DarioHealth Corp. - Quarter Report: 2014 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2014

For the transition period from                      to                    

Commission File No. 333-186054

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x   No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ¨ No x

As of May 14, 2014, the registrant had 22,966,389 shares of common stock outstanding.

LabStyle Innovations Corp. and Subsidiary

Quarterly Report on Form 10-Q

TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain information set forth in this Quarterly Report on Form 10-Q, including in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein may address or relate to future events and expectations and as such constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Act of 1995. Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting our business, including many assumptions regarding future events. Such forward-looking statements include statements regarding, among other things:

Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “would,” “could,” “scheduled,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors. These statements may be found under the section of our Annual Report on Form 10-K for the year ended December 31, 2013 (filed on March 4, 2014) entitled “Risk Factors” as well as in our other public filings.

In light of these risks and uncertainties, and especially given the pre-revenue, start-up nature of our business, there can be no assurance that the forward-looking statements contained herein will in fact occur. Readers should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

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.

*) Represents an amount lower than $1.

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

*) Represents an amount lower than $1.

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

The Company has a wholly owned subsidiary, LabStyle Innovation Ltd. (“Ltd.”), incorporated and located in Israel, which commenced operations on September 14, 2011. Its principal business activity is to hold the Company’s intellectual property and to perform research and development, manufacturing, marketing and other business activities.

In March 2014, the Company commenced a soft launch of Dario™. The Company’s first shipments to distributers commenced in late March 2014 in selected jurisdictions.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying 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.

The significant accounting policies applied in the annual financial statements of the Company as disclosed in the Company’s Annual Report on Form 10-K for the period ended December 31, 2013 are applied consistently in these financial statements.

The accompanying unaudited interim consolidated financial statements as of March 31, 2014, have been prepared in accordance with U.S. generally accepted accounting principles and standards of the Public Company Accounting Oversight Board for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, the unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair presentation of the Company’s consolidated financial position as of March 31, 2014, and the Company’s consolidated results of operations and the Company’s consolidated cash flows for the three months ended March 31, 2014. Results for the three months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ended December 31, 2014.

ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance.

ASC 820 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value:

The placement agent for the 2011-2012 Private Placement and its permitted designees were granted warrants to purchase an aggregate of (i) 482,200 shares of Common Stock at the exercise price of $1.00 per share and (ii) 482,200 shares of Common Stock at the exercise price of $1.50 per share. Each of the aforementioned warrants issued in the 2011-2012 Private Placement (including those warrants issued to the placement agent) contained weighted average anti-dilution protection. Subsequent to the issuance of the 2011-2012 Private Placement warrants, the $1.50 exercise price for both the warrants issued to the investors and placement agent were adjusted to approximately $1.30 per share due to a certain anti-dilutive issuance and, accordingly, additional warrants to purchase an aggregate of 371,017 and 72,455 shares of Common Stock were granted to such investors and the placement agent and its designees, respectively.

In estimating the warrants’ fair value, the Company used the following assumptions:

Investor warrants:

Placement agent warrants:

The changes in Level 3 liabilities associated with the 2011-2012 Private Placement warrants are measured at fair value on a recurring basis. The following tabular presentation reflects the components of the liability associated with such warrants as of March 31, 2014:

As of March 31, 2014, there were 3,629,964 outstanding (unexercised) warrants (including both investor and placement agent warrants) relating to the 2011-2012 Private Placement.

The Company is obligated to grant to the placement agent for the February 2014 Private Placement warrants to purchase an aggregate of 144,885 shares of Common Stock at an exercise price of $2.35.

The warrants issued to the investors and placement agent in the February 2014 Private Placement are subject to adjustment upon the occurrence of certain events, including certain non-standard anti-dilution protection provisions. In addition, upon certain changes in control of the Company, the holder of a warrant can elect to receive, subject to certain limitations and assumptions, cash equal to the Black-Scholes value of the outstanding warrants.

