x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
LabStyle Innovations Corp. |
(Exact name of registrant as specified in its charter) |
Delaware | 45-2973162 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Gibor Sport Tower (23rd Floor) 7 Menahem Begin Street, Ramat Gan, Israel | 5268102 |
(Address of Principal Executive Offices) | (Zip Code) |
(972)-(3)-6222929 |
(Registrant’s telephone number, including area code) |
n/a |
(Former name, former address and former fiscal year, if changed since last report) |
¨ Large accelerated filer | ¨ Accelerated filer |
¨ Non-accelerated filer | x Smaller reporting company |
| | Page |
| | |
Cautionary Note Regarding Forward-Looking Statements | -ii- | |
| | |
PART 1-FINANCIAL INFORMATION | | |
| | |
Item 1. | Financial Statements (unaudited) | |
| | |
| Condensed Consolidated Balance Sheets as of September 30, 2013 (unaudited) and December 31, 2012 | 1 |
| | |
| Condensed Consolidated Statements of Operations (unaudited) for the three months ended September 30, 2013 and 2012, for nine month ended September 30, 2013 and 2012 and the period from inception (August 11, 2011) to September 30, 2013 | 3 |
| | |
| Statement of Changes in Stockholders’ Deficit (unaudited) for the period from inception (August 11, 2011) to September 30, 2013 | 4 |
| | |
| Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2013 and 2012 and the period from inception (August11, 2011) to September 30, 2013 | 5 |
| | |
| Notes to Condensed Consolidated Financial Statements | 6 |
| | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16 |
| | |
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 21 |
| | |
Item 4. | Control and Procedures | 21 |
| | |
PART II-OTHER INFORMATION | | |
| | |
Item 1. | Legal Proceedings | 23 |
| | |
Item 1A. | Risk Factors | 23 |
| | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 23 |
| | |
Item 3. | Defaults Upon Senior Securities | 26 |
| | |
Item 4. | Mine Safety Disclosures | 26 |
| | |
Item 5. | Other Information | 27 |
| | |
Item 6. | Exhibits | 27 |
| | |
SIGNATURES | 28 |
-i- | ||
| · | our ability to produce, market and generate sales of our DarioTM product; |
| · | our ability to develop and introduce new products; |
| · | our ability to obtain regulatory certificates and clearances required for DarioTM or any new products we may develop; |
| · | our ability to obtain intellectual property protection for our inventions; |
| · | our ability to establish and maintain our brand; |
| · | our ability to attract and retain key members of our management team; |
| · | our future financing plans; |
| · | our anticipated needs for working capital; |
| · | the anticipated trends in our industry; |
| · | our ability to expand operational capabilities; |
| · | competition existing today or that will likely arise in the future; and |
| · | our ability to establish a market for our common stock and operate as a public company. |
-ii- | ||
CONDENSED CONSOLIDATED BALANCE SHEETS |
U.S. dollars |
| | September 30, | | December 31, | | ||
| | 2013 | | 2012 | | ||
| | Unaudited | | | | | |
| | | | | | | |
ASSETS | | | | | | | |
| | | | | | | |
CURRENT ASSETS: | | | | | | | |
Cash and cash equivalents | | $ | 4,467,829 | | $ | 1,230,034 | |
Restricted cash | | | 14,239 | | | 13,422 | |
Short-term bank deposits | | | 93,861 | | | 21,566 | |
Other accounts receivable and prepaid expenses | | | 586,686 | | | 401,522 | |
| | | | | | | |
Total current assets | | | 5,162,615 | | | 1,666,544 | |
| | | | | | | |
LEASE DEPOSIT | | | 121,538 | | | 31,545 | |
| | | | | | | |
PROPERTY AND EQUIPMENT, NET | | | 1,372,126 | | | 617,364 | |
| | | | | | | |
Total assets | | $ | 6,656,279 | | $ | 2,315,453 | |
1 | ||
CONDENSED CONSOLIDATED BALANCE SHEETS |
U.S. dollars (except stock and stock data) |
| | September 30, | | December 31, | | ||
| | 2013 | | 2012 | | ||
| | Unaudited | | | | ||
| | | | | | | |
LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | | | | |
| | | | | | | |
CURRENT LIABILITIES: | | | | | | | |
Trade payables | | $ | 554,856 | | $ | 250,352 | |
Other accounts payable and accrued expenses | | | 533,735 | | | 316,403 | |
| | | | | | | |
Total current liabilities | | | 1,088,591 | | | 566,755 | |
| | | | | | | |
LIABILITY RELATED TO WARRANTS (Note 4) | | | 6,406,680 | | | 2,817,741 | |
| | | | | | | |
COMMITMENTS AND CONTINGENT LIABILITIES | | | | | | | |
| | | | | | | |
STOCKHOLDERS' DEFICIT (Note 5): | | | | | | | |
Common Stock of $0.0001 par value - Authorized: 45,000,000 shares at September 30, 2013 and December 31, 2012; Issued: 19,998,654 (unaudited) and 14,547,689 shares at September 30, 2013 and December 31, 2012, respectively; Outstanding: 19,998,654 (unaudited) and 14,547,689 shares at September 30, 2013 and December 31, 2012, respectively | | | 1,999 | | | 1,454 | |
Preferred Stock of $0.0001 par value - Authorized: 5,000,000 shares at September 30, 2013 and December 31, 2012; Issued: None at September 30, 2013 and December 31, 2012; Outstanding: None at September 30, 2013 and December 31, 2012 | | | - | | | - | |
