholder approval for such issuance and upon obtaining such stockholder approval, automatically
converted into shares of Common Stock. The holders of the Series C Preferred Stock did not possess any voting rights, but the Series
C Preferred Stock did carry a liquidation preference for each holder equal to the investment made by such holder in the Offering.
In addition, the holders of Series C Preferred Stock were eligible to participate in dividends and other distributions by the Company
on an as converted basis. The warrants issued in the concurrent private placements are exercisable after the six-month anniversary
of each respective closing and will expire on the 18-month anniversary of their issuance. Following the receipt of stockholder
approval in May 2018, the shares of Series C Preferred Stock were converted into shares of Common Stock.
|
In conjunction with these
offerings the Company issued 32,250 shares of Common Stock to certain finders. The shares were issued under the 2012 Plan.
|
l.
|
In May 2018,
the Company entered into exchange agreements (each an “Exchange Agreement”)
with certain Company warrant holders who were granted warrants to purchase shares of
Common Stock in March 2016 and January 2017. Pursuant to the terms of the Exchange Agreements,
the warrant holders agreed to surrender their warrants to purchase an aggregate of 1,020,357
shares of Common Stock for cancellation and received, as consideration for such cancellation,
an aggregate of 636,752 restricted shares of Common Stock creating a benefit to the warrant
holders. As such the Company recorded a deemed dividend in the amount of $493.
|
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands (expect stock and stock data)
|
NOTE 9:-
|
STOCKHOLDERS’
EQUITY (Cont.)
|
|
m.
|
In June and July 2018, the Company’s Compensation Committee of the Board of Directors approved the
grant of an aggregate of 1,152,840 shares to directors, officers, employees and consultants of the Company, and the grant of 244,000
and 21,000 options to employees and consultants of the Company, respectively, at an exercise price of $1.729 per share. The stock
options vest over a period of three years commencing on the respective grant dates. All of the aforementioned options have a six-year
terms. All shares and options were issued under the 2012 Plan.
|
|
n.
|
On September 13, 2018 and September 26, 2018, the Company closed concurrent private placements offerings
consisting of 4,266,800 shares of the Company’s Common Stock at $0.90 per share, 1,890,257 shares of the Company’s
Series D Convertible Preferred Stock (the “Series D Preferred Stock”) at $3.60 per share, and warrants to purchase
up to 9,462,272 shares of Common Stock, for aggregate gross proceeds of approximately $10,645 ($9,686 net of issuance expenses).
The shares of Series D Preferred Stock were convertible into an aggregate of 7,561,028 shares of Common Stock based on a conversion
price of $0.90 per share. Such conversion price was not subject to any future price-based anti-dilution adjustments except for
standard anti-dilution protection. The shares of Series D Preferred Stock were not redeemable nor contingently redeemable. The
holders of the Series D Preferred Stock were not be entitled to convert such preferred stock into shares of the Company’s
Common Stock until the Company obtained stockholder approval for such issuance and upon obtaining such stockholder approval, automatically
converted into shares of Common Stock. The holders of the Series D Preferred Stock did not possess any voting rights, but the Series
D Preferred Stock did carry a liquidation preference for each holder equal to the investment made by such holder in the Offering.
In addition, the holders of Series D Preferred Stock were eligible to participate in dividends and other distributions by the Company
on an as converted basis. The warrants issued in the concurrent private placements are exercisable after the six-month anniversary
of each respective closing and will expire on the 36-month anniversary of their issuance. Following receipt of stockholder approval
in November 2018, the shares of Series D Preferred Stock were converted into shares of Common Stock.
|
In conjunction with these
offerings the Company issued 83,333 shares of Common Stock to certain finders.
|
o.
|
On December 13, 2018, and December 27, 2018, the Company closed a private placement offering consisting
of 3,050,000 shares of the Company’s Common Stock at $1.00 per share and warrants to purchase up to 3,050,000 shares of Common
Stock, for aggregate gross proceeds of approximately $3,050 ($3,023 net of issuance expenses). The warrants issued in the private
placement are exercisable after the six-month anniversary of each respective closing and will expire on the 36-month anniversary
of their issuance.
|
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands (expect stock and stock data)
|
NOTE 9:-
|
STOCKHOLDERS’
EQUITY (Cont.)
|
|
p.
