Translated from Hebrew
ITAMAR MEDICAL LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2017
ITAMAR MEDICAL LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2017
Table of Contents
Consolidated Statement of Financial Position
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statement of Changes in Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Page
2
3
4
5
6
7
CONSOLIDATED
Assets
Current assets
Cash and cash equivalents
Investments in marketable securities
Trade receivables
Other receivables
Inventories
Total current assets
Non-current assets
Long-term restricted deposits
Prepaid expenses
Long-term trade receivables
Property and equipment
Intangible assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade payables
Short-term employee benefits
Current maturities of convertible notes
Provisions
Accrued expenses
Other accounts payable
Total current liabilities
Non-current liabilities
Convertible notes, net of current maturities
Derivative instruments
Long-term employee benefits
Other long-term liabilities
Total non-current liabilities
Total liabilities
Commitments
ITAMAR
STATEMENTS
MEDICAL
OF
LTD.
FINANCIAL
Note
26c
25c
5
5
6
5
7
8
26c
9
10
11
12
10
13
9
14a, b
14
16
POSITION
December 31,
2017
2016
U.S. dollars in thousands
7,463
3,173
5,362
685
2,260
19,123
313
69
473
1,022
277
2, 154
21,277
1,262
223
10,696
183
1,405
1,998
15,767
-
2,875
310
948
4,133
19,900
23,358
2,781
4,490
750
1,784
33,163
287
173
659
1,008
257
2,384
35,547
1,324
198
9,621
167
939
2,071
14,320
8,170
6,800
156
860
15,986
30,306
683
104,443
1,151
(9)
113
(105,004)
1,377
21,277
679
104,350
1,151
(9)
(45)
(100,885)
5,241
35,547
Equity
Ordinary share capital
Additional paid-in capital
Capital reserve in respect of transactions with shareholders
Capital reserve in respect of currency translation adjustments
Capital reserve in respect of marketable securities available-for-
sale
Accumulated deficit
Total equity
Total liabilities and equity
/s/ Dr. Giora Yaron
Chairman of the Board of Directors
/s/ Gilad Glick
President and Chief Executive Officer
/s/ Shy Basson
Chief Financial Officer
Date of approval of the financial statements: March 14, 2018
The accompanying notes are an integral part of these financial statements.
2
CONSOLIDATED
ITAMAR
MEDICAL
STATEMENTS
LTD.
OF
OPERATIONS
Revenues
Cost of revenues
Gross profit
Selling and marketing expenses
Research and development expenses
General and administrative expenses
Total operating expenses
Operating loss
Financial income (expenses) from cash
and investments
Financial expenses from notes and loans
Gain (loss) from derivatives instruments,
net
Financial income (expenses), net
Loss before taxes on income
Taxes on income
Loss
Basic loss per share (In U.S. dollars)
Diluted loss per share (In U.S. dollars)
Note
18
19
20
21
22
23
23
23
15
24
24
2017
Year Ended December 31,
2016
U.S. dollars in thousands (except per share
data)
2015
20,701
5,002
15,699
12,140
4,129
5,278
21,547
18,440
4,979
13,461
14,035
3,225
6,213
23,473
(5,848)
(10,012)
1,591
(4,884)
3,925
632
716
(4,760)
(216)
(4,260)
16,807
4,401
12,406
10,684
2,831
4,350
17,865
(5,459)
(354)
(4,229)
7,930
3,347
(5,216)
(85)
(14,272)
(131)
(2,112)
(135)
(5,301)
(14,403)
(2,247)
(0.02)
(0.05)
(0.01)
(0.02)
(0.05)
(0.02)
The accompanying notes are an integral part of these financial statements.
3
CONSOLIDATED
ST
ITAMAR
ATEMENTS
MEDICAL
OF
LTD.
COMPREHENSIVE
INCOME
(LOSS)
Note
2017
Year Ended December 31,
2016
U.S. dollars in thousands
2015
Loss
Other comprehensive loss items that will not be
carried to the statement of operations
Actuarial losses of defined benefit plan, net of tax
Total other comprehensive income (loss) for the year
that will not be carried to the statement of
operations, net of tax
Other comprehensive income (loss) items that after
preliminary recognition in comprehensive income
(loss), were or will be carried to the statement of
operations
Net change in fair value of marketable securities
available-for-sale, net of tax
Net change in fair value of marketable securities
available-for-sale, net of tax that was carried to the
statement of operations
Total other comprehensive income items that after
preliminary recognition in comprehensive income,
were or will be carried to the statement of
operations, net of tax
Other total comprehensive income (loss) for the year
Total comprehensive loss
(5,301)
(14,403)
(2,247)
9
(112)
(107)
(72)
(112)
(107)
(72)
158
9
(123)
-
-
523
158
158
9
(98)
400
328
(5,255)
(14,501)
(1,919)
The accompanying notes are an integral part of these financial statements.
4
CONSOLIDATED
ITAMAR
STATEMENTS
MEDICAL
OF
LTD.
CHANGES
IN
EQUITY
Ordinary
share
capital
Additional
paid-in
capital
Capital
reserve in
respect of
transactions
with
shareholders
Capital
reserve in
respect of
currency
translation
adjustments
Capital
reserve in
respect of
securities
available-
for-sale
U.S. dollars in thousands
Accumulated
deficit
Total
467
80,242
1,151
(9)
(454)
(86,167)
(4,770)
-
-
-
5
198
-
-
670
-
-
-
149
22,953
-
-
103,344
-
-
-
-
-
-
-
-
-
-
-
-
-
400
400
-
-
-
(2,247)
(72)
(2,319)
(2,247)
328
(1,919)
-
-
428
154
23,151
428
(93)
16,951
-
1,151
-
(9)
-
(54)
(93)
(88,151)
670
103,344
1,151
(9)
(54)
(88,151)
16,951
-
-
-
-
-
-
-
-
-
1
8
-
679
16
990
-
104,350
-
-
-
1,151
-
-
-
-
-
-
(9)
-
9
9
(14,403)
(14,403)
(107)
(14,510)
988
(14,501)
-
-
-
(45)
-
-
1,776
(100,885)
17
998
1,776
5,241
679
104,350
1,151
(9)
(45)
(100,885)
5,241
-
-
-
-
-
-
-
-
-
4
-
683
93
-
104,443
-
-
1,151
-
-
-
-
-
(9)
-
158
158
-
-
113
(5,301)
(5,301)
(112)
(5,413)
46
(5,255)
-
1,294
(105,004)
97
1,294
1,377
For the year ended December 31,
2015
Balance as of January 1, 2015
Total comprehensive loss:
Loss
Other comprehensive, net of tax
Total comprehensive loss
Transactions carried directly to
equity:
Issuance of shares due to the exercise
of options
Issuance of shares and warrants
Share-based payment
Early repayment of loan from
shareholders
Balance as of December 31, 2015
For the year ended December 31,
2016
Balance as of January 1, 2016
Total comprehensive loss :
Loss
Other comprehensive income, net of
tax
Total comprehensive loss
Transactions carried directly to
equity:
Issuance of shares due to the exercise
of options
Issuance of shares and warrants
Share-based payment
Balance as of December 31, 2016
For the year ended December 31,
2017
Balance as of January 1, 2017
Total comprehensive loss :
Loss
Other comprehensive income, net of
tax
Total comprehensive loss
Transactions carried directly to
equity:
Issuance of shares due to the exercise
of options
Share-based payment
Balance as of December 31, 2017
The accompanying notes are an integral part of these financial statements.
5
CONSOLIDATED
ITAMAR
MEDICAL
STATEMENTS
LTD.
OF
CASH
FLOWS
Loss
Adjustments for:
Depreciation and amortization
Share-based payment
Capital gain from sale of property and equipment
Change in provision for doubtful and bad debt
Net financial cost
Loss (gain) from reevaluation of derivatives
Increase in trade receivables
Decrease (increase) in other accounts receivable
Increase in inventories
Increase in trade payables
Increase (decrease) in other accounts payable
Increase (decrease) in employee benefits
Increase (decrease) in provisions
Income tax expenses
Taxes paid during the year
Interest received during the year
Interest paid during the year
Net cash used in operating activities
Cash flows for investing activities
Sale of marketable securities available-for-sale
Purchase of property and equipment, intangible assets and
capitalization of development expenses
Investment in restricted long-term deposits
Net cash provided by (used in) investing activities
Cash flow for financing activities
Issuance of share, net
Repayment of notes
Issuance of warrants
Repayment of shareholders’ loan
Issuance of shares due to the exercise of stock options
Net cash provided by financing activities
2017
Year Ended December 31,
2016
U.S. dollars in thousands
2015
(5,301)
(14,403)
(2,247)
509
1,294
(8)
147
3,133
(3,925)
(833)
169
(711)
(66)
669
67
16
85
(83)
18
(1,362)
(6,182)
434
1,776
-
849
4,110
216
(1,548)
(157)
(430)
289
188
(111)
(71)
131
(228)
41
(1,716)
(10,630)
367
428
-
52
4,591
(7,962)
(1,307)
(51)
(268)
5
(412)
61
(112)
179
(44)
11
(1,901)
(8,610)
-
-
6,080
(296)
(22)
(318)
-
(10,421)
-
-
97
(10,324)
(455)
(113)
(568)
998
-
85
-
17
1,100
(562)
(44)
5,474
23,151
-
5,300
(1,765)
154
26,840
23,704
9,417
(102)
33,019
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of exchange rate fluctuations on balances of cash and
cash equivalents
Cash and cash equivalent balance at end of year
(16,824)
23,358
(10,098)
33,019
1,109
7,643
437
23,358
The accompanying notes are an integral part of these financial statements.
6
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
NOTE 1 – GENERAL
a. Reporting entity and the Company’s financial position
Itamar Medical Ltd. (the “Company”) is an Israeli company incorporated in Israel on January
15, 1997. The Company’s registered office is at 9 Halamish Street, North Industrial Zone,
Caesarea, Israel. The Company’s securities are listed for trade on the Tel Aviv Stock Exchange
Ltd. (“TASE”).
The Company, together with its subsidiaries, is engaged in the research and development,
manufacturing, marketing, selling and leasing of non-invasive medical devices and associated
support services mainly for the diagnosis and assessment of cardiology disease and sleep
breathing disorders. The unique proprietary technology developed by the Company is capable
of measuring the Peripheral Arterial Tonometry; PATTM (“PAT”) signal. The PAT signal
accurately measures the changes in the patient’s peripheral arterial pulse volumes as well as
various parameters of arterial activity. The peripheral arterial volume is measured, using the
PAT technology, by way of a thimble-shaped probe, which fits over the patient’s finger and
transmits information to a computer-based processing system, which monitors the PAT signal
and diagnoses the patient’s medical condition.
The Company develops and markets two medical devices that are based on our PAT
technology: WatchPATTM (“WatchPAT)” and EndoPATTM (“EndoPAT”).
The WatchPAT product enables home sleep tests for various sleeping disorders, including
obstructive sleep apnea, which has been proven to be a major contributor to cardiovascular
disease, and if treated, improve the patient’s cardiac condition.
The EndoPAT product diagnoses endothelial dysfunction that has been shown to predict
cardiovascular disease.
Total equity of the Company as of December 31, 2017 amounted to $1,377 thousand and the
negative cash flow from operating activities for the year ended December 31, 2017 totaled
$6,182 thousand.
In February 2018, the Company repaid the balance of the principal of the notes. Of the amount
repaid, a principal of NIS 6 million (approximately $1.7 million) relating to notes that were
held by three interested parties in the plus the interest that was to be paid to them was not
actually repaid and the interested parties informed the Company that in order to support the
Company's business strategy, they intend to provide the Company with a loan of the same
amount. For further details, see Note 10.
The Company’s management and Board of Directors are in the opinion that, based on the
positive trend of its operating results, the bank credit facility and the loans from interested
parties (as described in Note 10) and the Company’s ability to update its budget to business
developments, the Company has enough financial resources in order to continue its business
activities in the foreseeing future. In addition, the management continuously assesses its actual
results, compared its approved budget and its financial covenants is able to respond by reducing
its operating expenses in case it does not meet its targets.
b. Definitions
In these financial statements:
The Company
Subsidiary
-
Itamar Medical Ltd
- A company, whose financial statements are consolidated,
directly or indirectly, with the financial statements of the
Company
The Group
- The Company and its subsidiaries
7
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
Related parties
- Within its meaning in IAS 24 (Amended), “Related Party
Disclosures”
Interested parties
- Within their meaning in the Israeli Securities (Preparation of
Annual Financial Statements) Regulations, 2010.
The Innovation Authority
NIS or shekel
Israeli CPI
- The Israeli National Technological Innovation Authority of
the Ministry of the Economy and Industry (formerly - the
Chief Scientist)
- New Israeli shekel
Israeli consumer price index
NOTE 2 – BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS
a.
International financial reporting standards
The consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards
Board (“IASB”).
The consolidated financial statements were authorized for issuance by the Company’s Board of
Directors on March 14, 2018.
b. Reporting and functional currency
These consolidated financial statements are presented in U.S. dollars (“dollar, “$”), which is the
Company’s functional currency representing the principal economic environment in which the
Company operates, and have been rounded to the nearest thousand unless otherwise indicated.
c. Basis of measurement
These financial statements have been prepared on the historical cost basis, except for certain
investments and derivative and other financial instruments measured at fair value through profit
or loss, financial instruments classified as available-for-sale, inventories (measured at the lower
of cost or net realizable value), provisions, assets and liabilities for of employee benefits, and
deferred tax assets and liabilities. For further information regarding the measurement of these
assets and liabilities, see Note 3 regarding significant accounting policies.
d. Operating cycle
The Group has one-year operating cycle. As a result, assets and current liabilities include also
items the realization of which is intended and anticipated to take place within the Group’s
operating cycle.
e. Capital management - objectives, procedures and processes
It is management policy to maintain a capital base in order to preserve the ability of the
Company to further invest resources in development and expansion of the Company’s marketing
and distribution channels, in order to develop and market additional applications of the PAT
signal and the PAT technology, to meet its obligations, including to holders of its convertible
notes, and to provide returns to its shareholders and benefits to other stakeholders in the
Company, such as lenders and the Company’s employees.
8
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been consistently applied for all years presented in these
consolidated financial statements.
a. Basis of consolidation:
(1) Subsidiaries
Subsidiaries are entities controlled by the Company. The financial statements of the
subsidiaries, which are wholly-owned, are included in the consolidated financial
statements from the date of their incorporation.
