DarioHealth Corp. - Quarter Report: 2016 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, 2016

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 9, 2016, the registrant had 5,581,216 shares of common stock outstanding.

When used in this quarterly report, the terms “LabStyle,” “the Company,” “we,” “our,” and “us” refer to LabStyle Innovations Corp., a Delaware corporation.

LabStyle Innovations Corp.

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:

•            our lack of operating history;

•            our current and future capital requirements and our ability to satisfy our capital needs through financing transactions or otherwise;

•            our ability to manufacture, market and generate sales of our Dario™ diabetes management solution;

•            our ability to maintain our relationships with key partners;

•            our ability to complete required clinical trials of our product and obtain clearance or approval from the FDA or other regulatory agencies in different jurisdictions;

•            our ability to maintain or protect the validity of our U.S. and other patents and other intellectual property;

•            our ability to launch and penetrate markets in new locations;

•            our ability to implement on-line distribution channels and to generate sales from such channels;

•            our ability to retain key executive members;

•            our ability to internally develop new inventions and intellectual property;

•            interpretations of current laws and the passages of future laws; and

•            acceptance of our business model by investors.

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, 2015 (filed on February 8, 2016) entitled “Risk Factors” as well as in our other public filings.

In light of these risks and uncertainties, and especially given the 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.

LABSTYLE INNOVATIONS CORP. AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF MARCH 31, 2016

UNAUDITED

INDEX

LABSTYLE INNOVATIONS CORP. AND ITS SUBSIDIARIES

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

LABSTYLE INNOVATIONS CORP. AND ITS SUBSIDIARIES

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

LABSTYLE INNOVATIONS CORP. AND ITS SUBSIDIARIES

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

LABSTYLE INNOVATIONS CORP. AND ITS SUBSIDIARIES

*) Represents an amount lower than $1.

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

LABSTYLE INNOVATIONS CORP. AND ITS SUBSIDIARIES

*) Represents an amount lower than $1.

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

LABSTYLE INNOVATIONS CORP. AND ITS SUBSIDIARIES

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

LABSTYLE INNOVATIONS CORP. AND ITS SUBSIDIARIES

On February 17, 2016, the Company’s Board of Directors approved a reverse split in a ratio of one-to-eighteen. The 2016 reverse split was implemented on February 26, 2016 (the "2016 Reverse Split"). The amount of authorized Common Stock as well as the par value for the Common Stock were not affected. Any fractional shares resulting from the 2016 Reverse Split were rounded up to the nearest whole share.

All Common Stock, warrants, options and per share amounts set forth herein are presented to give retroactive effect to the 2016 Reverse Split for all periods presented.

The significant accounting policies applied in the audited annual consolidated financial statements of the Company as disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2015 are applied consistently in these unaudited interim consolidated financial statements.

The accompanying unaudited interim consolidated financial statements as of March 31, 2016, 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, 2016, and the Company's consolidated results of operations and the Company's consolidated cash flows for the three months ended March 31, 2016. Results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

LABSTYLE INNOVATIONS CORP. AND ITS SUBSIDIARIES

On February 18, 2016, the Company entered into a Preferred Stock Conversion Agreement (the "Preferred Stock Conversion Agreement") with the holders of the Series A Preferred Stock according to which the then currently outstanding 1,984 shares of the Series A Preferred Stock would be converted into 623,672 shares of our Common Stock, reflecting an increase of 25% in the original number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock. Accordingly, in March 2016 the Company issued to the remaining Purchasers 623,672 shares of Common Stock and recorded an increase of $2,277 to additional paid in capital, net of issuance costs. The increase of 25% in the original number of shares of Common Stock issued to holders of the Series A Preferred Stock was accounted for as change in the conversion terms in the Company's financial statements and a deemed dividend in the amount of $455 was recorded to the Statement of Changes in Equity (Deficiency).

LABSTYLE INNOVATIONS CORP. AND ITS SUBSIDIARIES

During the three month period ended March 31, 2016, the Company issued 9,849 Compensation Shares to certain members of the Board of Directors and officers as consideration for a waiver of cash owed to such individuals amounting to $75.