|
The table below
summarizes the outstanding warrants as of December 31, 2018:
|
|
|
Warrants
outstanding as of
December 31, 2018
|
|
|
Exercise
price $
|
|
|
Expiration date
|
February 2015 PPM A (*)
|
|
|
4,630
|
|
|
|
4.32
|
|
|
November 25,2015
|
March 2016 PPM -Warrants
|
|
|
1,528,333
|
|
|
|
4.34
|
|
|
March 8, 2021
|
March 2016 Public Offering
- Representative’s Warrants
|
|
|
143,333
|
|
|
|
5.625
|
|
|
March 8, 2021
|
March 2017 Public Offering - Representative’s
Warrants
|
|
|
36,250
|
|
|
|
3.875
|
|
|
March 31, 2022
|
February 2018 PPM
|
|
|
2,811,450
|
|
|
|
1.80
|
|
|
August 28, 2019
|
March 2018 PPM
|
|
|
972,901
|
|
|
|
1.80
|
|
|
September 6, 2019
|
March 2018 PPM (Finder Warrants)
|
|
|
18,920
|
|
|
|
1.80
|
|
|
September 6, 2019
|
September 2018 PPM
|
|
|
9,195,604
|
|
|
|
1.25
|
|
|
September 13, 2021
|
September 2018 PPM (Finder Warrants)
|
|
|
140,556
|
|
|
|
1.25
|
|
|
September 13, 2021
|
September
2018 PPM 2
nd
closing
|
|
|
266,668
|
|
|
|
1.25
|
|
|
September 26, 2021
|
December 2018 PPM
|
|
|
3,000,000
|
|
|
|
1.25
|
|
|
December 14, 2021
|
December
2018 PPM – 2
nd
closing
|
|
|
50,000
|
|
|
|
1.25
|
|
|
December
27, 2021
|
|
|
|
|
|
|
|
|
|
|
|
Total outstanding
|
|
|
18,168,645
|
|
|
|
|
|
|
|
(*) Warrants
for which cash has been received by the Company but no securities issued.
No warrants were exercised
in 2018 and 2017.
|
q.
|
Stock-based
compensation:
|
On January 23, 2012,
an equity incentive plan (the “2012 Plan”) was adopted by the Board of Directors of the Company and approved by a
majority of the Company’s stockholders, under which options to purchase shares of Common Stock have been reserved. Under
the 2012 Plan, options to purchase shares of Common Stock may be granted to employees and non-employees of the Company or any
affiliate, each option granted can be exercised to one share of Common Stock.
During 2017, the Company stockholders
approved an amendment to the 2012 Plan to increase the number of shares authorized for issuance under the 2012 Plan by 2,000,000
shares, from 1,873,000 to 3,873,000.
During 2018, the Company’s
stockholders approved an amendment to the 2012 Plan to increase the number of shares authorized for issuance under the 2012 Plan
by 5,000,000 shares, from 3,873,000 to 7,873,000.
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands (expect stock and stock data)
|
NOTE 9:-
|
STOCKHOLDERS’
EQUITY (Cont.)
|
The following options
were issued under the 2012 Plan during 2018 and 2017:
On January 30, 2017,
the Company’s Compensation Committee of the Board of Directors approved the grant of 313,721 options to directors, officers
and employees of the Company, at an exercise price of $3.202 per share. The options shall vest over a period of three years commencing
on the grant date. All the options have a six-year term.
On February 6, 2017,
the Company’s Compensation Committee of the Board of Directors approved the grants of 174,000, and 55,050 options to employees
and consultants of the Company, respectively, at exercise prices of between $0.0001 and $4.121 per share. The options shall vest
over a period of three years commencing on the grant date. All the options have a six-year term. 34,050 of the option to consultants
were granted instead of cash owed for services provided during the period from July through December 2016.
On June 26, 2017, the
Company’s Compensation Committee of the Board of Directors approved the grants of 69,000 and 194,142 options to employees
and consultants of the Company, respectively, at exercise prices of between $0.0001 and $2.46 per share. The options shall vest
over a period of up to three years commencing on the grant date. 8,142 of the options issued to a consultant were in lieu of a
cash waiver of $30 by the consultant.
On September 14, 2017,
the Company’s Compensation Committee of the Board of Directors approved the grants of 40,000 options a consultant of the
Company, at an exercise price of $2.50 per share. The option is fully vested on the grant date, and the option has a five-year
term.