Additional paid-in capital | | | 19,216,234 | | | 5,001,425 | |
Deficit accumulated during the development stage | | | (20,057,225) | | | (6,071,922) | |
| | | | | | | |
Total stockholders' deficiency | | | (838,992) | | | (1,069,043) | |
| | | | | | | |
Total liabilities and stockholders' deficiency | | $ | 6,656,279 | | $ | 2,315,453 | |
2 | ||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
U.S. dollars (except stock and stock data) |
| | Three months ended September 30 | | Nine months ended September 30 | | Period from August 11, 2011 (inception date) to September | | |||||||||
| | 2013 | | 2012 | | 2013 | | 2012 | | 30, 2013 | | |||||
| | Unaudited | | Unaudited | | | | | ||||||||
Operating expenses: | | | | | | | | | | | | | | | | |
Research and development | | $ | 1,077,891 | | $ | 391,269 | | $ | 3,169,110 | | $ | 1,012,087 | | $ | 4,748,270 | |
Marketing and pre-production costs | | | 763,317 | | | 128,171 | | | 1,924,408 | | | 128,171 | | | 2,220,395 | |
General and administrative (Note 6) | | | 1,397,365 | | | 503,776 | | | 4,817,296 | | | 1,244,053 | | | 7,151,270 | |
| | | | | | | | | | | | | | | | |
Total operating loss | | | 3,238,573 | | | 1,023,216 | | | 9,910,814 | | | 2,384,311 | | | 14,119,935 | |
| | | | | | | | | | | | | | | | |
Revaluation of warrants (Note 4) | | | 191,898 | | | 2,033,217 | | | 3,991,875 | | | 2,006,777 | | | 5,582,386 | |
Issuance cost related to warrants to investors and service provider | | | - | | | - | | | - | | | 101,263 | | | 257,360 | |
Other financial expense | | | 41,491 | | | (278) | | | 82,614 | | | 1,917 | | | 97,544 | |
| | | | | | | | | | | | | | | | |
Financial expenses, net | | | 233,389 | | | 2,032,939 | | | 4,074,489 | | | 2,109,957 | | | 5,937,290 | |
| | | | | | | | | | | | | | | | |
Net loss | | $ | 3,471,962 | | $ | 3,056,155 | | $ | 13,985,303 | | $ | 4,494,268 | | $ | 20,057,225 | |
| | | | | | | | | | | | | | | | |
Net loss per share | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Basic and diluted loss per share | | $ | (0.17) | | $ | (0.25) | | $ | (0.79) | | $ | (0.38) | | | | |
| | | | | | | | | | | | | | | | |
Weighted average number of common stock used in computing basic and diluted net loss per share | | | 19,972,409 | | | 12,167,528 | | | 17,757,793 | | | 11,676,809 | | | | |
3 | ||
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT |
U.S. dollars (except stock and stock data) |
| | Common stock | | Additional paid-in | | Deficit accumulated during the development | | Total stockholders' equity | | ||||||
| | Number | | Amount | | capital | | stage | | (deficit) | | ||||
| | | | | | | | | | | | | | | |
Balance as of August 11, 2011 (inception date) | | - | | $ | - | | $ | - | | $ | - | | $ | - | |
| | | | | | | | | | | | | | | |
Issuance of common stock to founders upon inception date at par value | | 6,500,000 | | | 650 | | | - | | | - | | | 650 | |
Issuance of common stock to accredited investors upon inception date at par value | | 2,000,000 | | | 200 | | | 9,800 | | | - | | | 10,000 | |
Issuance of common stock to founders in October 2011 at par value | | 1,000,000 | | | 100 | | | - | | | - | | | 100 | |
Issuance of common stock in October and November 2011 at $0.61 per stock, net of issuance cost | | 1,140,000 | | | 114 | | | 481,376 | | | - | | | 481,490 | |
Issuance of common stock in December 2011 at $0.62 per stock, net of issuance cost | | 190,000 | | | 19 | | | 86,234 | | | - | | | 86,253 | |
Net loss | | - | | | - | | | - | | | (385,349) | | | (385,349) | |
| | | | | | | | | | | | | | | |
Balance as of December 31, 2011 | | 10,830,000 | | | 1,083 | | | 577,410 | | | (385,349) | | | 193,144 | |
| | | | | | | | | | | | | | | |
Issuance of common stock in February and March 2012 at $0.63 per stock, net of issuance cost | | 1,131,000 | | | 113 | | | 539,996 | | | - | | | 540,109 | |
Issuance of common stock and warrants in August 2012 at $1.00 per unit, net of issuance cost | | 500,014 | | | 50 | | | 498,107 | | | - | | | 498,157 | |
Issuance of common stock in September and October 2012 at $1.50 per stock, net of issuance cost | | 1,795,009 | | | 179 | | | 2,384,299 | | | - | | | 2,384,478 | |
Issuance of common stock to service provider | | 291,666 | | | 29 | | | 437,470 | | | - | | | 437,499 | |
Stock-based compensation | | - | | | - | | | 564,143 | | | - | | | 564,143 | |
Net loss | | - | | | - | | | - | | | (5,686,573) | | | (5,686,573) | |
| | | | | | | | | | | | | | | |
Balance as of December 31, 2012 | | 14,547,689 | | | 1,454 | | | 5,001,425 | | | (6,071,922) | | | (1,069,043) | |
| | | | | | | | | | | | | | | |
Issuance of common stock and warrants in February 2013 at $1.00 per unit, net of issuance cost | | 500,011 | | | 50 | | | 497,961 | | | - | | | 498,011 | |
Issuance of common stock and warrants in April and May 2013 at $2.50 per unit, net of issuance cost | | 4,000,000 | | | 400 | | | 8,985,110 | | | - | | | 8,985,510 | |