(2) Transactions eliminated on consolidation
Intercompany balances and transactions and unrealized gains on transactions between
Group companies are eliminated in consolidation. Unrealized losses are eliminated in the
same way as unrealized gains, but only to the extent that there is no evidence of
impairment.
b. Foreign currency transactions and balances
Transactions in foreign currency are translated to the respective functional currency of the
Group entities at exchange rates as of the transaction dates.
Monetary assets and liabilities denominated in foreign currencies at the reporting date are
translated to the functional currency at the exchange rate at that date. The foreign currency gain
or loss on monetary items is the difference between the amortized cost in the functional
currency at the beginning of the year, adjusted for effective interest and payments during the
year, and the amortized cost in foreign currency, translated at the exchange rate at the end of the
year.
Non-monetary assets and liabilities denominated in foreign currency that are measured in terms
of historical cost, are translated using the exchange rate at the date of the transaction.
Foreign currency differences arising from translation into the functional currency are
recognized in the statement of operations, except for differences arising from the translation of
financial equity instruments classified as available-for-sale (except in case of impairment when
the translation differences recognized in other comprehensive income are reclassified to profit
or loss) recognized in other comprehensive income.
c. Financial instruments:
(1) Non-derivative financial instruments
Initial recognition of financial assets
The Group initially recognizes loans and receivables and deposits on the date that they are
originated. All other financial assets acquired in a regular way purchase, including assets
designated at fair value through profit or loss, are recognized initially on the trade date, at
which the Group becomes a party to the contractual provisions of the instrument (i.e., on
the date the Group undertook to purchase or sell the asset). Non-derivative financial assets
include investments in marketable securities, deposits, trade and other receivable, and cash
and cash equivalents.
De-recognition of financial assets
Financial assets are derecognized when the Group’s contractual rights to the cash flows
from the asset expire, or when the Group transfers the rights to receive the contractual cash
flows from the financial asset in a transaction in which substantially all the risks and
rewards of ownership of the financial asset are transferred. Any interest in transferred
financial assets that is created or retained by the Group is recognized as a separate assets or
liability.
9
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
Regular way sales of financial assets are recognized on the trade date, which is the date the
Group, undertook to sell the asset.
As to offset of financial assets and financial liabilities, see (2) below.
Classification of financial assets into categories and the accounting treatment of each
category
The Group classifies its financial assets as follows:
(a) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. Such assets are recognized initially at
fair value plus directly attributable transaction costs. Subsequent to initial recognition,
loans and receivables are measured at amortized cost, using the effective interest
method, net of any impairment loss.
Loans and receivable include trade, other receivables, cash and cash equivalents and
non-current restricted deposits.
Cash and cash equivalents include cash balances available for immediate use and call
deposits. Cash equivalents include short-term highly liquid investments (with original
maturities of three months or less that are readily convertible into known amounts of
cash and which are not exposed to significant risk of change in value.
(b) Financial assets at fair value through profit or loss
A financial asset is classified as measured at fair value through profit and loss if it is
classified as held for trading or designated as such upon initial recognition. Financial
assets are designated at fair value through profit and loss if the Group manages such
investments and makes purchase and sale decisions in respect thereof based on fair
value, in accordance with the Group’s documented risk management or investment
strategy, if the purpose is to prevent an accounting mismatch, or if it is a combined
instrument that includes an embedded derivative. Transaction costs that can be
attributed are charged to profit or loss as incurred. These financial assets are measured
loss.
at fair value and
therein are recognized
in profit or
the changes
Financial assets designated at fair value through profit and loss also include capital
investments that would otherwise be classified as available-for-sale.
Financial assets classified as held for trading include securities held to support the
Group's short-term liquidity needs.
(2) Non-derivative financial liabilities
Non-derivative financial liabilities include trade and other payables and convertible notes.
Initial recognition of financial liabilities
The Group initially recognizes debt securities issued on the date that they are originated.
All other financial liabilities are recognized initially on the trade date, at which the Group
becomes a party to the contractual terms of the instrument.
Financial liabilities are recognized initially at fair value, net of all attributable transaction
costs. Subsequent to initial recognition, financial liabilities are measured at amortized cost
using the effective interest method.
De-recognition of financial liabilities
Financial liabilities are derecognized upon expiration of the Group’s liability, as set forth
in the agreement, or when it is discharged or cancelled.
10
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
Offset of financial instruments
Financial assets and liabilities are offset and presented net in the statement of financial
position, only when the Group has an immediate enforceable legal right to offset the
amounts and intends either to settle on a net basis or to realize the asset and settle the
liability simultaneously.
(3) Derivative financial instruments
The Group holds, from times to times, both derivative financial instruments to hedge its
currency risk exposures and derivatives that do not serve hedging purposes, including
separable embedded derivatives.
Measurement of derivative financial instruments
Derivatives are initially recognized at fair value. Attributable transaction costs are charged
to profit or loss when incurred. Subsequent to initial recognition, derivatives are measured
at fair value, and changes therein are accounted for as described below.
(a) Economic hedges
Hedge accounting is not applied to derivative instruments that economically hedge
financial liabilities denominated in foreign currency. Changes in the fair value of such
derivatives are recognized in the statement of operations under financial income or
expenses.
(b) Derivatives not used for hedging
Changes in the fair value of derivatives not used for hedging are recognized
immediately in the statement of operations as financial income or expenses. The Group
also applies the aforementioned accounting treatment to changes in fair value of the
conversion component of convertible notes and warrants that do not have a fixed
exercise price.
(c) Separated embedded derivatives and which are not used for hedging
Embedded derivatives are separated from the host contract and accounted for separately
if: (i) the economic characteristics and risks of the host contract and the embedded
derivative are not closely related; (ii) a separate instrument with the same terms as the
embedded derivative would meet the definition of a derivative; and (iii) the combined
instrument is not measured at fair value through profit or loss.
Changes in the fair value of separable embedded derivatives are recognized
immediately in the statement of operations as financial income or expenses.
(4) Hybrid financial instruments
Liabilities, which are convertible into shares, denominated in foreign currency or linked to
the Israeli CPI or to foreign currency, constitute a hybrid instrument presented in full as a
financial liability.
For measurement, the instrument is separated into two components: a liability component
with no conversion feature, which is measured at amortized cost according to the effective
interest method, and a conversion option, which constitutes an embedded derivative,
measured at fair value upon each reporting date.
(5) Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the
issuance of ordinary shares are recognized as a deduction from equity.
Incremental costs directly attributable to an expected issuance of an instrument that will be
classified as an equity instrument are recognized as an asset in deferred expenses in the
statement of financial position. The costs are deducted from the equity upon the initial
11
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
recognition of the equity instruments, or are amortized as financial expenses in the
statement of operations when the issuance is no longer expected to take place.
(6) Issuance of bundle of securities
The consideration received from the issuance of a bundle of securities is attributed initially
to financial liabilities measured each period at fair value, and then to financial liabilities
measured only upon initial recognition at fair value. The remaining amount is the value of
the equity component. Direct issuance costs are attributed to the specific securities in
respect of which they were incurred, whereas joint issuance costs are attributed to the
securities on a proportionate basis according to the grant of the consideration from the
issuance of the bundle, as described above.
d. Property and equipment
Recognition and measurement
Property and equipment are measured at cost, less accumulated depreciation and accumulated
impairment losses.
Cost includes expenditure that is directly attributable to the acquisition of the asset. Purchased
software that is integral to the functionality of the related equipment is capitalized as part of that
equipment.
Gains and losses on disposal of property and equipment are determined by comparing the net
proceeds from asset disposition with the carrying amount, and are recognized net in within the
statement of operations under general and administrative expenses.
Depreciation
Depreciation is a systematic allocation of the depreciable amount of an asset over its useful life.
The depreciable amount is the cost of the asset, or other amount substituted for cost, less its
residual value.
An asset is depreciated from the date it is ready for use, i.e. the date it reaches the location and
condition required for it to operate in the manner intended by management.
Depreciation is recognized in the statement of operations, using the straight-line method over
the estimated useful life of each part of the fixed asset item since this most closely reflects the
expected consumption pattern of future economic benefits embodied in the asset in the best
possible way.
Annual rates of depreciation for the current period and comparable periods are as follows:
Office furniture and equipment
Production and research and development equipment and
computers
Computers
%
10
15
33
Leasehold improvements are amortized over the shorter of the lease term and their useful lives.
Depreciation methods, useful lives and residual values are reviewed at the end of each reporting
year and adjusted if appropriate.
e.
Intangible assets
Research and development
Expenditure on research activities, undertaken with the prospect of gaining new scientific or
technical knowledge and understanding, are recognized in the statement of operations when
12
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
incurred.
Development activities are related to a plan to produce new products or processes, or to
significantly improve existing products or processes. Development expenditure is capitalized
only if: (i) the expenditure can be measured reliably; (ii) the product or process is technically
and commercially feasible; and (iii) future economic benefits are probable, and the Group
intends to and has sufficient resources to complete development and to use or sell the asset. The
expenditure capitalized in respect of development activities includes the cost of materials, direct
labor and overhead costs that are directly attributable to preparing the asset for its intended use.
Other development expenditure is recognized in the statement of operations as incurred.
In subsequent periods, capitalized development expenditure is measured at cost less
accumulated amortization and any accumulated impairment losses.
Other intangible assets
Other intangible assets that are acquired by the Group and have finite useful lives are measured
at cost less accumulated amortization and accumulated impairment losses.
Subsequent expenditure
Subsequent expenditure is capitalized only when it increases future economic benefit embodied
in the specific asset to which it relates. All other expenditure, including expenditure on
internally generated goodwill and brands, is recognized in the statement of operations as
incurred.
Amortization
Amortization is a systematic allocation of the amortizable amount of an intangible asset over its
useful life. The amortizable amount is the cost of the asset less its residual value.
Amortization is recognized in the statement of operations, using the straight-line method, over
the estimated useful lives of the intangible assets from the date they are available for use, since
this method most closely reflect the expected pattern of consumption of the future economic
benefits embodied in each asset.
The estimated useful lives for the current period and comparable periods are as follows:
Computer software
Capitalized development cost
Marketing rights for medical product in Japan
Years
3 years
3 years
7 years
The estimated concerning amortization methods, useful lives and residuals are reviewed at the
end of each reporting year and adjusted if appropriate.
f.
Inventories
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is
based on the “moving-average” method, including expenditure incurred in acquiring the
inventories and the costs incurred in bringing it to its existing location and condition. In the
case of inventories in process and inventories of finished products, cost includes an appropriate
share of production overhead based on normal operating capacity. Net realizable value is the
estimated selling price in the ordinary course of business less the estimated costs to complete
and sell the inventories.
13
ITAMAR
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NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
g.
Impairment
Non-derivative financial assets
Impairment of a financial asset not carried at fair value through profit or loss is reviewed when
there is objective evidence that a loss event has occurred after initial recognition of the asset,
and this loss event has negatively impacted the estimated future cash flows of the asset that can
be estimated reliably.
Objective evidence of impairment of financial assets may include a breach of contract by the
debtor, restructuring of the amount due to the Group based on terms and conditions which the
Group would not otherwise consider, existence of indications that a debtor or debt issuer would
go bankrupt, adverse changes in the payment status of the borrower, changes in the economic
environment which indicate insolvency of debt issuers, or the disappearance of an active market
for a security, observable data indicating that there is a measurable decrease in expected cash
flows from a group of financial assets.
Evidence of impairment of available-for-sale financial assets
When testing for impairment of available-for-sale financial assets that are equity instruments,
the Group also reviews the difference between the fair value of the asset and its original cost
while taking into consideration the expected volatility of the instrument’s price, the length of
time the fair value of the asset is lower than its original cost, changes in the technological,
economic or legal environment, or in the market environment in which the issuer of the
instrument operates. Furthermore, a significant or prolonged decline in its fair value below its
cost is objective evidence of impairment. According to the Group‘s policy, a decline of more
than 20% below the original cost of the instrument, or a decline to below the original cost for
more than nine months, is considered significant or prolonged, respectively.
Evidence of impairment of debt instruments
The Group considers evidence of impairment of trade receivables and other accounts receivable
at the individual asset level. Balances of trade receivables and other accounts receivable are
specifically reviewed for impairment. The Company did not perform the group examination as
it believes it has no impact on the financial statements and is not material.
Accounting for impairment loss of financial assets measured at amortized cost
An impairment loss in respect of a financial asset measured at amortized cost is calculated as
the difference between its carrying amount, and the present value of the estimated future cash
flows discounted at the original effective interest rate. Loss is charged to the statement of
operations and presented as provision for loss against the balance of the financial asset
measured at amortized cost. Interest income with respect to assets whose value is impaired, is
recognized using the interest rate used to discount future cash flows for measurement of
impairment loss.
Accounting for impairment losses of available-for-sale financial assets
Impairment losses on available-for-sale financial assets are recognized by transferring the
cumulative loss that has been recognized in a capital reserve to profit or loss. The cumulative
loss that is classified from other comprehensive income to profit or loss is the difference
between the acquisition cost, net of any principal repayment and amortization, and the current
fair value, less any impairment loss previously recognized in profit or loss. Changes in
impairment provisions attributable to application of the effective interest method are reflected
in the item of financial income.
Non- financial assets
Timing of impairment testing
14
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
The carrying amounts of the Group’s non-financial assets, other than inventories, are reviewed
at each reporting date to determine whether there is any indication of impairment. If any such
indication exists, then the asset’s recoverable amount is estimated.
Determination of cash-generating units
For the purpose of impairment testing, assets that cannot be tested individually are grouped
together into the smallest group of assets that generates cash flows from continuing use that are
largely independent of the cash inflows of other assets or groups of assets (“cash-generating
unit”).
Measurement of recoverable amount
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and
its fair value less costs of disposal. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects the assessments of
market participants regarding the time value of money and the risks specific to the asset or
cash-generating unit, for which the estimated future cash flows from the asset or cash-
generating unit were not adjusted.
Recognition of impairment loss
An impairment loss is recognized if the carrying amount of an asset or cash-generating unit
exceeds its estimated recoverable amount. Impairment loss is recognized in the statement of
operations.
Reversal of impairment loss
As for assets for which impairment losses were recognized in previous periods, at each
reporting date an examination is conducted for any indications that these losses have decreased
or no longer exist. An impairment loss is reversed if there has been a change in the estimates
used to determine the recoverable amount, but only to the extent that the carrying amount of the
asset, the impairment loss is reversed, does not exceed the carrying amount, net of depreciation
or amortization, that would have been determined if an impairment loss were not recognized.
h. Retirement benefit
The Group has several retirement benefit plans. The plans are usually financed by deposits with
insurance companies or with funds managed by others. Most of the employees have defined
contribution plans and some of them have defined benefit plans.
i.