The warrants issued to the investors and placement agent in the February 2014 Private Placement were exercisable immediately upon issuance and may be exercised at any time prior to the fifth (5^th) anniversary of the date that the warrant shares are registered for resale with the SEC or are able to be sold without restriction under Rule 144 under the Securities Act of 1933, as amended (the “Securities Act).

In estimating the warrants’ fair value, the Company used the following assumptions:

Investors and placement agent warrants:

The changes in Level 3 liabilities associated with the February 2014 Private Placement warrants are measured at fair value on a recurring basis. The following tabular presentation reflects the components of the liability associated with such warrants as of March 31, 2014:

On January 7, 2014, the Company’s Board of Directors (with the recommendation of the Compensation Committee of the Board of Directors) approved the grants of 620,000 and 50,000 options to employees and to a consultant of the Company, respectively, at an exercise price of $1.85 per share. Such options to the Company’s employees vest over a period of 2 years commencing on the grant date. The options granted to the consultant of the Company were fully vested as of the grant date. All of the aforementioned options have ten year terms, unless otherwise approved by the Compensation Committee of the Board of Directors, and were issued under the Company’s 2012 Equity Incentive Plan (the “2012 Plan”).

The placement agent for the February 2014 Private Placement received a cash fee and is entitled to receive 144,885 warrants to purchase Common Stock of the Company having the same terms and conditions as the investors warrants.  

Pursuant to the terms of the February 2014 Private Placement, the Company may be required to issue additional shares of Common Stock (the “Adjustment Shares”) at a specified time to the investors in the February 2014 Private Placement in the event that the price per share of Common Stock in the February 2014 Private Placement is greater than the price per share of the Common Stock, calculated as 90% of the average of the ten (10) lowest weighted average prices of the Common Stock during the twenty (20) trading day period starting immediately following the earlier of the date on which the shares, shares of Common Stock underlying warrants and Adjustment Shares have been registered for resale with the SEC or are able to be sold without restriction under Rule 144 under the Securities Act; provided, that, subject to the terms and conditions of the February 2014 Private Placement, the Company may be required to issue further additional shares of Common Stock at one or more additional specified times if the shares of Common Stock issued in the February 2014 Private Placement are not freely tradable for certain specified minimum periods.

The warrants issued in the February 2014 Private Placement are immediately exercisable at an exercise price of $2.35 per share and expire five years after the date that the shares of Common Stock underlying such warrants have been registered for resale with the SEC or are able to be sold without restriction under Rule 144 under the Securities Act. The warrants are subject to adjustment under certain circumstances, including “full ratchet” anti-dilution protection upon the issuance of any Common Stock (including the Adjustment Shares), securities convertible into Common Stock, or certain other issuances at a price below the then-existing exercise price, with certain exceptions. The warrants contain limitations that prevent the holder of any warrants from acquiring shares upon exercise of a warrant that would result in the number of shares beneficially owned by it and its affiliates to exceed 4.99% of the total number of shares of our Common Stock then issued and outstanding (which limit may be raised to 9.99% upon the request of the holder). In addition, upon certain changes in control of our Company, the holder of a warrant issued in the February 2014 Private Placement can elect to receive, subject to certain limitations and assumptions, cash equal to the Black-Scholes value of the outstanding warrants.

The Company is in the process of registering the investors’ shares of Common Stock and shares of Common Stock underlying the warrants that were issued in the February 2014 Private Placement for public resale in the Third Registration Statement.

On May 7, 2014 the Company’s Board of Directors approved the annual grant of 25,000 options to each of the Company’s non-employee directors. These options have an exercise price of $1.39, shall vest in quarterly arrears, have a cashless exercise feature and a ten year term. On the same date, the Board of Directors also approved a one-time grant of 150,000 fully-vested options to each of the two of the Company’s newest non-employee directors. These options have an exercise price of $1.39, have a cashless exercise feature and a ten year term.

In addition, on the same date, the Board of Directors approved the granting of 380,000 options to the Company’s Scientific Advisory Board (the “SAB”). These options have an exercise price of $1.39, shall vest in quarterly arrears, have a cashless exercise feature and a ten year term.

The abovementioned options to non-employee directors and the SAB were not issued under the Company’s 2012 Equity Incentive Plan.