Issuance of common stock and warrants in June 2013 at $1.00 per unit, net of issuance cost | | 500,011 | | | 50 | | | 498,361 | | | - | | | 498,411 | |
Issuance of common stock to service provider | | 208,334 | | | 21 | | | 487,849 | | | - | | | 487,870 | |
Issuance of warrants to service provider | | - | | | - | | | 523,500 | | | - | | | 523,500 | |
Employee options exercised on January 6 2013 | | 15,000 | | | 2 | | | 13 | | | - | | | 15 | |
Exercise of warrants | | 227,609 | | | 22 | | | 628,529 | | | - | | | 628,551 | |
Stock-based compensation | | - | | | - | | | 2,593,486 | | | - | | | 2,593,486 | |
Net loss | | - | | | - | | | - | | | (13,985,303) | | | (13,985,303) | |
| | | | | | | | | | | | | | | |
Balance as of September 30, 2013 (unaudited) | | 19,998,654 | | $ | 1,999 | | $ | 19,216,234 | | $ | (20,057,225) | | $ | (838,992) | |
4 | ||
CONSOLIDATED STATEMENT OF CASH FLOWS |
U.S. dollars |
| | Nine months ended September 30 | | Period from August 11, 2011 (inception date) to September | | |||||
| | 2013 | | 2012 | | 30, 2013 | | |||
| | Unaudited | | | | | ||||
Cash flows from operating activities: | | | | | | | | | | |
Net loss | | $ | (13,985,303) | | | (4,494,268) | | $ | (20,057,225) | |
Adjustments required to reconcile net loss to net cash used in operating activities: | | | | | | | | | | |
Stock-based compensation, warrants and restricted shares | | | 3,604,856 | | | 481,048 | | | 4,606,449 | |
Issuance cost related to warrants to investors and service provider | | | - | | | 101,263 | | | 258,110 | |
Depreciation | | | 577,653 | | | 6,748 | | | 602,474 | |
Increase in other accounts receivable and prepaid expenses | | | (155,942) | | | (77,280) | | | (560,019) | |
Increase in trade payables | | | 275,600 | | | 187,691 | | | 525,952 | |
Increase in other accounts payable and accrued expenses | | | 217,332 | | | 268,766 | | | 533,735 | |
Revaluation of warrants | | | 3,991,875 | | | 2,006,777 | | | 5,582,386 | |
| | | | | | | | | | |
Net cash used in operating activities | | | (5,473,929) | | | (1,519,255) | | | (8,508,138) | |
| | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | |
Investment in short-term bank deposits | | | (105,028) | | | (19,851) | | | (138,316) | |
Proceeds of maturities of short-term bank deposit | | | 35,408 | | | - | | | 48,170 | |
Investment in lease deposits | | | (105,589) | | | - | | | (135,591) | |
Purchase of property and equipment | | | (1,308,273) | | | (33,645) | | | (1,950,458) | |
Investment in restricted cash | | | - | | | - | | | (13,422) | |
| | | | | | | | | | |
Net cash used in investing activities | | | (1,483,482) | | | (53,496) | | | (2,189,617) | |
| | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | |
Proceeds from issuance of Common Stocks and warrants, net of issuance cost | | | 9,969,591 | | | 1,484,003 | | | 14,939,969 | |
Proceeds from exercise of options and warrants | | | 225,615 | | | - | | | 225,615 | |
| | | | | | | | | | |
Net cash provided by financing activities | | | 10,195,206 | | | 1,484,003 | | | 15,165,584 | |
| | | | | | | | | | |
Increase (decrease) in cash and cash equivalents | | | 3,237,795 | | | (88,748) | | | 4,467,829 | |
Cash and cash equivalents at beginning of period | | | 1,230,034 | | | 908,765 | | | - | |
| | | | | | | | | | |
Cash and cash equivalents at end of period | | | 4,467,829 | | $ | 820,017 | | | 4,467,829 | |
| | | | | | | | | | |
Non-cash investing and financing and activities: | | | | | | | | | | |
| | | | | | | | | | |
Receivable on account of shares | | $ | 12,341 | | $ | 1,050,074 | | $ | 12,341 | |
| | | | | | | | | | |
Purchase of property and equipment | | $ | 28,904 | | $ | - | | $ | 28,904 | |
| | | | | | | | | | |
Conversion of liability related to warrants to common stock | | $ | 402,936 | | $ | - | | $ | 402,936 | |
5 | ||
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
U.S. dollars (except stock and stock data) |
NOTE 1:- | GENERAL |
| a. | LabStyle Innovations Corp. (the "Company") was incorporated in Delaware and commenced operations on August 11, 2011. The Company is developing and commercializing patent-pending technologies to provide consumers with laboratory-testing capabilities using smart phones and other mobile devices. The Company’s initial product, Dario, is a mobile, cloud-based, diabetes management platform which includes a pocket-sized blood glucose monitoring device that integrates with smart phones. The Company has not generated revenues to date; accordingly, the Company is considered to be in the development stage as defined in ASC No. 915, "Development stage entities". |
| 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. |
| |
| On September 23, 2013, the Company announced the receipt of CE Mark certification to market Dario. The receipt of the CE Mark allows the Company to market and sell Dario in the European Union and facilitates the registration of Dario in several countries worldwide subject to receipt of relevant approvals. The Company is planning for other regulatory filings in other jurisdictions, including the United States. |