Share-based payment transactions
The grant-date fair value of share-based payment awards granted to employees and directors is
recognized as an expense, with a corresponding increase in equity, over the period that the
employees become unconditionally entitled to the awards. The amount recognized as an
expense in respect of share-based payment awards that are conditional upon meeting service
and non-market performance conditions, is adjusted to reflect the number of awards that are
expected to vest. For share-based payment awards with non-vesting conditions or with market
performance vesting conditions, the grant date fair value of the share-based payment awards is
measured to reflect such conditions, and therefore the Group recognizes an expense in respect
of the awards whether or not the conditions have been met.
The fair value at the time of granting of share-based payment awards to consultants and service
providers are recognized over the consultants’ and the service providers’ period of service
against an increase in equity. The fair value of the services is calculated on the basis of the fair
value of the awards and not on the basis of the fair value of the services, since it is not possible
to reliably estimate the fair value of the services rendered.
j. Provisions
A provision is recognized if, as a result of a past event, the Group has a present legal or
15
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
constructive obligation that can be estimated reliably, and it is probable that an outflow of
economic benefits will be required to settle the obligation. The provisions are determined by
discounting the future cash flows at a pre-tax interest rate, reflecting the current market
estimates of the time value of the money and the specific risks of the liability without weighting
the Group’s credit risk. The carrying value of the provision is adjusted in every period so as to
reflect the passage of time. The adjustment amount is credited to financial expenses.
k. Revenue
(1) Sale and rent of products
Revenue from the sale of products in the ordinary course of business is measured at the fair
value of the consideration received or receivable, net of returns and discounts, commercial
discounts and volume discounts.
In cases where the credit term exceeds the customary credit in the industry, the sale is
recognized at its present value using the risk rate of the customer, such that the difference
between the present value of the transaction and the nominal amount of the future
consideration is recognized in the statement of operations as interest income over the term
of the excess credit period.
The Group recognizes revenue from the sale of its products, net of provision for returns,
when persuasive evidence exists (usually in the form of an executed sales agreement) that
the significant risks and rewards of ownership of the products have been transferred to the
buyer, recovery of the consideration is probable, the associated costs and possible return of
products can be estimated reliably, there is no continuing management involvement with
the products, and the amount of revenue can be measured reliably. If it is probable that
discounts will be granted and the amount can be measured reliably, then the discount is
recognized as a reduction of revenue from the sales are recognized.
The timing of the transfer of risks and rewards varies, depending on the specific terms of
the sales contract. The transfer of risks and rewards typically occurs when the products are
exited from the company’s warehouses.
In the event of sale to a distributor, the Group recognizes the revenue upon delivery of the
product to the distributor since the distributor is the Company’s end customer and as he
does not have the right to return and therefore the material risks and rewards inherent to
the ownership of the stock is transferred at this time.
The Group recognizes revenue from leasing its products over the lease term, in conformity
with the agreement with the customer.
(2) Multi-element sale agreements
Revenues from sales agreements consisting of multiple elements, such as devices,
consumables and support and service agreements, are separated into different components
and are separately recognized for each component. A component constitutes a separate
accounting unit if and only if it has value, separately, for the customer. Components not
separated, are grouped together. The revenue from each such component is recognized
upon fulfillment of the conditions for recognition of revenue based on the nature of the
component, i.e. as products or as services. In general, the Group determines the fair value
for each element based on selling prices when the product or service is sold separately (e.g.
probes or extended warranty). In cases where the components are not sold separately, for
example, in the case of installations or training, the Group establishes the value assigned to
this element, based on estimated costs plus a reasonable margin.
Regarding the manner of recognition of revenue and establishing fair value for “total sleep
solution” (“TSS”) transactions, these transactions typically include the components
identified below: (1) a specified number of tests (using a disposable probe), including the
instruments to execute these tests; (2) optional interpretation service; and (3) standard
16
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
warranty agreements or extended warranty agreements. Establishing the fair value of each
element in TSS transactions is done in a similar way to the manner of determining the
value of the component sold in a regular transaction as described above. It should be noted
that in some cases where there is a commitment of the purchaser of the service for a longer
period, which also includes an option for the coincidental purchasing of the WatchPAT
device at the end of the period, the Group handles sale transactions in these devices as a
finance lease and recognizes as revenue in respect of the products supplied, based on their
relative fair value compared to all the components in the transaction.
l. Financial income and expenses and changes in the fair value of derivatives
Financial income include interest income in respect of amounts invested (including available-
for-sale financial assets), gains from the sale of available-for-sale financial assets, changes in
the fair value of financial assets at fair value through profit or loss, gains (losses) from
exchange rate differences in respect of the above assets and profits (losses) from hedging
instruments recognized in profit or loss. Interest income is recognized when accrued, using the
effective interest method.
Financial expenses include interest and revaluation expenses in respect of loans received,
changes in liabilities to the Innovation Authority, changes in the value of time in respect of
provisions, changes in fair value of financial assets at fair value through profit and loss, gains
(losses) from exchange rate differences in respect of the aforementioned liabilities (except for
losses in respect of impairment of trade receivables, which are presented as general and
administrative expenses), and losses from hedging instruments recognized in profit or loss.
Gains and losses from exchange rate differences in respect of other assets and liabilities are
reported in net, as financial income or expenses, depending on exchange rate fluctuations and as
a result of their position (net profit or loss).
In the statements of cash flows, interest received and interest paid are presented in cash flows
from operating activities.
m. Income taxes
Income tax expense comprises current and deferred taxes. It is recognized in the statement of
operations except to the extent it relates to items recognized directly in equity or in other
comprehensive income or loss.
Deferred taxes
Deferred taxes are recognized in respect of temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for tax purposes.
The measurement of deferred tax reflects the tax consequences that would follow the manner in
which the Group expects, at the end of the reporting period, to recover or settle the carrying
amount of its assets and liabilities.
Deferred taxes are measured at the tax rates that are expected to be applied to the temporary
differences when they reverse, using tax rates enacted or substantively enacted by the reporting
date.
A deferred tax asset is recognized for unused tax losses, tax benefits and deductible temporary
differences to the extent that it is probable that future taxable income will be available against
which they can be utilized. Deferred tax assets are reviewed at each reporting date and are
reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred tax assets that were not recognized are reevaluated at each reporting date and
recognized if it has become probable that future taxable income will be available against which
they can be utilized.
n. Loss per share
17
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
The Group presents basic and diluted loss per share data for its ordinary shares. Basic EPS is
calculated by dividing the net loss attributable to holders of ordinary shares of the Company, by
the weighted average number of ordinary shares outstanding during the period.
Diluted loss per share is determined by adjusting the loss attributable to ordinary shareholders
and the weighted average number of ordinary shares outstanding for the effects of all
potentially dilutive ordinary shares, which include convertible notes and options and warrants
issued to shareholders employees, directors and consultants.
o. Transactions with controlling shareholder
Assets and liabilities, which are subject to a transaction with a controlling shareholder, are
measured at fair value upon the transaction date.
As the transaction is on the equity level, the Company recognized the difference between fair
value and the consideration from the transaction in its equity.
p. New standards and interpretations not yet adopted:
(1) IFRS 9 (2014), “Financial Instruments”
The final version of IFRS 9 (2014) includes revised provisions with regard to classification
and measurement of financial instruments, as well as a new model for measurement of
financial asset impairment. These provisions are added to the chapter on “Hedge
Accounting – General”, issued in 2013.
IFRS 9 (2014) applies to annual reporting periods beginning on or after January 1, 2018,
although early adoption is permitted. IFRS 9 (2014) will be applied retrospectively, with
the exception of certain reliefs.
The Group examined the effects of implementing the standard and the Group estimates
that the implementation of the standard is not expected to have any material effect in on
the financial statements.
(2) IFRS 15, “Revenue from Contracts with Customers”
IFRS 15 replaces the current guidance regarding recognition of revenues and presents a
new model for recognizing revenue from contracts with customers. IFRS 15 provides two
approaches for recognizing revenue: at a point in time or over time. The model includes
five steps for analyzing transactions so as to determine when to recognize revenue and at
what amount. Furthermore, IFRS 15 provides new and more extensive disclosure
requirements than those that exist under current guidance.
IFRS 15 is applicable for annual periods beginning on or after January 1, 2018 and earlier
adoption is permitted. IFRS 15 includes various alternative transitional provisions, so that
companies can choose between one of the following alternatives at initial application: full
retrospective application; full retrospective application with practical expedients; or
application as from the mandatory effective date, with an adjustment to the balance of
retained earnings at that date in respect of transactions that are not yet completed.
Date of initial implementation and method of implementation
The Group intends to adopt the standard, starting from January 1, 2018 with the
cumulative impact approach, while adjusting retained earnings as of January 1, 2018. In
addition, the Group is considering the application of the following expedients upon the
date of transition:
(a) Application of the cumulative impact approach only for contracts that have not been
concluded at the date of transition; as well as
(b) Examining the aggregate impact of changes in the contract that occurred before the
18
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
date of initial application, instead of an examination of each change separately.
Changes and expected effects in the revenue recognition
The incremental costs of obtaining a contract with a customer such as agent’s sales
commissions, which are currently recognized in the statement of operations, will be
recognized in accordance with the standard as an asset if the Group expects to recover
those costs. Such costs recognized as an asset shall be carried to the statement of
operations on a systematic basis consistent with the transfer of the products or services to
which the asset relates. The Group examined the expected impact on its financial
statements and in its opinion, the impact is immaterial.
Quantitative effect
The table below presents the expected effect of the implementation of IFRS 15 on the
relevant items in the statement of financial position as at December 31, 2017:
in accordance
with
previous policy
Change
U.S. dollars in thousands
in accordance
with
IFRS 15
Trade receivable
Contract liabilities
5,362
193(
)
333
333(
)
5,695
(526)
In addition, the Group examined the expected effects of the implementation of IFRS 15
and in its assessment of the implementation of IFRS 15 is not expected to have a material
effect on its operating results.
It should be noted that the information presented in this note regarding the effects of the
initial implementation of IFRS 15 is an estimate of the Group and may be different from
the policy and the quantitative data that will be included in the financial statements for the
initial implementation period.
(3) International Financial Reporting Standard IFRS 16, “Leases”
The standard replaces IAS 17, “Leases” and the related interpretations. The standard
provisions override the existing requirement for lessees to classify the leases as operational
or finance. Instead, regarding lessees, the standard introduces one accounting model for all
leases under which the lessee must recognize the asset and his lease liabilities in its
financial statements. Furthermore, the standard establishes new more extensive disclosure
requirements than those existing today.
The standard will be implemented for annual periods beginning on or after January 1,
2019, with an option for early adoption, provided that the Company implements in early
adoption IFRS 15, “Income from contracts with customers”. The standard includes various
alternatives for the implementation of the transitional provisions, so that companies can
choose one of the following options during the initial adoption: full retrospective adoption
or implementation of the standard starting from the initial adoption date through retained
earnings adjustment to said date.
The Group is examining the expected effects of the implementation of IFRS 16, but at this
stage it cannot reliably estimate the quantitative impact on its financial statements.
However, the Group believes that the implementation of IFRS 16 is not expected to have a
material effect on the operating results.
(4) Interpretation of the Standing Interpretations Committee of the International
Financial Reporting IFRIC 22, foreign currency transactions and foreign currency
advances
19
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
The interpretation stipulates that the transaction date for determining the exchange rate for
the registration of a transaction in foreign currency that includes advance payments shall
be the date on which the Company initially recognizes a non-monetary asset/ liability in
respect of the advance payment. When there are several advance payments or receipts, the
Company will determine the transaction date in respect of every payment/ receipt
separately.
The interpretation will be implemented for annual periods beginning on or after January 1,
2018, with the possibility of early adoption. The interpretation includes various
alternatives for the adoption of the transitional provisions, so that companies will be able
to choose between one of the following alternatives at initial adoption: retroactive
adoption; prospective adoption starting on the first reporting period in which the entity first
applied the interpretation; or prospective adoption starting on the first reporting period
presented in comparative figures in the financial statements for the period in which the
entity has first applied the interpretation.
The Group examined the implications of implementing the interpretation on its financial
statements and intends to choose the alternative of a prospective adoption as of January 1,
2018.
In the past, the Group determined that the "transaction date" used to determine the
exchange rate for recording a foreign currency transaction that includes advances will be
the date on which the Group initially recognizes a non-monetary asset / liability in respect
of the advance payment. As a result, it is not expected to have a material effect on the
Group’s consolidated financial statements
NOTE 4 – USE OF ESTIMATES AND CRITICAL ACCOUNTING JUDGEMENTS
In preparing these financial statements, in conformity with IFRS, the Company’s management is
required to make judgments, estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets and liabilities, income and expenses. It should be
clarified that actual results may differ materially from these estimates.
When formulating the accounting estimates used in the preparation of the Company’s financial
statements, the Company’s management is required to make assumptions regarding circumstances
and events involving significant uncertainty. When determining the estimates, the Company’s
management relies on past experience, various facts, external factors and reasonable assumptions,
based on the appropriate circumstances for each estimate. The estimates and the underlying
assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in
the period in which the estimates are revised and in any affected future periods.
Information on assumptions made by the Group concerning the future and other key factors causing
uncertainty regarding estimates that there is significant risk they will result in material adjustment to
the carrying amount amounts of assets and liabilities within the next financial year is included the
following Notes:
Assessment
Fair value of unquoted
derivatives – the fair
value of the embedded
warrant component of
convertible notes and
warrants issued to Viola
and of warrants (Series
4)
Key assumptions
The fair value is measured
based on observable market
data (if there is an active
market), based on the
binomial model and based
on the relevant parameters
of the notes, the warrants
issued to Viola and the
warrants (Series 4)
20
Possible consequences
Profit or loss due to a
change in fair value of
derivative financial
instruments.
Reference
See b. below and
Notes 13 and 26.
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
Assessment
Key assumptions
Possible consequences
Reference
Provision for warranty
Revenue recognition
identified as required.
The Company estimates the
amounts it will be required
to pay for its basic liability
for the sale of its products.
Setting selling prices of
individual components as
part of recognition of
income from transactions of
multiple components.
Increase or decrease in the
liability for amounts the
Company will be required
to pay for its liabilities.
An increase or decrease in
revenue.
See Notes 3j and
11.