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

The following financial data in this narrative are expressed in thousands, except for stock and stock data.

The following discussion should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2013.

This discussion contains certain forward-looking statements that involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those discussed in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth herein and elsewhere in this Quarterly Report and in our other filings with the Securities and Exchange Commission. See “Cautionary Note Regarding Forward Looking Statements.”

Overview and Recent Events

We were formed in August 2011 as a Delaware corporation. We are a mobile health (mHealth) company developing and commercializing patent-pending technology providing consumers with laboratory-testing capabilities using smart phones and other mobile devices.

Our initial product is Dario^TM, a mobile, cloud-based, diabetes management solution which includes novel software applications combined with a stylish, “all-in-one”, pocket-sized, blood glucose monitoring device (which we call our Personalized Smart Meter) that will compete in the estimated $12 billion dollar worldwide market for patient self-monitoring of blood glucose (which we refer to as SMBG) products. Dario™ is a comprehensive, patent-pending system that combines a cutting edge software application and cloud-based data services with a novel all-in-one Personalized Smart Meter consisting of a lancet (to obtain a blood sample), a device-specific disposable test strip cartridge and a smartphone-driven glucose reader adaptor.

On September 23, 2013, we announced our receipt of CE Mark certification to market Dario™. The receipt 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 March 5, 2014, MDSS, our European Authorized Representative, completed the registration of the Dario™ Personalized Smart Meter with the German Authority as required by Article 10 of Directive 98/79/EC on in vitro diagnostic medical devices. We are currently pursing regulatory approval for Dario™ in the United States and are expecting a response from the U.S. Food and Drug Administration on our 510(k) application later in 2014.

In January 2014, the Dario™ test strips (manufactured for us by a third party supplier) were evaluated by an independent German research institution. The aim of this study was to collect measurement data from capillary blood with defined distribution of glucose concentrations in order to perform system accuracy evaluation according to ISO 15197:2013, the current international standard requirements for SMBG systems. The results of this study showed that the Dario™ strips are well within the 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.

In December 2013, we began offering free downloads of the Dario^TM software application in selected jurisdictions, and in March 2014, we commenced our global multi-market soft launch of the Dario^TM Personalized Smart Meter in selected jurisdictions. The first shipments were sent to distributers in late March 2014.

In April 2014, we announced the receipt of reimbursement coverage for the use of the Dario™ Personalized Smart Meter in Italy, making 600,000 Italians eligible for reimbursement coverage. We are pursuing reimbursement coverage in other jurisdictions.

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 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 monitor draws power from and transmits data to a smart phone via the audio jack port. We believe this represents a critical intellectual property recognition and a significant initial validation of our intellectual property efforts.

Critical Accounting Policies

Our financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (or US GAAP). Our fiscal year ends December 31.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations discuss our financial statements, which have been prepared in accordance with US GAAP. The preparation of these financial statements requires making estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses for the reporting periods. On an ongoing basis, we evaluate such estimates and judgments. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ (perhaps significantly) from these estimates under different assumptions or conditions.

While all the accounting policies impact the financial statements, certain policies may be viewed to be critical. Our management believes that the accounting policies which involve more significant judgments and estimates used in the preparation of our consolidated financial statement include warrants liability, stock-based compensation, capitalization of costs and useful lives of assets:

Warrant liability

The fair value of the liability for certain warrants issued to investors and our previous placement agents in connection with our financings to date was calculated using the Binomial model. We accounted for these warrants according to the provisions of ASC 815, “Derivatives and Hedging - Contracts in Entity’s Own Equity” and, based on the anti-dilution protections contained in the warrants, we classified them as liabilities, measured at fair value each reporting period until they will be exercised or expired, with changes in the fair values being recognized in our statement of comprehensive loss as financial income or expense. Exercised warrants are being measured at fair value as of their exercise date and subsequently reclassified from liability to additional paid in capital. Our net loss for the three months ended March 31, 2014 and 2013 included finance expenses (income) in the amount of ($142) and $2,136, respectively, with connection to the above-mentioned warrants.