| b. | On February 14, 2013, a registration statement (the "Initial Registration Statement") covering the public resale of 9,430,162 shares of the Company’s common stock, par value $0.0001 per share (the "Common Stock") (including shares of Common Stock underlying warrants) previously issued in private placements or issuances which occurred in 2011 and 2012 was declared effective by the U.S. Securities and Exchange Commission ("SEC"). Commencing on April 9, 2013, the Company received a ticker symbol for its Common Stock and caused the Common Stock to be eligible for trading on the Over-the-Counter Bulletin Board and the OTCQB Market operated by OTC Markets Group, Inc. ("OTCQB") under the ticker symbol "DRIO". On October 28, 2013 and November 6, 2013, the Company filed its first and second Post Effective Amendment, respectively, with respect to the Initial Registration Statement. The Post Effective Amendments were declared effective by the SEC on November 6, 2013. |
| c. | On July 24, 2013, another registration statement (the "Second Registration Statement") covering the public resale of 7,936,690 shares of Common Stock, (the "Common Stock") (including shares of Common Stock underlying warrants) previously issued in private placements or issuances which occurred in 2012 and 2013 was declared effective by the SEC (See also Note 5b). |
| | |
| d. | On August 9, 2013, the Company's Board of Directors approved the following management changes: |
| 1. | The Company’s chairman and chief executive officer assumed the new position as the Company's executive chairman and ceased to serve as chief executive officer. |
6 | ||
NOTE 1:- | GENERAL |
| 2. | The Company’s vice president of research and development was named president and chief executive officer of the Company and Ltd. and will be responsible for the overall management of the Company. |
| | |
| 3. | The Company’s president and chief operating officer as of August 9, 2013 (the "Prior President and COO") left the Company to pursue other business interests and thereafter entered into a separation agreement (the "Separation Agreement") with the Company. In accordance with the Separation Agreement, the parties have agreed to terminate the employment agreement with the Prior President and COO, effective as of February 11, 2014 (the "Termination Effective Date”). Consequently, until the Termination Effective Date the employee will be entitled to receive all benefits in accordance with his personal employment agreement. |
| e. | During the nine month period ended September 30, 2013, the Company incurred operating losses and negative cash flows from operating activities amounting to $9,910,814 and $5,473,929, respectively. The Company will be required to obtain additional capital resources to maintain its commercialization, research and development activities. The Company plans to address its liquidity needs by seeking additional funding and by continuing its efforts to initiate commercial sales. According to management estimates and based on the Company's budget, the Company has sufficient liquidity resources to continue its planned activity into March 2014. |
| The Company will seek to raise capital from public and/or private sources. There are no assurances, however, that the Company will be able to obtain an adequate level of financing needed for the long-term development and commercialization of its products. |
| |
| 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. |
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES |
| The significant accounting policies applied in the annual financial statements of the Company as disclosed in the Company's Special Financial Report on Form 10-K for the period ended December 31, 2012 are applied consistently in these financial statements. |
7 | ||
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
U.S. dollars (except stock and stock data) |
NOTE 3:- | UNAUDITED INTERIM FINANCIAL STATEMENTS |
| The accompanying unaudited interim consolidated financial statements as of September 30, 2013, 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 September 30, 2013, the Company's consolidated results of operations and the Company's consolidated cash flows for the nine and three months ended September 30, 2013. Results for the nine and three months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ended December 31, 2013. |
NOTE 4:- | FAIR VALUE MEASUREMENTS |
| 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 consider 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: |
| Level 1 - | quoted prices in active markets for identical assets or liabilities; |
| | |
| Level 2 - | inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or |
| | |
| Level 3 - | unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
8 | ||
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
U.S. dollars (except stock and stock data) |
NOTE 4:- | FAIR VALUE MEASURMENTS (Cont.) |