See Note 3k.
Determining the fair value
In preparing these financial statements, the Group is required to determine the fair value of certain
assets and liabilities. Additional information about assumptions used in determining the fair value is
presented in the following Notes:
• Note 17 – Share-based payment arrangements.
• Note 13 – Derivatives.
• Note 26 – Financial instruments.
When determining the fair value of an asset or liability, the Group uses observable market data as
much as possible. There are three levels of fair value measurements in the fair value hierarchy that
are based on the data used in the measurement, as follows:
Level 1: Quoted prices (unadjusted) on active markets for identical assets or liabilities.
Level 2: Inputs other than quoted priced included within Level 1 that are observable, either directly
or indirectly.
Level 3: Inputs that are not based on observable market data (unobservable inputs).
As part of its accounting policies and disclosure requirements, the Group is required to determine
the fair value of financial and non-financial assets and liabilities. The fair value is determined for
measurement and/or disclosure, based on the methods described below. Further information about
the assumptions made in determining fair values is disclosed in the notes specific to that asset or
liability.
a.
Investments in equity and debt securities
The fair value of financial assets measured at fair value through profit and loss, investments
held-to-maturity and financial assets classified as available-for-sale is determined with
reference to their quoted closing bid price upon close of trading, as of the reporting date. If no
quoted price exists, fair value is measured with due consideration to observed market data (such
as using an interest rate curve), using a valuation technique which includes the discounted cash
flow method, using expected future cash flows and a discount rate commonly used in the
market.
b. Derivatives
The fair value of warrants which are embedded in the convertible notes is measured based on
directly or indirectly observed market data, using the binomial model, based on relevant
parameters of the conditions of the convertible notes which have been identified for
determining the fair value of the warrant component. The underlying asset (the market price of
the share); the price of the warrant; conversion rate; expected term; expected volatility of the
underlying asset (the share price); the risk-free interest rate; and the yield to maturity of the
notes.
21
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
The fair value of the warrants issued to Viola (the “Viola Warrants”) and Warrants (Series 4)
as of December 31, 2017 and 2016 (see Notes 13c and 16b) according to the binomial model
and based on the relevant parameters of the terms of the Viola Warrants and the Warrants
(Series 4) required for their valuation. The assumptions and parameters of the model include:
the underlying asset (share market price), the exercise price of the warrant, the exercise price,
duration of the warrant, expected volatility of the underlying asset (share price) and the risk-
free interest rate for the period.
The fair value of the Viola Warrants and the fair value of the Warrants (Series 4) as of
December 31, 2015, (see Notes 13c and 16b) were measured according to the quoted market
value of the Warrants (Series 4), on the basis of the exchange rate of warrants on the first day of
trading of the Warrants (Series 4), being January 3, 2016. This is due to the fact that the Viola
Warrants and the Warrants (Series 4) have essentially identical terms.
The fair value of the Viola Warrants and the Warrants (Series 4) as of December 31, 2015 (see
Notes [13c and 16b] were measured according to the quoted market value of the Warrants
(Series 4), on the basis of the exchange rate of the warrants on the first day of trading of the
Warrants (Series 4), being January 3, 2016. This is due to the fact that the Viola Warrants and
the Warrants (Series 4) have essentially identical terms.
c. Non-derivative financial liabilities
The fair value determined for providing disclosure, is calculated based on the present value of
future cash flows with respect to the principal and interest component, and discounted using the
market interest rate as of the reporting date. Market interest rate with respect to the liabilities
component of convertible notes is determined with reference to market terms of similar
obligations, which are not optionally convertible into shares.
d. Share-based payment transactions
The fair value of stock options granted to employee which are vesting over time is measured
using the Black-Scholes valuation model. The model assumptions include share price on
measurement date, the exercise price of the option, expected volatility (based on weighted
average historic volatility of the Company’s shares over the expected term of the options),
expected term of the options (based on average), the risk-free interest rate (based on
government bonds). Service and non-market performance conditions are not taken into account
in determining fair value.
The fair value of performance-based options and restricted share units (“RSUs”) granted to
officers and key employees and vesting on the basis of a rise in the Company’s share price,
measured by the implementation of the Monte Carlo Simulation, as well as the options granted
to directors for which an exercise price has not yet been determined, were priced using the
binomial model and based on relevant parameters of the terms of the grant program, and other
variables that have been identified are necessary for the valuation of the grant.
e. Bad and doubtful debts
For the assessment of doubtful debts, the Group relies, among other things, on the risk
assessment based on the information available to it regarding the debtors’ financial position,
scale and scope of their operations, evaluation of collateral received them and the assistance of
the attorneys handling the debts of problem customers. The statements of the financial position
as of December 31, 2017 and 2016 included a provision for doubtful debts amounting to $540
thousand and $450 thousand, respectively. The Company has not executed a collective
examination of the impairment of customer balances as its impact on the financial statements is
not material.
NOTE 5 - TRADE AND OTHER RECEIVABLES
December 31,
2017
2016
22
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
Trade receivables:
Open accounts
Checks receivable
Less - allowance for doubtful accounts
Is presented in the statement of financial position
as follows:
Under current assets
Under non-current assets
Other receivables:
Institutions
Advances to suppliers
Employees
Prepaid expenses
Sundry
U.S. dollars in thousands
6,048
327
6,375
540
5,835
5,362
473
5,835
5,417
182
5,599
450
5,149
4,490
659
5,149
December 31,
2017
2016
U.S. dollars in thousands
330
51
121
170
13
685
325
74
154
185
12
750
The Group’s exposure to credit risk, currency risk and impairment loss in respect of trade and
other receivables is described in Note 25.
NOTE 6 – INVENTORIES
Raw materials and auxiliary materials
Work in process
Finished goods
December 31,
2017
2016
U.S. dollars in thousands
969
214
1,077
2,260
753
227
804
1,784
23
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
NOTE 7 – PROPERTY AND EQUIPMENT
Computers
and
peripheral
equipment
1,883
64
-
1,947
1,570
62
-
1,632
315
Computers
and
peripheral
equipment
1,745
138
-
1,883
1,499
71
-
1,570
Cost:
Balance as of January 1, 2017
Additions
Disposals
Balance as of December
31, 2017
Accumulated
depreciation:
Balance as of January 1, 2017
Depreciation
Disposals
Balance as of December
31, 2017
Depreciated balance as of
December 31, 2017
Cost:
Balance as of January 1, 2016
Additions
Disposals
Balance as of December 31,
2016
Accumulated depreciation:
Balance as of January 1, 2016
Depreciation
Disposals
Balance as of December 31,
2016
Depreciated balance as of
December 31, 2016
Equipment and
devices for
leasing and for
internal use
Office
furniture
and equipment
U.S. dollars in thousands
Leasehold
improvements
750
349
(6)
1,093
409
240
-
649
444
459
21
(13)
467
255
71
(7)
319
148
Total
3,409
438
(23)
3,824
2,401
410
(9)
2,802
317
4
(4)
317
167
37
(2)
202
115
1,022
Equipment and
devices for
leasing and for
internal use
Office
furniture
and
equipment
U.S. dollars in thousands
Leasehold
improvements
641
317
(208)
750
414
113
(118)
409
366
93
-
459
200
55
-
255
259
58
-
317
143
24
-
167
Total
3,011
606
(208)
3,409
2,256
263
(118)
2,401
313
341
204
150
1,008
24
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
a. Acquisition of property and equipment on credit
In the years ended December 31, 2017, 2016 and 2015, the Company purchased property and
equipment on credit in the amount of $8 thousand, $29 thousand and $49 thousand,
respectively.
b. Additional information
The Group has assets that have been fully depreciated and are still in use. As of December 31,
2017 and 2016, the original cost of such assets is $2,614 thousand and $2,115 thousand,
respectively.
NOTE 8 – INTANGIBLE ASSETS
Cost:
Balance as of January 1, 2017
Additions
Balance as of December 31, 2017
Accumulated amortization:
Balance as of January 1, 2017
Amortization for the year
Balance as of December 31, 2017
Computer
software
Capitalized
development
cost
Marketing
rights for
medical
product
U.S. dollars in thousands
704
42
746
602
76
678
606
110
716
471
36
507
375
-
375
355
20
375
Total
1,685
152
1,837
1,428
132
1,560
Amortized balance as of December 31,
2017
68
209
-
277
Cost:
Balance as of January 1, 2016
Additions
Balance as of December 31, 2016
Accumulated amortization:
Balance as of January 1, 2016
Amortization for the year
Balance as of December 31, 2016
Computer
software
Capitalized
development
cost
Marketing
rights for
medical
product
U.S. dollars in thousands
659
45
704
529
73
602
506
100
606
447
24
471
375
-
375
281
74
355
Total
1,540
145
1,685
1,257
171
1,428
Amortized balance as of December
31, 2016
102
135
20
257
25
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
NOTE 9 – EMPLOYEE BENEFITS
Employee benefits include retirement benefit obligations, short-term benefits and share-based
payments.
As for retirement benefit obligations, the Group has defined benefit plans for which it contributes to
insurance policies.
As for share-based payments, see Note 17 and as for benefits to key executives, see Note 27.
Presented as part of current liabilities – accounts payable:
Short-term employee benefits
Presented as part of non-current liabilities:
Long-term employee benefits
Retirement benefit plans - defined benefit plan
1) Movement in net liabilities for defined benefit plans:
Balance at beginning of year
Expense recognized on the statement of operations:
Current service costs and interest costs
Changes due to exchange rate differences
Recognized loss including other:
Actuarial losses carried to other comprehensive income
Other movements:
Benefits paid
Deposits made by the Company
Balance at end of year
2)
Expenses recognized in the statement of operations:
Current service costs
Interest costs
Transfer of profits to benefits
Total
26
December 31,
2017
2016
U.S. dollars in thousands
223
198
310
156
Year Ended December 31,
2017
2016
U.S. dollars in thousands
156
45
16
112
-
(19)
310
168
156
-
107
(134)
(141)
156
Year Ended December 31,
2017
2016
U.S. dollars in thousands
21
6
18
45
138
1
16
155
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
3) The principal actuarial assumptions as of the report date (based on weighted average):
Discount rate at the end of the year
Future salary growth
2017
%
2.74
3.27
December 31,
2016
%
3.35
3.32
2015
%
3.58
3.47
NOTE 10 – CRDIT FACILITY WITH ABANK AND CONVERTIBLE NOTES
a. Credit facility with a bank
On March 29, 2017, the Company and an Israeli Bank (the “Bank”) reached an agreement
(the “ Credit Agreement”) whereunder the Bank would grant the Company a credit facility in
a total amount of up to $10 million. The credit facility is comprised of a $6 million long-term
loan (the “ Loan”) and a $4 million credit facility against trade accounts receivable, based on
specific customer invoices (the “Credit Facility for Financing Accounts Receivable”). The
Loan may be drawn and is repayable in equal quarterly installments over three years from the
date of the draw. The Loan bears annual interest of quarterly dollar LIBOR + 5.5%, payable
quarterly. The Credit Facility for Financing Accounts Receivable may be drawn through
March 25, 2018 and is renewable annually. The Credit Facility for Financing Accounts
Receivable bears annual interest of monthly dollar LIBOR + 4.25%. The right to draw the
credit facility is conditional on the Company’s having cash balances of not less than $4
million in the Company’s account with the Bank. In addition, the Company allotted the Bank
798,088 warrants exercisable for purchase of 798,088 of the Company’s ordinary shares at an
exercise price of NIS 1.36 per share.
On January 30, 2018, the Company and the Bank signed an amendment and extension of the
validity of the Credit Agreement (the “ Amendment and Extension of the Credit
Agreement”). As part of the Amendment and Extension of the Credit Agreement, the
following conditions were agreed upon ,inter alia:
1)
2)
3)
4)
The framework of the long-term loan is to be utilized as a long-term loan or as a short-
term loan. The exercise period of the framework of this loan will be extended until
February 28, 2019, with the manner of repayment of the principal of the short-term
loans and the interest thereon will be agreed upon by the parties prior to the draw of the
short-term loans.
The exercise period of the Credit Facility for Financing Accounts Receivable was
extended until January 12, 2019.
The credit allocation fee will increase from 0.6% to 0.9%
The undertaking in the Credit Agreement to deposit $4 million in the Company’s
account with the Bank upon the withdrawal of the credit was changed, so that the
Company undertakes that from the date of the withdrawal of credit, the balance of the
cash in the Company’s account with the Bank will not be less than 40% of the amount
of credit actually provided to the Company.
5)
The warrant exercise period was extended by one year.
To secure the repayment the Loan and the Credit Facility for Financing Accounts Receivable,
the Company registered a fixed and floating charge on all of its assets in favor of the Bank.
Subsequent to the reporting date, on February 20, 2018, the company withdrew approximately
$5 million from the credit facility, approximately $2.9 million as a short-term loan and $2.1
million as Credit Facility for Financing Accounts Receivable. The short-term loan is for a
27
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
period of three months.
The fair value of the warrants is $122 thousand. The model used in the calculation has taken
into account the closing price of the Company’s shares on the TASE on March 28, 2017 (the
day preceding the date of the approval of the grant by the Board of Directors), which was NIS
1.28 per share and in accordance with the following assumptions:
Expected volatility
Risk free interest rate
Expected dividends rate
Exercise price ) in NIS(
57.6%
1.01%
0%
NIS 1.36
Following the extension of the exercise period of the warrants, as described above, their fair
value increased by $15 thousand.
b. Convertible notes
On March 2013, the Company issued by way of a shelf prospectus, under a shelf prospectus
published by the Company in February 2013, NIS 62,556 thousand par value convertible
notes (Series L), listed for trading and registered in the owner’s name and also issued, by non-
material private offering, a further NIS 13,700 par value convertible notes (Series L), listed
for trading and registered in the owner’s name for total net proceeds of $19.5 million. The
notes (Series L) were convertible on any trading day, from the date of listing for trading
through February 12, 2018, so that each NIS 1.92 par value notes (Series L) could have been
converted into one ordinary share of NIS 0.01 par value of the Company, subject to
adjustments (see below). The notes (Series L) matured in two principal repayments on
February 28, 2017 and on February 28, 2018. The notes (Series L) bore fixed interest at
8.65% per annum (principal and interest are not linked), and were payable semi-annually: on
August 28 and on February 28, through February 2018. The effective interest rate is 27.7%.
Following the rights offering during the year ended December 31, 2015 (as part of the Viola
Investment Transaction, see Note 16b), the conversion ratio of the notes (Series L) was
adjusted in accordance with the benefit element of the rights. Therefore, after said adjustment
every 1.92 NIS par value of the notes (Series L) could be converted to 1.00904 ordinary
shares of the Company.
