DarioHealth Corp. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, at December 31, 2020, such disclosure controls and procedures were effective. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. 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. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management’s Report on Internal Control Over Financial Reporting As required by the SEC rules and regulations, our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external reporting purposes in accordance with U.S. GAAP. Our internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect errors or misstatements in our consolidated financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting at December 31, 2020. In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on our assessments and those criteria, management determined that we maintained effective internal control over financial reporting at December 31, 2020. 58 Item 9B. Other Information 2020 Bonuses On March 4, 2021, the Compensation Committee of the Board of Directors approved annual bonuses to the Company’s management team for the achievement of certain milestones in the 2020 fiscal year. In that regard, Mr. Erez Raphael was awarded a cash bonus of $350,000, Mr. Richard Anderson was awarded a cash bonus of $212,500, and each of Mr. Zvi Ben-David and Mr. Dror Bacher were awarded cash bonuses of $120,000.In addition, the Compensation Committee of the Board of Directors approved a one-time bonus to the Mr. Yoav Shaked, Chairman of the Board of Directors, of $100,000. Oded Cohen Employment Agreement On March 4, 2021, the Company, through Upright, executed an Employment Agreement with Oded Cohen (the “Employment Agreement”) pursuant to which he will serve as General Manager of Musculoskeletal (MSK), effective as of February 1, 2021. The Employment Agreement supersedes the agreement entered into by and between the Company, through LabStyle Innovation Ltd., and Mr. Cohen dated February 1, 2021. Pursuant to the Employment Agreement, Mr. Cohen will earn a monthly salary of NIS 63,000 and shall be eligible for an annual bonus equal to up to four times his monthly salary. The Employment Agreement is an at-will employment arrangement, with a four month notice period, unless it is terminated for cause. In addition, Mr. Cohen will be entitled to severance payment pursuant to applicable Israeli severance law. In the event the Employment Agreement is terminated by us for cause, Mr. Cohen will only be entitled to a severance pay under applicable Israeli severance law. Mr. Cohen’s Employment Agreement also includes a one-year non-competition and non-solicitation provision, certain confidentiality covenants and assignment of any of his company-related inventions. Under the terms of the Employment Agreement, Mr. Cohen is entitled to certain expense reimbursements and other standard benefits, including vacation, sick leave, contributions to a manager’s insurance policy and study fund and car and mobile phone allowances. In addition, Mr. Cohen will be entitled to receive a restricted stock unit award to receive up to 73,660 shares of the Company’s common stock and, subject to the meeting of certain milestones, subject to the meeting of certain milestones an additional restricted stock unit award to receive up to 73,660 shares of the Company’s common stock on March 1, 2022, and subject to the meeting of certain milestones an additional restricted stock unit award to receive up to 73,660 shares of the Company’s common stock on March 1, 2023. 59 PART III Item 10. Directors, Executive Officers and Corporate Governance The following sets forth information regarding our executive officers and the members of our Board of Directors as of the date of this Annual Report. All directors hold office for one-year terms until the election and qualification of their successors. Officers are appointed by our Board of Directors and serve at the discretion of our Board of Directors, subject to applicable employment agreements. Name Age Position(s) Erez Raphael 47 Chief Executive Officer and Director Zvi Ben David 60 Chief Financial Officer, Treasurer and Secretary Dror Bacher 46 Chief Operating Officer Richard Anderson 51 President and General Manager of North America Oded Cohen 50 General Manager of MSK Yoav Shaked 49 Chairman of the Board of Directors Dennis Matheis 60 Director Hila Karah 52 Director Dennis M. McGrath 64 Director Adam Stern 56 Director Prof. Richard B. Stone 78 Director Erez Raphael has served as our Chief Executive Officer since August 9, 2013 and as a director of our company since December 2013. Mr. Raphael served as Chairman of the Board of Directors from November 2014 to July 2018, and as a director from November 2014 to the present. He previously and until October 2012 served as our Vice President of Research and Development. Mr. Raphael has over 17 years of industry experience, having been responsible in his career for product delivery, technology and business development. Prior to joining us, from 2010 to 2012, Mr. Raphael served as Head of Business Operations for Nokia Siemens Networks, where he was responsible for establishing and implementing a new portfolio business unit directed towards marketing and sales of complimentary products. Prior to that, from 1998 to 2010, he held increasingly senior positions at Amdocs Limited (Nasdaq:DOX) where he was ultimately responsible for advising the Chief Technology Officer and implementing matters of overall business strategy. Mr. Raphael holds a B.A. in economics and business management from Haifa University. We believe Mr. Raphael is qualified to serve on our Board of Directors because of his extensive experience with technology companies and in sales and marketing. Zvi Ben David has served as our Chief Financial Officer, Treasurer and Secretary since January 7, 2015. Mr. Ben David has over 25 years of experience in corporate and international financial management, including at both publicly-listed and private companies. Since 2012, he has acted as an independent entrepreneur with, and investor in, various medical device ventures. From 2005 to 2012, Mr. Ben David served as the Chief Financial Officer of UltraShape Medical Ltd., a developer, manufacturer and marketer of innovative non-invasive technologies for fat cell destruction and body sculpting. While with UltraShape, he helped lead the company through $35 million in private financing, followed by the company’s merger with a Tel Aviv Stock Exchange company and ultimately the company’s sale to Syneron Medical Ltd. From 2000 to 2005, he served as Vice President and Chief Financial Officer of Given Imaging Ltd., where he was part of the management team that led that company’s 2001 initial public offering and 2004 follow-on offering, and served as a director of that company from its establishment in 1998 to 2000. From 1995 to June 2000, Mr. Ben David served as Vice President and Chief Financial Officer of RDC Rafael Development Corporation, one of Given Imaging Ltd.’s principal shareholders. From 1994 to 1995, Mr. Ben David served as manager of the finance division of Electrochemical Industries (Frutarom) Ltd., an Israeli company traded on the Tel-Aviv Stock Exchange and the American Stock Exchange, and from 1989 to 1993, Mr. Ben David served as the manager of that company’s economy and control department. From 1984 to 1988, Mr. Ben David worked at Avigosh & Kerbs, an accounting firm in Haifa, Israel. Mr. Ben David is a certified public accountant in Israel and holds a B.A. in economics and accounting from Haifa University. 60 Dror Bacher has served as our Chief Operating Officer since July 25, 2017. Mr. Bacher previously served as our Vice President of Research and Development as well as Vice President of Operations since 2013 where he worked on product development as well as building a scalable supply chain. Mr. Bacher has over 18 years of experience in various technological companies and his expertise includes product management, product development and business operations in multi disciplinary environments. Between 2008 and 2013, Mr. Bacher Served in several leadership roles at Amdocs Limited (Nasdaq:DOX), including working as a part of the Chief Technology Office, managing enterprise development programs for a variety of software products associated with service delivery, as well as serving as head of process Prior to Amdocs, Mr. Bacher served in a senior role at Tower Semiconductor (Nasdaq:TSEM), the global specialty foundry leader for IC manufacturing, where he was responsible for business operations and commercialization expansion. Mr. Bacher holds a B.Sc. in computer science and an MBA degree from Haifa University. Richard Anderson has served as our President and General Manager of North America since January 7, 2020.. From November 2003 to December 2019, Mr. Anderson worked for Catasys, Inc. (Nasdaq: CATS), where he served as President and Chief Operating Officer from July 2008 to December 2019, and as a member of its board of directors from November 2003 to July 2019. Prior to Catasys, Inc., Mr. Anderson served as Senior Executive Vice President of Hythiam, Inc., a predecessor company of Catasys, Inc., from 2005 to 2008. From 1999 to 2005, he also served as Chief Financial Officer and Secretary of Clearant, Inc., a biotechnology company. Prior to Clearant, from 1999 to 2001, he served as the Chief Financial Officer and Managing Director of Intellect Capital Group, a venture consulting firm. Earlier in his career, Mr. Anderson was a Senior Manager/Director for PricewaterhouseCoopers. Mr. Anderson holds a B.A. in Business Economics from the University of California at Santa Barbara. Oded Cohen has served as our General Manager of MSK since February 1, 2021. From May 2012 to February 2021, Mr. Cohen served as the founder and CEO of Upright and was Managing Director of Hire Pacific International from May 2006 to December 2014. Prior to HPI, Mr. Cohen served as Sales Director at Comverse from April 2001 to February 2006, and as Accelerator Manager from January 2000 to March 2001. Prior to the Accelerator, Mr. Cohen served as an Avionics Engineer at Elbit Systems. Ltd. Mr. Cohen holds a B.A. in Political Science and Government from the Haifa University, and an EMBA degree from Tel Aviv University. Yoav Shaked has served as the Chairman of our Board of Directors since July 5, 2018. Since 2011, Mr. Shaked has served as a partner at Sequoia Capital, a leading global venture capital firm. In 2005, he co-founded Medpoint Ltd., a private medical device distribution company offering a wide range of medical products. Previously, he founded and served as Chief Executive Officer of Y-Med Inc. from May 2004 through November 2009, until its sale to C.R. Bard, Inc. After the sale of Y-Med Inc., Mr. Shaked served as the director of research at ThermopeutiX, a developer of innovative products for strokes and peripheral artery disease. Mr. Shaked currently serves on the board of directors of several biotechnology companies, including Endospan, Vibrant Gastro, B-Lite (G&G Biotechnology) and Orasis Pharmaceuticals, the latter of which he serves as Chairman of the Board. Mr. Shaked has a B.A. in biology from The Hebrew University of Jerusalem. We believe that Mr. Shaked is qualified to serve as Chairman of the Board because of his extensive experience both in biotechnology companies and in the venture capital realm. Dennis Matheis has been a director of our company since July 2, 2020. Mr. Matheis spent nearly 30 years in various senior leadership roles in health insurance and healthcare. Since October 2017, he has served as the President and Chief Executive Officer of Optima Health, Inc. and the Executive Vice President of Sentara Healthcare Plans, Inc. Prior to that, he spent 13 years in leadership roles at Anthem, Inc., serving as President of Central Region and Exchanges encompassing six states and representing $12 billion in annual revenue. Mr. Matheis also served in senior leadership roles at Anthem Blue Cross and Blue Shield of Missouri, CIGNA Healthcare and Humana Health Plan, as well as Advocate Health Care in Chicago. Mr. Matheis has a B.S. in Accounting from the University of Kentucky and practiced as a Certified Public Accountant before entering the healthcare industry. We believe that Mr. Matheis is qualified to serve on our Board of Directors because of his experience in the healthcare business. Hila Karah has been a director of our company since November 23, 2014. Ms. Karah is an independent business consultant and an investor in several high-tech, biotech and internet companies. From 2006 to 2013, she served as a partner and Chief Investment Officer of Eurotrust Ltd., a family office. From 2002 to 2005, she served as a research analyst at Perceptive Life Sciences Ltd., a New York-based hedge fund. Prior to that, Ms. Karah served as research analyst at Oracle Partners Ltd., a health care-focused hedge fund. Ms. Karah has served as a director in several private and public companies including Intec Pharma, since 2009 and Cyren Ltd since 2008. Ms. Karah holds a B.A. in Molecular and Cell Biology from the University of California, Berkeley, and studied at the University of California, Berkeley-University of California, San Francisco Joint Medical Program. We believe Ms. Karah is qualified to serve on our Board of Directors because of her experience as an investor in and advisor to high-tech, biotech and internet companies. 61 Dennis M. McGrath has been a director of our company since November 12, 2013. Mr. McGrath is a seasoned medical device industry executive with extensive public company leadership experience possessing a broad range of skills in corporate finance, business development, corporate strategy, operations and administration. After an 18 year career at PhotoMedex, Inc. (Nasdaq: PHMD), he recently joined PAVmed, Inc (Nasdaq: PAVM, PAVMW) as the its Executive Vice President and Chief Financial Officer. Previously, from 2000 to 2017 Mr. McGrath served in several senior level positions of PhotoMedex, Inc. (Nasdaq: PHMD), a global manufacturer and distributor of medical device equipment and services, including from 2011 to 2017 as director, President, and Chief Financial Officer. Prior to PhotoMedex’s reverse merger with Radiancy, Inc. in December 2011, he also served as Chief Executive Officer from 2009 to 2011 and served as Vice President of Finance and Chief Financial Officer from 2000 to 2009. He received honors as a P.A.C.T. (Philadelphia Alliance for Capital and Technology) finalist for the 2011 Investment Deal of the Year, award winner for the SmartCEO Magazine 2012 CEO of the Year for Turnaround Company, and finalist for the Ernst & Young 2013 Entrepreneur of the Year. He has extensive experience in mergers and acquisitions, both domestically and internationally, and particularly involving public company acquisitions, including Surgical Laser Technologies, Inc, (formerly, Nasdaq: SLTI), ProCyte Corporation (formerly, Nasdaq: PRCY), LCA Vision, Inc. (formerly, Nasdaq: LCAV) and Think New Ideas, Inc. (formerly, Nasdaq: THNK). Prior to PhotoMedex, he served in several senior level positions of AnswerThink Consulting Group, Inc. (then, Nasdaq: ANSR, now, The Hackett Group, Nasdaq: HCKT), a business consulting and technology integration company, including from 1999 to 2000 as Chief Operating Officer of the Internet Practice, the largest division of AnswerThink Consulting Group, Inc., while concurrently during the merger of the companies, serving as the acting Chief Financial Officer of Think New Ideas, Inc. (then, Nasdaq: THNK, now, Nasdaq: HCKT), an interactive marketing services and business solutions company. Mr. McGrath also served from 1996 until 1999 as Chief Financial Officer, Executive Vice President and director of TriSpan, Inc., an internet commerce solutions and technology consulting company, which was acquired by AnswerThink Consulting Group, Inc. in 1999. During his tenure at Arthur Andersen & Co., where he began his career, he became a Certified Public Accountant in 1981 and he holds a B.S., maxima cum laude, in accounting from LaSalle University. In addition to serving as a director of PhotoMedex, he serves as the audit chair and a director of several medical device companies, including Noninvasive Medical Technologies, Inc. and Cagent Vascular, LLC, and as an advisor to the board of an orphan drug company, Palvella Therapeutics, LLC. Formerly from 2007 to 2009, Mr. McGrath served as a director of Embrella Cardiovascular, Inc. (sold to Edwards Lifesciences Corporation, NYSE: EW). He also serves on the Board of Trustees for Manor College and the Board of Visitors for Taylor University. We believe Mr. McGrath is qualified to serve on our Board of Directors because of his accounting expertise and his experiences serving as an officer and director of public and private companies. Adam Stern has been a director of our company since March 1, 2020. Mr. Stern, age 55, has been the head Private Equity Banking at Aegis Capital Corp. and CEO of SternAegis Ventures since 2012 and was a member of our board of directors between October 2011 and May 2014. Prior to Aegis, from 1997 to November 2012, he was with Spencer Trask Ventures, Inc., most recently as a Senior Managing Director, where he managed the structured finance group focusing primarily on the technology and life science sectors. Mr. Stern held increasingly responsible positions from 1989 to 1997 with Josephthal & Co., Inc., members of the New York Stock Exchange, where he served as Senior Vice President and Managing Director of Private Equity Marketing. He has been a FINRA licensed securities broker since 1987 and a General Securities Principal since 1991. Mr. Stern is a director of Aerami Therapeutics Holdings (formerly Dance Biopharm, Inc.), Matinas BioPharma Holdings, Inc. Adgero Biopharmaceuticals Holdings and Hydrofarm Holdings Group, Inc. Mr. Stern is a former director of InVivo Therapeutics Holdings Corp. (OTCQB: NVIV), Organovo Holdings, Inc. (NYSE MKT: ONVO) and PROLOR Biotech Ltd., which was sold to Opko Health, Inc. (NYSE: OPK) for approximately $600 million in 2013. Mr. Stern holds a Bachelor of Arts degree with honors from The University of South Florida in Tampa. We believe Mr. Stern is qualified to serve on our Board of Directors because of his experience in the capital markets, his experiences serving as a director of public and private companies and his experience with life sciences companies. 