| On March 30, 2012, the Company consummated the final closing of a private placement transaction (the "2011-2012 Private Placement") pursuant to which the investors purchased an aggregate of 2,461,000 shares of Common Stock and warrants to purchase 2,461,000 shares of Common Stock at the exercise price of $1.50 for total consideration of $2,461,000. The prior 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. The $1.50 exercise price for both the investors warrants and placement agent warrants were adjusted to approximately $1.30 per share due to a certain anti-dilutive issuance (see also Note 5a) and, accordingly, additional warrants to purchase 371,017 and 72,455 shares of Common Stock were granted to such investors and the placement agent and its designees, respectively. |
| |
| The Company accounts for such warrants (each of which include weighted average anti-dilution protection) as a liability according to the provisions of ASC 815-40, "Derivatives and Hedging - Contracts in Entity's Own Equity". The Company measures the warrants at fair value by using Binomial 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 operations as financial income or expense. |
| |
| In estimating the warrants' fair value, the Company used the following assumptions: |
| |
| Investors warrants: |
| | Issuance date | | | December 31, 2012 | | | September 30, 2013 | | |||
Risk-free interest rate (1) | | | 1.2 | % | | | 0.51 | % | | | 0.63 | % |
Expected volatility (2) | | | 80 | % | | | 70 | % | | | 48.28 | % |
Expected life (in years) (3) | | | 5 | | | | 3.82 | | | | 3.07 | |
Expected dividend yield (4) | | | 0 | | | | 0 | | | | 0 | |
Fair value: | | | | | | | | | | | | |
Warrants | | $ | 0.39 | | | $ | 0.81 | | | $ | 1.74 | |
| Placement agent warrants: |
| | Issuance date | | | December 31, 2012 | | | September 30, 2013 | | |||
Risk-free interest rate (1) | | | 0.86 | % | | | 0.41 | % | | | 0.48 | % |
Expected volatility (2) | | | 75 | % | | | 59 | % | | | 49.63 | % |
Expected life (in years) (3) | | | 3.93 | | | | 3.25 | | | | 2.5 | |
Expected dividend yield (4) | | | 0 | | | | 0 | | | | 0 | |
Fair value: | | | | | | | | | | | | |
Warrants | | $ | 0.31-0.32 | | | $ | 0.65-0.79 | | | $ | 1.7-1.93 | |
| (1) | Risk-free interest rate - based on yield rates of non-index linked U.S. Federal Reserve treasury bonds. |
9 | ||
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
U.S. dollars (except stock and stock data) |
NOTE 4:- | FAIR VALUE MEASURMENTS (Cont.) |
| (2) | Expected volatility - was calculated based on actual historical stock price movements of companies in the same industry over a term that is equivalent to the expected term of the option. |
| | |
| (3) | Expected life - the expected life was based on the maturity 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 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 September 30, 2013: |
| | Fair value of liability related to warrants | | |
| | | | |
Balance at January 1, 2012 | | $ | 664,363 | |
Fair value of warrants to investors and service provider | | | 547,000 | |
Change in fair value of warrants | | | 1,606,378 | |
| | | | |
Balance at December 31, 2012 | | | 2,817,741 | |
Change in fair value of warrants | | | 3,991,875 | |
Exercise of warrants (*) | | | (402,936) | |
| | | | |
Balance at September 30, 2013 (unaudited) | | $ | 6,406,680 | |
| (*) | During the nine month ended September 30, 2013, investors and placement agent designees exercised a total of 141,305 and 81,466 warrants, respectively, for an aggregate amount of 190,113 shares of Common Stock (See also Note 5d). |
| In addition, the Company's financial instruments also include cash and cash equivalents, short-term bank deposits, other accounts receivable, trade payables and other accounts payable and accrued expenses. The fair value of these financial instruments was not materially different from their carrying values as of September 30, 2013 due to the short-term maturity of such instruments. |
10 | ||
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
U.S. dollars (except stock and stock data) |
NOTE 5:- | STOCKHOLDERS' DEFICIT |
| a. | On February 11, 2013, the Company entered into an addendum to Securities Purchase Agreement that was executed with 13 accredited investors on August 29, 2012 for a Company private placement (the "August 2012 Private Placement") consisting of three tranches for a total of 1,500,036 shares of Common Stock at $1.00 per share and warrants to purchase 1,500,036 shares of Common Stock at $1.00 per share. Such addendum modified the timing for the second and third tranches of such financing. Consequently the funding of the second and third tranches of this financing in the amount of $498,011 and $498,411, net of issuance cost, respectively, occurred on February 21, 2013 and on June 26, 2013 and as a result the Company issued a total of 1,000,022 shares of Common Stock and warrants to purchase 1,000,022 shares of Common Stock at $1.00 per share. |