On February 28, 2017, the first installment of the notes (Series L) in a total amount of NIS
38,128 thousand par value was repaid and on February 28, 2018, the second and last
installment of the notes (Series L) in a total amount of NIS 38,128 thousand par value was
repaid.
Out of the repayment made on February 28, 2018, a principal of NIS 6 million relating to
notes (Series L) that were held by three interested parties in the Company, Medtronic
International Technology Inc., Dr. Giora Yaron, who serves as Chairman of the Board of
Directors ןn the Company (through Itamar Technologies and Investments (1994) Ltd., a
company owned and controlled by him) and Mr. Martin Gerstel, who serves as a director of
the Company (together in this section: the “Shareholders”), plus the interest that was to be
paid to them were not paid. The Shareholders informed the Company that in order to support
the Company’s business strategy, they intend to provide the Company with a loan of the same
amount. If the parties will not reach an agreement regarding the terms of the loan within 30
days (i.e., until March 23, 2018), the Company will repay the Shareholders the balance of the
principal of the notes (Series L) and the interest within 60 days (i.e., until April 22, 2018).
On March 14, 2018 (after obtaining the approval of the Audit Committee), the Board of
Directors approved principles for a private placement to the following shareholders: The
controlling shareholder, Viola Growth II A.V. LP, a limited partnership, which holds the
28
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
Company’s shares through Viola Growth II (A) L.P and Viola Growth II (B) L.P (the above
three corporations will be called "Viola"), the abovementioned shareholders and an
institutional investor who is an interested party in the Company. If the private placement is
made, the loan money will be used to make the investment of the abovementioned
shareholders in the private placement. For details, see Note 28.
NOTE 11 – PROVISIONS
Warranties
Returns
U.S. dollars in thousands
Total
Balance as of January 1, 2017
Provisions made during the year
Provisions reversed during the year
Provisions realized during the year
Balance as of December 31, 2017
93
135
(27)
(101)
100
74
91
-
(82)
83
167
226
(27)
(183)
183
Balance as of January 1, 2016
Provisions made during the year
Provisions reversed during the year
Provisions realized during the year
Balance as of December 31, 2016
a. Warranties
Warranties Returns
Total
U.S. dollars in thousands
104
58
(26)
(43)
93
134
2
-
(62)
74
238
60
(26)
(105)
167
The provision is based on estimates made based on the cumulative past experience with
regard to similar products and services. The Group estimates that most of this liability would
be realized within 12 months.
b. Returns
The provision for products returned by customers is calculated based on estimates made by
management, relying on the Group’s past experience.
NOTE 12 – OTHER ACCOUNTS PAYABLE
Employees
Institutions
Interest payable
Advance payments from customers
Other
December 31,
2017
2016
U.S. dollars in thousands
1,117
339
326
193
23
1,998
963
306
588
158
56
2,071
For information about the Group’s exposure to currency and liquidity risks in respect of the
payables balances, see Note 25.
29
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
NOTE 13 – DERIVATIVES
a. Composition
Liabilities
The conversion component in the convertible
notes, see b. below and Note 10b
Viola Warrants (non-traded), see c. below and
Note 16b
Warrants (Series 4) (traded) issued under the
rights offering, see c. below and Note 16b
December 31
2017
2016
U.S. dollars in thousands
96
2,315
464
2,875
2,237
3,827
736
6,800
b. The conversion component of notes convertible into shares
The net proceeds from the issuance of the convertible notes was bifurcated for measurement
purposes, into a conversion component, accounted for as a derivative measured at fair value in
the statement of operations and is accordingly measured based on its fair value on each
reporting date, with changes to fair value regularly charged to the statement of operations, and
a liability component, which is initially recognized based on its fair value net of attributed
transaction expenses (the balance of consideration not attributed to the conversion
component), accounted for at amortized cost, using the effective interest inherent therein,
calculated as of the issuance date as noted above. The attributed transaction costs were
allocated to the different components pro-rata to the amounts of their initial recognition before
allocation of the said costs.
The fair value is calculated using the binomial model with the following parameters:
December 31,
2017
2016
Discount rate for notes (yield to maturity of the notes)
Share price (in NIS)
Standard deviation of the share price
104.18%
1.340
56.13%
46.62%
1.487
57.90%
c. The fair value of the Viola Warrants issued to Viola under the investment transaction
and of the Warrants (Series 4) issued under the rights offering
The fair value of the Viola Warrants and the Warrants (Series 4) as of December 31, 2015 and
as of the end of every one of the first three quarters of 2016 were measured according to the
exchange rate of the Warrants (Series 4), on the basis of the warrants’ rate every cut-off date.
The fair value as of December 31, 2015 was determined on the basis of the exchange rate of
the warrants on the first day of trading of the Warrants (Series 4), being January 3, 2016 This
is due to the fact that the Viola warrants and the Warrants (Series 4) have essentially identical
terms.
Pursuant to IFRS, the price cited in an active market must be used with no adjustment to
measure fair value at any time it can be obtained, as this price provides the most reliable
evidence of fair value. An “active market” is defined as a market where transactions in the
asset or liability occur with sufficient frequency and volume, enough to provide information
on price on an ongoing basis. When a significant decline occurs in the volume or level of
activity in the asset or liability, additional analysis of the transactions or prices is needed, and
30
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
a change in the valuation technique or the use of multiple valuation techniques may be
appropriate.
In connection with said provisions, the Company took the position that as of the end of 2016.
there is no “active market” for the Warrants (Series 4) primarily due to an ongoing gradual
decline in the frequency and volume of trading in the Warrants (Series 4), including in light
that the total of such warrants traded over the fourth quarter of 2016 and the four quarters of
2017, was approximately 1.7%, 0.5%, 0.5%, 0.1% and 0.6%, respectively, of the total number
of outstanding warrants with significant variance in the transactions prices of the warrants
without a corresponding material change in the share price. Moreover, there was often a
negative correlation between the change in the share price and the change in the trading price
of the warrants.
Consequently, the fair value of the Viola Warrants and the Warrants (Series 4) that were
outstanding as of December 31, 2016 and thereafter, were estimated on the basis of an
accepted option pricing model, with the assistance of an independent appraiser. In addition,
the Company gave the appropriate weight to market prices during the period. The fair value is
measured based on observable market data, directly or indirectly, based on the binomial
model and based on relevant parameters of the terms of the Viola Warrants and the Warrants
(Series 4) required for their valuation. The assumptions and the parameters of the model
include: the underlying asset (share market price), the exercise price of the warrants, the
duration of the warrant, the expected volatility of the underlying asset (share price) and the
risk-free interest rate for the period
The fair value of the Viola Warrants and the Warrants (Series 4) is calculated using the
binomial model and based on the parameters listed below.
The discount rate of the Viola Warrants and the
Warrants (Series 4) (risk free interest)
Share price (in NIS)
Standard deviation of the share price
December 31,
2017
2016
0.11%
0.43%
1.340
56.13%
1.487
57.90%
NOTE 14 – COMMITMENETS AND CONTINGENCIES
a. Obligation to pay royalties to the Innovation Authority
The obligation to pay royalties to the Innovation Authority is presented as part of long-term
liabilities and accrued expenses in respect of future sales of the EndoPAT3000 product and/or
its unique technology. The long-term commitment is discounted to the date of the relevant
reporting date. The above product development was discontinued before its completion and
the Company has no sales in its respect. Therefore, for the purpose of calculating this
commitment the Company carries out as of the date of each relevant financial statement a
future sales forecast of the EndoPAT3000 product and/or its unique technology when the sales
amounts are discounted. From time to time, the Company reexamines the forecasts and
accordingly updates the amount of long-term commitment discounted in the financial
statements. The valuation of the liability to the Innovation Authority is based on the
discounted cash flows model (DCF).
It should be noted that the Company has a dispute with the Innovation Authority regarding the
source of income for which the Company is required to pay royalties to the Innovation
Authority. In accordance with the letter of undertaking signed by the Company with regard to
the grants received from the Innovation Authority, the Company must pay royalties on all
sales of cardiology products, namely for sales of the various EndoPAT products and not only
31
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
for sales of the EndoPAT3000 product and/or its unique technology. After consultation with
experts, the Company’s management believed, as it believes to this day, that it is not required
to pay royalties on all sales of EndoPAT devices, but only on sales of products resulting from
the unique technology, supported by the Innovation Authority’s funds. The Company product,
for which the Company has actual sales as of 2004, is the EndoPAT2000 product, and this
product does not include technology supported by the funds from the Innovation Authority.
The issue is currently in discussions with the Innovation Authority.
As of December 31, 2017, the Company has no plans to complete the development of the
EndoPAT3000 product and/or its unique technology. Nevertheless, the Company periodically
assesses other developments which may use the technology unique to EndoPAT3000. In the
event that this technology will be used in the Company products, royalties from the sale of
such products in the years 2019 to 2026 will cover, according to the Company’s estimates, its
entire commitment to the Innovation Authority. It should be noted that the gross obligation
(before discounting) that may arise from royalty payments to the Innovation Authority was
estimated in December 31, 2017 at approximately $1,030 thousand in accordance with the
approval of the balance from the Tmura Fund at the Innovation Authority as of December 31,
2017, and in fact this is the amount of maximum exposure of the Company, should eventually
the position of Innovation Authority will be accepted. The value of long-term commitment in
the statement of financial position is $905 thousand.
b. Obligation to pay royalties to the Foreign Trade Administration of the Ministry of
Economy and Industry
On December 16, 2015, the Company’s request for government assistance for establishing a
marketing agency in China was approved, as part of the assistance of the Ministry of
Economy and Industry to establish marketing agency offices in China, India and Japan (the
“India China Plan”). According to the approval received, the Company shall be entitled to a
grant of 50% of its recognized expenses in connection with the establishment and operation of
a marketing agency in China over a period of three years up to a maximum grant of NIS 1,625
thousand. The Company will be obligated to pay royalties up to the repayment of the total
funding received, linked to the index. The royalties will be at a rate of 3% of the increase in
sales of the Company in China with respect to the year ended December 31, 2015, which will
be paid starting on the first calendar year in which the Company will not be entitled to
reimbursement of expenses under the India China Plan, for five years or until the repayment
of the support amount received under the India China Plan (linked to the Israeli CPI), the
earlier of the two. However, it will be clarified, that in the event the Company does not
increase the scope of exports during the India China Plan period and during the five years
after the end of the India China Plan, it will not be required to pay royalties.
As of December 31, 2017, the Company received a grant under the India China Plan totaling
$35 thousand. This amount is presented in statement of financial position under long-term
liabilities.
On November 22, 2016, the Company's request for government assistance to promote the
Company’s marketing and distribution activities in the Netherlands was approved under the
"Smart Money" program of the Ministry of Economy and Industry (the “Smart Money
Plan”). The Company will be entitled to a grant of 50% of its recognized expenses in
connection with the establishment of a marketing and distribution infrastructure in the
Netherlands in a two-year period, with the possibility of extending it for an additional year (up
to a maximum grant of NIS 346 thousand). In the event that the Company’s export to the
Netherlands is 50% higher or $250,000 (whichever is lower) relative to the year ended
December 31, 2016, the Company will be liable for royalties until the full amount of the
financing received is linked to the Israeli CPI. The royalties will be at a rate of 3% of the
increase in the volume of its exports to the Netherlands with respect to the year ended
December 31, 2016, which will be paid from the first calendar year in which the Company
will not be entitled to reimbursement of expenses under the plan for five years or until the
32
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
amount of support received under the Smart Money Plan), the earlier of the two. However, it
will be clarified, that in the event the Company does not increase the scope of exports during
the Smart Money Plan period and during the five years after the end of the Smart Money Plan,
it will not be required to pay royalties.
As of December 31, 2017, the Company received a grant under the Smart Money Plan totaling
$8 thousand. This amount is presented in statement of financial position under long-term
liabilities.
c. Commitments
The Company and its subsidiaries have lease agreements for buildings and vehicles. Minimum
lease commitments expected under operating leases which may not be terminated are as
follows:
Year Ending December 31,
U.S. dollars
in thousands
2018
2019
2020
1,017
982
886
2,885
NOTE 15 – INCOME TAXES
a. Corporate tax rates in Israel
Presented below are the tax rates relevant to the Company in the years 2015 – 2017:
2015 – 26.5%
2016 – 25%
2017 – 24%
On January 4, 2016, the Knesset (the Israeli parliament) approved the Amendment of the
Income Tax Ordinance (No. 216) Law, 2016, which stipulated, inter alia, the lowering of the
corporate tax rate beginning in January 1, 2016 and thereafter by 1.5% so that it stands at
25%. Furthermore, on December 22, 2016, the Knesset approved the Economic Efficiency
Law (Legislative Amendments to Achieve Budget Targets for the 2017 and 2018 Budget
Years), 2016, which stipulates, inter alia, the reduction of corporate tax rates from 25% to
23% in two phases. The first phase is to a rate of 24%, starting on January 2017 and the
second phase is to a rate of 23% starting on January 2018 and thereafter.
b. Benefits under the Investment Encouragement Law
Approved enterprise, benefited enterprise and preferred enterprise
Most of the production facilities of the Company have been granted “Approved Enterprise”,
“Benefited Enterprise” and “Preferred Enterprise” status under
the
Encouragement of Capital Investments, 1959 (the “Investment Law”). The Company is a
“Foreign Investors’ Company” as defined by the Investment Law, it is entitled to tax benefits
for taxable income arising from its approved, benefiting or preferred enterprise.
the Law for
A company having an approved enterprise that distributes a dividend from income that was
exempt, will be required in the tax year of the dividend distribution to pay corporate tax on the
amount of the dividend distributed (including the company tax required as a result of the
distribution) at the corporate tax rate that would have been applicable to it in the year the
income was generated if it had not been exempt from tax.
c. Measurement of results for tax purposes according to the Income Tax Law
33
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
(Adjustments for Inflation), 1985 (the "Adjustments Law")
The Company, as a "foreign investment company", has chosen to apply the provisions of the
Income Tax Regulations (Rules for the Management of Account Books of Foreign Investment
Companies and Certain Partnerships and Determination of their Compulsory Income), 1986
and reports for tax purposes in dollars, from the 2016 tax year.
d. Taxation of Non-Israeli subsidiaries
Subsidiaries incorporated outside of Israel are assessed for tax under the tax in their countries
of residence.