62 Prof. Richard B. Stone has been a director of our company since July 7, 2014. For more than twenty-five years, Prof. Stone has been active participant in early stage business enterprises as a director or investor, including technology and biotechnology companies. He currently serves on the board of directors of multiple technology companies, including Powermat, Espro-Accoustiguide Group, Wellsense Technologies, NanoX Imaging Plc, Illumigyn Ltd, Cardiologic Innovations, Quality Inflow Ltd., and Check-Cap. Since 1974, Prof. Stone has been a member of the faculty of Columbia Law School, where he held the Wilbur Friedman Chair in Tax Law for twenty years. In addition to basic and advanced tax courses, Prof. Stone has taught in the areas of contracts, business planning and real estate planning. Among other not-for-profit organizations he has been associated with, from 2011 to 2013, Prof. Stone served as Chairman of the Conference of Presidents of Major American Jewish Organizations. Prof. Stone began his career in 1967 in private practice in Washington, D.C, and thereafter joined the staff of the Solicitor General of the United States, where from 1969 to 1973 he was Assistant to the Solicitor General. He is a graduate of Harvard College and Harvard Law School. We believe Prof. Stone is qualified to serve on our Board of Directors because of his legal expertise and experience with life sciences companies. Scientific Advisory Board We have established a Scientific Advisory Board (SAB), whose members will be available to us to advise on our scientific and business plans and operational strategies. Below is the biography of our current SAB member. Eric Miledge - Chairman of our Advisory Board , has worked in the healthcare field for his entire career, with a focus on pharmaceuticals and medical devices. With more than 34 years at Johnson & Johnson (JNJ) in roles of increasing responsibility, he built a vast network of relationships across the healthcare landscape. As president of Ortho McNeil Pharmaceutical, Eric led in the licensing and successful introduction of levofloxacin (antibiotic), tramadol (analgesic) and the commercialization of Topamax (anticonvulsant), building a multi-billion dollar U.S. pharmaceutical business. Eric also served as Company Group Chairman for Johnson & Johnson Healthcare Systems which oversaw the negotiation and management of JNJ’s medical device, diagnostic and pharmaceutical U.S. hospital contracts. Eric also served as Company Group Chairman of LifeScan Inc., the blood glucose division of JNJ. Under Eric’s leadership, LifeScan Global Diabetes franchise experienced rapid organic and inorganic growth, including the acquisition of Inverness Medical Technology’s Diabetes Care Products business. His leadership helped transform LifeScan into a global organization with thousands of employees and billions in annual revenues. After retiring from JNJ, Eric served as chairman for a number of medical device startup companies including chairman of Nfocus Neuromedical, Symetis SA and CeQur SA. Eric also served as an operating partner for Geneva based Endeavour Vision Growth, a medical device growth fund. Dr. David Horwitz – Advisory Board M ember , is presently a Senior Consultant with Numerof & Associates and also President of DLH Biomedical Consulting. He previously served as the Global Chief Medical Officer of the Johnson and Johnson Diabetes Institute. Prior to this, he was Vice President, Worldwide Clinical Affairs & Evidence-Based Medicine at LifeScan, Inc., a Johnson & Johnson company. During his time at LifeScan, Dr. Horwitz had, at various times, been responsible for Clinical Research, Medical Affairs, Regulatory Affairs, and Advocacy & Professional Affairs. Dr. Horwitz has previously held faculty positions in the medical schools at the University of Chicago and the University of Illinois, where he was a clinical professor of medicine. He is a Board-Certified internist and endocrinologist, and a Fellow of the American College of Physicians. He has published over 100 articles in scientific and clinical journals, primarily in the areas of diabetes and metabolism. He has completed a term as an industry representative on the Clinical Chemistry and Toxicology advisory panel of the U.S. Food and Drug Administration. He is presently serving as a volunteer physician for a charity-supported clinic. Dr. Marilyn Ritholz –Advisory Board Member , is a Senior Psychologist at the Joslin Diabetes Center and treats both adults and adolescents with diabetes. In addition, she is on the faculty at Beth Israel Deaconess Medical Center (BIDMC) and is an Assistant Professor of Psychology at Harvard Medical School . Dr. Ritholz is an experienced qualitative researcher. In collaboration with colleagues, she has explored qualitative aspects of healthcare regarding the patient-provider relationship, provider communication about diabetes complications, and psychosocial factors associated with diabetes technology, including continuous glucose monitoring. She has published more than 20 qualitative articles on these topics. 63 Board Composition Our business is managed under the direction of our Board of Directors. Our Board of Directors currently consists of seven members. Pursuant to the terms of the placement agency agreement between us and Aegis Capital Corp., dated October 22, 2019, we granted Aegis the right to nominate an individual to the Board of Directors for a period of three years, which resulted in the appointment of Mr. Stern to serve on our Board of Directors. There are no arrangements between our directors and any other person pursuant to which our directors were nominated or elected for their positions. Board Committees Our Board of Directors has three standing committees: An Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. Audit Committee Our Audit Committee is comprised of Messrs. Shaked, McGrath and Stone, each of whom is an independent director. Mr. McGrath is the Chairman of the Audit Committee. Mr. McGrath is an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K. Our Audit Committee oversees our corporate accounting, financial reporting practices and the audits of financial statements. For this purpose, the Audit Committee has a charter (which is reviewed annually) and performs several functions. The Audit Committee charter is available on our website at www.mydario.com under the Investors / Governance section. The Audit Committee: • evaluates the independence and performance of, and assesses the qualifications of, our independent auditor and engage such independent auditor; • approves the plan and fees for the annual audit, quarterly reviews, tax and other audit-related services and approve in advance any non-audit service to be provided by our independent auditor; • monitors the independence of our independent auditor and the rotation of partners of the independent auditor on our engagement team as required by law; • reviews the financial statements to be included in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and reviews with management and our independent auditor the results of the annual audit and reviews of our quarterly financial statements; and • oversees all aspects our systems of internal accounting control and corporate governance functions on behalf of the Board of Directors. Compensation Committee Our Compensation Committee is comprised of Messrs. Shaked, McGrath and Ms. Karah. Mr. McGrath is the Chairman of the Compensation Committee. The Compensation Committee reviews or recommends the compensation arrangements for our management and employees and also assists our Board of Directors in reviewing and approving matters such as company benefit and insurance plans, including monitoring the performance thereof. The Compensation Committee has a charter (which is reviewed annually) and performs several functions. The Compensation Committee charter is available on our website at www.mydario.com under the Investors / Governance section. 64 The Compensation Committee has the authority to directly engage, at our expense, any compensation consultants or other advisers as it deems necessary to carry out its responsibilities in determining the amount and form of employee, executive and director compensation. Nominating and Corporate Governance Committee Our Nominating and Corporate Governance Committee is currently comprised of Prof. Stone and Mr. Shaked. Prof. Stone is the Chairman of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee is charged with the responsibility of reviewing our corporate governance policies and with proposing potential director nominees to the Board of Directors for consideration. This committee also has the authority to oversee the hiring of potential executive positions in our company. The Nominating and Corporate Governance Committee operates under a written charter, which will be reviewed and evaluated at least annually. Director Independence Our Board of Directors has reviewed the materiality of any relationship that each of our directors has with us, either directly or indirectly. Based on this review, our Board of Directors has determined that Prof. Stone, Messrs. Shaked, Matheis and McGrath, and Ms. Karah are “independent directors” as defined in the Nasdaq Listing Rules and Rule 10A-3 promulgated under the Exchange Act. Code of Ethics On March 5, 2013, our Board of Directors adopted a Code of Business Conduct and Ethics and Insider Trading Policy. Our Code of Business Conduct and Ethics is available on our website at www.mydario.com under the Investors/Governance section. The information on our website is not incorporated by reference into this Report. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendment to, or waiver from, a provision of our Code of Ethics by posting such information on the website address specified above. Limitation of Directors Liability and Indemnification The Delaware General Corporation Law authorizes corporations to limit or eliminate, subject to certain conditions, the personal liability of directors to corporations and their stockholders for monetary damages for breach of their fiduciary duties. Our certificate of incorporation limits the liability of our directors to the fullest extent permitted by Delaware law. We have director and officer liability insurance to cover liabilities our directors and officers may incur in connection with their services to us, including matters arising under the Securities Act. Our certificate of incorporation and bylaws also provide that we will indemnify our directors and officers who, by reason of the fact that he or she is one of our officers or directors, is involved in a legal proceeding of any nature. We have entered into indemnification agreements with our directors and officers pursuant to which we agreed to indemnify each director and officer for any liability he or she may incur by reason of the fact that he or she serves as our director or officer, to the maximum extent permitted by law. There is no pending litigation or proceeding involving any of our directors, officers, employees or agents in which indemnification will be required or permitted. We are not aware of any threatened litigation or proceeding that may result in a claim for such indemnification. Item 11. Executive Compensation The following table summarizes compensation of our named executive officers, as of December 31, 2020 and 2019. 65 Summary Compensation Table Option Non-equity Non- qualified All Other Name and Awards incentive plan incentive plan Compensation Total Principal Position Year Salary ($)* Bonus ($) Stock Awards ($)** compensation compensation ($) ($) Erez Raphael (Chief Executive Officer) 2020 2019 $ $ 284,062 249,094 (1) (1) $ $ 251,313 361,164 (2 ) (2) $ $ 2,484,049 660,819 (3) (3) $ $ $ $ 130,482 111,120 (4) (4) $ $ 3,149,906 1,382,197 Zvi Ben David (Chief Financial Officer) 2020 2019 $ $ 137,202 133,172 (5) (5) $ $ 559,112 120,294 (6) (6) $ $ 172,221 (7) $ $ 33,446 42,128 (8) (8) $ $ 901,981 295,594 Dror Bacher (Chief Operating Officer) 2020 2019 $ $ 181,917 153,759 (9) (9) $ $ 28,882 (10 ) $ $ 463,874 67,929 (11) (11) $ $ 177,401 (12) $ $ 66,712 66,796 (13) (13) $ $ 889,905 317,366 Richard Anderson (President and General Manager of North America) 2020 $ 308,098 (14) 100,000 (15 ) $ 163,433 (16) $ 479,160 (17) $ 16,328 (18) $ 1,067,019 * Certain compensation paid by the company is denominated in New Israeli Shekel (or the NIS). Such compensation is calculated for purposes of this table based on the annual average currency exchange for such period. ** Amount shown does not reflect dollar amount actually received. Instead, this amount reflects the aggregate grant date fair value of each stock option granted in the fiscal years ended December 31, 2020 and December 31, 2019, computed in accordance with the provisions of ASC 718 “Compensation-Stock Compensation,” or ASC 718. Assumptions used in accordance with ASC 718 are included in Note 9 to our consolidated financial statements included in this Annual Report. (1) In accordance with his second amendment to the employment agreement with our company effective August 11, 2013, Mr. Raphael was entitled to a monthly salary of NIS 44,000, commencing April 1, 2016, his monthly salary was increased to NIS 80,000 (approximately $24,691 per month). On June 1, 2018, his monthly salary was increased to NIS 134,167 (approximately $41,410). During 2019 and 2020, Mr. Raphael agreed to a waiver of 45% and 36.4% of his cash salary according to our salary program (see further details in “Employment and Related Agreements” below). (2) On June 2019, Mr. Raphael was paid a bonus of $110,006 for his performance during 2018 and on December 2019 Mr. Raphael was paid a bonus of $251,157 for the successful completion of the December 2019 Private Placement. On September 2020, Mr. Raphael was paid a bonus of $251,313 for the successful completion of the July 2020 private placement. (3) On January 27, 2019, Mr. Raphael was granted 3,098 shares of our common stock under our 2012 Equity Incentive plan against waiver of cash salary for the period from January to March 2019. On July 9, 2019, Mr. Raphael was granted 10,749 shares of our common stock under our 2012 Equity Incentive plan against waiver of cash salary for the period from April to September 2019. On December 23, 2019, Mr. Raphael was granted 15,454 shares of our common stock under our 2012 Equity Incentive plan against waiver of cash salary for the period from October to December 2019. On April 29, 2019, Mr. Raphael was granted 20,379 shares of our common stock under our 2012 Equity Incentive Plan, and 4,472 shares of our common stock under our 2012 Equity Incentive Plan, as a bonus, in lieu of cash, for the 2018 achievements of the Company. 66 On January 28, 2020, Mr. Raphael was granted 15,602 shares of our common stock under our 2012 Equity Incentive plan against waiver of cash salary for the period from January to March 2020. On April 3, 2020, Mr. Raphael was granted 15,146 shares of our common stock under our 2012 Equity Incentive plan against waiver of cash salary for the period from April to June 2020. On July 20, 2020, Mr. Raphael was granted 15,593 shares of our common stock under our 2012 Equity Incentive plan against waiver of cash salary for the period from July to September 2020. On October 16, 2020, Mr. Raphael was granted 2,127 shares of our common stock under our 2012 Equity Incentive plan against waiver of cash salary for the period from October to December 2020, and 5,060 shares of our common stock under our 2012 Equity Incentive plan against an additional cash waiver during the period April – July 2020. On February 12, 2020, Mr. Raphael was granted 351,546 shares of our common stock under our 2012 Equity Incentive Plan. (4) In addition to his salary, Mr. Raphael is entitled to receive a leased automobile and mobile phone during his employment as well as reimbursements for expenses accrued. These benefits, as well as other social benefits under Israeli law, are included as part of his “All Other Compensation.” (5) In accordance with his employment agreement with our company effective January 8, 2015, Mr. Ben David was initially entitled to a monthly salary and additional compensation (excluding social benefits under applicable Israeli law) of NIS 31,200 (approximately $9,630) for providing eighty percent of his working time to our company. Beginning on March 1, 2015, Mr. Ben David began working for us on a full-time basis pursuant to the terms of his employment agreement at which point Mr. Ben David’s salary was increased to NIS 39,000 (approximately $12,037 per month, commencing April 1, 2016, his monthly salary was updated to NIS 60,000 (approximately $18,519), and commencing June 1, 2018, his monthly salary was updated to NIS 67,200 (approximately $20,741). During 2019 and 2020, Mr. Ben David agreed to a waiver of 42% of his cash salary according to our salary program (see further details in “Employment and Related Agreements” below). (6) On January 27, 2019, Mr. Ben David was granted 1,447 shares of our common stock under our 2012 Equity Incentive plan against waiver of cash salary for the period from January to March 2019. On July 9, 2019, Mr. Ben David was granted 5,021 shares of our common stock under our 2012 Equity Incentive plan against waiver of cash salary for the period from April to September 2019. On December 23, 2019 Mr. Ben David was granted 7,218 shares of our common stock under our 2012 Equity Incentive plan against waiver of cash salary for the period from October to December 2019. On April 29, 2019, Mr. Ben David was granted 4,889 shares of our common stock under our 2012 Equity Incentive Plan, and 2,074 shares of our common stock under our 2012 Equity Incentive Plan, as a bonus, in lieu of cash, for the 2018 achievements of the Company. On January 28, 2020, Mr. Ben David was granted 7,287 shares of our common stock under our 2012 Equity Incentive plan against waiver of cash salary for the period from January to March 2020. On April 3, 2020, Mr. Ben David was granted 7,074 shares of our common stock under our 2012 Equity Incentive plan against waiver of cash salary for the period from April to June 2020. On July 20, 2020, Mr. Ben David was granted 7,283 shares of our common stock under our 2012 Equity Incentive plan against waiver of cash salary for the period from July to September 2020. On October 16, 2020 Mr. Ben David was granted 4,235 shares of our common stock under our 2012 Equity Incentive plan against waiver of cash salary for the period from October to December 2020, and 2,006 shares of our common stock under our 2012 Equity Incentive plan against an additional cash waiver during the period of April through July 2020. On February 12, 2020, Mr. Ben David was granted 45,000 shares of our common stock under our 2012 Equity Incentive Plan. On September 9, 2020, Mr. Ben David was granted 10,000 shares of our common stock under our 2012 Equity Incentive Plan. (7) On February 12, 2020, Mr. Ben David was granted 27,827 options to purchase shares of our common stock under our 2012 Equity Incentive Plan, at an exercise price of $7.736 per share. (8) In addition to his salary, Mr. Ben David is entitled to receive a mobile phone during his employment as well as reimbursements for expenses accrued. These benefits, as well as other social benefits under Israeli law, are included as part of his “All Other Compensation.” (9) In accordance with his second amendment to the employment agreement with our company effective April 2016, Mr. Bacher was entitled to a monthly salary of NIS 48,000 (approximately $14,815 per month), commencing July 1, 2017, Mr. Dror was appointed as our Chief Operating Officer and his monthly salary was increased to NIS 55,000 (approximately $16,975 per month) and commencing June 1, 2018 his monthly salary was increased to NIS 61,490 (approximately $18,978 per month). During 2019 and 2020, Mr. Bacher agreed to a waiver of 26% and 10.6% of his cash salary respectively, according to our salary program (see further details in “Employment and Related Agreements” below). 67 (10) In June 2019, Mr. Bacher was paid a bonus of $28,882 for his performance during 2018. (11) On January 27, 2019, Mr. Bacher was granted 918 shares of our common stock under our 2012 Equity Incentive plan against waiver of cash salary for the period from January to March 2019. On July 9, 2019, Mr. Bacher was granted 3,186 shares of our common stock under our 2012 Equity Incentive plan against waiver of cash salary for the period from April to September 2019. On December 23, 2019, Mr. Bacher was granted 2,633 shares of our common stock under our 2012 Equity Incentive plan against waiver of cash salary for the period from October to December 2019. On April 29, 2019, Mr. Bacher was granted 4,102 shares of our common stock under our 2012 Equity Incentive Plan, and 587 shares of our common stock under our 2012 Equity Incentive Plan, as a bonus, in lieu of cash, for the 2018 achievements of the Company. On January 28, 2020, Mr. Bacher was granted 1,677 shares of our common stock under our 2012 Equity Incentive plan against waiver of cash salary for the period from January to March 2020. On April 3, 2020, Mr. Bacher was granted 1,628 shares of our common stock under our 2012 Equity Incentive plan against waiver of cash salary for the period from April to June 2020. On July 20, 2020, Mr. Bacher was granted 1,676 shares of our common stock under our 2012 Equity Incentive plan against waiver of cash salary for the period from July to September 2020. On October 16, 2020, Mr. Bacher was granted 974 shares of our common stock under our 2012 Equity Incentive plan against waiver of cash salary for the period from October to December 2020, and 3,772 shares of our common stock under our 2012 Equity Incentive plan against an additional cash waiver during the period from April through July 2020. On February 12, 2020, Mr. Bacher was granted 45,000 shares of our common stock under our 2012 Equity Incentive Plan. On September 9, 2020, Mr. Bacher was granted 10,000 shares of our common stock under our 2012 Equity Incentive Plan. (12) On February 12, 2020, Mr. Bacher was granted 28,664 options to purchase shares of our common stock under our 2012 Equity Incentive Plan, at an exercise price of $7.736 per share. (13) In addition to his salary, Mr. Bacher is entitled to receive a leased automobile and mobile phone during his employment as well as reimbursements for expenses accrued. These benefits, as well as other social benefits under Israeli law, are included as part of his “All Other Compensation.” (14) In accordance with his employment agreement, effective in January 2020, Mr. Anderson was entitled to a monthly salary of $27,916.67. (15) On September 2020, Mr. Anderson was paid a bonus of $100,000 for the successful completion of the July 2020 private placement. (16) On October 16, 2020, Mr. Anderson was granted 5,182 shares of our common stock under our 2012 Equity Incentive plan against a cash salary waiver during the period from April through July 2020. On September 9, 2020, Mr. Anderson was granted 10,000 shares of our common stock under our 2012 Equity Incentive Plan. (17) On January 30, 2020, Mr. Anderson was granted 90,000 options to purchase shares of our common stock as an inducement grant pursuant to Nasdaq Listing Rule 5635 (c)(4), at an exercise price of $8.41 per share. (18) In addition to his salary, Mr. Anderson is entitled to participate in any and other benefit plans and programs that the Company may offer to its employees from time to time according to the terms of such plans and the Company’s practices and policies as well as reimbursements for expenses accrued. These benefits are included as part of his “All Other Compensation.” All compensation awarded to our executive officers was independently reviewed by our Compensation Committee. 