| | The $1.00 price per share in the second and third tranches of the August 2012 Private Placement triggered anti-dilution protection for investors in the 2011-2012 Private Placement. Accordingly, the exercise price for the investor and placement agent warrants issued in the 2011-2012 Private Placement of $1.42 (which had been adjusted from $1.50 to $1.42 as a result of the funding of the first tranche of the August 2011 Private Placement) was further adjusted to approximately $1.30 per share and, accordingly, additional warrants to purchase 232,369 and 45,289 shares of Common Stock were granted to the investors and the placement agent and its designees, respectively. |
| b. | On March 29, 2013, the Company commenced a private placement offering (the "April-May 2013 Private Placement") to accredited investors of up to $10 million in the form of 40 units composed of an aggregate of 4,000,000 shares of Common Stock and warrants (the “Warrants”) to purchase 2,000,000 shares of Common Stock. Each unit was priced at $250,000 per unit, or $2.50 for one share of Common Stock and 0.5 of a Warrant. The Warrants have an exercise price of $5.00 per share and expire on April 4, 2016. The Warrants contain standard anti-dilution protection clauses and therefore will be classified as equity. Partial units were sold, and the units were not issued as separate securities of the Company. |
| On May 10, 2013, the Company conducted the final closing of the April-May 2013 Private Placement. In the aggregate, the Company raised the maximum amount of $10 million in the April-May 2013 Private Placement. Net proceeds to the Company from the April-May 2013 Private Placement were approximately $9 million, net of issuance cost. |
| |
| In connection with the April-May 2013 Private Placement, the Company engaged an exclusive placement agent to assist in selling the units. Such agent received compensation for services rendered in the form of a cash fee and a non-accountable expense allowance of a certain percentage of the gross proceeds raised at each closing of the April-May 2013 Private Placement, and warrants (substantially similar to the Warrants but with a cashless exercise feature) equal to 10% of the Common Stock as well as 10% of the Warrants issued in the April-May 2013 Private Placement, of which are exercisable at an exercise price of $2.50 per share and $5.00 per share, respectively upon issuance. The placement agent warrants expire on April 4, 2016 and contain standard anti-dilution protection clauses and therefore were classified as equity. |
11 | ||
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
U.S. dollars (except stock and stock data) |
NOTE 5:- | STOCKHOLDERS' DEFICIT (Cont.) |
| According to the private placement documents for the April-May 2013 Private Placement, the Company, on a commercially reasonable efforts basis, was required to file a registration statement covering the public resale of the shares of Common Stock and Common Stock underlying the Warrants issued in the April-May 2013 Private Placement (the "Registrable Shares") within 60 days of the final closing of the April-May 2013 Private Placement and to cause such registration statement to become effective within 90 days after such filing. |
| Failure to comply with the above registration requirements (the "Registration Failure"), or to maintain the effectiveness and use thereof for a period no less than the date that the investors are able to sell 100% of their Registrable Shares (the "Effectiveness Failure") in a single day on any day during a consecutive three month period, shall trigger certain liquidated damages. In the event that a Registration Failure or an Effectiveness Failure, the Company shall pay to each investor, as liquidated damages, an amount equal to one-half of one percent per month (prorated for each day of non-compliance) of the purchase price paid by such investor which shall continue for and be paid each month until the Registration Failure or Effectiveness Failure is cured, up to a maximum amount of six percent of the investment amount. |
| |
| A registration statement covering the Registrable Shares was submitted to the SEC on July 10, 2013 and was declared effective on July 24, 2013. |
| c. | Stock option compensation: |
| During February 2013, the Board of Directors and majority stockholders of the Company approved an increase in the size of the Company's 2012 Equity Incentive Plan (the "2012 Plan") from 2,860,000 shares of Common Stock to 5,000,000 shares of Common Stock. |
| |
| On March 15, 2013, the Company's Board of Directors (with the recommendation of the Compensation Committee of the Board of Directors) approved the grant of 820,000 and 20,000 options to employees and non-employees, respectively, at an exercise price between $1.44 and $1.35 per share, respectively. Such options to employees and non-employees shall vest over a period of up to 2 years commencing the above date. The options shall have ten year terms, unless otherwise approved by Compensation Committee of the Board of Directors, and shall be issued under the 2012 Plan. |