LABSTYLE INNOVATIONS CORP. AND ITS SUBSIDIARIES

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.

In addition, the Company granted to the underwriters in the offering a 45-day option period to purchase up to 200,000 additional shares of Common Stock and/or 200,000 warrants (the “Option Warrants”) each to purchase one share of Common Stock at the public offering price less underwriting discounts and commissions to cover over-allotments. The underwriters agreed to purchase the shares and March 2016 Warrants from the Company, with the option to purchase the option securities, pursuant to the Underwriting Agreement, at a purchase price of $4.185 per Share and $0.0093 per Warrant. On March 4, 2016, the Underwriters exercised the Option with respect to the Option Warrants. The shares, March 2016 Warrants and Option Warrants were offered, issued and sold under a prospectus filed with the Securities and Exchange Commission (the “SEC”) pursuant to an effective registration statement filed with the SEC. In connection with the Public Offering, the Company agreed to issue to the representatives of the underwriters five-year warrants (the “Representatives’ Warrants”) to purchase up to 153,333 shares of Common Stock. In connection with the Public Offering, the Representatives’ Warrants are exercisable at a per share exercise price equal to $5.625 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 Representatives’ Warrants is available.

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.

LABSTYLE INNOVATIONS CORP. AND ITS SUBSIDIARIES

In connection with the Private Offering, the Company agreed to issue to two non-U.S. finders an aggregate of 44,444 restricted shares of Common Stock, 73,333 warrants to purchase Common Stock at an exercise price of $4.50 per share which expire 5 years

from the date of issuance, and 38,889 non-plan stock options which have an exercise price of $0.0001 per share and are fully vested and exercisable after the lapse of four months from the grant date.

The Public Offering and Private Offering triggered the anti-dilution mechanism of the warrants issued in the 2011-2012 Private Placement (as hereinafter defined) by adjusting the current exercise price of the warrants for the investors and placement agent to $3.59 per share and an additional 415,316 and 78,662 shares became subject to such warrants, respectively. In addition, the exercise price of the placement agent's warrants in the 2011-2012 Private Placement, was adjusted to $3.33 per share and an additional 48,054 warrants were issued.

LABSTYLE INNOVATIONS CORP. AND ITS SUBSIDIARIES

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:

LABSTYLE INNOVATIONS CORP. AND ITS SUBSIDIARIES

The placement agent for the 2011 − 2012 Private Placement and its permitted designees were granted warrants to purchase an aggregate of (i) 5,358 shares of Common Stock at the exercise price of $90.00 per share and (ii) 5,358 shares of Common Stock at the exercise price of $135.00 per share. Subsequent to the issuance of the 2011 − 2012 Private Placement warrants the original exercise price of the warrants for the investors and placement agent was adjusted from $135.00 per share to $3.59 per share and additional 950,152 and 180,557 warrants were issued, respectively. In addition, the exercise price for the placement agent warrants of the 2011 − 2012 Private Placement, with an original exercise price of $90.00 per share was adjusted to $3.33 per share and an additional 119,705 warrants were issued.

The warrants of the 2011-2012 Private Placement contain non-standard anti-dilution protection provisions and the warrants of 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.

LABSTYLE INNOVATIONS CORP. AND ITS SUBSIDIARIES

Investors' warrants in 2011-2012 Private Placement:

Placement agent's warrants 2011-2012 Private Placement:

Investors' warrants in September 2014 Private Placement:

LABSTYLE INNOVATIONS CORP. AND ITS SUBSIDIARIES

The changes in Level 3 liabilities associated with the 2011-2012 Private Placement and the September 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, 2016:

As of March 31, 2016, there were outstanding warrants to purchase 1,340,368 shares of Common Stock from the above issuances which were recorded as a liability.