Stock-Based Compensation

We account for stock-based compensation in accordance with ASC 718 “Compensation- stock compensation” which requires companies to estimate the fair value of equity-based payment awards on the date of grant using the Black-Scholes 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 our consolidated income statements.

We recognize compensation expenses for the value of 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 term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered option. Ultimately, the actual expenses recognized over the vesting period will only be for those shares that vest.

We selected the Black-Scholes option pricing model as the most appropriate fair value method for stock-option awards based on the market value of the underlying shares at the date of grant. This 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 volatilities of similar entities in the related sector index. 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.

Our net loss for the three months ended March 31, 2014 includes stock-based compensation costs, with respect to options granted to employees and directors of our company, in the amount of $394 as compared to $1,277 for the three months period ended March 31, 2013. The decrease from 2014 to 2013 is mainly due to the granting of options to our non-employee directors during March 2013.

We apply ASC 718 and ASC 505-50 “Equity-Based Payments to Non-Employees”, with respect to options and warrants issued to non-employees. ASC 718 requires the use of option valuation models to measure the fair value of the options and warrants at the measurement date.

In connection with options granted to non-employees for services received for the three month period ended March 31, 2014 and 2013, and our determination of the fair value of our common shares, we have recorded stock-based compensation expense of $115 and $42, respectively, which represent the fair value of non-employee options grants.

Production Equipment

Capitalization of Costs. We capitalize direct incremental costs related to our production equipment. We cease construction cost capitalization relating to our production equipment once it is ready for its intended use and held available for occupancy. All renovations and betterments that extend the economic useful lives of assets and / or improve the performance of the production equipment are capitalized.

Useful Lives of Assets. We are required to make subjective assessments as to the useful lives of our production equipment for purposes of determining the amount of depreciation to record on an annual basis with respect to our construction of the production equipment. These assessments have a direct impact on our net income (loss). Tooling and production equipment which are part of our production equipment are usually depreciated on a straight-line basis over a period of up to five years, except any renovations and betterments which are depreciated over the remaining life of the production equipment.

Extended Transition Period for “Emerging Growth Companies.” We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the Jumpstart Our Business Act of 2012 (known as the JOBS Act). This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. Consequently, our financial statements may not be comparable to companies that comply with public company effective dates. Because our financial statements may not be comparable to companies that comply with public company effective dates, investors may have difficulty evaluating or comparing our business, performance or prospects in comparison to other public companies, which may have a negative impact on the value and liquidity of our common stock.

Results of Operations

Three months ended March 31, 2014 and 2013

Revenues

We recorded no commercial revenues for the three months ended March 31, 2014 and 2013.

Cost of Revenues

For the three months ended March 31, 2014 and 2013, we did not generate any cost of revenues from operations.

Research and Development Expenses

Our research and development expenses during the three months ended March 31, 2014 were $1,089 compared with $675 in the three months ended March 31, 2013. This increase was mainly due to the recruitment of new employees for research and development activities.

Research and development expenses consist mainly of payroll expenses to employees involved in research and development activities, expenses related to our Dario™ software application and related SMBG device, subcontracting, labor contractors and engineering expenses, depreciation and maintenance fees related to equipment and software tools used in research and development, and facilities expenses associated with and allocated to research and development activities.

Marketing and Pre-Production Costs

Our marketing and pre-production costs increased by $228 to $725 for the three months ended March 31, 2014 compared to $497 for the three months ended March 31, 2013. This increase was mainly due to the expansion of the marketing department as well as further pre-production costs in anticipation of our soft launch on March 2014.

Marketing and pre-production costs consist mainly of payroll expenses of marketing and pre-production employees, travel expenses related to such employees, trade show expenses, depreciation of our production equipment and facilities expenses associated with and allocated to marketing and pre-production.

General and Administrative Expenses

Our general and administrative expenses for the three months ended March 31, 2014 were $854 compared to $1,904 in the three months ended March 31, 2013. The decrease was largely attributable to a decrease in stock-based compensation charges mainly due to the grant of options to non-employee directors during March 2013 as well as costs related to the issuance of common stock and warrants to a former service provider.