| |
| In addition, on March 15, 2013, the Company's Board of Directors (with the recommendation of the Compensation Committee of the Board of Directors) approved the grant of 600,000 options to purchase shares of Common Stock at an exercise price of $1.50 per share to non-employee directors. These non-qualified options were not issued under the 2012 Plan and are fully vested as of March 31, 2013 and have expiration date which is ten years from the date of issuance. |
12 | ||
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
U.S. dollars (except stock and stock data) |
NOTE 5:- | STOCKHOLDERS' DEFICIT (Cont.) |
| Furthermore, on March 15, 2013, the Company's Board of Directors (with the recommendation of the Compensation Committee of the Board of Directors) approved an annual award under a newly adopted Non-Employee Director Remuneration Policy of 25,000 to purchase shares of Common Stock to each non-employee directors of the Company. These non-qualified options were not issued under the 2012 Plan and shall vest quarterly in arrears commencing March 31, 2013. The above award will be granted from 2013 and for each fiscal year thereafter upon approval of the Compensation Committee of the Board of Directors. The options shall have ten year terms, unless otherwise approved by the Compensation Committee of the Board of Directors. |
| |
| On June 5, 2013, the Company's Board of Directors (with the recommendation of the Compensation Committee of the Board of Directors) approved the grant of 640,000 options to employees at an exercise price of $3.00 per share. Such options to employees shall vest over a period of 1 year commencing June 30, 2013. The options shall have ten year terms, unless otherwise approved by Compensation Committee of the Board of Directors, and shall be issued under the 2012 Plan. |
| |
| On September 3, 2013, the Company's Board of Directors (with the recommendation of the Compensation Committee of the Board of Directors) approved the grant of 300,000 options to the Company’s new chief executive officer and president at an exercise price of $2.67. Fifty percent (50%) of such options vest immediately, and fifty percent (50%) shall vest on August 30, 2014. The options shall have ten year terms, unless otherwise approved by the Compensation Committee of the Board of Directors, and shall be issued under the 2012 Plan. |
| |
| On September 22, 2013, the Company's Board of Directors (with the recommendation of the Compensation Committee of the Board of Directors) approved the grant of 390,000 and 130,000 options to employees and non-employees, respectively, at an exercise price of $2.75 per share. Such options to employees and non-employees shall vest over a period of up to 1 year commencing March 30, 2014. The options shall have ten year terms, unless otherwise approved by Compensation Committee of the Board of Directors, and shall be issued under the 2012 Plan. |
| |
| Upon such approvals, the remaining 878,000 options to purchase Common Stock are available for future grants under the 2012 Plan to employees, advisors, consultants and service providers of the Company or to Ltd. |
13 | ||
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
U.S. dollars (except stock and stock data) |
NOTE 5:- | STOCKHOLDERS' DEFICIT (Cont.) |
| The total compensation cost related to all of the Company's equity-based awards, recognized during the period of nine and three months ended September 30, 2013 was comprised as follows: |
| | Three months ended September 30, 2013 | | Nine months ended September 30, 2013 | | ||
| | | | | | | |
Research and development | | $ | 132,872 | | $ | 513,362 | |
Marketing and pre-production costs | | | 41,013 | | | 152,853 | |
General and administrative | | | 568,731 | | | 1,927,271 | |
| | | | | | | |
Total stock-based compensation expenses | | $ | 742,616 | | $ | 2,593,486 | |
| As of September 30, 2013, the total amount of unrecognized stock-based compensation expenses was approximately $2,038,262 which will be recognized over a weighted average period of 0.91 years. |
| d. | During the nine months ended September 30, 2013, proceeds from warrants exercises amounted to $225,615 following the issuance of 227,612 Common Stock out of which 56,673 were issued utilizing a cashless exercise feature. |
| e. | As disclosed in Note 8h to the Company's consolidated financial statements in the Company’s Special Financial Report on Form 10-K for the period ended December 31, 2012, on March 5, 2013, the Company amended its Consulting Agreement with SLD Capital Corp. (the “Consulting Agreement”) pursuant to which the remaining 166,668 unvested shares of Common Stock as to future strategic advisory consultancy services were accelerated such that beginning for the month of such services commencing February 1, 2013, the above service provider received 4 monthly issuances of 41,667 shares of Common Stock per month in arrears, with the final monthly issuance occurring as of June 5, 2013 for the monthly period ending May 30, 2013. |