68 Employment and Related Agreements Except as set forth below, we currently have no other written employment agreements with any of our officers and directors. The following is a description of our current executive employment agreements: Erez Raphael , Chief Executive Officer and a Member of the Board of Directors – On August 30, 2013, LabStyle Innovation Ltd., our Israeli subsidiary, entered into an amendment to a Personal Employment Agreement with Mr. Raphael in connection with his August 2013 appointment as our President and Chief Executive Officer. Pursuant to the terms of his employment agreement as amended, Mr. Raphael is entitled to a monthly salary of NIS 134,167 (approximately $37,730 per month). During 2018 and 2019, Mr. Raphael agreed to a waiver of 45% of his cash salary according to our salary program pursuant to which Mr. Raphael received compensation shares of restricted common stock as consideration for cash salary waived. On July 25, 2017, we, through our Israeli subsidiary, LabStyle Innovation Ltd., executed an Amended and Restated Employment Agreement with Mr. Raphael. Pursuant to the agreement, Mr. Raphael kept his monthly salary and shall be eligible for an annual bonus equal to up to 60% of his annual base salary. Mr. Raphael’s employment agreement expires on December 31, 2020. In the event Mr. Raphael’s employment agreement is terminated by us at will, by Mr. Raphael for good reason as provided thereby, or in conjunction with a change of control, Mr. Raphael shall be entitled to receive 24 months base salary and severance payment pursuant to applicable Israeli severance law, provided, however, that in the event such termination occurs during the final year of the term, or within the last 6 months of a renewal period of the term, Mr. Raphael shall be entitled to receive 12 months base salary and severance payment pursuant to applicable Israeli severance law. In the event the employment agreement is terminated by us for cause, Mr. Raphael will only be entitled to a severance pay under applicable Israeli severance law. Mr. Raphael’s employment agreement also includes a one-year non-competition and non-solicitation provision, certain confidentiality covenants and assignment of any of his company-related inventions. Under the terms of the agreement, Mr. Raphael is entitled to certain expense reimbursements and other standard benefits, including vacation, sick leave, contributions to a manager’s insurance policy and study fund and car and mobile phone allowances. On February 12, 2020, we extended the term of Mr. Raphael’s employment to expire on December 31, 2022. On January 27, 2019, the Compensation Committee of our Board of Directors approved the issuance to Mr. Raphael of 3,098 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $61,969 in salary otherwise payable to Mr. Raphael from January to March 2019. On July 9, 2019, the Compensation Committee of our Board of Directors approved the issuance to Mr. Raphael of 10,749 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $128,972 of salary otherwise payable to Mr. Raphael from April to September 2019. On December 23, 2019, the Compensation Committee of our Board of Directors approved the issuance to Mr. Raphael of 15,454 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $66,610 of salary otherwise payable to Mr. Raphael from October to December 2019. On January 28, 2020, the Compensation Committee of our Board of Directors approved the issuance to Mr. Raphael of 15,602 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $67,247 of salary otherwise payable to Mr. Raphael from January to March 2020. On April 3, 2020, the Compensation Committee of our Board of Directors approved the issuance to Mr. Raphael of 15,146 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $65,280 of salary otherwise payable to Mr. Raphael from April to June 2020. On July 20, 2020, the Compensation Committee of our Board of Directors approved the issuance to Mr. Raphael of 15,593 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $67,208 of salary otherwise payable to Mr. Raphael from July to September 2020. On October 16, 2020, the Compensation Committee of our Board of Directors approved the issuance to Mr. Raphael of 2,127 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $15,894 of salary otherwise payable to Mr. Raphael from October to December 2020, and 5,060 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $21,809 of salary otherwise payable to Mr. Raphael from April to July 2020. 69 Zvi Ben David , Chief Financial Officer, Treasurer and Secretary – On January 8, 2015, LabStyle Innovation Ltd., our Israeli subsidiary, entered into a Personal Employment Agreement with Mr. Ben David. Pursuant to his employment agreement, Mr. Ben David was initially entitled to a monthly salary and additional compensation (excluding social benefits under applicable Israeli law) of NIS 31,200 (approximately $8,774) for providing eighty percent of his working time to our company. Beginning on March 1, 2015, Mr. Ben David began working for us on a full-time basis pursuant to the terms of his employment agreement at which point Mr. Ben David’s salary was increased to NIS 39,000 (approximately $10,967). Commencing April 1, 2016, Mr. Ben David’s Salary was updated to NIS 60,000 (approximately $16,873) per month and commencing June 1, 2018, his monthly salary was updated to NIS 67,200 (approximately $18,898). During 2018 and 2019, Mr. Ben David agreed to a waiver of 39% and 42% respectively of his cash salary according to our salary program pursuant to which Mr. Ben David received compensation shares of restricted common stock as consideration for cash salary waived. Mr. Ben David's employment agreement may be terminated by either party at will upon 90 days prior written notice or terminated by us for cause, as defined under the employment agreement. In the event the employment agreement is terminated by us at will, Mr. Ben David shall be entitled to receive 90 days of severance plus any required severance payment pursuant to applicable Israeli severance law. In the event the employment agreement is terminated by us for cause, Mr. Ben David will only be entitled to a severance pay under applicable Israeli severance law. The employment agreement also includes a twelve-month non-competition and non-solicitation provision, certain confidentiality covenants and assignment of any of his company-related inventions to the company. Under the terms of the employment agreement, Mr. Ben David is entitled to certain expense reimbursements and other standard benefits, including vacation, sick leave, contributions to a manager’s insurance policy and study fund and mobile phone allowances. On January 27, 2019, the Compensation Committee of our Board of Directors approved the issuance to Mr. Ben David of 1,447 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $28,944 of salary otherwise payable to Mr. Ben David from January to March 2019. On July 9, 2019, the Compensation Committee of our Board of Directors approved the issuance to Mr. Ben David of 5,021 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $60,238 of salary otherwise payable to Mr. Ben David from April to September 2019. On December 23, 2019, the Compensation Committee of our Board of Directors approved the issuance to Mr. Ben David of 7,218 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $31,111 of salary otherwise payable to Mr. Ben David from October to December 2019. On January 28, 2020, the Compensation Committee of our Board of Directors approved the issuance to Mr. Ben David of 7,287 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $31,409 of salary otherwise payable to Mr. Ben David from January to March 2020. On April 3, 2020, the Compensation Committee of our Board of Directors approved the issuance to Mr. Ben David of 7,074 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $30,490 of salary otherwise payable to Mr. Ben David from April to June 2020. On July 20, 2020, the Compensation Committee of our Board of Directors approved the issuance to Mr. Ben David of 7,283 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $31,391 of salary otherwise payable to Mr. Ben David from July to September 2020. On October 16, 2020, the Compensation Committee of our Board of Directors approved the issuance to Mr. Ben David of 4,235 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $31,638 of salary otherwise payable to Mr. Ben David from October to December 2020, and 2,006 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $8,645 of salary otherwise payable to Mr. Ben David from April to July 2020. 70 Dror Bacher, Chief Operating Officer – On August 30, 2013, LabStyle Innovation Ltd., our Israeli subsidiary, entered into an employment agreement with Mr. Bacher, pursuant to which Mr. Bacher receives an annual base salary of NIS 55,000 (approximately $15,467), effective as of July 2017, and commencing June 1, 2018 his monthly salary was increased to NIS 61,490 (approximately $17,292 per month). Pursuant to Mr. Bacher’s existing personal employment agreement as amended, either Mr. Bacher or we may terminate his employment agreement upon four months’ notice, provided, however, that in the event of a termination for cause, Mr. Bacher’s employment may be terminated immediately. Mr. Bacher’s employment agreement also includes a twelve (12) month non-competition and non-solicitation provision, certain confidentiality covenants and assignment of any of his company-related inventions. Under the terms of Mr. Bacher’s employment agreement, Mr. Bacher is entitled to certain expense reimbursements and other standard benefits, including vacation, sick leave, life, and disability insurance and car and mobile phone allowances. In addition, in conjunction with his appointment as Chief Operating Officer, we issued Mr. Bacher 500 shares of common stock, and 500 options that will vest in 12 equal quarterly installments over a three-year period with an exercise price of $49.20 per share, all issued pursuant to the Registrant’s Amended and Restated 2012 Equity Incentive Plan. On January 27, 2019, the Compensation Committee of our Board of Directors approved the issuance to Mr. Bacher of 918 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $18,362 of salary otherwise payable to Mr. Bacher from January to March 2019. On July 9, 2019, the Compensation Committee of our Board of Directors approved the issuance to Mr. Bacher of 3,186 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $38,215 of salary otherwise payable to Mr. Bacher from April to September 2019. On December 23, 2019, the Compensation Committee of our Board of Directors approved the issuance to Mr. Bacher of 2,633 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $11,352 of salary otherwise payable to Mr. Bacher from October to December 2019. On January 28, 2020, the Compensation Committee of our Board of Directors approved the issuance to Mr. Bacher of 1,677 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $7,228 of salary otherwise payable to Mr. Bacher from January to March 2020. On April 3, 2020, the Compensation Committee of our Board of Directors approved the issuance to Mr. Bacher of 1,628 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $7,017 of salary otherwise payable to Mr. Bacher from April to June 2020. On July 20, 2020, the Compensation Committee of our Board of Directors approved the issuance to Mr. Bacher of 1,676 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $7,224 of salary otherwise payable to Mr. Bacher from July to September 2020. On October 16, 2020, the Compensation Committee of our Board of Directors approved the issuance to Mr. Bacher of 974 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $7,281 of salary otherwise payable to Mr. Bacher from October to December 2020, and 3,772 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $16,256 of salary otherwise payable to Mr. Bacher from April to July 2020. Richard Anderson, President and General Manager of North America – On January 7, 2020, we appointed Mr. Anderson as our President and General Manager of North America. In connection with Mr. Anderson’s appointment, the Company agreed to pay Mr. Anderson an annual base salary of $335,000. Mr. Anderson shall also be subject to a six-month non-competition and one-year non-solicitation provision, certain confidentiality covenants and assignment of any of his company-related inventions. Mr. Anderson will also be entitled to certain expense reimbursements and other standard benefits, including vacation and sick leave. In addition, Mr. Anderson will be entitled to receive an annual incentive bonus of up to $250,000, subject to certain milestones and performance targets. In addition, and in conjunction with his appointment as President and General Manager of North America, the Company agreed to issue Mr. Anderson a stock option to purchase up to 90,000 shares of common stock at an exercise price of $8.41 per share, subject to vesting. Mr. Anderson was also issued a stock option to purchase up to 90,000 shares of common stock at an exercise price of $8.41 per share, subject to vesting and the achievement of certain business revenue targets. In that regard, Mr. Anderson’s option will vest as follows: (i) 22,500 shares shall vest following fiscal year 2020 if our business-to-business revenues reach or exceed $6 million in the aggregate, or a pro-rated amount equal to the percentage achievement of such target, assuming the Company’s GAAP revenues in 2020 will reach at least $11 million in the aggregate; (ii) 22,500 shares shall vest following fiscal year 2021 if our business-to-business revenues reach or exceed $15 million in the aggregate, or a pro-rated amount equal to the percentage achievement of such target, assuming the Company’s GAAP revenues in 2021 will reach at least $19.5 million in the aggregate; (iii) 22,500 shares shall vest following fiscal year 2022 if our business-to-business revenues reach or exceed $40 million in the aggregate, or a pro-rated amount equal to the percentage achievement of such target, assuming the Company’s GAAP revenues in 2022 will reach at least $38 million in the aggregate; and (iv) 22,500 shares shall vest following fiscal year 2023 if our business-to-business revenues reach or exceed $80 million in the aggregate, or a pro-rated amount equal to the percentage achievement of such target, assuming the Company’s GAAP revenues in 2023 will reach at least $62 million in the aggregate. 71 On October 16, 2020, the Compensation Committee of our Board of Directors approved the issuance to Mr. Anderson of 5,182 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of the waiver of $23,333 of salary otherwise payable to Mr. Anderson from April to July 2020. Oded Cohen, General Manager of MSK – Effective February 1, 2021, Upright entered into an employment agreement with Mr. Cohen, pursuant to which Mr. Cohen will earn a monthly salary of NIS 63,000 and is eligible for an annual bonus equal to up to four times his monthly salary. The employment agreement is an at-will employment arrangement, with a four months’ notice period, unless it is terminated for cause. In addition, Mr. Cohen will be entitled to severance payment pursuant to applicable Israeli severance law. In the event the employment agreement is terminated by us for cause, Mr. Cohen will only be entitled to a severance pay under applicable Israeli severance law. Mr. Cohen’s employment agreement also includes a one-year non-competition and non-solicitation provision, certain confidentiality covenants and assignment of any of his company-related inventions. Under the terms of the employment agreement, Mr. Cohen is entitled to certain expense reimbursements and other standard benefits, including vacation, sick leave, contributions to a manager’s insurance policy and study fund and car and mobile phone allowances. In addition, Mr. Cohen will be entitled to receive, subject to the approval of the Board of Directors, a restricted stock unit award to receive, subject to vesting, up to 73,660 shares of the Company’s common stock and, subject to the meeting of certain milestones an additional restricted stock unit award to receive up to 73,660 shares of the Company’s common stock on March 1, 2022, and subject to the meeting of certain milestones an additional restricted stock unit award to receive up to 73,660 shares of the Company’s common stock on March 1, 2023. All the restricted stock units will be subject to a three-year vesting period. 72 Outstanding Equity Awards at December 31, 2020 Name Number of securities underlying unexercised options (#) exercisable Number of securities underlying unexercised options (#) unexercisable Equity incentive plan awards: Number of securities underlying unexercised unearned options (#) Option exercise price ($) Option expiration date Erez Raphael 101 - - $ 2,430 March 14, 2023 (Chief Executive Officer) 12 - - $ 5,400 June 5, 2023 167 - - $ 4,806 August 28, 2023 45 - - $ 3,330 January 6, 2024 234 - - $ 1,764 July 6, 2024 8,446 - - $ 115.20 September 3, 2021 7,159 - - $ 64.04 January 30, 2023 Zvi Ben David 2,154 - - $ 115.20 September 3, 2021 (Chief Financial Officer, Secretary and Treasurer) 1,592 - - $ 64.04 January 30, 2023 9,275 18,552 (1) $ 7.736 February 12, 2026 Dror Bacher 67 - - $ 3,330 January 6, 2024 (Chief Operating Officer) 67 - - $ 1,764 July 6, 2024 1267 - - $ 115.20 September 3, 2021 480 - - $ 140.40 December 17, 2021 1,375 - - $ 64.04 January 30, 2023 500 - - $ 49.20 July 25, 2023 9,554 19,110 (1) $ 7.736 February 12, 2026 Richard Anderson 30,000 60,000 $ 8.41 January 30, 2026 (President and General Manager of North America) Total Option Shares 72,495 97,662 - $ - - (1) Vests in 12 equal quarterly installments over a three-year period. Non-Employee Director Remuneration Policy In March 2013, our Board of Directors adopted the following non-employee director remuneration policy: Cash Awards Our non-employee directors (currently Messrs. Shaked, Matheis, McGrath, Prof. Stone and Ms. Karah) will receive the following cash payments for each fiscal year: (i) $25,000 per year, to be paid quarterly in arrears and (ii) $16,000 for Board committee service, to be paid quarterly in arrears. Stock and Option Awards On January 27, 2019, the Compensation Committee of our Board of Directors approved the issuance to each of Prof. Stone, Mr. Shaked, Mr. McGrath, and Ms. Karah of 513 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of $10,250 in fees otherwise payable to each of Prof. Stone, Mr. Shaked, Mr. McGrath, and Ms. Karah for the period from October 1, 2018, to December 31, 2018. The Compensation Committee of our Board of Directors also approved the issuance to each of Mr. Yalon Farhi, a former member of our Board of Directors, and Mr. Allen Kamer, a former member of our Board of Directors, of 313 shares of our common stock under the 2012 Equity Incentive Plan. Such shares were issued in lieu of $6,250 in fees otherwise payable to Mr. Farhi and Mr. Kamer for the period October 1, 2018, to December 31, 2018. In addition, the Compensation Committee of our Board of Directors approved the issuance to Mr. Glen Moller, a former member of our Board of Directors, of 262 shares of our common stock under the 2012 Equity Incentive Plan. Such shares were issued in lieu of $5,231 in fees otherwise payable to Mr. Moller for the period October 16, 2018, to December 31, 2018. 