On December 14, 2017,
the Company’s Compensation Committee of the Board of Directors approved the grants of 40,424 options to a consultant of
the Company, at an exercise price of $0.0001 per share. The option is fully vested on the grant date and has a six-year term This
option was issued in lieu of a cash waiver of $95 by the consultant.
On April 23, 2018, the
Company’s Compensation Committee of the Board of Directors approved the grants of 93,755 options to a consultant of the
Company, at an exercise price of $0.0001 per share. The option is fully vested on the grant date and has a six-year term. This
option was issued in lieu of a cash waiver of $150 by the consultant.
On July 23, 2018, the
Company’s Compensation Committee of the Board of Directors approved the grants of 70,812 options to consultants of the Company,
at an exercise price of $0.0001 per share. 62,812 options are fully vested on the grant date, and 8,000 will vest in 12 equal
monthly installments. The options have a six-year term. These options were issued in lieu of a cash waiver of $102 by the consultants.
In June and July 2018,
the Company’s Compensation Committee of the Board of Directors approved the grant of an aggregate of 1,152,840 shares to
directors, officers, employees and consultants of the Company, and the grant of 244,000 and 21,000 options to employees and consultants
of the Company, respectively, at an exercise price of $1.729 per share. The stock options shall vest over a period of three years
commencing on the respective grant dates. All of the aforementioned options have a six-year terms.
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands (expect stock and stock data)
|
NOTE 9:-
|
STOCKHOLDERS’
EQUITY (Cont.)
|
On November 22, 2018, the Company’s
Compensation Committee of the Board of Directors approved the grants of 120,000 options to its President and Chief Commercial Officer,
at exercise prices of $0.795 per share. The options will vest over a three years period from the grant date and have a six-year
term.
On November 22, 2018,
the Company’s Compensation Committee of the Board of Directors approved the grants of 37,251 options to consultants of the
Company, at an exercise price of $0.0001 per share. The options are fully vested on the grant date and have a six-year term. These
options were issued in lieu of a cash waiver of $45 by the consultants. In addition, the Company’s Compensation Committee
of the Board of Directors approved the grants of 26,250 options to a consultant of the Company at an exercise price of $0.998
per share. The options will vest over a three years period from the grant date and have a six-year term.
On December 10, 2018,
the Company’s Compensation Committee of the Board of Directors approved the grants of an aggregate of 47,000 options to
employees of the Company, at an exercise price of $0.927 per share. The stock options will vest over a three years period commencing
on the grant date and have a six-year term.
Transactions related
to the grant of options to employees, directors and non-employees under the above plans during the year ended December 31, 2018
were as follows:
|
|
Number of
options
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average
remaining
contractual
life
|
|
|
Aggregate
Intrinsic
value
|
|
|
|
|
|
|
$
|
|
|
Years
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding at beginning of year
|
|
|
1,378,160
|
|
|
|
7.39
|
|
|
|
4.75
|
|
|
|
437
|
|
Options granted
|
|
|
660,068
|
|
|
|
0.94
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
60,981
|
|
|
|
6.08
|
|
|
|
|
|
|
|
|
|
Options
expired
|
|
|
189,446
|
|
|
|
2.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding at end of year
|
|
|
1,787,801
|
|
|
|
5.59
|
|
|
|
4.32
|
|
|
|
368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
vested and expected to vest at end of year
|
|
|
1,640,510
|
|
|
|
5.61
|
|
|
|
4.32
|
|
|
|
367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at end of year
|
|
|
1,261,914
|
|
|
|
7.11
|
|
|
|
3.98
|
|
|
|
364
|
|
Weighted average fair
value of options granted during the year ended December 31, 2018 and 2017 is $0.56 and $2.07, respectively.
The aggregate intrinsic
value in the table above represents the total intrinsic value (the difference between the Company’s closing stock price
on the last day of fiscal 2018 and the exercise price, multiplied by the number of in-the-money options) that would have been
received by the option holders had all option holders exercised their options on December 31, 2018. This amount is impacted by
the changes in the fair market value of the Common Stock.