Finance Expenses, net

Our finance expenses for the three months ended March 31, 2014 were $316 compared to $2,151 in the three months ended March 31, 2013. These changes were derived mainly from a revaluation of certain warrants granted to investors and service providers that were recorded as a liability and presented at fair value for each reporting period and from issuance costs related to such warrants to such investors and service providers.

Net Loss

Net loss for the three months ended March 31, 2014 was $2,984 compared to $5,227 in the three months ended March 31, 2013.

Plan of Operation

We commenced a commercial launch of the free Dario™ app in selected jurisdictions in late 2013 and commenced an initial soft launch of the full Dario™ solution (including the software and the Personalized Smart Meter) in selected jurisdictions in March 2014 with the goal of collecting customer feedback to refine our longer-term roll-out strategy. Over time, we expect to add additional features and functionality in making Dario™ the new standard of care in diabetes data management.

Through our Israeli subsidiary, LabStyle Innovation Ltd., our plan of operations is to continue the development of our software and hardware offerings and related technology.

For the remainder of 2014, we expect to continue with the soft launch of Dario™, expanding the soft launch to other jurisdictions, and to prepare for our longer-term roll-out of Dario™. In support of these goals, we will utilize our funds for the following activities:

Liquidity and Capital Resources

Since our inception, we have generated significant losses and expect to continue to generate losses for the foreseeable future. There is no assurances that we will be able to obtain an adequate level of financing needed for our near term requirements or the long-term development and commercialization of our products. These conditions raise substantial doubt about our ability to continue as a “going concern”.

As of March 31, 2014 we had $3,812 in cash and cash equivalents. During the first quarter of 2014, we raised net proceeds in an aggregate of approximately $4,002 through a private placement transaction and the exercise of outstanding warrants. We may receive funds from the exercise of other outstanding warrants in the future, but there is a risk that such warrants will not be exercised.

According to our management’s estimates, based on our budget and the initial launch of our commercial sales as well as the reduction of our operating expenses during the first three months of 2014 compare to the three months ended December 31, 2013 of $983, we believe that we will have sufficient resources to continue our activity at least into October 2014. This includes a small amount of anticipated initial revenues from sales of Dario™ through distribution partners. Nevertheless, to the extent required, management believes it could execute certain costs reduction measures which could enable us to continue to operate for up to an additional three months, although no assurances can be given that management would be able to execute on this plan if required. However, if we are not unable to scale up our commercial launch Dario™ or meet our commercial sales targets (or if we are unable to generate any revenue at all), and if we are unable to obtain additional capital resources, we may be unable to continue activities beyond that time, absent a material alternations in our business plans.

Readers are advised that available resources may be consumed more rapidly than currently anticipated, resulting in the need for additional funding sooner than expected. Should this occur during 2014, we will need to seek additional capital to fund (i) our manufacturing, marketing, distribution and other commercial efforts with Dario™, (ii) our efforts to obtain regulatory approvals necessary to be able to commercially launch Dario™ in new jurisdictions, and (iii) general working capital. Such funding may be unavailable to us on acceptable terms, or at all.

Off-Balance Sheet Arrangements

As of March 31, 2014, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company and therefore are not required to provide the information for this item for Form 10-Q.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Report, our Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”), conducted evaluations of our disclosure controls and procedures. As defined under Sections 13a – 15(e) and 15d – 15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”). Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosures.

Based on their evaluation, the Certifying Officers concluded that, as of March 31, 2014, our disclosure controls and procedures were designed at a reasonable assurance level and were therefore effective in providing reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including the Certifying Officers, as appropriate, to allow timely decisions regarding required disclosure.  

Changes in internal control over financial reporting.

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Internal Controls

Readers are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our control have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

PART II- OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

Factors that could cause our actual results to differ materially from those in this report are any of the risks described in our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on March 4, 2014.  Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition.  Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

Our February 2014 private placement transactions was reported in our Current Report on Form 8-K, filed on February 13, 2014.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.