73 On April 29, 2019, the Compensation Committee of our Board of Directors approved a grant of 1,475 options to Mr. Moller. These options have an exercise price of $15.40 per share. One third of the options will become fully vested and exercisable on the first anniversary elapsed from the grant date, and the balance will vest in eight equal quarterly installments following the first anniversary of the grant date, subject to Mr. Moller’s continued membership on the Company’s Board of Directors. In January 2020 Mr. Moller resigned from the Board of Directors and his options were forfeited. On April 29, 2019, the Compensation Committee of our Board of Directors approved the following issuances under our 2012 Equity Incentive Plan: (i) 15,038 shares of our common stock to Mr. Shaked; (ii) 1,255 shares of our common stock to Ms. Karah; (iii) 753 shares of our common stock to Mr. Farhi; (iv) 753 shares of our common stock to Mr. Kamer; (v) 862 shares of our common stock to Prof. Stone; and (vi) 1,649 shares of our common stock to Mr. McGrath. On July 9, 2019, the Compensation Committee of our Board of Directors approved the issuance to each of Prof. Stone, Mr. Shaked, Mr. McGrath, and Ms. Karah of 854 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of $10,250 in fees otherwise payable to each of Prof. Stone, Mr. Shaked, Mr. McGrath, and Ms. Karah for the period from January 1, 2019, to March 31, 2019. The Compensation Committee of our Board of Directors also approved the issuance to each of Prof. Stone, Mr. Shaked, Mr. McGrath, and Ms. Karah of 854 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of $10,250 in fees otherwise payable to each of Prof. Stone, Mr. Shaked, Mr. McGrath, and Ms. Karah for the period from April 1, 2019, to June 30, 2019. The Compensation Committee of our Board of Directors also approved the issuance to each of Mr. Farhi, Mr. Kamer and Mr. Moller of 521 shares of our common stock under the 2012 Equity Incentive Plan. Such shares were issued in lieu of $6,250 in fees otherwise payable to each of Mr. Farhi, Mr. Kamer and Mr. Moller for the period January 1, 2019, to March 31, 2019. In addition, the Compensation Committee of our Board of Directors approved the issuance to each of Mr. Farhi, Mr. Kamer and Mr. Moller of 521 shares of our common stock under the 2012 Equity Incentive Plan. Such shares were issued in lieu of $6,250 in fees otherwise payable to each of Mr. Farhi, Mr. Kamer and Mr. Moller for the period April 1, 2019, to June 30, 2019. On December 23, 2019, the Compensation Committee of our Board of Directors approved the issuance to each of Prof. Stone, Mr. Shaked, Mr. McGrath, and Ms. Karah of 2,378 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of $10,250 in fees otherwise payable to each of Prof. Stone, Mr. Shaked, Mr. McGrath, and Ms. Karah for the period from July 1, 2019, to September 30, 2019. The Compensation Committee of our Board of Directors also approved the issuance to each of Mr. Farhi and Mr. Kamer of 1,450 shares of our common stock under the 2012 Equity Incentive Plan. Such shares were issued in lieu of $6,250 in fees otherwise payable to Mr. Farhi and Mr. Kamer for the period July 1, 2019, to September 30, 2019. On January 28, 2020, the Compensation Committee of our Board of Directors approved the issuance to each of Prof. Stone, Mr. Shaked, Mr. McGrath, and Ms. Karah of 2,378 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of $10,250 in fees otherwise payable to each of Prof. Stone, Mr. Shaked, Mr. McGrath, and Ms. Karah for the period from October 1, 2019, to December 31, 2019. The Compensation Committee of our Board of Directors also approved the issuance to each of Mr. Farhi, Mr. Moller and Mr. Kamer of 1,450 shares of our common stock under the 2012 Equity Incentive Plan. Such shares were issued in lieu of $6,250 in fees otherwise payable to each of Mr. Farhi, Mr. Moller and Mr. Kamer for the period October 1, 2019, to December 31, 2019. In addition, the Compensation Committee of our Board of Directors approved the issuance to Mr. Moller 396 shares of our common stock under the 2012 Equity Incentive Plan. Such shares were issued to Mr. Moller upon his resignation from the Board of Directors. On February 12, 2020, the Compensation Committee of our Board of Directors approved the following issuances, each was done under our 2012 Equity Incentive Plan: (i) 60,000 shares of our common stock to Mr. Shaked; (ii) 30,000 shares of our common stock to Ms. Karah; (iii) 7,000 shares of our common stock to Mr. Farhi; (iv) 7,000 shares of our common stock to Mr. Kamer; (v) 13,000 shares of our common stock to Prof. Stone; and (vi) 50,000 shares of our common stock to Mr. McGrath. 74 On April 3, 2020, the Compensation Committee of our Board of Directors approved the issuance to each of Prof. Stone, Mr. Shaked, Mr. McGrath, and Ms. Karah of 2,378 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of $10,250 in fees otherwise payable to each of Prof. Stone, Mr. Shaked, Mr. McGrath, and Ms. Karah for the period from January 1, 2020, to March 31, 2020. The Compensation Committee of our Board of Directors also approved the issuance to each of Mr. Farhi and Mr. Kamer of 1,450 shares of our common stock under the 2012 Equity Incentive Plan. Such shares were issued in lieu of $6,250 in fees otherwise payable to Mr. Farhi and Mr. Kamer for the period January 1, 2020, to March 31, 2020. In addition, the Compensation Committee of our Board of Directors approved the issuance to Mr. Stern 493 shares of our common stock under the 2012 Equity Incentive Plan. Such shares were issued in lieu of $2,129 in fees otherwise payable to Mr. Stern for March 2020. In addition, the Compensation Committee of our Board of Directors approved the issuance to Mr. Farhi 4,638 shares of our common stock under the 2012 Equity Incentive Plan. Such shares were issued to Mr. Farhi upon his voluntary resignation from the Board of Directors in April 2020. On July 20, 2020, the Compensation Committee of our Board of Directors approved the issuance to each of Prof. Stone, Mr. Shaked, Mr. McGrath, and Ms. Karah of 2,378 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of $10,250 in fees otherwise payable to each of Prof. Stone, Mr. Shaked, Mr. McGrath, and Ms. Karah for the period from April 1, 2020, to June 30, 2020. The Compensation Committee of our Board of Directors also approved the issuance to each of Mr. Stern and Mr. Kamer of 1,450 shares of our common stock under the 2012 Equity Incentive Plan. Such shares were issued in lieu of $6,250 in fees otherwise payable to Mr. Farhi and Mr. Kamer for the period April 1, 2020, to June 30, 2020. On August 18, 2020, the Compensation Committee of our Board of Directors approved the issuance to Mr. Matheis 15,000 shares of our common stock under our 2012 Equity Incentive Plan, and the grant of 20,000 options. These options have an exercise price of $18.68 per share. One third of the options will become fully vested and exercisable on the first anniversary of the grant date, and the balance will vest in eight equal quarterly installments following the first anniversary of the grant date, subject to Mr. Matheis’s continued membership on the Company’s Board of Directors. On October 9, 2020, the Compensation Committee of our Board of Directors approved the issuance to Mr. Kamer of 10,000 shares of our common stock under the 2012 Equity Incentive Plan. Such shares were issued to Mr. Kamer upon his withdrawal from the Board of Directors in October 2020. On October 16, 2020, the Compensation Committee of our Board of Directors approved the issuance to Ms. Karah of 1,372 shares of our common stock under our 2012 Equity Incentive Plan. Such shares were issued in lieu of $10,250 in fees otherwise payable to Ms. Karah for the period from July 1, 2020, to September 30, 2020. On April 3, 2020, the Audit and Compensation Committees of the Board of Directors approved the monthly grant of 1,500 shares of the Company’s Common Stock, to be granted monthly over a 12 month period pursuant to a certain consulting agreement with said service providers. During the fiscal year ended December 31, 2020, a total of 5,691 shares of the Company’s common stock were issued under the said approval to Mr. Adam Stern, a member of our Board. Compensation Committee Review The Compensation Committee shall, if it deems necessary or prudent in its discretion, reevaluate and approve in January of each such year (or in any event prior to the first board meeting of such fiscal year) the cash and equity awards (amount and manner or method of payment) to be made to non-employee directors for such fiscal year. In making this determination, the Compensation Committee shall utilize such market standard metrics as it deems appropriate, including, without limitation, an analysis of cash compensation paid to independent directors of our peer group. The Compensation Committee shall also have the power and discretion to determine in the future whether non-employee directors should receive annual or other grants of options to purchase shares of common stock or other equity incentive awards in such amounts and pursuant to such policies as the Compensation Committee may determine utilizing such market standard metrics as it deems appropriate, including, without limitation, an analysis of equity awards granted to independent directors of our peer group. Participation of Employee Directors; New Directors Unless separately and specifically approved by the Compensation Committee in its discretion, no employee director of our company shall be entitled to receive any remuneration for service as a director (other than expense reimbursement as per prevailing policy). 75 New directors joining our Board of Directors shall be entitled to a pro-rated portion (based on months to be served in the fiscal year in which they join) of cash and stock option or other equity incentive awards (if applicable) for the applicable fiscal year at the time they join the board. Summary Director Compensation Table The following table summarizes the annual compensation paid to our non-employee directors for the fiscal year ended December 31, 2020: Name and Principal Position Year Fees Paid or Earned in Cash ($) Stock Awards Option Awards ($)* Non-equity incentive plan compensation Non- qualified deferred compensation earnings All other compensation ($) Total ($) Dennis McGrath 2020 $ 20,500- $ 346,135 (1) $ (2) $ - $ - $ - $ 366,635 Prof. Richard B. Stone 2020 $ 20,500- $ 115,602 (3) $ (4) $ - $ - $ - $ 136,102 Dennis Matheis 2020 $ 12,500- $ 200,700 (5) $ 251,280 (6) $ - $ - $ - $ 464,480 Hila Karah 2020 $ 10,250- $ 234,584 (7) $ - (8) $ - $ - $ - $ 244,834 Allen Kamer (19) 2020 $ 6,250- $ 159,914 (9) $ (10) $ - $ - $ - $ 166,164 Yoav Shaked 2020 $ 20,500- $ 408,441 (11) $ (12) $ - $ - $ - $ 428,941 Adam Stern 2020 $ 12,500- $ 9,084 (13) $ (14) $ $ $ $ 21,584 Yalon Farhi (20) 2020 $ -- $ 74,871 (15) $ (16) $ $ $ $ 74,871 Yadin Shemmer (21) 2020 $ 37,500- $ - (17) $ 416,160 (18) $ $ $ $ 453,660 Glen Moller (22) 2020 $ - $ 10,729- $ $ $ $ $ 10,729 * Amount shown does not reflect dollar amount actually received. Instead, this amount reflects the aggregate grant date fair value of each stock option granted in the fiscal year ended December 31, 2020, computed in accordance with the provisions of ASC 718. Assumptions used in accordance with ASC 718 are included in Note 9 to our consolidated financial statements included in this Annual Report. (1) 67,787 stock awards are outstanding as of December 31, 2020. (2) 1,659 option awards are outstanding as of December 31, 2020. (3) 29,999 stock awards are outstanding as of December 31, 2020. (4) 1,645 option awards are outstanding as of December 31, 2020. (5) 15,000 stock awards are outstanding as of December 31, 2020. (6) 20,000 option awards are outstanding as of December 31, 2020. (7) 48,604 stock awards are outstanding as of December 31, 2020. (8) 1,561 option awards are outstanding as of December 31, 2020. (9) 27,464 stock awards are outstanding as of December 31, 2020. 76 (10) No option awards are outstanding as of December 31, 2020. (11) 87,287 stock awards are outstanding as of December 31, 2020. (12) No option awards are outstanding as of December 31, 2020. (13) 87,287 stock awards are outstanding as of December 31, 2020. (14) No option awards are outstanding as of December 31, 2020. (15) No stock awards are outstanding as of December 31, 2020. (16) No option stock awards are outstanding as of December 31, 2020. (17) No stock awards are outstanding as of December 31, 2020. (18) 90,000 option awards are outstanding as of December 31, 2020. (19) Mr. Kamer was not re-nominated to serve on the Board at the 2020 Annual Stockholder’s Meeting. (20) On April 7, 2020, Mr. Farhi resigned from the Board. (21) Mr. Shemmer was not re-nominated to serve on the Board at the 2020 Annual Stockholder’s Meeting. (22) On January 22, 2020, Mr. Moller resigned from the Board. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The following table sets forth information regarding the beneficial ownership of our common stock as of March 13, 2020 by: · each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock; · each of our named executive officers and directors; and · all our executive officers and directors as a group. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Except as otherwise indicated, each person or entity named in the table has sole voting and investment power with respect to all shares of our capital shown as beneficially owned, subject to applicable community property laws. In computing the number and percentage of shares beneficially owned by a person, shares that may be acquired by such person within 60 days of the date of this Annual Report are counted as outstanding, while these shares are not counted as outstanding for computing the percentage ownership of any other person. Unless otherwise indicated, the address of each person listed below is c/o DarioHealth Corp., 142 W. 57th St., 8 th Floor, New York, New York 10019. 77 Percent of Shares of Common Common Stock Beneficially Beneficially Name of Beneficial Owner Stock Owned Owned (1) Officers and Directors Erez Raphael (2) 619,238 4.1 % Zvi Ben David (3) 162,793 1.1 % Dror Bacher (4) 118,066 * % Richard Anderson (5) 67,958 * % Oded Cohen (6) 383,243 2.5 % Dennis M. McGrath (7) 71,914 * % Prof. Richard B. Stone (8) 40,029 * % Hila Karah (9) 52,383 * % Yoav Shaked (10) 93,970 * % Adam Stern (11) 528,281 3.4 % Dennis Mathies (12) 66,469 * % All Executive Officers and Directors as a group (11 persons)** 2,204,344 14.3 % 5% Stockholders Nantahala Capital Partners SI, LP (13) 1,612,157 9.9 % Nantahala Capital Management, LLC (14) 1,582,037 9.9 % * less than 1%. (1) Percentage ownership is based on 15,273,389 shares of our common stock outstanding as of March 5, 2020 and, for each person or entity listed above, warrants or options to purchase shares of our common stock which exercisable within 60 days of the such date. (2) Includes 16,164 vested options to purchase common stock and 34,430 vested restricted shares. Also includes 37,876 shares of our common stock, held by Dicilyon Consulting and Investment Ltd. Erez Raphael is the natural person with voting and dispositive power over our securities held by Dicilyon Consulting and Investment Ltd. The address of Dicilyon Consulting and Investment Ltd. is 10 Nataf St., Ramat Hasharon 4704063, Israel. (3) Includes 13,022 vested options to purchase common stock and 9,269 vested restricted shares. Excludes 18,551 options which are not vested. Includes 1,786 shares owned by his spouse, for which Mr. Ben David disclaims beneficial ownership except to the extent of his pecuniary interest therein. (4) Includes 13,311 vested options to purchase common stock and 8,382 vested restricted shares. Excludes 19,109 options which are not vested. (5) Includes 45,138 vested options to purchase common stock and 7,638 vested restricted shares. Excludes 91,376 options which are not vested. (6) Includes 6,139 vested restricted shares. (7) Includes 1,659 vested options to purchase common stock and 2,468 vested restricted shares. (8) Includes 1,645 vested options to purchase common stock and 1,667 vested restricted shares. (9) Includes 1,561 vested options to purchase common stock and 1,679 vested restricted shares. (10) Includes 1,385 vested restricted shares. Includes 1,667 shares, and 1,334 warrants owned by his spouse, for which Mr. Shaked disclaims beneficial ownership except to the extent of his pecuniary interest therein. (11) Includes 3,655 vested restricted shares and 300 Series A Preferred Shares convertible into 74,100 shares of common stock. Includes warrants exercisable into 409,535 shares of common stock, subject to a contractual beneficial ownership limitation of 4.99%. (12) Includes 1,469 vested restricted shares. Excludes 20,000 options which have not vested. 78 (13) Based solely on information contained in Form S-3 filed with the SEC on September 8, 2020 and data provided by the holder Includes warrants to purchase 82,677 shares of common stock, pre-funded warrants to purchase 125,102 shares of common stock issued in May, 2019, preferred shares convertible into 652,327 shares of common stock, and additional 150,926 pre-funded warrants issued on July 21, 2020, subject to a contractual beneficial ownership limitation of 9.9% and excludes 579,275 pre-funded warrants issued on July 31, 2020. (14) Based solely on information contained in Form 13G/A filed with the SEC on February 16, 2021, and data provided by the holder. Includes warrants to purchase 150,004 shares of common stock, 358,779 pre-funded warrants to purchase common stock issued in May 2019 and preferred shares convertible into 198,002 shares of common stock, subject to a contractual beneficial ownership limitation of 9.9% and excludes preferred shares convertible into 1,086,398 shares of common stock and 824,689 pre-funded warrants issued on July 31, 2020. Item 13. Certain Relationships and Related Party Transactions Executive Officers and Directors We have entered into employment and consulting agreements and granted stock awards to our executive officers and directors as more fully described in “Executive Compensation” above. Executive Officers and Directors We have entered into employment agreements and granted stock awards to our executive officers as more fully described in “Executive Compensation” above. Statement of Policy All transactions (if any) between us and our officers, directors or five percent stockholders, and respective affiliates will be on terms no less favorable than could be obtained from unaffiliated third parties and will be approved by a majority of our independent directors who do not have an interest in the transactions and who had access, at our expense, to our legal counsel or independent legal counsel. On April 3, 2020, we entered into a financial advisory agreement with Aegis Capital Corp., pursuant to which we agreed to pay Aegis Capital Corp. (“Aegis”) certain a fee of up to 3% of any proceeds from sales derived by us through commercial transactions entered into with parties introduced by Aegis. In addition, on April 3, 2020, we entered into a Sales Fee Agreement with Aegis, pursuant to which we agreed to pay Aegis a fee of up 4.5% of consideration we may receive in a business development transaction (including, any joint-venture, partnership, strategic collaboration or investment, licensing transaction, co-promotion or distribution agreement or other profit or revenue sharing, or similar business arrangement) from parties introduced by Aegis. To date, we have not paid Aegis any fees as a result of these agreements. Adam Stern, a member of our Board, has an interest, and will receive fees due to, Aegis. To the best of our knowledge, other than as set forth above, there were no material transactions, or series of similar transactions, or any currently proposed transactions, or series of similar transactions, to which we were or are to be a party, in which the amount involved exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years, and in which any director or executive officer, or any security holder who is known by us to own of record or beneficially more than 5% of any class of our common stock, or any member of the immediate family of any of the foregoing persons, has an interest (other than compensation to our officers and directors in the ordinary course of business). 