The primary tax rates applicable to the Non-Israeli subsidiaries are:
U.S. – tax rate of 40% (federal and state taxes), see also below.
Japan – tax rate of 25.5%.
On December 22, 2017, the U.S. enacted new tax legislation, whereby the federal tax rate was
reduced from 35% to 21%, effective 1 January 2018, imposing a restriction on the deduction
of certain interest expenses and applying the territorial tax method. The reduction in the U.S.
federal tax rate did not have a material impact on the tax expenses of the U.S. subsidiary in
the year ended December 31, 2017.
e. Taxes on the income in the statement of operations
Tax expenses in the statement of operations mainly refer to operations of the subsidiaries in
the U.S. and Japan. The Company does not pay taxes in Israel, as it has high tax losses
carryforward to future years. In addition, as stated in e below, the Company does not
recognize deferred taxes for these losses. Thus, the Company did not include a calculation of
the theoretical tax due to the fact that the total tax expenses in the statement of operations are
not material.
f. Carryforward tax losses
The Company has carryforward tax losses (including research and development expenses,
which may be deductible) as of December 31, 2017, amounting to $112 million.
No deferred tax asset was recognized in respect of those carryforward tax losses, in the
absence of expected utilization thereof in the foreseeable future.
g. Tax assessment
The Company has not received final tax assessments since its incorporation. The Company
has self-assessments deemed to be final through the 2011 tax year .
NOTE 16 – EQUITY
a. Ordinary shares and additional paid-in capital
Issued and outstanding share capital (ordinary
shares of NIS 0.01 par value):
Outstanding at the beginning of the year
Shares issued in private placements during the year
Shares issued in the exercise of stock options
during the year
Year Ended December 31,
2017
2015
2016
Number of shares in thousands
262,917
-
259,581
2,976
180,762
76,777
1,578
360
2,042
Outstanding at the end of the year
264,495
262,917
259,581
34
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
Authorized
The rights of the ordinary shares include voting rights at the general meeting of
shareholders, the rights to receive dividends and rights to participate in the distribution of
the surplus assets of the Company in the event of liquidation.
750,000 750,000
750,000
b.
Investment agreement with Viola and the rights offering to the Company’s
shareholders
During the fourth quarter of 2015 and the first quarter of 2016, under an agreement signed in
August 2015 between the Company and a corporation of the Viola Group: Viola Growth 2
A.V. LP, a limited partnership, through Viola Growth II (A) LP and Viola Growth II (B) LP
(the above three corporations will hereafter be called together: “Viola”), (the “Investment
Agreement” and the “Transaction”), approved by a shareholders’ meeting on October 12,
2015, Viola invested in the Company an amount of $25.2 million (out of which an amount
of approximately $24.1 million was invested in November 2015 and an amount of $1.1
million was invested in February 2016). In total, the Company issued to Viola 66,876,907
ordinary shares at a price of NIS 1.449 per share (of which 63,900,759 ordinary shares were
issued in the year ended December 31, 2015 and 2,976,148 ordinary shares were issued in
the year ended December 31, 2016).
In addition, under the Investment Agreement the Company issued to Viola 33,438,454 non-
traded warrants for no consideration (of which 31,950,380 warrants were issued in in the
year ended December 31, 2015 and 1,488,074 warrants were issued in in the year ended
December 31, 2016) at a ratio of one warrant for every two shares. The warrants are
exercisable from the date of completion of the first phase. Each warrant will be exercisable
into one ordinary share, at an exercise price which will be calculated as follows: For the first
21 months the exercise price of each warrant will be NIS 1.642 and for the remaining 21
months NIS 1.745, subject to adjustment in the event of a merger, the issuance of securities,
distribution of cash dividend and changes in the Company’s capital. Viola will be entitled to
exercise the warrants by way of cash-less. The warrants will expire on the earlier of: (i) the
passage of 42 months; (ii) in the event of a public offering valued at (pre-money) at least at
$250 million; or (c) in the event of a merger or sale of shares which reflects a company
value of at least $250 million and the result of which will be that the shareholders in the
Company before said event will hold less than the majority of voting rights in the
surviving/sold company.
The net consideration of the issuance of shares and warrants as part of the Viola Transaction
was attributed to the equity component (shares) and the liability component (warrants). The
consideration was first attributed to the liability component and then the remainder of the
consideration was attributed to the equity component. The warrants are a liability component
revalued at fair value through profit and loss for each cut-off date, as their exercise price is
denominated in shekels, while the Company’s functional currency is the dollar, namely the
exercise price in effect is not permanent. See Note 13c for calculating the fair value of the
warrants.
On December 29, 2015, the Company carried out a rights offering to its shareholders
according to a shelf offering report published on December 2, 2015 (the “Shelf Offering
Report”). Under the rights offering, the Company issued 12,876,603 ordinary shares at a
price of NIS 1.449 per share and 6,438,152 warrants (Series 4) of the Company for no
consideration. The gross consideration received by the Company in respect of the rights
offering under the Shelf Offering Report amounts to approximately $4.7 million. As part of
the Investment Agreement, Viola undertook that if there is no full response to the rights
offering, the Company will issue it additional shares so that the total gross consideration
from the Transaction and the rights offering will be $30.0 million. Since there was not a full
response to the rights offering, Viola invested in February 2016 an additional amount of
$1.1 million.
35
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
Each warrant (Series 4) shall be exercisable into one ordinary share, at an exercise price
which will be calculated as follows: For the first 21 months will the exercise price of each
warrant be NIS 1.642 and for the remaining 21 months it will be NIS 1.745, subject to
adjustment in the case of the issuance of securities, distribution of cash dividend and
changes in the Company’s capital. The warrants (Series 4) were listed on the TASE.
Overall, in all stages of the Transaction and the rights offering, 79,759,210 ordinary shares
were issued (of which 76,777,062 ordinary shares were issued in the year ended December
31, 2015 and 2,976,148 ordinary share were issued in the year ended December 31, 2016),
33,438,454 non-traded warrants (of which 31,950,380 warrants were issued in the year
ended December 31, 2015 and 1,488,074 warrants were issued in the year ended December
31, 2016) and 6,438,152 warrants (Series 4) were issued in in the year ended December 31,
2015. The total consideration received as part of the Transaction and the rights offering is
$30.0 million.
The net consideration of the offering from the issuance of the shares and warrants (Series 4)
under the rights offering was attributed an equity component (shares) and the liability
component (warrants). The consideration was attributed first to the liability component and
then the remainder was attributed to the equity component. The warrants are essentially
identical to the warrants issued to Viola. See Note 13c for calculating the fair value of the
warrants (Series 4).
The issuance costs, in both transactions, are attributed to the shares, the warrants issued to
Viola and the warrants (Series 4) according to the consideration attributed to each of the
components. The issuance costs were deducted from the consideration attributed to the
shares. The issuance costs attributed to the warrants issued to Viola and the warrants (Series
4) were immediately credited to the statement of operations as financial expenses.
NOTE 17 – SHARE-BASED PAYMENTS
a. The number of options and RSUs and the weighted average exercise price for every
option or RSU:
Year Ended December 31,
2017
2016
2015
Number of
options
Range of
exercise price
(NIS)
Number of
options
Range of
exercise price
(NIS)
Number of
options
Range of
exercise
price (NIS)
Outstanding at beginning of year
Granted during the year (1)(2)
Forfeited and expired during the year (1)
Exercised during the year
40,178,148
4,105, 076
(6,826,690)
1,565,050)
0.00 – 2.50
0.00 – 1.68
-
0.23
24,316,648 0.10 – 2.50
28,180,067 0.00 – 1.55
(11,962,761)
-
(355,806) 0.10 - 0.48
26,935,899 0.10 – 2.50
1,602,250 1.77 - 1.98
(2,179,232)
(2,042,269) 0.23 – 1.73
-
Outstanding at end of year
Exercisable at end of year
* Including:
* 35,892,484
0.00 - 2.50
40,178,148 0.00 - 2.50
24,316,648 0.10 - 2.50
9,716,559
0.23 - 2.50
12,319,881 0.23 - 2.50
12,078,958 0.10 - 2.50
Options with service conditions only
Options with service conditions and
market conditions
RSUs
Total
16,753,449
15,896,403
3,242,632
35,892,484
(1) In the year ended December 31, 2016, including the new options in lieu of all the options
36
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
granted in the past that have not yet vested, as detailed in e(2) below.
(2) In the year ended December 31, 2017, including the second tranche in the total amount of
330,000 options that were granted to four directors on May 25, 2016 and were actually
allotted in the year ended December 31, 2017, and not t including the second tranche in
the total amount of 220,000 options that were granted to two directors on May 16, 2017
and not yet been actually allotted. In the year ended December 31, 2016, not including
the second and third tranches in the total amount of 880,000 options that were granted to
four directors on May 25, 2016 and not yet actually allotted (see e(2) below).
As a result of the grant of such options and RSUs the Group recorded for the years ended
December 31, 2017, 2016 and 2015, a non-cash expense of $1,294 thousand, $1,776
thousand and $428 thousand, respectively. The balance of expenditure amounting to $1,865
thousand will be recorded by the Company over the vesting period of the options.
The weighted average share price upon exercise of the options, for options exercised in the
year ended December 31, 2017 and 2016 and 2015 was $0.35, $0.34 and $0.42, respectively.
The exercise price of the options outstanding as of December 31, 2017 ranges from
approximately $0.07 to $0.72 and the weighted average of the remaining contractual
duration is 6.23 years. The exercise price for outstanding options as of December 31, 2016
ranged between $0.00 and $0.65; the weighted average remaining contractual duration was
4.22 years. The exercise price for outstanding options as of December 31, 2015 ranged
between $0.03 and $0.64; the weighted average remaining contractual duration was 6.47
years.
According to their original terms, the RSUs, in whole or in part, will become ordinary shares
on January 21, 2020, if the Company meets the share price target specified in e below. The
exercise price of the RSUs ranges from $0.00 to $0.09. On March 14, 2018, the Company's
Board of Directors resolved to change the above date to December 20, 2020, see Note 28.
b. Additional information in respect of share-based payments discharged using equity
instruments
The fair value of the options granted to the President and Chief Executive Officer,
employees, directors and consultants is measured according to the Black-Scholes pricing
model. The fair value of stock options and performance-based RSUs, granted to officers and
key employees who are vesting on the basis of a rise in the Company’s shares, is measured
by implementing the Monte Carlo Simulation; furthermore, the options granted to directors
and which have not yet been set an exercise price, were priced using the binomial model.
Following are the parameters used to measure the fair value on the date of grant of share-
based payment programs:
The fair value at grant date (in thousands of dollars)*
The number of shares arising from the exercise of the
options (in thousands)
The parameters included when calculating fair value:
The share price (at the grant date) (in NIS)
The exercise price (in NIS)
Expected volatility (weighted average)
Expected lifetime (weighted average)
Risk-free interest rate
37
Options with
service
conditions only
322
Options with
service
conditions and
market
conditions
142
2,097
1,645
1.13 – 1.61
1.28 – 1.68
56.9% - 58.9%
3– 6 years
0.4% - 1.43%
1.13
1.17
56.9%
5.5 years
0.9%
RSUs
40
363
1.13
0.00
56.9%
-
0.9%
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
Expected dividend rate
0%
* Not including the fair value of the Extension of the exercise period of options granted to
the President and Chief Executive Officer and to officers and key employees of the
Company and its subsidiaries, see e(3) below.
0%
0%
The expected volatility was determined based on the historical volatility of the share price.
The expected lifetime of the options is determined in accordance with management’s
estimation of the duration of the employees’ holdings in them, given their position in the
Company and the Company’s past experience with respect to employee attrition. The risk-
free interest rate is based on government shekel bonds, whose remaining period is equal to
the expected lifetime of the options.
As to grant of stock options and RSUs subsequent to the reporting date and to the change
subsequent to the reporting date of the terms of the options and RSUs having service
conditions and market conditions, see Note 28.
c. Performance-based options
The vesting of options granted to employees, officers and consultants as of December 2013
was partially (28.5%) contingent upon the continued employment of the grantees (vesting
period over 4 years) and in part (71.5%) on the grantees’ meeting business and professional
goals on the organization unit and on the personal level (in respect of 2014 only) and on
meeting overall Company objectives.
The overall Company objectives include two cumulative threshold conditions which include
target revenues and minimum operating income or loss, as specified by the Company’s
Compensation Committee and Board of Directors, in line with the work plan approved by
the Company’s Board of Directors. In the year ended December 31, 2015, the Company did
not meet the overall Company objectives.
Unvested options as of December 31, 2015 were cancelled against the grant of options and
RSUs or replaced with options with service conditions only, see e below.
d. Options and RSUs with service conditions and market conditions
The abovementioned options and RSUs will vest on January 21, 2020 (or earlier in case of
an acceleration event), if the share price is at least NIS 2.13, at which time a quantity of 50%
will vest and if the share price is NIS 4.24, the whole quantity will vest. In the range
between these two share prices, a relative quantity will vest. An acceleration event is an
event in which all the issued and outstanding share capital of the Company (including by
way of a merger in which the Company’s shareholders prior to the merger will hold less than
10% of the issued and outstanding share capital and voting rights in the company surviving
the merger) is sold for consideration reflecting a share price that is not lower than the price
of NIS 2.13.
On March 14, 2018, the Company’s Board of Directors decided to change the price of NIS
2.13 to NIS 1.70 and the above date to December 20, 2020, see Note 28.
e. Grant of options and RSUs to officers, employees and directors
1) Grants in the year ended December 31, 2017:
In February 2017, the Company granted 711,000 options to employees
In May 2017, the Company granted 440,000 options to directors and 100,000 options
were granted to a consultant.
In September 2017, the Company granted 2,281,218 options and 362,858 RSUs to
employees. In addition, 100,000 options were granted to a consultant.
The grants during the year ended December 31, 2017, are detailed below:
38
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
The
instrument
conditions
The number
of
instruments
711,000
440,000
Contractual
duration of the
options (years)
5 years from the
date of grant
Vesting conditions
2/3 will vest and become exercisable after two
years from the date of grant. The remaining 1/3
will vest and become exercisable in 4 equal
quarterly portions, at the end of each calendar
quarter commencing on the date of vesting of
the first tranche. The first quarterly tranche will
vest on March 31, 2019.
5 years from the
start of vesting of
each tranche
The options granted to directors will be divided
into two equal portions of 220,000 options each.