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands (expect stock and stock data)
|
NOTE 9:-
|
STOCKHOLDERS’
EQUITY (Cont.)
|
The following table presents
the assumptions used to estimate the fair values of the options granted to employees and directors in the period presented:
|
|
Year
ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Volatility
|
|
|
83.41%-105.38%
|
|
|
|
103.52%-154.75
|
%
|
Risk-free interest rate
|
|
|
2.69%-2.88%
|
|
|
|
1.54%-1.83
|
%
|
Dividend yield
|
|
|
0%
|
|
|
|
0
|
%
|
Expected life (years)
|
|
|
3.5-4.5
|
|
|
|
3.5-4.5
|
|
The following table presents
the assumptions used to estimate the fair values of the options granted to non-employees in the period presented:
|
|
Year
ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Volatility
|
|
|
82.61%-107.42
|
%
|
|
|
100.65%-150.84
|
%
|
Risk-free interest rate
|
|
|
2.41%-2.96
|
%
|
|
|
1.78%-2.05
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected life (years)
|
|
|
2.96-5.94
|
|
|
|
3.67-6
|
|
As of December 31, 2018,
the total unrecognized estimated compensation cost related to non-vested stock options granted prior to that date was $572, which
is expected to be recognized over a weighted average period of approximately 1.14 year.
The total compensation
cost related to all of the Company’s equity-based awards, recognized during year ended December 31, 2018 and 2017 were comprised
as follows:
|
|
Year ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$
|
116
|
|
|
$
|
138
|
|
Research and development
|
|
|
404
|
|
|
|
316
|
|
Sales and marketing
|
|
|
607
|
|
|
|
581
|
|
General and administrative
|
|
|
2,631
|
|
|
|
2,789
|
|
|
|
|
|
|
|
|
|
|
Total stock-based
compensation expenses
|
|
$
|
3,758
|
|
|
$
|
3,824
|
|
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands (expect stock and stock data)
|
NOTE 10:-
|
LIABILITY
RELATED TO WARRANTS
|
|
a.
|
On
September 23, 2014, the Company consummated a private placement (the “September
2014 Private Placement”).
|
|
b.
|
The
warrants issued in the September 2014 Private Placement contain a net settlement cash
feature and liquidated damages penalties and therefore the Company accounts for such
warrants as a liability according to the provisions of ASC 815-40 “Contracts in
entity’s own equity,” and re-measures such liability using the Binomial option-pricing
model as described below.
|
|
c.
|
In estimating
the investors’ warrants in September 2014 Private Placement fair value, the Company
used the following assumptions as of December 31, 2017: risk-free interest rates of 1.65%,
volatility of 81.44%, dividend yields of 0% and a contractual life of 0.73 years. Fair
value per warrant $0.01.
|
|
(1)
|
Risk-free interest
rate - based on yield rates of non-index linked U.S. Federal Reserve treasury bonds.
|
|
(2)
|
Expected volatility
- was calculated based on actual historical stock price movements of the Company over
a term that is equivalent to the expected term of the option.
|
|
(3)
|
Expected life
- the expected life was based on the expiration date of the warrants.
|
|
(4)
|
Expected dividend
yield - was based on the fact that the Company has not paid dividends to its shareholders
in the past and does not expect to pay dividends to its shareholders in the future.
|
The changes in Level
3 liabilities associated with the September 2014 Private Placement warrants is measured at fair value on a recurring basis. The
following tabular presentation reflects the components of the liability associated with such warrants as of December 31, 2018:
|
|
Fair
value
of
liability
related to
warrants
|
|
|
|
|
|
Balance
at December 31, 2017
|
|
$
|
1
|
|
|
|
|
|
|
Change
in fair value of warrants during the period
|
|
|
(1
|
)
|
|
|
|
|
|
Balance
at December 31, 2018
|
|
$
|
-
|
|
In September 2018, September
2014 Private Placement warrants expired with no exercise.
|
NOTE 11:-
|
SELECTED
STATEMENTS OF OPERATIONS DATA
|
Financial
expenses (income), net:
|
|
Year
ended
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Bank charges
|
|
$
|
18
|
|
|
$
|
171
|
|
Foreign currency adjustments losses (gain)
|
|
|
98
|
|
|
|
(15
|
)
|
Change in the fair value of warrants
|
|
|
(1
|
)
|
|
|
1,168
|
|
|
|
|
|
|
|
|
|
|
Total Financial
income, net
|
|
$
|
115
|
|
|
$
|
1,324
|
|
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands (expect stock and stock data)
|
NOTE 12:-
|
SUBSEQUENT
EVENTS
|
In January 2019, 213,402
Compensation Shares were issued to certain members of the Board of Directors, Officers and employees of the Company as consideration
for a reduction in or waiver of cash salary or fees amounting to $213 owed to such individuals. The shares were issued under the
2012 Plan.
- - - - - - - - - - - - - - -