79 Item 14. Principal Accounting Fees and Services The following table sets forth fees billed to us by Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, our independent registered public accounting firm, during the fiscal years ended December 31, 2020 and December 31, 2019 for: (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements; (ii) services by our independent registered public accounting firms that are reasonably related to the performance of the audit or review of our financial statements and that are not reported as audit fees; (iii) services rendered in connection with tax compliance, tax advice and tax planning; and (iv) all other fees for services rendered. December 31, 2020 December 31, 2019 Audit Fees $ 111,000 $ 96,000 Audited Related Fees $ - $ - Tax Fees (1) $ 15,000 $ 9,000 All Other Fees (2) $ 43,500 $ 44,000 Total $ 169,500 $ 149,000 (1) Consists of fees relating to our tax compliance and tax planning. (2) Consists of fees relating to our private placements. Audit Committee Policies The Audit Committee of our Board of Directors is solely responsible for the approval in advance of all audit and permitted non-audit services to be provided by the independent auditors (including the fees and other terms thereof), subject to the de minimus exceptions for non-audit services provided by Section 10A(i)(1)(B) of the Exchange Act, which services are subsequently approved by the Board of Directors prior to the completion of the audit. None of the fees listed above are for services rendered pursuant to such de minimus exceptions. 80 PART IV Item 15. Exhibits, Financial Statement Schedules. The following exhibits are filed with this Annual Report. Exhibit No. Description 3.1 Composite copy of Certificate of Incorporation, as amended (1) 3.2 Bylaws (2) 3.3 Amendment No. 1 to the Company’s Bylaws (3) 3.4 Certificate of Elimination of Preferences, Rights and Limitations of Series D Convertible Preferred Stock of the Company (4) 3.5 Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock of the Company (5) 3.6 Certificate of Designation of Preferences, Rights and Limitations of Series A-1 Convertible Preferred Stock of the Company (5) 3.7 Certificate of Designation of Preferences, Rights and Limitations of Series A-2 Convertible Preferred Stock of the Company (6) 3.8 Certificate of Designation of Preferences, Rights and Limitations of Series A-3 Convertible Preferred Stock of the Company (6) 3.9 Certificate of Designation of Preferences, Rights and Limitations of Series A-4 Convertible Preferred Stock of the Company (6) 4.1 Warrant Agent Agreement, dated as of March 8, 2016, between LabStyle Innovations Corp. and VStock Transfer, LLC (7) 4.2 Form of Representatives’ Warrant (7) 4.3 Form of Warrant (8) 4.4 Form of Pre-Funded Warrant (9) 4.5 Amendment No. 1 To Pre-Funded Warrant (10) 4.6 Description of Securities (1) 4.7 Form of Placement Agent Warrant (1) 4.8 Form of Warrant Exchange Agreement (17) 10.1 Employment Agreement, dated October 11, 2012, between LabStyle Israel and Erez Raphael+ (11) 10.2 Amendment to Employment Agreement, dated April 1, 2013, between LabStyle Israel and Erez Raphael+ (11) 10.3 Amendment to Employment Agreement, dated August 30, 2013, between LabStyle Israel and Erez Raphael+ (11) 10.4 Personal Employment Agreement, dated January 8, 2015, between the Company and Zvi Ben David+ (12) 10.5 Amended and Restated 2012 Equity Incentive Plan of the Company+(13) 10.6 Amendment to the Amended and Restated 2012 Equity Incentive Plan of the Company+(14) 10.7 2020 Equity Incentive Plan of the Company+(16) 10.8 Amended and Restated Employment Agreement, dated as of July 25, 2017, between Erez Raphael and LabStyle Innovation Ltd. +(15) 10.9 Employment Agreement, dated as of September 22, 2013, and as amended on August 1, 2014, April 27, 2015 and May 1, 2016, between Dror Bacher and Labstyle Innovation Ltd. +(15) 10.10 Employment Agreement, effective as of February 1, 2021, between Oded Cohen and Upright Technologies Ltd. + * 10.11 Form of Subscription Agreement for Series A, Series A-1, Series A-2, Series A-3 and Series A-4 Preferred Stock (1) 10.12 Form of Registration Rights Agreement for Series A, Series A-1, Series A-2, Series A-3 and Series A-4 Preferred Stock (1) 10.13 Placement Agency Agreement by and between DarioHealth Corp. and Aegis Capital Corp. dated October 22, 2019 (1) 10.14 Amendment No. 1 to Amended and Restated Employment Agreement, dated as of February 12, 2020, between Erez Raphael and LabStyle Innovation Ltd. + (1) 81 10.15 Stock Option Agreement between DarioHealth Corp. and Richard Anderson (1) 10.16 Conditional Stock Option Agreement between DarioHealth Corp. and Richard Anderson (1) 10.17 Representative Form of Indemnification Agreements between DarioHealth Corp. and each of its directors and officers+ (1) 10.18 January 2020 Form of Securities Purchase Agreement (18) 10.19 January 2020 Form of Registration Rights Agreement (18) 10.20 Share Purchase Agreement by and among DarioHealth Corp., LabStyle Innovation Ltd., Upright Technologies Ltd., Vertex C (C.I.) Fund L.P., as holder representative and certain holders of Upright’s outstanding securities, dated January 26, 2021.* ^ 21.1 List of Subsidiaries of the Company* 23.1 Consent of Kost Forer Gabbay and Kaiserer* 31.1 Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934.* 31.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934.* 32.1 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350.** 101 Interactive Data File (XBRL)* + Management contract or compensatory plan or arrangement * Filed herewith ** Furnished herewith (1) Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2020. (2) Incorporated by reference to the Company’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on January 16, 2013. (3) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 29, 2018. (4) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 15, 2019. (5) Incorporated by reference to the Company’s Current Report on Form 8-K/A filed with the Securities and Exchange Commission on December 3, 2019. (6) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 6, 2019. (7) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 9, 2016. (8) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 18, 2018. (9) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 22, 2019. (10) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 9, 2019. (11) Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on September 6, 2013. (12) Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 9, 2015. (13) Incorporated by reference to the Company’s Definitive Proxy Statement filed with the Securities and Exchange Commission on October 19, 2016. (14) Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 6, 2019. (15) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 26, 2017. (16) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 14, 2020. 82 (17) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 11, 2020. (18) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 28, 2021. ^ Certain identified information in the exhibit has been excluded from the exhibit because it is both (i) not material and (ii) would likely cause competitive harm to DarioHealth Corp. if publicly disclosed Item 16. Form 10-K Summary. None. 83 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 8 , 2021 DARIOHEALTH CORP. By: /s/ Erez Raphael Name: Erez Raphael Title: Chief Executive Officer By: /s/ Zvi Ben David Name: Zvi Ben David Title: Chief Financial Officer, Secretary and Treasurer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Person Capacity Date /s/ Erez Raphael Chief Executive Officer and March 8, 2021 Erez Raphael Director (Principal Executive Officer) /s/ Zvi Ben David Chief Financial Officer, Secretary and March 8, 2021 Zvi Ben David Treasurer (Principal Financial and Accounting Officer) /s/ Yoav Shaked Chairman of the Board March 8, 2021 Yoav Shaked /s/ Dennis Matheis Director March 8, 2021 Dennis Matheis /s/ Hila Karah Director March 8, 2021 Hila Karah /s/ Dennis M. McGrath Director March 8, 2021 Dennis M. McGrath /s/ Adam Stern Director March 8, 2021 Adam Stern /s/ Richard B. Stone Director March 8 , 2021 Richard B. Stone 84 DARIOHEALTH CORP. AND ITS SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2020 INDEX Page Report of Independent Registered Public Accounting Firm F-2 - F-3 Consolidated Balance Sheets F-4 - F-5 Consolidated Statements of Comprehensive Loss F-6 Statements of Changes in Stockholders’ Equity F-7 Consolidated Statements of Cash Flows F-8 Notes to Consolidated Financial Statements F-9 - F-31 - - - - - - - - - - - - - - - Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A, Tel-Aviv 6492102, Israel Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of DarioHealth Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of DarioHealth Corp. and its subsidiary (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of comprehensive loss, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. F - 2 Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A, Tel-Aviv 6492102, Israel Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Description of the Matter Revenue Recognition As discussed in Note 2 to the consolidated financial statements, a significant portion of the Company's revenue is derived from the offering of a membership package which contains multiple goods and services that are accounted for as separate performance obligations. Such agreements require the Company to allocate the transaction price to the separate performance obligations based on their relative standalone selling price. The Company does not offer the services included in the membership package on a standalone basis, and estimates the standalone selling price of the performance obligations based on, among others, comparable companies' offerings, customer type and price lists, pricing practices, government backed reimbursement programs, and market standard prices. Auditing the Company's estimates of the standalone selling prices for the performance obligations included in the membership package was challenging and required complex auditor judgment due to the significant judgment required by management in determining the relevant comparable data used, the extent of required adjustments to the data, the effects of market conditions and customer demographics. How We Addressed the Matter in Our Audit To test management’s estimate of standalone selling prices our audit procedures included, among others, understanding the methodology applied and testing the accuracy and completeness of the underlying data used in the Company’s estimate. We obtained and evaluated management’s analysis of comparable companies and services by assessing the comparability of the comparable companies, reviewing the list of the Company’s services and prices and comparing that list with the services and prices of comparable companies. We analyzed the government backed reimbursement programs and market standards used in the Company's assessment, including the review of the aforementioned programs and their relation to the Company’s services. We also performed inquiry of key personnel and inspected supporting documentation to evaluate the adjustments made to the comparable data, including effects of market conditions and customer demographics. /s/ KOST FORER GABBAY & KASIERER A Member of Ernst & Young Global We have served as the Company’s auditor since 2012. Tel-Aviv, Israel March 8, 2021 F - 3 DARIOHEALTH CORP. AND ITS SUBSIDIARY CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands December 31, 2020 2019 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 28,590 $ 20,395 Short-term restricted bank deposits 187 191 Trade receivables 124 672 Inventories 2,293 1,414 Other accounts receivable and prepaid expenses 2,934 267 Total current assets 34,128 22,939 NON-CURRENT ASSETS: Deposits 20 17 Operation lease right of use assets 498 765 Long-term assets 185 200 Property and equipment, net 576 648 Total non-current assets 1,279 1,630 Total assets $ 35,407 $ 24,569 The accompanying notes are an integral part of the consolidated financial statements. F - 4 DARIOHEALTH CORP. AND ITS SUBSIDIARY CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands (except stock and stock data) December 31, 2020 2019 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Trade payables $ 2,480 $ 1,656 Deferred revenues 1,224 1,223 Operating lease liabilities 310 317 Other accounts payable and accrued expenses 3,020 2,024 Total current liabilities 7,034 5,220 OPERATING LEASE LIABILITIES 222 455 STOCKHOLDERS’ EQUITY Common Stock of $0.0001 par value - Authorized: 160,000,000 shares at December 31, 2020 and 2019; Issued and Outstanding: 8,119,493 and 2,235,649 shares at December 31, 2020 and 2019, respectively *) - *) - Preferred Stock of $0.0001 par value - Authorized: 5,000,000 shares at December 31, 2020 and 2019; Issued and Outstanding: 15,823 and 21,375 shares at December 31, 2020 and 2019, respectively *) - *) - Additional paid-in capital 171,399 129,039 Accumulated deficit (143,248 ) (110,145 ) Total stockholders’ equity 28,151 18,894 Total liabilities and stockholders’ equity $ 35,407 $ 24,569 The accompanying notes are an integral part of the consolidated financial statements. *) Represents an amount lower than $1. F - 5 DARIOHEALTH CORP. AND ITS SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS U.S. dollars in thousands (except stock and stock data) Year ended December 31, 2020 2019 Revenues $ 7,576 $ 7,559 Cost of revenues 5,063 4,962 Gross profit 2,513 2,597 Operating expenses: Research and development $ 4,433 $ 3,692 Sales and marketing 15,227 11,127 General and administrative 12,756 5,483 Total operating expenses 32,416 20,302 Operating loss 29,903 17,705 Total financial (income) expenses, net (458 ) 31 Net loss $ 29,445 $ 17,736 Deemed dividend 3,658 3,155 Net loss attributable to holders of Common Stock $ 33,103 $ 20,891 Net loss per share: Basic and diluted loss per share $ 4.01 $ 8.00 Weighted average number of Common Stock used in computing basic and diluted net loss per share 5,963,305 2,266,135 The accompanying notes are an integral part of the consolidated financial statements. F - 6 DARIOHEALTH CORP. AND ITS SUBSIDIARY STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY U.S. dollars in thousands (except stock and stock data) Ordinary shares Preferred shares Additional paid-in Accumulated Total shareholders' Number Amount Number Amount capital deficit equity Balance as of January 1, 2019 1,831,746 $ *) - - $ - $ 98,179 $ (89,254 ) $ 8,925 Payment for executives and directors under stock for salary program 104,363 *) - - - 1,011 - 1,011 Exercise of options 406 *) - *) - - *) - Issuance of common stock to directors and employees 51,613 *) - - - 795 - 795 Issuance of common stock to consultants and service provider 4,753 *) - - - 59 - 59 Issuance of common stock and pre-funded warrants in 2019 public offering, net of issuance costs 242,768 *) - - - 6,558 - 6,558 Issuance of preferred stock in 2019 private placement, net of issuance cost - - 21,375 *) - 18,689 - 18,689 Deemed dividend related to issue of preferred shares - - - - 3,155 (3,155 ) - Stock-based compensation - - - - 593 - 593 Net loss - - - - - (17,736 ) (17,736 ) Balance as of December 31, 2019 2,235,649 $ *) - 21,375 $ *) - $ 129,039 $ (110,145 ) $ 18,894 Payment for executives and directors under stock for salary program 164,875 *) - - - 1,003 - 1,003 Exercise of agent warrants 222,016 *) - - - - - - Exercise of repriced warrants 88,889 *) - - - 1,088 - 1,088 Issuance of common stock to consultants and service provider 245,480 *) - - - 1,993 - 1,993 Issuance of common stock to directors and employees 721,820 *) - - - 4,913 - 4,913 Deemed dividend related to warrants exchange 161,317 *) - - - 599 (599 ) - Deemed dividend related to issuance of Preferred Stock - - - - 3,059 (3,059 ) - Conversion of preferred stock to common stock 1,278,695 *) - (5,552 ) *) - - - *) - Issuance of warrants to service providers - - - - 1,487 - 1,487 Issuance of common stock, net of issuance cost 3,000,752 *) - - - 26,460 - 26,460 Stock-based compensation - - - - 1,758 - 1,758 Net loss - - - - - (29,445 ) (29,445 ) Balance as of December 31, 2020 8,119,493 *) - 15,823 *) - 171,399 (143,248 ) 28,151 *) Represents an amount lower than $1. The accompanying notes are an integral part of the consolidated financial statements. F - 7 DARIOHEALTH CORP. AND ITS SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS U.S. dollars in thousands Year ended December 31, 2020 2019 Cash flows from operating activities: Net loss $ (29,445 ) $ (17,736 ) Adjustments required to reconcile net loss to net cash used in operating activities: Stock-based compensation, common stock, and stock instead of cash compensation to directors, employees, consultants, and service providers 11,102 2,257 Depreciation 190 183 Change in operating lease right of use assets 267 368 Decrease (increase) in trade receivables 548 (504 ) Decrease (increase) in other accounts receivable and prepaid expenses and long-term assets (1,152 ) 124 Increase in inventories (879 ) (37 ) Increase (decrease) in trade payables 824 (918 ) Increase in other accounts payable and accrued expenses 1,048 371 Increase in deferred revenues 1 487 Change in operating lease liabilities (240 ) (320 ) Net cash used in operating activities (17,736 ) (15,725 ) Cash flows from investing activities: Investment in deposits (4 ) (15 ) Purchase of property and equipment (118 ) (98 ) Loan Receivables (1,500 ) Net cash used in investing activities (1,622 ) (113 ) Cash flows from financing activities: Proceeds from issuance of Common Stock, warrants, warrant exercises and Preferred Stock in 2019 private placement, net of issuance costs 27,548 25,247 Net cash provided by financing activities 27,548 25,247 Increase in cash, cash equivalents and short-term restricted bank deposits 8,190 9,409 Cash, cash equivalents and short-term restricted bank deposits at beginning of year 20,535 11,126 Cash, cash equivalents and short-term restricted bank deposits at end of year $ 28,725 $ 20,535 The accompanying notes are an integral part of the consolidated financial statements. F - 8 DARIOHEALTH CORP. AND ITS SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (expect stock and stock data) NOTE 1:- GENERAL a. DarioHealth Corp. (the “Company”) was incorporated in Delaware and commenced operations on August 11, 2011. DarioHealth is a leading Global Digital Therapeutics (DTx) company changing the way people with chronic conditions manage their health. By delivering personalized evidence-based interventions that are driven by precision data analytics, high quality software, and personalized coaching, DarioHealth has developed a novel approach that empowers individuals to adjust their lifestyle in a unique and holistic way. DarioHealth’s cross-functional team operates at the intersection of life sciences, behavioral science, and software technology to deliver seamlessly integrated and highly engaging