The vesting period for the first tranche for the
first term will begin on May 14, 2017 (the date
of the Company’s 2017 shareholders’ meeting);
the vesting period for the second tranche for the
second term will begin on the date of the
Company’s 2018 shareholders’ meeting; each
tranche will vest in four equal portions (55,000
options each) annually over four years, subject
to extension of the term of the directors.
The date of
grant and the
entitled
grantees
Grant of
options to15
employees on
February 28,
2017(with
service
conditions
only)
Grant of
options to
Viola Growth
Management 2
Ltd. (“Viola
Management”)
in respect of
the service of
the directors
Jonathan
Kolber and
Sami Totah
(the
“directors”)
(with service
conditions
only) on
March 21,
2017 (the
grant was
approved by
the
Company’s
shareholders
on May 14,
2017)
Grant of
options to a
consultant on
March 29,
2017 (with
service
conditions
only)
Each
option is
exercisable
into an
ordinary
share of
NIS 0.01
par value
with an
exercise
price of
NIS 1.68
Each
option is
exercisable
into an
ordinary
share of
NIS 0.01
par value
with an
exercise
price of
which will
be
determined
on the
beginning
of the
vesting
period. The
exercise
price of the
options
relating to
the first
tranche is
NIS 1.54*
Each
option is
exercisable
into an
ordinary
share of
NIS 0.01
par value
5 years from the
date of grant
100,000
25% will vest and become exercisable on May
15, 2017. The remaining 75% will vest and
become exercisable in 12 equal quarterly
portions, at the end of each calendar quarter
commencing on the date of vesting of the first
tranche (i.e., August 15, November 15, February
15 and May 15). The first quarterly tranche will
vest on August 15, 2017.
39
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
The date of
grant and the
entitled
grantees
The
instrument
conditions
The number
of
instruments
Vesting conditions
Contractual
duration of the
options (years)
with an
exercise
price of
NIS 1.36
Each
option is
exercisable
into an
ordinary
share of
NIS 0.01
par value
with an
exercise
price of
NIS 1.28
Each
option is
exercisable
into an
ordinary
share of
NIS 0.01
par value
with an
exercise
price of
NIS 1.28
Each
option is
exercisable
into an
ordinary
share of
NIS 0.01
par value
with an
exercise
price of
NIS 1.17
Each
option is
exercisable
into an
ordinary
share of
Grant of
options to an
office holder
(with service
conditions
only)
Grant of
options to a
key employee
(with service
conditions
only)
Grant of
options to an
office holder
(with service
conditions and
market
conditions)
Grant of
options to a
key employee
(with service
conditions and
market
367,548
25% will vest and become exercisable on April
30, 2018. The remaining 75% will vest and
become exercisable in 12 equal quarterly
portions, at the end of each calendar quarter
commencing on the date of vesting of the first
tranche (i.e., March 31, June 30, September 30
and December 31). The first quarterly tranche
will vest on June 30, 2018.
10 years from
January 21, 2016
27,566
25% will vest and become exercisable on
February 28, 2017. The remaining 75% will vest
and become exercisable in 12 equal quarterly
portions, at the end of each calendar quarter
commencing on the date of vesting of the first
tranche (i.e., March 31, June 30, September 30
and December 31). The first quarterly tranche
will vest on March 31, 2017.
10 years from
January 21, 2016
1,529,864
The options will vest at the end of four years
from January 21, 2016 if the share price will be
at least NIS 2.13 per share, in which case, the
amount of 50% will vest, and if the share price
will be NIS 4.24 per share, the entire amount
will vest. In the range between these two stock
prices, the relative quantity will vest.
10 years from
January 21, 2016
114,740
The options will vest at the end of four years
from January 21, 2016 if the share price will be
at least NIS 2.13 per share, in which case, the
amount of 50% will vest, and if the share price
will be NIS 4.24 per share, the entire amount
will vest. In the range between these two stock
40
10 years from
January 21, 2016
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
The
instrument
conditions
The number
of
instruments
Vesting conditions
prices, the relative quantity will vest.
Contractual
duration of the
options (years)
The date of
grant and the
entitled
grantees
conditions)
Grant of
options to
employees
(with service
conditions
only)
Grant of
options to a
consultant
(with service
conditions
only)
Total options
Grant of RSUs
to an office
holder (with
service
conditions and
market
conditions)
NIS 0.01
par value
with an
exercise
price of
NIS 1.17
Each
option is
exercisable
into an
ordinary
share of
NIS 0.01
par value
with an
exercise
price of
NIS 1.28
Each
option is
exercisable
into an
ordinary
share of
NIS 0.01
par value
with an
exercise
price of
NIS 1.28
Each RSU
is
exercisable
into an
ordinary
share of
NIS 0.01
par value
without
any
exercise
price.
241,500
2/3 will vest and become exercisable after two
years from the date of grant. The remaining 1/3
will vest and become exercisable in 4 equal
quarterly portions, at the end of each calendar
quarter commencing on the date of vesting of
the first tranche. The first quarterly tranche will
vest on June 30, 2019.
5 years from the
date of grant
100,000
25% will vest and become exercisable after one
year from the date of grant. The remaining 75%
will vest and become exercisable in 12 equal
quarterly portions, at the end of each calendar
quarter commencing on the date of vesting of
the first tranche. The first quarterly tranche will
vest on September 30, 2018.
5 years from the
date of grant
3,632,218
337,542
The RSUs will vest at the end of four years
from January 21, 2016 if the share price will be
at least NIS 2.13 per share, in which case, the
amount of 50% will vest, and if the share price
will be NIS 4.24 per share, the entire amount
will vest. In the range between these two stock
prices, the relative quantity will vest.
10 years from
January 21, 2016
41
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
Contractual
duration of the
options (years)
10 years from
January 21, 2016
Vesting conditions
The RSUs will vest at the end of four years
from January 21, 2016 if the share price will be
at least NIS 2.13 per share, in which case, the
amount of 50% will vest, and if the share price
will be NIS 4.24 per share, the entire amount
will vest. In the range between these two stock
prices, the relative quantity will vest.
The date of
grant and the
entitled
grantees
Grant of RSUs
to a key
employee on
October 13,
2016 (with
service
conditions and
market
conditions)
The
instrument
conditions
The number
of
instruments
25,316
Each RSU
is
exercisable
into an
ordinary
share of
NIS 0.01
par value
without
any
exercise
price.
Total RSUs
362,858
2) Grants in the year ended December 31, 2016:
In March 2016, the Company granted 3,620,834 new options to the President and Chief
Executive Officer in lieu of all the options granted in the past that have not yet vested.
In addition, the Company granted 3,755,847 new options in lieu of all the options
granted in the past that have not yet vested to 16 key employees of the Company
(including 6 officers), and the terms of 741,314 options granted in in the year ended
December 31, 2014 onwards to 65 offerees were updated, so that the conditions of their
exercise were cancelled and the their vesting period has changed. The said replacement
was handled as a change in the conditions in accordance with IFRS 2. The incremental
value measured at the date of replacement is not significant.
In addition, in March 2016, the Company granted to employees and officers of the
Company 15,270,957 options and 3,465,761 RSUs.
In May 2016, the Company granted 1,759,999 options to directors.
In September 2016, the Company granted to employees 1,114,129 options and 72,545
RSUs.
The new grants and the replacements made during the year ended December 31, 2016,
are detailed below:
The grant
date and the
entitled
employees
Grant of
options to
the
Company’s
President
and Chief
Executive
Officer and
key
The
instrument
conditions
Each option
is
exercisable
into a share
of NIS 0.01
par value
with an
exercise
price of NIS
The number
of
instruments
(In
thousands)
4,183,792
(1,869,467
options in
lieu of
options
granted in
the past and
2,314,325
new options)
Contractual
duration of the
options (years)
5 years from date
of grant*
Vesting conditions
25% will vest and become exercisable after one
year from the date of grant. The remaining 75%
will vest and become exercisable in 12 equal
quarterly portions, at the end of each calendar
quarter commencing on the date of the first
tranche vesting date (i.e., March 31, June 30,
September 30 and December 31). The first
quarterly tranche will vest on March 31, 2017.
42
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
The
instrument
conditions
1.55
The number
of
instruments
(In
thousands)
to key
employees.
Each option
is
exercisable
into a share
of NIS 0.01
par value
with an
exercise
price of NIS
1.40
17,177,846
(5,507,214
options in
lieu of
options
granted in
the past and
11,670,632
new options)
Vesting conditions
Contractual
duration of the
options (years)
The options will vest at the end of four years if
the share price will be at least NIS 2.13 per
share, in which case, the amount of 50% will
vest, and if the share price will be NIS 4.24 per
share, the entire amount will vest. In the range
between these two stock prices, the relative
quantity will vest.
5 years from date
of grant*
656,000
300,000
2/3 will vest and be exercisable after two years
from the date of grant. The remaining 1/3 will
vest and become exercisable in 4 equal
quarterly portions, at the end of each calendar
quarter commencing on the date of vesting of
the first tranche. The first quarterly tranche will
vest on March 31, 2018.
5 years from date
of grant
5 years from date
of grant
25% will vest and become exercisable after one
year from the date of grant. The remaining 75%
will vest and become exercisable in 12 equal
quarterly portions, at the end of each calendar
quarter commencing on the date of vesting of
the first tranche (i.e., March 31, June 30,
September 30 and December 31). The first
quarterly tranche will vest on March 31, 2017.
330,000
The options will vest in four equal portions on
January 21 of each year from 2017 through
2020.
5 years from date
of grant
Each option
is
exercisable
into a share
of NIS 0.01
par value
with an
exercise
price of NIS
1.55
Each option
is
exercisable
into a share
of NIS 0.01
par value
with an
exercise
price of NIS
1.55
Each option
is
exercisable
into a share
of NIS 0.01
par value
with an
exercise
43
The grant
date and the
entitled
employees
employees
on January
21, 2016
with service
conditions
only
Grant of
options to
the
Company’s
President
and Chief
Executive
Officer and
key
employees
on January
21, 2016
(with service
conditions
and market
conditions)
Grant of
options to
employees
on January
21, 2016
(with service
conditions
only)
Grant of
options to
consultants
on January
21, 2016
(with service
conditions
only)
Grant of
options to 3
directors on
March 16,
2016 (with
service
conditions
only)
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
The grant
date and the
entitled
employees
Grant of
options to 4
directors on
May 25,
2016 (with
service
conditions
only)
Grant of
options to 2
external
directors on
June 17,
2016 (with
service
conditions
only)
The
instrument
conditions
price of NIS
1.55
Each option
is
exercisable
into a share
of NIS 0.01
par value
with an
exercise
price of NIS
1.48 (for the
first tranche
of 219,999
options).
The exercise
price for
880,000
options that
will be
granted for
the second
and third
term will be
determined
on the date
of the
vesting.
Each option
is
exercisable
into a share
of NIS 0.01
par value
with an
exercise
price of NIS
1.48 (for the
first tranche
of 220,000
options).
The exercise
price for
440,000
options that
will be
granted for
the second
and third
term will be
determined
on the date
of the
The number
of
instruments
(In
thousands)
1,099,999
Contractual
duration of the
options (years)
5 years from the
start of vesting of
each tranche
Vesting conditions
The options granted to directors shall be
distributed as follows: first tranche in the
amount of 219,999 options; Second and third
tranche in the amount of 440,000 each. The
vesting period for the first tranche for the first
term began on May 25, 2016; the vesting period
for the second term will begin on May 25 2017;
the vesting period for the third tranche for the
third term in office will begin on May 25, 2018,
each tranche will vest in four equal portions
annually over four years.
660,000
The options granted to a director will be divided
into 3 equal portions of 220,000 options each.
The vesting period for the first tranche for the
first term began on June 17, 2016; the vesting
period for the second term will begin on June
17, 2017; the vesting period for the third term in
office will begin on 17 June 2018, each tranche
will vest in four equal portions (55,000 options
each) annually over four years.
5 years from the
start of vesting of
each tranche
44
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
The number
of
instruments
(In
thousands)
81,447
337,682
695,000
25,521,766
(7,376,681
in lieu of
options
granted in
the past and
18,145,085
new options)
1,692,312
The grant
date and the
entitled
employees
Grant of
options to a
key
employee on
October 13,
2016 (with
service
conditions
only)
Grant of
options to a
key
employee on
October 13,
2016 (with
service
conditions
and market
conditions)
Grant of
options to
employees
on October
13, 2016
(with service
conditions
only)
Total
options
The
instrument
conditions
vesting.
Each option
is
exercisable
into a share
of NIS 0.01
par value
with an
exercise
price of NIS
1.41
Each option
is
exercisable
into a share
of NIS 0.01
par value
with an
exercise
price of NIS
1.33
Each option
is
exercisable
into a share
of NIS 0.01
par value
with an
exercise
price of NIS
1.41
Each RSU is
exercisable
into a share
of NIS 0.01
par value
with an
exercise
price of NIS
0.30.
Grant of
RSUs to the
Company’s
President
and Chief
Executive
Officer on
January 21,
2016 (with
service
conditions
and market
Contractual
duration of the
options (years)
5 years from date
of grant*
5 years from date
of grant*
Vesting conditions
25% will vest and become exercisable after one
year from the date of grant. The remaining 75%
will vest and become exercisable in 12 equal
quarterly portions, at the end of each calendar
quarter commencing on the date of vesting of
the first tranche (i.e., March 31, June 30,
September 30 and December 31). The first
quarterly tranche will vest on September 30,
2017.
The options will vest at the end of four years if
the share price will be at least NIS 2.13 per
share, in which case, the amount of 50% will
vest, and if the share price will be NIS 4.24 per
share, the entire amount will vest. In the range
between these two stock prices, the relative
quantity will vest.
2/3 will vest and be exercisable after two years
from the date of grant. The remaining 1/3 will
vest and become exercisable in 4 equal
quarterly portions, at the end of each calendar
quarter commencing on the date of vesting of
the first tranche. The first quarterly tranche will
vest on September 30, 2018.
5 years from date
of grant
The RSUs will vest at the end of four years if
the share price will be at least NIS 2.13 per
share, in which case, the amount of 50% will
vest, and if the share price will be NIS 4.24 per
share, the entire amount will vest. In the range
between these two stock prices, the relative
quantity will vest.
5 years from date
of grant
45
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
The number
of
instruments
(In
thousands)
1,773,449
Contractual
duration of the
options (years)
5 years from date
of grant
Vesting conditions
The RSUs will vest at the end of four years if
the share price will be at least NIS 2.13 per
share, in which case, the amount of 50% will
vest, and if the share price will be NIS 4.24 per
share, the entire amount will vest. In the range
between these two stock prices, the relative
quantity will vest.