In May 2016 the Company issued 583 shares of Common Stock in connection with the exercise of 5,227 warrants on a cashless basis, that were issued as part of the 2011-2012 Private Placement discussed in Note 7a and 5,000 shares of Common Stock in connection with the exercise of 5,000 warrants that were issued as part of the Public Offering discussed in Note 6c.

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.

On February 26, 2016, we affected a 1-for-18 reverse stock split of our outstanding common stock, which we refer to herein as the “reverse split”. Our authorized common stock and the par value of our common stock were not impacted by the reverse split. References in this Quarterly Report to our capitalization and other matters pertaining to our common stock relate to our capitalization and common stock after giving effect to the reverse split.

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, 2015.

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

We are 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. 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. Our flagship product, Dario^TM, 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 we call the Dario^TM Smart Meter.

We commenced a commercial launch of the free Dario^TM application in the United Kingdom in late 2013 and commenced an initial soft launch of the full Dario^TM solution (including the app and the Smart Meter) 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, with additional launch and market penetration plans for Italy, India, Panama and Costa Rica, all of which are planned for 2016. We are consistently adding additional features and functionality in making Dario^TM Smart Diabetes Management Solution the new standard of care in diabetes data management.

In the United States we commenced commercialization in March 2016 and intend to generate demand through a digital direct to consumer marketing campaign. Customers are currently able to purchase the product directly through our e-store. Third party distribution channels are expected to go live through the second and third quarters of 2016. We plan to facilitate a subscription-based service via our proprietary store. We also intend to continue to broaden our reach via distribution agreements with national and regional durable medical equipment and pharmacy chains.

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. During 2015 and 2016, we successfully launched the Dario^TM Smart Diabetes Management Solution according to plan and are currently expanding the launch to other jurisdictions. In support of these goals, we intend to utilize our funds for the following activities:

According to our management’s estimates, based on our budget and the launch of our commercial sales, we believe that we will have sufficient resources to continue our activity only into July 2017. This includes anticipated inflows from sales of Dario^TM through distribution partners and our sales in the United States. If we are unable to scale up our commercial launch of Dario^TM or meet our commercial sales targets (or if we are unable to increase our revenues), and if we are unable to obtain additional capital resources, we may be unable to continue activities, absent a material alternations in our business plans and our business might fail.

Critical Accounting Policies

Reference is made to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation of our Annual Report on Form 10-K for the year ended December 31, 2015 (filed on February 8, 2016) with respect to our Critical Accounting Policies, which have not changed.

Results of Operations

Comparison of three months ended March 31, 2016 and 2015 (in thousands except for stock and stock data)

Revenues

Revenues for the three months ended March 31, 2016 amounted to $568, compared to $67 of revenues during the three months ended March 31, 2015. The increase in revenues in the three months ended March 31, 2016 compared to the three months ended March 31, 2015 is mainly a result of revenues derived from the sales of Dario™’s Smart Meter and related disposables, through distributors and end users in Australia, the United Kingdom and Canada.

Revenues are derived from the successful launch of the Dario™’s Smart Meter and related disposables in the United Kingdom, the Netherlands, New Zealand, Australia, Israel, Canada and the United States as well as services rendered to Maccabi Healthcare. We recognize revenues on a cash basis, when all revenue recognition criteria are met, until we are able to determine the ability of the distributor to honor its commitment to complete payment.

Cost of Revenues

During the three months ended March 31, 2016 we recorded costs related to revenues in the amount of $670, out of which $32 was recorded to write off deferred inventory as a result of a legal settlement with a former distributor, $62 was recorded to cover inventory write-downs due to net realized value which was lower than original cost and $14 was recorded in respect of a write off of manufacturing equipment that was disposed during the three months ended March 31, 2016. During the three months ended March 31, 2015, we recorded costs related to revenues in the amount of $297 out of which $62 was recorded to cover inventory write-downs due to net realized value which was lower than original cost. The increase in cost of revenues during the three months ended March 31, 2016 compared to the three months ended March 31, 2015 is due to the increase in our sales in the first quarter of 2016.