digital therapeutics interventions. Our diabetes solutions, its user-centric approach is used by tens of thousands of customers around the globe. DarioHealth is rapidly expanding its solutions for additional chronic conditions such as hypertension and moving into new geographic markets. DarioHealth’s digital therapeutic platform has been designed with a ‘user-first’ strategy, focusing on the user’s needs first and foremost, and user experience and satisfaction. User satisfaction is constantly measured and drives, all company processes, including our technology design. DarioHealth has one reporting unit and one segment. b. The Company’s wholly owned subsidiary, LabStyle Innovation Ltd. (the “Subsidiary”), was incorporated and commenced operations on September 14, 2011 in Israel. Its principal business activity is to hold the Company’s intellectual property and to perform research and development, manufacturing, marketing and other business activities. c. During the year ended December 31, 2020, the Company incurred operating losses and negative cash flows from operating activities amounting to $29,903 and $17,736, respectively. On December 31, 2020, we had $28,590 in available cash and cash equivalent. On February 1, 2021, the Company entered into securities purchase agreements with accredited investors relating to an offering of its common stock, resulting in aggregate gross proceeds of approximately $70,000 ($64,880 net of issuance expenses). Management believes that the proceeds from the recent securities purchase agreements, combined with our cash on hand are sufficient to meet our obligations as they come due for at least a period of twelve months from the date of the issuance of these unaudited condensed consolidated financial statements. There are no assurances, however, that the Company will be able to obtain an adequate level of financial resources that are required for the long-term development and commercialization of its product offering. d. In December 2015, the United States Food and Drug Administration granted the Subsidiary 510(k) clearance for the Dario Blood Glucose Monitoring System, including its components, the Dario Blood Glucose Meter, Dario Blood Glucose Test Strips, Dario Glucose Control Solutions and the Dario app on the Apple iOS 6.1 platform and higher. e. On March 4, 2016, the Company’s Common Stock, par value $0.0001 per share (the “Common Stock”) and warrants to purchase shares of Common Stock were approved for listing on the Nasdaq Capital Market under the symbols “DRIO” and “DRIOW,” respectively. The Company’s listed warrants are due to expire and cease being listed on the Nasdaq Capital Market on March 8, 2021. f. On November 18, 2019, the Company affected a 1-for-20 reverse stock split (referred to herein as the Reverse Stock Split) of its Common Stock. No fractional shares were issued, and no cash or other consideration were paid as a result of the Reverse Stock Split. Instead, the Company issued one additional whole share of the post-Reverse Stock Split Common Stock to any shareholder who otherwise would have received a fractional share as a result of the Reverse Stock Split. The amount of authorized Common Stock was not affected. All issued and outstanding share and per share amounts included in the accompanying consolidated financial statements have been adjusted to reflect this Reverse Stock Split for all periods presented. g. The Company has been carefully monitoring the COVID-19 pandemic and its impact on its business. In that regard, the Company has continued to sell its products and services and has not experienced disruptions in its supply chains. With respect to the Company’s DTx platform, it has observed that some of its business-to-business prospective partners have been addressing their business needs as a result of the COVID-19 pandemic, which has resulted in a slowdown of negotiations and discussions with some of these potential partners. In addition, the Company has also seen an increase in interest from other business-to-business prospective partners in its DTx platform, as certain parties are seeking tele-health products. The Company expects the significance of the COVID-19 pandemic, including the extent of its effect on the Company’s financial and operational results, to be dictated by, among other things, its duration, the success of efforts to contain it and the impact of actions taken in response. While the Company has not experienced any material disruptions to its business and operations as a result of the COVID-19 pandemic, it is possible such disruptions may occur in the future which may impact its financial and operational results, and which could be material. F - 9 DARIOHEALTH CORP. AND ITS SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements are prepared according to United States generally accepted accounting principles (“U.S. GAAP”). a. Use of estimates: The preparation of the consolidated financial statements and related disclosures in conformity with U.S. GAAP requires the Company’s management to make judgments, assumptions and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material. Management believes the Company’s critical accounting policies and estimates are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. b. Financial statements in U.S. dollars (“$,” “dollar” or “dollars”): The accompanying consolidated financial statements have been prepared in dollars. The Company’s revenues and financing activities are incurred in U.S. dollars. Although a portion of the Subsidiary’s expenses is denominated in New Israeli Shekels (“NIS”) (mainly cost of personnel), a substantial portion of its expenses is denominated in dollars. Accordingly, the Company’s management believes that the currency of the primary economic environment in which the Company and its subsidiary operate is the dollar; thus, the dollar is the functional currency of the Company. Transactions and balances denominated in dollars are presented at their original amounts. Monetary accounts denominated in currencies other than the dollar are re-measured into dollars in accordance with Accounting Standard Codification (“ASC”) 830, “Foreign Currency Matters”. All transaction gains and losses of the re-measurement of monetary balance sheet items are reflected in the consolidated statements of comprehensive loss as financial income or expenses, as appropriate. c. Principles of consolidation: The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany accounts and transactions have been eliminated upon consolidation. d. Cash and cash equivalents: The Company considers all highly liquid investments, which are readily convertible to cash with a maturity of three months or less at the date of acquisition, to be cash equivalents. e. Short-term restricted bank deposits: Short-term restricted bank deposits are restricted deposits with maturities of up to one year and are pledged in favor of the bank as a security for the bank guaranties issued to the landlords of the Company’s offices and credit card payments. The short-term restricted bank deposits are denominated in NIS and USD and bear interest at an average rate of 0.01% and of 0.02% as of December 31, 2020 and 2019, respectively. The short-term restricted bank deposits are presented at their cost, including accrued interest. As of December 31, 2020, and 2019, the Company had, a short-term restricted bank deposit which are used as collateral for rent in the amount of $ 123 and $ 128, respectively. F - 10 DARIOHEALTH CORP. AND ITS SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) As of December 31, 2020, and 2019, the Company had, short-term restricted bank deposits which are used as collateral for credit payments in amounts of $ 64 and $ 63, respectively. The following table provides a reconciliation of the cash balances reported on the balance sheets and the cash, cash equivalents and short-term restricted bank deposits balances reported in the statements of cash flows: December 31, 2020 2019 Cash, and cash equivalents as reported on the balance sheets $ 28,590 $ 20,395 Short-term restricted bank deposits, as reported on the balance sheets $ 135 $ 140 Cash, restricted cash, cash equivalents and short-term restricted bank deposits as reported in the statements of cash flows $ 28,725 $ 20,535 f. Inventories: Inventories are stated at the lower of cost or net realized value. Cost is determined on a first in first out (“FIFO”) basis. Inventory write-downs are provided to cover technological obsolescence, excess inventories and discontinued products. Inventory write-downs represent the difference between the cost of the inventory and net realizable value. Inventory write-downs are charged to the cost of revenues and ramp up of manufacturing when a new lower cost basis is established. Subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. Work-in-process is immaterial, given the typically short manufacturing cycle, and therefore is disclosed in conjunction with raw materials. Total write-downs during the years ended December 31, 2020 and 2019 amounted to $99 and $62, respectively. g. Long-term assets: Long-term assets during the years ended December 31, 2020 and 2019 include mainly long-term prepayments for the Company’s cartridges manufacturing. h. Property and equipment: Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets at the following annual rates: % Computers, and peripheral equipment 15-33 Office furniture and equipment 6-15 Production lines 14-20 Leasehold improvements Over the shorter of the lease term or useful economic life F - 11 DARIOHEALTH CORP. AND ITS SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) i. Impairment of long-lived assets: The Company’s long lived assets are reviewed for impairment in accordance with ASC 360, “Property, Plant and Equipment,” whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. As of December 31, 2020, and 2019, no impairment was recorded. j. Revenue recognition The Company recognizes revenue in accordance with ASC 606, revenue from contracts with customers, when (or as) it satisfies performance obligations by transferring promised products or services to its customers in an amount that reflects the consideration the Company expects to receive. The Company applies the following five steps: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied. The Company considers customer and distributers purchase orders to be the contracts with a customer. For each contract, the Company considers the promise to transfer tangible products and services, each of which are distinct, to be the identified performance obligations. In determining the transaction price, the Company evaluates whether the price is subject to rebates and adjustments to determine the net consideration to which the Company expects to receive. As the Company’s standard payment terms are less than one year, the contracts have no significant financing component. The Company allocates the transaction price to each distinct performance obligation based on their relative standalone selling price. Revenue from tangible products is recognized when control of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied), which typically occurs at shipment. The revenues from fixed-price services are recognized ratably over the contract period and the costs associated with these contracts are recognized as incurred. The Company's standard arrangements with its customers typically do not allow for rights of return. k. Cost of revenues: Cost of revenues is comprised of the cost of production, data center costs, shipping and handling inventory, personnel and related overhead costs, depreciation of production line and related equipment costs, amortization of deferred costs and inventory write-downs. l. Concentrations of credit risk: Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, short-term restricted bank deposits and trade receivables. All of the cash and cash equivalents and short-term restricted bank deposits of the Company and its Subsidiary are invested in deposits and current accounts with major U.S. and Israeli banks. Such cash and cash equivalents and short-term restricted bank deposits may be in excess of insured limits and are not insured in other jurisdictions. Generally, cash and cash equivalents and short-term restricted bank deposits may be redeemed and therefore a minimal credit risk exists with respect to these deposits and investments. F - 12 DARIOHEALTH CORP. AND ITS SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) The Company’s trade receivables are derived mainly from sales to distributers and to end-users world-wide. The Company performs ongoing credit evaluations of its customers. An allowance for doubtful accounts is determined with respect to those specific amounts that the Company has determined to be doubtful of collection. The Company had no off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements. m. Income taxes: The Company accounts for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). This guidance prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to amounts that are more likely than not to be realized. As of December 31, 2020, and 2019 a full valuation allowance was provided by the Company. ASC 740 contains a two-step approach to recognizing and measuring a liability for uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. As of December 31, 2020, and 2019, no liability for unrecognized tax benefits was recorded as a result of the implementation of ASC 740. n. Research and development costs: Research and development costs are charged to the consolidated statements of comprehensive loss, as incurred. o. Accounting for stock-based compensation: The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation - Stock Compensation” (“ASC 718”), which requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s consolidated statement of comprehensive loss. The Company recognizes compensation expenses for the value of its awards granted based on the straight-line method over the requisite service period of each of the awards, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company estimates the fair value of stock options granted using the Black-Scholes-Merton option-pricing model. The option-pricing model requires a number of assumptions, of which the most significant are the expected stock price volatility and the expected option term. Expected volatility was calculated based upon historical volatility of the Company. The expected option term represents the period that the Company’s stock options are expected to be outstanding and is determined based on the simplified method until sufficient historical exercise data will support using expected life assumptions. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. The Company has historically not paid dividends and has no foreseeable plans to pay dividends. F - 13 DARIOHEALTH CORP. AND ITS SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) p. Fair value of financial instruments: The Company applies ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”). Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent from the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the inputs as follows: Level 1 - Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. Level 2 - Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The availability of observable inputs can vary from investment to investment and is affected by a wide variety of factors, including, for example, the type of investment, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment and the investments are categorized as Level 3. The carrying amounts of cash and cash equivalents, short-term restricted bank deposits, trade receivables, other accounts receivable and prepaid expenses, trade payables and other accounts payable and accrued expenses approximate their fair value due to the short-term maturity of such instruments. Some of the inputs to these models are unobservable in the market and are significant. The Company has no financial assets or liabilities measured using Level 2, or Level 3 inputs. q. Basic and diluted net loss per share: Basic net loss per share is computed based on the weighted average number of shares of Common Stock outstanding during each year. Diluted net loss per share is computed based on the weighted average number of shares of Common Stock outstanding during each year, plus dilutive potential Common Stock considered outstanding during the year, in accordance with ASC 260, “Earnings Per Share”. The Company follows the two-class method when computing net loss per common share when shares are issued that meet the definition of participating securities. The two-class method determines net income (loss) per common share for each class of common shares and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common shareholders for the period to be allocated between common shares and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. The Company’s convertible preferred shares contractually entitle the holders of such shares to participate in dividends. The total number of shares related to the outstanding options, warrant and preferred shares excluded from the calculations of diluted net loss per share due to their anti-dilutive effect was 7,819,905 and 6,545,910 for the year ended December 31, 2020 and 2019, respectively. F - 14 DARIOHEALTH CORP. AND ITS SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) r. Severance pay: Since inception date, all Ltd. employees who are entitled to receive severance pay in accordance with the applicable law in Israel, have been included under section 14 of the Israeli Severance Compensation Law (“Section 14”). Under this section, they are entitled only to monthly deposits, at a rate of 8.33% of their monthly salary, made by the employer on their behalf with insurance companies. Payments in accordance with Section 14 release Ltd. from any future severance payments in respect of those employees. Payments under Section 14 are not recorded as an asset in the Company’s balance sheet. Severance pay expense for the year ended December 31, 2020 and 2019 amounted to $387 and $346, respectively. s. Legal and other contingencies: The Company accounts for its contingent liabilities in accordance with ASC 450 “Contingencies”. A provision is recorded when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. With respect to legal matters, provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. As of December 31, 2019 and 2020, the Company is not a party to any litigation that could have a material adverse effect on the Company’s business, financial position, results of operations or cash flows. Legal costs incurred in connection with loss contingencies are expensed as incurred. t. Leases: Lessee accounting: On January 1, 2019, the Company adopted ASU No. 2016-02, Leases (ASC 842). The Company determines if an arrangement is a lease and the classification of that lease at inception based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefits from the use of the asset throughout the period, and (3) whether the Company has a right to direct the use of the asset. The Company elected to not recognize a lease liability or right-of-use (“ROU”) asset for leases with a term of twelve months or less. The Company also elected the practical expedient to not separate lease and non-lease components for its leases. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make minimum lease payments arising from the lease. ROU assets are initially measured at amounts, which represents the discounted present value of the lease payments over the lease, plus any initial direct costs incurred. The ROU assets are reviewed for impairment. The lease liability is initially measured at lease commencement date based on the discounted present value of minimum lease payments over the lease term. The implicit rate within the operating leases is generally not determinable; therefore, the Company uses the Incremental Borrowing Rate (“IBR”) based on the information available at commencement date in determining the present value of lease payments. The Company’s IBR is estimated to approximate the interest rate on similar terms and payments and in economic environments where the leased asset is located. Certain leases include options to extend or terminate the lease. An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain that the Company will exercise that option. An option to terminate is considered unless it is reasonably certain that the Company will not exercise the option. F - 15 DARIOHEALTH CORP. AND ITS SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) u. Recently issued accounting pronouncements, not yet adopted: In September 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans, and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. The guidance also requires increased disclosures. For the Company, the amendments in the update were originally effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In November 2019, the FASB issued ASU No. 2019-10 which delayed the effective date of ASU 2016-13 for smaller reporting companies (as defined by the U.S. Securities and Exchange Commission) and other non-SEC reporting entities to fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods. Early adoption is permitted. The Company is currently assessing the impact the guidance will have on its consolidated financial statements. NOTE 3:- OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES December 31, 2020 2019 Prepaid expenses $ 1,354 $ 203 Deferred costs - 24 Government authorities 80 40 Loan receivables (*) 1,500 - $ 2,934 $ 267 *) see note 14. F - 16 DARIOHEALTH CORP. AND ITS SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands NOTE 4:- INVENTORIES December 31, 2020 2019 Raw materials $ 377 $ 536 Finished products 1,916 878 $ 2,293 $ 1,414 NOTE 5: - REVENUE The following tables represent the Company total revenues for the year ended December 31, 2020 and 2019 by performance obligation type as a result of implementing ASC 606: December 31, 2020 2019 Products $ 5,767 $ 5,490 Services 1,809 2,069 $ 7,576 $ 7,559 Consolidated revenues by category type are as follows (in thousands): December 31, 2020 2019 Consumer Products and other revenues $ 4,392 $ 4,478 Membership services 3,184 2,930 $ 7,576 $ 7,559 The Company recognizes contract liabilities, or deferred revenues, when it receives advance payments from customers before performance obligations primarily related services have been performed. Advance payments are received at the beginning of the service period and the related deferred revenues are reclassified to revenue ratably over the service period. The balance of deferred revenues approximates the aggregate amount of the transaction price allocated to the unsatisfied performance obligations at the end of reporting period. The following table presents the significant changes in the deferred revenue balance during the year ended December 31, 2020: Balance, beginning of the period $ 1,223 New performance obligations 3,245 Reclassification to revenue as a result of satisfying performance obligations 3,244 Balance, end of the period $ 1,224 Because all performance obligations in the Company’s contracts with customers relate to contracts with a duration of less than one year, the Company has elected to apply the optional exemption and is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. F - 17 DARIOHEALTH CORP. AND ITS SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands NOTE 6: - LEASES The Company has entered into various non-cancelable operating lease agreements for certain of its offices and car leases. The Company's leases have original lease periods expiring between 2020 and 2023. Many leases include one or more options to renew. The Company does not assume renewals in determination of the lease term unless the renewals are deemed to be reasonably certain at lease commencement. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants, the Company elected the practical expedient for short term leases. The components of lease costs, lease term and discount rate are as follows: Twelve Months Ended December 31, 2020 Lease cost Operating lease cost $ 329 Short term lease cost 73 Variable lease cost (2 ) Total lease cost 400 Weighted Average Remaining Lease Term Operating leases 1.90 years Weighted Average Discount Rate Operating leases 7.29 % The following is a schedule, by years, of maturities of lease liabilities as of December 31, 2020: Operating Leases 2021 $ 321 2022 241 2023 5 Total undiscounted cash flows 567 Less imputed interest (35 ) Present value of lease liabilities $ 532 Supplemental cash flow information related to leases are as follows: Year ended December 31, 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 329 Lease liabilities arising from obtaining right-of-use assets: Operating leases $ 25 F - 18 DARIOHEALTH CORP. AND ITS SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands NOTE 7:- PROPERTY AND EQUIPMENT, NET Composition of assets, grouped by major classification, is as follows: December 31, 2020 2019 Cost: Computers and peripheral equipment $ 326 $ 233 Office furniture and equipment 132 131 Production lines 763 748 Leasehold improvement 147 147 1,368 1,259 Accumulated depreciation: Computers and peripheral equipment 179 134 Office furniture and equipment 41 33 Production lines 526 412 Leasehold improvement 46 32 792 611 Property and equipment, net $ 576 $ 648 Depreciation expenses for the year ended December 31, 2020 and 2019 amounted to $190 and $183, respectively. NOTE 8:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES December 31, 2020 2019 Employees and payroll accruals $ 2,140 $ 1,137 Accrued expenses 880 887 $ 3,020 $ 2,024 NOTE 9:- COMMITMENTS AND CONTINGENT LIABILITIES As of December 31, 2020, Ltd. had established guarantees to cover rent agreements and credit cards commitments that amounted to $187. NOTE 10:- LONG-LIVED ASSETS As of December 31, 2020, substantially all of the Company long live assets are located in Israel. F - 19 DARIOHEALTH CORP. AND ITS SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands NOTE 11:- TAXES ON INCOME The Company and Ltd. are separately taxed under the domestic tax laws of the country of incorporation of each entity. a. Tax Reform On December 22, 2017, the U.S. Tax Cuts and Jobs Act of 2017 (the “TCJA”) was signed into law. The TCJA makes broad and complex changes to the Internal Revenue Code of 1986 (the “Code”) that may impact the Company's provision for income taxes. The changes include, but are not limited to: · Decreasing the corporate income tax rate from 35% to 21% effective for tax years beginning after December 31, 2017 (“Rate Reduction”); · The Deemed Repatriation Transition Tax; and · Taxation of Global Intangible Low-Taxed Income (“GILTI”) earned by foreign subsidiaries beginning after December 31, 2017. The GILTI tax imposes a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. Net Operating Losses – Before the TCJA, taxable losses generated in the U.S. were able to be carried back for two years or carried forward for 20 years to offset prior/future year taxable income. TCJA changes the rule, and allows losses generated after 2017 (i.e. starting in 2018) to be carried forward indefinitely, but only to offset 80% of future year income. Carryback losses are no longer allowed. In response to the COVID-19 pandemic, the U.S. passed the Coronavirus Aid, Relief, and Economic Security Act (CARES) in March 2020. The CARES Act changed the treatment of net operating losses (“NOLS”) generated in tax years 2018, 2019 and 2020. Losses generated in these years are able to be carried backward for 5 years, and carried forward indefinitely, without the 80% limitation. b. Tax rates applicable to Ltd.: Corporate tax rate in Israel in 2019 and 2020 was 23%. c. Net operating loss carryforward: Ltd. has accumulated net operating losses for Israeli income tax purposes as of December 31, 2020 in the amount of approximately $86,600. The net operating losses may be carried forward and offset against taxable income in the future for an indefinite period. F - 20 DARIOHEALTH CORP. AND ITS SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands NOTE 11:- TAXES ON INCOME (Cont.) As of December 31, 2020, the Company had a U.S. federal net operating loss carryforward of approximately $16,223, of which $7,120 was generated from tax years 2011-2017 and can be carried forward and offset against taxable income and that expires during the years 2031 to 2037. Under Sections 382 and 383 of the IRC, utilization of the U.S. loss carryforward may be subject to substantial annual limitation due to the “change in ownership” provisions of the Code and similar state provisions. The annual limitations may result in the expiration of losses before utilization. Since the Company has not yet utilized the losses to offset income, no study has been performed to assess the potential limitations, but when relevant, a study will be performed. The remaining $9,103 of NOLs were generated in years 2018-2020, and are subject to the TCJA, which modified the rules regarding utilization of NOLs. NOLs generated after December 31, 2017 can only be used to offset 80% of taxable income with an indefinite carryforward period for unused carryforwards (i.e., they should not expire). Utilization of the federal and state net operating losses and credits may be subject to a substantial annual limitation due to an additional ownership change. The annual limitation may result in the expiration of net operating losses and credits before utilization and in the event the Company's has a change of ownership, utilization of the carryforwards could be restricted. As discussed above, under the CARES Act, the losses from 2018-2020 are excluded from the limitation, and can be carried forward indefinitely to offset 100% of future net income. d. Deferred income taxes: Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows: December 31, 2020 2019 Deferred tax assets: Net operating loss and capital losses carry forward $ 23,326 $ 16,879 Temporary differences 1,109 888 Deferred tax assets before valuation allowance 24,435 17,767 Valuation allowance (24,435 ) (17,767 ) Net deferred tax asset $ - $ - The deferred tax balances included in the consolidated financial statements as of December 31, 2020 are calculated according to the tax rates that were in effect as of the reporting date and do not take into account the potential effects of the reduction in the tax rate. The net change in the total valuation allowance for the year ended December 31, 2020 was an increase of $6,668 and is mainly relates to increase in deferred taxes on net operating loss for which a full valuation allowance was recorded. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences and tax loss carryforward are deductible. Management considers the projected taxable income and tax-planning strategies in making this assessment. In consideration of the Company’s accumulated losses and the uncertainty of its ability to utilize its deferred tax assets in the future, management currently believes that it is more likely than not that the Company will not realize its deferred tax assets and accordingly recorded a valuation allowance to fully offset all the deferred tax assets. F - 21 DARIOHEALTH CORP. AND ITS SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (expect stock and stock data) NOTE 11:- TAXES ON INCOME (Cont.) e. Loss before taxes on income consists of the following: Year ended December 31, 2020 2019 Domestic $ 12,471 $ 4,418 Foreign 16,974 13,318 $ 29,445 $ 17,736 f. The main reconciling item between the statutory tax rate of the Company and the effective tax rate is the recognition of valuation allowance in respect of deferred taxes relating to accumulated net operating losses carried forward due to the uncertainty of the realization of such deferred taxes. NOTE 12:- STOCKHOLDERS’ EQUITY a. The holders of Common Stock have the right to one vote for each share of Common Stock held of record by such holder with respect to all matters on which holders of Common Stock are entitled to vote, to receive dividends as they may be declared at the discretion of the Company’s Board of Directors and to participate in the balance of the Company’s assets remaining after liquidation, dissolution or winding up, ratably in proportion to the number of shares of Common Stock held by them after giving effect to any rights of holders of preferred stock. Except for contractual rights of certain investors, the holders of Common Stock have no pre-emptive or similar rights and are not subject to redemption rights and carry no subscription or conversion rights. b. On April 3, 2015, the Company’s Board of Directors approved stock for salary program pursuant to which the Company will issue compensation shares of restricted Common Stock (“Compensation Shares”) to directors, officers, and employees of the Company as consideration for a reduction in or waiver of cash salary, bonus or fees owed to such individuals. The waiver of cash salary will be done upon the average closing price of the Common Stock for the 30 trading days prior to the date the Compensation Shares are granted or as otherwise defined by the Compensation Committee of the Board of Directors. c. During the year ended December 31, 2019, the Company issued 104,363 Compensation Shares to certain members of the Board of Directors, officers, and employees as consideration for a waiver of cash owed to such individuals amounting to $1,011. On April 29, 2019, the Company’s Compensation Committee of the Board of Directors approved the grant of an aggregate of 51,613 shares to directors, officers and employees of the Company. In September 2019, the Company’s Compensation Committee of the Board of Directors approved the grant of an aggregate of 5,378 shares of Common Stock to service providers of which 4,753 shares were issued during the third and fourth quarters of 2019 and the remainder of 625 shares were issued during the first quarter of 2020. During the year ended December 31, 2020, the Company issued 164,479 Compensation Shares to certain members of the Board of Directors, officers, and employees as consideration for a waiver of cash owed to such individuals amounting to $1,001. In addition, the Company granted 15,034 shares to directors upon departure from the Board of Directors. F - 22 DARIOHEALTH CORP. AND ITS SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (expect stock and stock data) NOTE 12:- STOCKHOLDERS’ EQUITY (Cont.) During the year ended December 31, 2020, the Board of Directors approved the grant of 170,229 shares of Common Stock to certain consultants of the Company, a portion of which were made in lieu of cash owed to such consultants. During the year ended December 31, 2020, the Company’s Compensation Committee of the Board of Directors approved the grant of an aggregate of 707,182 shares to directors, officers, employees and consultants of the Company. In January 2020, the Board of Directors authorized the Company to issue warrants to purchase up to 13,750, and 250,000 shares of Common Stock, respectively, to certain consultants of the Company, at a purchase price of $12.00 and $6.56, respectively. As such, the Company recorded a warrant compensation expense for service providers in the amount of $1,131. In January and March 2020, the Compensation Committee of the Board of Directors approved an inducement grant of a non-qualified stock option award to purchase 140,000 shares of the Company’s Common Stock, as well as an additional inducement grant consisting of a non-qualified performance-based stock option award to purchase an additional 90,000 shares of the Company’s Common Stock outside of the Company’s Amended and Restated 2012 Equity Incentive Plan, as amended (the “2012” Plan”), pursuant to Nasdaq Listing Rule 5635(c)(4), in connection with the employment of its President and General Manager of North America and of its Chief Medical Officer. In April 2020, the Compensation Committee of the Board of Directors approved a monthly grant of shares of the Company’s Common Stock equal up to $18 of restricted shares to certain service providers per month, to be granted monthly during the period that the certain consulting agreement remains in effect. During the year ended December 31, 2020, a total of 16,126 restricted shares of the Company’s Common Stock were issued to certain service providers under this approval. In April 2020, the Audit and Compensation Committee of the Board of Directors approved monthly grants of 1,500 shares of the Company’s Common Stock, of which 639 shares were issued to a board member under the 2012 Plan, and 861 restricted shares to certain service providers to be granted monthly during the 12-month period that the certain consulting agreement with said service providers is in effect. During the year ended December 31, 2020, a total of 13,500 shares of the Company’s Common Stock were issued under the said approval of which 9,195 shares were issued under the plan including 5,691 to a board member and the remaining 4,305 shares were issued as restricted shares to certain service providers. In May 2020, the Compensation Committee of the Board of Directors authorized the Company to issue, in several installments, 45,000 shares and warrants to purchase 110,000 shares of Common Stock, to certain consultants of the Company, of which warrants to purchase 60,000 shares of Common Stock are vesting over a 12-month period. The warrants exercise prices are between $6.39 and $10.00 per share. During the year ended December 31, 2020, the Company issued all said shares and warrants, and recorded compensation expense for service providers in the amount of $576. F - 23 DARIOHEALTH CORP. AND ITS SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (expect stock and stock data) NOTE 12:- STOCKHOLDERS’ EQUITY (Cont.) d. On May 24, 2019, the Company closed a public offering (the “2019 Public Offering”) of (i) 242,768 shares of Common Stock, at a price of $12 per share and (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 358,779 shares of Common Stock, for aggregate consideration of $6,558, net of issuance expenses. The Pre-Funded Warrants were sold at a public offering price of $11.998 per Pre-Funded Warrant, which represents the per share public offering price per Share, less a $0.0001 per share exercise price for each such Pre-Funded Warrant. The shares and Pre-Funded Warrants were offered, issued and sold pursuant to a shelf registration statement filed with the Securities and Exchange Commission. The Pre-Funded Warrants have been accounted for as equity instruments. The Pre-Funded Warrants are exercisable at any time after the date of issuance. A holder of Pre-Funded Warrants may not exercise the warrant if the holder, together with any group that the holder is a member, would beneficially own more than 4.99% (or, at the election of the purchaser, 9.99%) of the number of shares of common stock outstanding immediately after giving effect to such exercise. A holder of Pre-Funded Warrants may terminate, increase or decrease this percentage by providing at least 61 days’ prior notice to the Company. A holder of Pre-Funded Warrants is also subject to a limitation on exercise of the Pre-Funded Warrant if such exercise would result in such holder, together with any group that the holder is a member, beneficially owning more 19.99% of the number of shares of common stock outstanding immediately before giving effect to such exercise, unless shareholder approval is obtained. e. In November and December, 2019, the Company entered into subscription agreements (the “Series A, A-1, A-2, A-3 and A-4 Subscription Agreement”) for a sale of an aggregate of 21,375 shares of newly designated Series A, A-1, A-2, A-3 and A-4 Preferred Stock (the “Series A Preferred Stock”), at a purchase price of $1,000 per share (the “Stated Value”), for aggregate gross proceeds, of approximately $21,375 ($18,689 net of issuance expenses). The initial conversion price for the Series A, A-1, A-2, A-3 and A-4 Preferred Stock was $4.05, $4.05, $4.28, $4.98 and $5.90, respectively, subject to adjustment in the event of stock splits, stock dividends, and similar transactions). As such, the Company recorded a deemed dividend during 2019 in the amount of $2,860 for the benefit created to the series A-2, A-3 and A-4 holders. During the year ended December 31, 2020, a total of 5,552 of certain Series A Convertible Preferred