| The related cost of the 208,334 shares that were vested through the period of nine months ended September 30, 2013 was $487,870 and recorded as part of general and administrative expenses. |
| |
| In addition, as further consideration for such services to be provided under the Consulting Agreement, the Company issued to SLD Capital Corp., as of March 5, 2013, two warrants to purchase shares of Common Stock which composed of: |
14 | ||
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
U.S. dollars (except stock and stock data) |
NOTE 5:- | STOCKHOLDERS' DEFICIT (Cont.) |
| 1. | 250,000 warrants to purchase up to an aggregate of 250,000 shares of Common Stock at a per share exercise price of $1.50 at any time prior to two year anniversary since the date in which the Company has received a ticker symbol for its Common Stock and caused the Common Stock to be eligible for trading on the Over-the-Counter Bulletin Board, OTCQB Market or similar trading system (the "Effective Date") (See also Note 1b). For the period of nine months ended September 30, 2013 the Company recorded expenses in the amount of $237,500 as part of general and administrative expenses with relation to these warrants. |
| 2. | 200,000 warrants to purchase up to an aggregate of 200,000 shares of Common Stock at a per share exercise price of $1.50 that will vest at any time prior to 18 month anniversary since the Effective Date and as long as the Company has at least 200 record beneficial owners of Common Stock. As of May 10, 2013 the Company had reached the 200 record beneficial owners threshold and therefore during the period of nine months ended September 30, 2013 the Company recorded expenses in the amount of $ 286,000 as part of general and administrative expenses with relation to these warrants. |
NOTE 6:- | SELECTED STATEMENTS OF OPERATIONS DATA |
| General and administrative: |
| Three months ended September 30 | | Nine months ended September 30 | | Period from August 11, 2011 (inception date) to September | | |||||||||
| 2013 | | 2012 | | 2013 | | 2012 | | 30, 2013 | | |||||
| Unaudited | | | | | ||||||||||
| | | | | | | | | | | | | | | |
Payroll, office and related | $ | 374,130 | | $ | 271,562 | | $ | 908,384 | | $ | 595,462 | | $ | 1,944,641 | |
Legal and professional fees | | 423,135 | | | 180,686 | | | 891,761 | | | 282,109 | | | 1,246,183 | |
Stock-based compensation | | 568,731 | | | 48,462 | | | 1,927,272 | | | 341,266 | | | 2,317,674 | |
Issuance of Common Stock and warrants to service provider | | - | | | - | | | 1,011,370 | | | - | | | 1,448,861 | |
Other | | 31,369 | | | 3,066 | | | 78,509 | | | 25,216 | | | 193,911 | |
| | | | | | | | | | | | | | | |
Total General and administrative | $ | 1,397,365 | | $ | 503,776 | | $ | 4,817,296 | | $ | 1,244,053 | | $ | 7,151,270 | |
15 | ||
16 | ||
17 | ||
18 | ||
19 | ||
| · | initial and ramp up of mass production, marketing and sales efforts related to Dario software, devices and test strips; |
| · | continued product development and related activities (including costs associated with application development and data storage capabilities as well as any necessary design modifications to the various Dario elements); |
| · | continued work on registration of our patents worldwide; |
| · | regulatory matters (including the preparation of an application for regulatory approval of Dario in the U.S.); |
| · | professional fees associated with being a publicly reporting company; and |
| · | general and administrative matters. |
20 | ||
21 | ||
22 | ||
23 | ||
24 | ||
25 | ||
26 | ||
No. | | Description of Exhibit |
31.1 | | Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2 | | Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1 | | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
32.2 | | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
101.INS * | | XBRL Instance Document |
101.CAL * | | XBRL Taxonomy Extension Calculation Linkbase Document |
101.SCH * | | XBRL Taxonomy Extension Schema Document |
101.DEF * | | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB * | | XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE * | | XBRL Taxonomy Extension Presentation Linkbase Document |
* | XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
27 | ||
Date: November 12, 2013 | LabStyle Innovations Corp. |
| |
| By: /s/ Erez Raphael |
| Name: Erez Raphael |
| Title: President and Chief Executive Officer |
| |
| By: /s/ Mordechi Hershkowitz |
| Name: Mordechi (Motty) Hershkowitz |
| Title: Chief Financial Officer, Secretary and Treasurer |
28 | ||
/s/ Erez Raphael | |
Erez Raphael | |
President and Chief Executive Officer | |
/s/ Mordechi Hershkowitz | |
Mordechi (Motty) Hershkowitz | |
Chief Financial Officer, Secretary and Treasurer | |
/s/ Erez Raphael | |
Erez Raphael | |
President and Chief Executive Officer | |
/s/ Mordechi Hershkowitz | |
Mordechi (Motty) Hershkowitz | |
Chief Financial Officer, Secretary and Treasurer | |