Cost of revenues consists mainly of cost of device and disposables' production, employees’ salaries and related overhead costs, depreciation of production lines and related cost of equipment used in production, shipping and handling costs and inventory write-downs.

Research and Development Expenses

Our research and development expenses decreased by $486, or 55%, to $397 for the three months ended March 31, 2016 compared to $883 for the three months ended March 31, 2015. This decrease was mainly due to a decrease in costs of clinical trials, regulation, product development, subcontractors and employee payroll that were incurred in 2015 as a result of clinical trials performed in the United States to satisfy the FDA product approval requirements and related regulatory prerequisites that were required from us prior to the commercial launch of the Dario^TM in the jurisdictions in which we sell the Dario^TM and its related disposables. This decrease was offset by an increase in software development costs.

Research and development expenses consist mainly of payroll expenses to personnel involved in research and development activities and expenses related to our Dario^TM software application and related Smart Meter device.

Sales and Marketing Expenses

Our sales and marketing expenses increased by $267, or 106%, to $519 for the three months ended March 31, 2016 compared to $252 for the three months ended March 31, 2015. This increase was mainly due to the commencement of our sales and marketing efforts in the United States, increase in costs of on line marketing campaigns, sales and marketing consultants and subcontractors and employee payroll.

Sales and marketing expenses consist mainly of payroll expenses, on line marketing of the Dario^TM, and marketing consultants and subcontractors.

General and Administrative Expenses

Our general and administrative expenses increased by $493, or 120%, to $905 for the three months ended March 31, 2016 compared to $412 for the three months ended March 31, 2015. This increase was mainly due to an increase in employee payroll and bonuses, legal expense recorded during the first quarter of 2016 in connection with a legal settlement with a former distributor, investor relations expenses, patent registration expenses and stock based compensation.

Our general and administrative expenses consist mainly of payroll, bonus and stock-based compensation expenses for management and employees, legal and professional expenses, investor relations expenses, patent registration expenses as well as our office rent and related expenses.

Financial Income, net

Our financial income, net for the three months ended March 31, 2016 was $734 compared to financial income of $139 for the three months ended March 31, 2015.

Financial income includes mainly the results of a revaluation of warrants to investors and a former placement agent, which are recorded as a liability and presented at fair value each reporting period.

Net loss

Net loss decreased by $449, or 27%, to $1,189 for the three months ended March 31, 2016 compared to $1,638 for the three months ended March 31, 2015. This decrease was mainly due to an increase of $595 in financial income as a result of the revaluation of warrants to certain investors and a placement agent and a decrease of $128 in our gross loss, offset by an increase of $274 in operating expenses.

Liquidity and Capital Resources

As of March 31, 2016, we had approximately $8,267 in cash and cash equivalents compared to $1,855 at March 31, 2015.

We have experienced cumulative losses of $44,998 from inception (August 11, 2011) through March 31, 2016, and have a stockholders’ equity of $7,611 at March 31, 2016. In addition, we have not completed our efforts to establish a stable recurring source of revenues sufficient to cover our operating costs and expect to continue to generate losses for the foreseeable future. There is no assurance that we will be able to obtain an adequate level of financing needed for the long-term development and commercialization of our product. These conditions raise substantial doubt about our ability to continue as a “going concern”.

Since inception, we have financed our operations primarily through private placements and public offerings of our common stock and warrants to purchase shares of our common stock, receiving aggregate net proceeds totaling $38,780 as of March 31, 2016, approximately $5,038 and $2,500 of which were raised during March 2016 pursuant to a concurrent public offering and private placement, respectively, pursuant to which we issued a total of 1,333,333 and 555,555, respectively, shares of our common stock and 1,533,333 and 666,666, respectively, warrants to purchase an aggregate of 2,199,999 shares of our common stock. In connection with the public offering, we agreed to grant to the placement agent 143,333 warrants at an exercise price of $4.50, and to certain finders that assisted with the private placement 44,444 restricted shares of common stock, 38,889 non-plan stock options to purchase 38,889 shares of our common stock, and 73,333 warrants at an exercise price of $4.50 per share.