Stock were converted into 1,278,695 shares of Common Stock. The holders of series A Preferred Stock (excluding Series A-1 Preferred Stock, which do not possess any voting rights) shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series A Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Certificate of Incorporation, Holders of Series A Preferred Stock shall vote together with the holders of Common Stock as a single class. Upon any liquidation, dissolution or winding-up of the Company, after the satisfaction in full of the debts of the Company and payment of the liquidation preference to the Senior Securities, holders of Series A Preferred Stock shall be entitled to be paid, on a pari passu basis with the payment of any liquidation preference afforded to holders of any Parity Securities, the remaining assets of the Company available for distribution to its stockholders. For these purposes, (i) “Parity Securities” means the Common Stock, Series A Preferred Stock and any other class or series of capital stock of the Company hereinafter created that expressly ranks pari passu with the Series A Preferred Stock; and (ii) “Senior Securities” shall mean any class or series of capital stock of the Company hereafter created which expressly ranks senior to the Parity Securities. F - 24 DARIOHEALTH CORP. AND ITS SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (expect stock and stock data) NOTE 12:- STOCKHOLDERS’ EQUITY (Cont.) Each share of Series A Preferred Stock is convertible at the option of the holder, subject to certain beneficial ownership limitations as set forth in the Series A Certificate of Designation into such number of shares of Company’s Common Stock equal to the number of Series A Preferred Shares to be converted, multiplied by the Stated Value, divided by the conversion price in effect at the time of the conversion. The Series A Preferred Stock will automatically convert into shares of Common Stock, subject to certain beneficial ownership limitations, on the earliest to occur of (i) upon the approval of the holders at least 50.1% of the outstanding shares of Series A Preferred with respect to the Series A Preferred Stock; or (ii) the 36-month anniversary of each of the Series A Effective Date. The holders of Series A Preferred Stock will also be entitled dividends payable as follows: (i) a number of shares of Common Stock equal to ten percent (10%) of the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock then held by such holder on the 12-month anniversary of the Series A Effective Date, (ii) a number of shares of Common Stock equal to fifteen percent (15%) of the number of shares of Common Stock issuable upon conversion of the Series A Preferred then held by such holder on the 24-month anniversary of the Series A Effective Date, and (iii) a number of shares of Common Stock equal to twenty percent (20%) of the shares of Common Stock issuable upon conversion of the Series A Preferred Stock then held by such holder on the 36-month anniversary of the Series A Effective Date. During the year ended December 31, 2020 and 2019, The Company accounted for the dividend as a deemed dividend in a total amount of $3,059 and $295, respectively. Pursuant to the Placement Agency Agreement (the “Placement Agency Agreement”) executed by and between the Company and the registered broker dealer retained to act as the Company’s exclusive placement agent (the “Placement Agent”) for the offering of the Series A Preferred Stock, the Company paid the Placement Agent an aggregate cash fee of $1,788, non-accountable expense allowance of $641 and was required to issue to the Placement Agent or its designees warrants to purchase 719,243 shares of Common Stock at an exercise price ranging from $4.05 to $5.90 per share (the “Placement Agent Warrants”). The Placement Agent Warrants are exercisable for a period of five years from the date of the final closing of the Series A Preferred Stock Offering. As of December 31, 2020, out of the Placement Agent Warrants that were issued in December 2019, 306,801 were exercised into 222,016 shares of Common Stock. f. In March 2020, the Board of Directors authorized the Company to enter into an agreement to issue in the future warrants to purchase up to 500,000 shares of Common Stock to a business partner of the Company, upon reaching certain performance criteria, at a purchase price of $5.94. Certain performance criteria with respect to the first tranche of 125,000 shares were not met and that portion of such warrant expired on December 31, 2020. F - 25 DARIOHEALTH CORP. AND ITS SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (expect stock and stock data) NOTE 12:- STOCKHOLDERS’ EQUITY (Cont.) g. On July 28, 2020, the Company entered into subscription agreements with accredited investors relating to an offering with respect to the sale of an aggregate of (i) 2,969,266 shares of the Company’s Common Stock, at a purchase price of $7.47 per Share, and (ii) pre-funded warrants to purchase 824,689 shares of Common Stock, at a purchase price of $7.4699 per Pre-Funded Warrant. In addition, on July 30, 2020, the Company entered into a subscription agreement with an accredited investor for the purchase of 31,486 shares of Common Stock at a purchase price per share of $7.94 per Share. The aggregate gross proceeds were approximately $28,591 ($26,460 net of issuance costs). h. The table below summarizes the outstanding warrants as of December 31, 2020: Warrants outstanding as of December 31, 2020 Exercise price $ Expiration date February 2015 PPM A (*) 232 86.40 November 25,2015 March 2016 Public Offering -Warrants 76,417 86.80 March 8, 2021 March 2016 Public Offering - Representative’s Warrants 7,172 112.50 March 8, 2021 March 2017 Public Offering - Representative’s Warrants 1,820 77.50 March 31, 2022 September 2018 PPM 153,790 25.00 September 13, 2021 September 2018 PPM (Finder Warrants) 7,030 25.00 September 13, 2021 December 2018 PPM 150,004 25.00 December 14, 2021 December 2018 PPM 2 nd closing 2,500 25.00 December 27, 2021 Consultants 250,000 6.56 December 31, 2023 Placement Agent Warrants A-1 December 2019 275,070 4.05 December 19, 2024 Placement Agent Warrants A-2 December 2019 27,666 4.28 December 19, 2024 Placement Agent Warrants A-3 December 2019 95,221 4.98 December 19, 2024 Placement Agent Warrants A-4 December 2019 14,485 5.90 December 19, 2024 Consultants 10,000 7.50 April 6, 2024 Consultants 10,000 8.00 June 17, 2024 Consultants 10,000 9.00 September 9, 2024 Consultants 20,000 10.00 November 9, 2024 Consultants 60,000 6.39 February 12, 2025 Consultants 13,750 12.00 August 1, 2029 Agent warrants B-1 July 31 2020 193,044 7.47 July 31, 2025 Agent warrants B-1 July 31 2020 3,149 7.94 July 31, 2025 Total outstanding (**) 1,381,350 (*) Warrants for which cash has been received by the Company did not issue securities. No warrants were exercised in 2019, during the year ended December 31, 2020 certain Company warrant holders have exercised and exchanged Company warrants as detailed here below: In January and July 2020, the Company entered into exchange agreements (each an “Exchange Agreement”) with certain Company warrant holders who were granted warrants to purchase up to an aggregate of 230,452 shares of Common Stock in September 2018. Pursuant to the terms of the Exchange Agreements, the warrant holders agreed to surrender such warrants for cancellation and received, as consideration for the cancellation of such 2018 warrants, an aggregate of 161,317 restricted shares of Common Stock, thereby creating a benefit to these warrant holders. As such the Company recorded a deemed dividend in the amount of $599. In September 2020, the Company entered into an agreement with a certain warrant holder who was granted warrants to purchase up to an aggregate of 88,889 shares of Common Stock in September 2018. Warrants to purchase 88,889 shares of Common Stock were exercised into shares of Common Stock at an exercise price of $13.00 per share. The aggregate gross proceeds were approximately $1,156 ($1,088 net of issuance expenses costs). F - 26 DARIOHEALTH CORP. AND ITS SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (expect stock and stock data) NOTE 12:- STOCKHOLDERS’ EQUITY (Cont.) i. Stock-based compensation: On January 23, 2012, the Company’s 2012 Plan was adopted by the Board of Directors of the Company and approved by a majority of the Company’s stockholders, under which options to purchase shares of Common Stock have been reserved. Under the 2012 Plan, options to purchase shares of Common Stock may be granted to employees and non-employees of the Company or any affiliate, each option granted can be exercised to one share of Common Stock. During 2019, the Company’s stockholders approved an amendment to the 2012 Plan to increase the number of shares authorized for issuance under the 2012 Plan by 225,000 shares, from 393,650 to 618,650. On February 5, 2020, the Company’s stockholders approved an amendment to the 2012 Plan to increase the number of shares authorized for issuance under the 2012 Plan by 1,350,000 shares, from 618,650 to 1,968,650. On October 14, 2020, the Company’s stockholders approved the 2020 Equity incentive Plan (the “2020 Plan”) and the immediate reservation of 900,000 shares under this Plan for the remainder of the 2020 fiscal year. Under the 2020 Plan, options to purchase shares of Common Stock may be granted to employees and non-employees of the Company or any affiliate, each option granted can be exercised to one share of Common Stock. j. The following options were issued under the 2012 Plan during 2019 and 2020: On April 29, 2019, the Company’s Compensation Committee of the Board of Directors approved the grant of 29,236 options to employees, directors and consultants of the Company, respectively, at exercise prices of $14.40 and $15.40 per share. The stock options vest over a period of three years commencing on the respective grant dates. All of the aforementioned options have a six-year term. In September and October 2019, the Company’s Compensation Committee of the Board of Directors approved the grant of 3,939 options to consultants of the Company, at exercise price of $12.00 per share, and 462 options in lieu of $8 owed in cash to a consultant. On December 24, 2019, the Company’s Compensation Committee of the Board of Directors approved the grant of 42,500 options to employees of the Company, at exercise prices of $5.63 and $6.35 per share. The stock options vest over a period of three years commencing on the respective grant dates. All of the aforementioned options have a six-year term. During the year ended December 31, 2020, the Company’s Compensation Committee of the Board of Directors approved the grant of an aggregate of 623,491 options to employees, directors and consultants of the Company, at exercise prices between $6.35 and $18.68 per share. The stock options vest over a period of three years commencing on the respective grant dates. The options have a six-year term and were issued under the 2012 Plan. In March and May 2020, the Board of Directors approved the grant of fully vested options to purchase 5,540 shares of Common Stock to certain consultants of the Company, a portion of which were made in lieu of cash owed to such consultants. F - 27 DARIOHEALTH CORP. AND ITS SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (expect stock and stock data) NOTE 12:- STOCKHOLDERS’ EQUITY (Cont.) Transactions related to the grant of options to employees, directors and non-employees under the above plans and non-plan options during the year ended December 31, 2020 were as follows: Number of Weighted average exercise price Weighted average remaining contractual life Aggregate Intrinsic value options $ Years $ Options outstanding at beginning of year 148,080 68.56 4.41 192 Options granted (*) 859,031 8.91 Options exercised - - Options expired 9,152 41.96 Options forfeited 24,384 13.45 Options outstanding at end of year 973,575 17.56 4.99 5,510 Options vested and expected to vest at end of year 932,508 17.85 4.98 5,280 Exercisable at end of year 180,760 54.73 3.97 1,113 *) Including 230,000 non-plan options issued as inducement for employment, in accordance with Nasdaq Listing Rule 5635(c)(4). See note 12(d). Weighted average fair value of options granted during the year ended December 31, 2020 and 2019 is $5.19 and $9.41, respectively. The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company’s closing stock price on the last day of fiscal 2020 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2020. This amount is impacted by the changes in the fair market value of the Common Stock. F - 28 DARIOHEALTH CORP. AND ITS SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (expect stock and stock data) NOTE 12:- STOCKHOLDERS’ EQUITY (Cont.) The following table presents the assumptions used to estimate the fair values of the options granted to employees and directors in the period presented: Year ended December 31, 2020 2019 Volatility 87.55%-99.39 % 84.34%-90.82 % Risk-free interest rate 0.2%-1.56 % 1.69%-2.28 % Dividend yield 0 % 0 % Expected life (years) 3.5-4.5 3.5-4.5 The following table presents the assumptions used to estimate the fair values of the options granted to non-employees in the period presented: Year ended December 31, 2020 2019 Volatility 92.71%-99.89 % 84.34%-90.82 % Risk-free interest rate 0.19%-0.31 % 1.41%-2.28 % Dividend yield 0 % 0 % Expected life (years) 3.5-4.5 3.5-4.5 As of December 31, 2020, the total unrecognized estimated compensation cost related to non-vested stock options granted prior to that date was $3,772, which is expected to be recognized over a weighted average period of approximately 1.33 year. The total compensation cost related to all the Company’s equity-based awards, recognized during year ended December 31, 2020 and 2019 were comprised as follows: Year ended December 31, 2020 2019 Cost of revenues $ 35 $ 59 Research and development 824 236 Sales and marketing 2,741 300 General and administrative 7,502 1,721 Total stock-based compensation expenses $ 11,102 $ 2,316 F - 29 DARIOHEALTH CORP. AND ITS SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands NOTE 13:- SELECTED STATEMENTS OF OPERATIONS DATA Financial (income) losses, net: Year ended December 31, 2020 2019 Bank charges $ 49 $ 27 Foreign currency adjustments (income) losses, net (446 ) 20 Interest income (61 ) (16 ) Total Financial (income) losses, net $ (458 ) $ 31 NOTE 14:- SUBSEQUENT EVENTS a. In April 2020, the Audit and Compensation Committee of the Board of Directors approved a monthly grant of 1,500 shares of the Company’s Common Stock to certain consultants. During the first quarter of 2021, the Company issued a total of 4,500 shares of the Company’s Common Stock, of which 1,857 shares were issued to a board member. The shares were issued under the 2020 Plan. b. In April 2020, the Compensation Committee of the Board of Directors approved a monthly grant of shares of the Company’s Common Stock equal up to $18 of restricted shares to certain service providers per month, to be granted monthly during the period that the certain consulting agreement remains in effect. During the first quarter of 2021, the Company issued a total of 2,777 restricted shares of the Company’s Common Stock to certain service providers. c. On January 19, 2021, the Compensation Committee of the Board of Directors approved the grant of 5,579 shares of Common Stock to officers and employees of the Company as consideration for a reduction in or waiver of cash salary or fees owed to such individuals and the grant of 5,000 shares of the Company’s Common Stock to employee. The shares vest over a period of three years commencing on the respective grant dates. The shares were issued under the Company’s 2012 Plan. d. On January 19, 2021, the Company’s Compensation Committee of the Board of Directors approved the grant of 70,390 shares to consultants of the Company, the grant of 882,083 restricted shares of the Company’s Common Stock to directors, officers and employees. The shares vest over a period of three years commencing on the January 1, 2021 and approved the grant of 212,058 options to officer, employees and a consultant of the Company, at exercise prices between $14.14 and $24.99 per share. The stock options vest over a period of three years commencing on the respective grant dates. The options have a ten-year term and were issued under the 2020 Plan. e. In January 2021, pursuant to the terms of the 2020 Plan as approved by the Company’s stockholders, the Company increased the number of shares authorized for issuance under the 2020 Plan by 928,890 shares, from 900,000 to 1,828,890. F - 30 DARIOHEALTH CORP. AND ITS SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands NOTE 14:- SUBSEQUENT EVENTS (Cont.) f. On February 1, 2021, the Company entered into a share purchase agreement pursuant to which the Company, through the Subsidiary, acquired all of the outstanding securities of Upright Technologies Ltd. (“Upright”). Upright is a leading digital MSK health company focused on preventing and treating the most common MSK conditions through behavioral science, biofeedback, coaching, and wearable tech. The Company acquired Upright as a wholly owned subsidiary. The consideration payable in connection with the share purchase agreement was capped at $31,000 in any event, subject to certain indemnity provisions, and took into account certain working capital excess generated, among other matters, by that certain convertible bridge loan in an amount of $1,500 previously disbursed by the Company to Upright, which was converted into one ordinary share of Upright at the Closing. The Company agreed to bear certain liabilities of Upright, which shall be reduced from the aggregate consideration, in an estimated amount of $3,700. In consideration for all of the outstanding securities of Upright, the Company agreed to pay the aforementioned consideration by issuing 1,687,612 shares of the Company’s common stock, par value $0.0001 per share to the Selling Shareholders, and agreed to assume options to purchase up to 100,193 shares of the Company’s Common Stock to Upright’s personnel issuable pursuant to the Company’s existing 2020 Equity Incentive Plan. g. On February 1, 2021, the Company entered into securities purchase agreements with institutional accredited investors relating to an offering with respect to the sale of an aggregate of 3,278,688 shares of the Company’s Common Stock, at a purchase price of $ 21.35 per share. The aggregate gross proceeds were approximately $70,000 ($64,880, net of issuance expenses). h. During February 2021, out of the warrants that were issued in September 2018, 25,407 were exercised into shares of Common Stock at exercise price of $25.00 per share. The aggregate gross proceeds were approximately $633. i. During February 2021, 250,000 warrants that were issued to a consultant in January 2020, were exercised on a cashless basis into 194,353 shares of Common Stock. j. On February 17, 2021, the Compensation Committee of the Board of Directors authorized the Company to issue warrants to purchase 400,000 shares of Common Stock, to a certain consultant of the Company, with the warrants vesting over twelve months period and with an exercise price of $25.00 per share. k. On March 4, 2021, the Compensation Committee of the Board of Directors approved the grant of 169,560 shares of common stock and 228,800 options to purchase common stock to officers employees and consultants of the Company at exercise prices between $25.50 and $25.837 per share. The stock options vest over a period of three years commencing on the respective grant dates. The options have a ten-year term and were issued under the 2020 Plan. l. As of March 5, 2021, certain series A Convertible Preferred Stockholders converted 3,022 shares of various classes of the Company’s A Convertible Preferred Stock into 707,147 shares of Common Stock. m. As of March 5, 2021, 112,360 Placement Agent Warrants that were issued in December 2019 and July 2020 were exercised into 89,722 shares of Common Stock. n. As of March 5, 2021, 31,078 options were exercised into shares of Common Stock, with aggregate gross proceeds of approximately $178 - - - - - - - - - - - - - - - F - 31