The public offering of 1,333,333 shares of common stock was at a purchase price of $4.50 per share, and we issued 1,533,333 immediately exercisable five-year 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. The concurrent private offering of 555,555 of our units was at a purchase price of $4.50 per unit, each unit comprised of (i) one share of our common stock, and (ii) one warrant to purchase 1.2 shares of our common stock which is immediately exercisable at an exercise price of $4.50 per share and expires 5 years from the date of issuance.

According to our management’s estimates, based on our budget and the initial launch of our commercial sales, we believe that we will have sufficient resources to continue our activity into July 2017 without raising additional capital. This includes an amount of anticipated inflows from sales of Dario^TM through distribution partners and to direct customers.

As such, we have a significant present need for capital. If we are unable to scale up our commercial launch of Dario^TM 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 in the near term, we may be unable to continue activities absent material alterations in our business plans and our business might fail.

Additionally, our available resources may be consumed more rapidly than we currently anticipate, resulting in the need for additional funding sooner than we expect. Should this occur, we will need to seek additional capital earlier than anticipated in order to fund (1) further development and, if needed, testing of our Dario^TM Smart Meter and its related application and data storage components, (2) our efforts to obtain regulatory clearances or approvals necessary to be able to commercially launch Dario^TM, (3) expenses which will be required in order to start and expand production of Dario^TM, (4) sales and marketing efforts and (5) general working capital. Such funding may be unavailable to us on acceptable terms, or at all. Our failure to obtain such funding when needed could create a negative impact on our stock price or could potentially lead to the failure of our company. This would particularly be the case if we are unable to commercially launch Dario^TM in the jurisdictions and in the timeframes we expect.

Cash Flows

The following tables sets forth selected cash flow information for the periods indicated:

Net cash used in operating activities

Net cash used in operating activities was $2,105 for the three months ended March 31, 2016 compared to $1,525 used in operations for the same period in 2015. Cash used in operations increased due to the increase in the volume of our operations.

Net cash used in investing activities

Net cash used in investing activities was $27 for the three months ended March 31, 2016 compared to $29 for the same period in 2015. Cash used in investing activities slightly decreased mainly due to production line investments that we made in the first quarter of 2015 and continue to improve our production capabilities

Net cash provided by financing activities

Net cash provided by financing activities was $7,728 for the three months ended March 31, 2016 compared to $1,956 for the same period in 2015. During the first quarter of 2016 we raised approximately $7,538 in net proceeds through our March 2016 public offering and private placement transactions. During the first quarter of 2015 we raised net proceeds in an aggregate of $1,956 through our February 2015 private placement transaction with certain institutional and accredited investors.

Off-Balance Sheet Arrangements

As of March 31, 2016, 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 of 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, or 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, or 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, or 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, 2016, our disclosure controls and procedures were designed at a reasonable assurance level and were therefore effective.  

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, 2016 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 2. Unregistered Sales of Equity Securities and Use of Proceeds.

As of March 31, 2016, we issued an aggregate of 29,849 shares of our common stock to certain officers and directors under our 2012 Equity Incentive Plan as equity compensation and we also issued an aggregate of 5,556 shares of our common stock to a service provider in consideration for services provided to us. We claimed exemption from registration under the Securities Act of 1933, as amended, or the Securities Act, for the foregoing transactions under Section 4(a)2 and Regulation S under the Securities Act.

In March 2016 we issued to the holders of the then currently outstanding 1,984 shares of our Series A Convertible Preferred Stock, 623,672 shares of our common stock, reflecting an increase of 25% in the original number of shares of common stock issuable upon conversion of the Series A Convertible Preferred Stock. The increase of 25% in the original number of shares of common stock issued to holders of the Series A Convertible Preferred Stock was a change in the conversion terms. We claimed exemption from registration under the Securities Act for the foregoing issuance in March 2016 under Section 4(a)2 under the Securities Act.

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.