72,545
The RSUs will vest at the end of four years if
the share price will be at least NIS 2.13 per
share, in which case, the amount of 50% will
vest, and if the share price will be NIS 4.24 per
share, the entire amount will vest. In the range
between these two stock prices, the relative
quantity will vest.
5 years from
date of grant
3,538,306
741,314
2/3 will vest and become exercisable two years
after the date of the change, which is January
21, 2016. The remaining 1/3 will vest and
become exercisable in 4 equal quarterly
portions, at the end of each calendar quarter
commencing on the date of vesting of the first
tranche. The first tranche will vest on March 31,
2018.
10 years from
original date of
grant
The grant
date and the
entitled
employees
conditions)
Grant of
RSUs to key
employees
on January
21, 2016
(with service
conditions
and market
conditions)
Grant of
RSUs to a
key
employee on
October 13,
2016 (with
service
conditions
and market
conditions)
Total RSUs
Changing
the terms
of the
options
Changing
the terms of
employee
options with
performance
conditions
granted in in
the years
ended
December
31, 2014
and 2015
The
instrument
conditions
Each RSU is
exercisable
into a share
of NIS 0.01
par value
without any
exercise
price.
Each RSU is
exercisable
into a share
of NIS 0.01
par value
without any
exercise
price.
Each option
is
exercisable
into a share
of NIS 0.01
par value
with an
exercise
price as
determined
on the date
of the
original
grant
(ranging
from NIS
1.57 to NIS
2.13)
46
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
3) Extension of the exercise period of options granted to the Company’s President and
Chief Executive Officer and to officers and key employees of the Company and its
subsidiaries
On March 21, 2017, the Company’s Board of Directors resolved to extend by five years
till January 20, 2026, the exercise period of the options granted to the President and
Chief Executive Officer and to officers and key employees of the Company and its
subsidiaries. There will be no change in the other terms of the options, including the
exercise price and the vesting terms. The new exercise period is in line with the
Company’s compensation policy which allows an exercise period of up to ten years.
The extension of the exercise period of the options granted to the President and Chief
Executive Officer were approved by the Company’s shareholders on May 14, 2017)
The fair value of the extension of the exercise period of the options is $475 thousand.
The assessment of the fair value of the service options has been executed using Black-
Scholes pricing model. The model took into account the closing price of the Company’s
shares on the TASE on March 20, 2017, which was NIS 1.40 per share and in
accordance with the assumptions that are detailed below. The assessment of the fair
value of the performance options having market terms was using a Monte-Carlo
Simulation, taking into account the closing price of the Company’s shares on the TASE
on March 20, 2017, which was NIS 1.40 per share and in accordance with the
assumptions that are detailed below:
Service
options
Performance
options
Expected volatility
Average lifetime (in years)
Risk free interest rate
Expected dividends rate
57.6%
4.8 – 5.9
0.91% - 1.36%
0%
57.6%
8.8
2.0%
0%
4) The exercise price in respect of 330,000 options for three directors, which constitutes
the second tranche of three tranches, the awarding of which was approved by the
Company’s shareholders on May 25, 2016, was actually determined on May 14, 2017,
upon the renewal of their term by the Company’s shareholders at that time, at NIS 1.39
(the average closing price for the Company’s shares on the TASE in the 30 trading days
preceding that time, plus 10%). An additional director left the Board of Directors and
accordingly he was not granted the second tranche.
5) The exercise price in respect of 220,000 options for two external directors, which
constitutes the second tranche of three tranches, the awarding of which was approved
by the Company’s shareholders on May 25, 2016, was actually determined on June 17,
2017, at the end of one year for their election, at NIS 1.29 (the average closing price for
the Company’s shares on the TASE in the 30 trading days preceding that time, plus
10%).
47
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
NOTE 18 – REVENUES
The Company operates in one business sector. Following is a detailing of revenues according to
product groups:
Year Ended December 31,
2017
2016
2015
U.S. dollars in thousands
WatchPAT and related products
EndoPAT
18,105
2,596
20,701
15,697
2,743
18,440
12,414
4,393
16,807
Separating revenue on the basis of geographical segments, based on the geographical location of
the customers.
United States and Canada
Europe
Israel
Asia Pacific (excluding Japan)
Japan
Others
Revenue from major customers
Customer A
Customer B
Customer C
Year Ended December 31,
2016
2017
2015
U.S. dollars in thousands
14,764
1,746
260
759
2,965
207
20,701
13,343
1,542
268
1,017
2,161
109
18,440
10,485
2,155
301
1,511
2,045
310
16,807
Year Ended December 31,
2017
2016
U.S. dollars in thousands
2015
3,622
2,621
2,510
8,753
3,549
2,119
2,096
7,764
2,927
1,567
924
5,418
48
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
NOTE 19 – COST OF REVENUES
Raw materials, auxiliary
materials, subcontractors
(including changes in inventories)
Payroll and related expenses
(including share-based payment)
Shipping
Depreciation and amortization
Other
Year Ended December 31,
2016
2017
2015
U.S. dollars in thousands
1,767
1,956
500
190
589
5,002
2,173
1,749
386
124
547
4,979
1,803
1,698
377
134
389
4,401
NOTE 20 – SELLING AND MARKETING EXPENSES
Payroll and related expenses
Share-based payment
Sales commissions
Travel
Consultants
Advertising, public relations and
sales promotion
Conferences and trade shows
Other
Year Ended December 31,
2017
2016
U.S. dollars in thousands
2015
6,051
336
2,487
907
661
215
413
1,070
12,140
7,159
429
2,733
1,294
543
269
535
1,073
14,035
5,475
146
2,096
987
536
211
229
1,004
10,684
NOTE 21 – RESEARCH AND DEVELOPMENT EXPENSES
Payroll and related expenses
Share-based payment
Patents and regulation
Subcontractors and consultants
Clinical studies
Other
Year Ended December 31,
2016
2017
2015
U.S. dollars in thousands
2,136
87
167
484
695
560
4,129
1,703
257
343
361
168
393
3,225
1,542
119
311
165
316
378
2,831
49
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
NOTE 22 – GENERAL AND ADMINISTRATIVE EXPENSES
Payroll and related expenses
Share-based payment
Travel
Legal expenses and cost of
settlement agreement
Accounting and audit fees
Doubtful and bad debt (see Note
26a)
Directors fee and related expenses
Expenses relating to aborted share
issuance
Other
Year Ended December 31,
2016
2017
2015
U.S. dollars in thousands
2,695
740
208
218
273
148
195
-
801
5,278
2,427
1,060
182
308
330
849
201
28
828
6,213
2,066
151
201
194
350
52
188
368
780
4,350
NOTE 23 – FINANCIAL INCOME AND EXPENSES
Financial income (expenses) from
of cash and investments:
In respect of investments in bank
deposits and marketable securities *
Other financial income
Financial expenses from notes
and loans:
Convertible notes*
Long-term loans from
shareholders*
Other financial expenses
Exchange rate differences
Profit (loss) on derivative
financial instruments:
Loss on revaluation to fair value of
the warrants embedded in the
convertible notes
Gain (loss) on revaluation to fair
value of warrants
Year Ended December 31,
2017
2016
U.S. dollars in thousands
2015
1,389
202
1,591
547
169
716
(530)
176
(354)
4,427
4,610
3,657
-
427
30
4,884
-
185
(35)
4,760
199
282
91
4,229
(2,141)
(1,567)
(5,358)
(1,784)
(3,925)
1,783
216
(2,572)
(7,930)
* Including the effect of changes in the exchange rate of the shekel against the dollar.
50
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
NOTE 24 – LOSS PER SHARE
a. Basic loss per share
The computation of basic loss per share was based on the loss attributable to ordinary
shareholders divided by the weighted average number of ordinary shares outstanding.
2017
Year Ended December 31,
2016
U.S. dollars in thousands
2015
Loss attributed to the ordinary shareholders
(5,301)
(14,403)
(2,247)
Weighted average number of ordinary shares
2017
Year Ended December 31,
2016
Number of shares in thousands
2015
Balance at the beginning of the year
The effect of private placement and issue of
rights
The effect of exercise of options into shares
Weighted average number of ordinary shares
used in computation of basic loss per share
262,917
259,581
*181,626
-
1,192
2,716
245
9,915
268
264,109
262,543
191,808
* Including the benefit component embedded in the rights offering from December 2015
which is presented retroactively.
b. Diluted loss per share
The computation of diluted loss per share was based on the loss attributed to the ordinary
shareholders divided by the weighted average number of ordinary shares outstanding, after
adjustment for all potentially dilutive ordinary shares, as follows:
Loss used in computation of basic earnings per
share
Changes in the fair value of the Viola warrants
and warrants (Series 4), which are classified as
a liability
Financial expenses in respect of convertible
notes
Loss attributed to the ordinary shareholders
(diluted)
Year Ended December 31,
2017
2016
2015
U.S. dollars in thousands
(5,301)
(14,403)
(2,247)
(1,785)
-
-
-
-
(1,711)
(7,086)
(14,403)
(3,958)
51
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
Weighted average number of ordinary shares (diluted)
Weighted average number of ordinary shares
used in computation of basic loss per share
Effect of conversion of convertible notes
Effect of the exercise of the Viola warrants and
warrants (Series 4)
Weighted average number of ordinary shares
used in computation of diluted loss per share
per share
Year Ended December 31,
2017
2016
2015
Number of shares in thousands
264,109
-
262,543
-
191,808
40,075
39,877
-
-
303,986
262,543
231,883
In the calculation of the weighted average number of ordinary shares (diluted) for the year ended
December 31, 2017, 23,588,582 shares in respect of convertible notes, 32,719,056 shares in
respect of options and 3,242,632 shares in respect of RSUs granted to employees, directors and
consultants were not included, due to their anti-dilutive effect.
In the calculation of the weighted average number of ordinary shares (diluted) for the year ended
December 31, 2016, 40,075,289 shares in respect of convertible notes, 33,438,454 shares in
respect of non-traded warrants issued to Viola, 6,438,152 shares in respect of warrants (Series 4)
and 36,779,259 shares in respect of options and 3,398,889 shares in respect of RSUs granted to
employees, directors and consultants were not included, due to their anti-dilutive effect.
In the calculation of the weighted average number of ordinary shares (diluted) for the year ended
December 31, 2015, 31,950,380 shares in respect of non-traded warrants issued to Viola,
6,438,152 shares in respect of warrants (Series 4) and 24,316,648 shares in respect of options
granted to employees, directors and consultants were not included, due to their anti-dilutive effect.
NOTE 25 – FINANCIAL RISK MANAGEMENT
a. Overview
The Group is exposed to the following risk factors due to use of financial instruments:
• Credit risk
• Liquidity risk
• Market risk (including currency risk, interest risk and other price risk)
This note provides qualitative information regarding the exposure to each of the aforementioned
risk factors, the Group objectives, policy and processes relating to risk measurement and
management. Quantitative disclosure is provided throughout these consolidated financial
statements.
b. Risk management framework
The Company’s Board of Directors has overall responsibility to establish and supervise the
Group’s risk management framework. The Board of Directors appointed an Investment
Committee, consisting of four members, to review exposure to market risk and to set policy on
hedging such risk.
c. Credit risk
Trade and other receivables
The Group’s exposure to credit risk is primarily affected by each customer’s individual
attributes. However, geographic attributes of the Group’s customer base, including risk of
52
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
insolvency in the sector and country in which the customer operates, have some effect on credit
risk. Approximately 42%, 42% and 27%, respectively, of the Group’s revenues in the years
ended December 31, 2017, 2016 and 2015, respectively, arise from sales to single customers.
Other than this, there are no other concentrations of credit risk.
The Group does not require collateral from customers, but in some cases, customers are
required to make advance payments or transactions are conducted through letters of credit.
The Group’s revenues are primarily derived from sales to customers in the U.S., Japan and
Europe. The Group’s management regularly monitors trade receivables and the financial
statements include specific provisions for doubtful debt, which properly reflect, in the opinion
of management, the inherent loss in debt whose collection is in doubtful.
Cash
Most of the Group’s cash and cash equivalents are deposited in banks, which are among the
largest in Israel.
Investments
The Group limits its exposure to credit risk by investing exclusively in NIS-denominated
money market funds, bank deposits, government and corporate bonds with rating of no less than
rating A (there may be investments in corporate bonds rating BBB through portfolio managers
of up to 10% of the investment portfolio managed by them).
The Company’s investments are in securities at fair value. As of December 31, 2017 and 2016
the investment includes investment in corporate and government NIS-denominated bonds. The
Company realized these investments in January and February 2018, close to the date of
repayment of the notes.
Following is the composition of investments in marketable securities:
Government bonds - linked to the Israeli CPI
Government bonds – unlinked
Corporate bonds- linked to the Israeli CP
Corporate bonds –unlinked
Current account
December 31
2017
2016
U.S. dollars in thousands
368
838
1,008
777
182
3,173
382
720
940
587
152
2,781
The Company’s investments in bonds through mutual funds (and not in direct holding)
amounted to $1,574 thousand and 1,380 as of December 31, 2017 and 2016, respectively.
d. Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations
associated with its financial liabilities that are settled by delivering cash or another financial
asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will
always have sufficient liquidity to meet its liabilities when due, under both normal and stressed
conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group ensures sufficient cash on hand for payment of expected operating expenses,
including any amounts required to fulfill financial obligations. The foregoing does not account
for potential impact of extreme scenarios, which may not be reasonably anticipated.
e. Market risk
Market risk is the risk that changes in market prices, such as foreign currency exchange rates,
53
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
consumer price index, interest rates and prices of equity instruments would impact the Group’s
revenues or the value of its holding in financial instruments. The objective of market risk
management is to manage and supervise exposure to market risk within common parameters,
while maximizing returns.
Currency risk
The Group is exposed to foreign currency risk with respect to sales, purchases, payroll and
services expenses and loans denominated in currencies (primarily NIS, but also Euro and
Japanese yen) used by the companies in the Group. The currencies in which most transactions
are denominated are the dollar, NIS, Euro and Japanese yen.
Most of the Group’s revenues are denominated in its functional currency (the dollar) and some
in Euro and Japanese yen (as from July 2014 there are no sales in Japanese yen). The Group’s
payroll expenses in Israel are denominated in NIS. Therefore, the Group is exposed to
dollar/NIS and dollar/Euro exchange rates (as well as dollar/ Japanese yen) and strives to
mitigate currency risk by maintaining liquid investments and cash positions in short-term NIS-
denominated deposits, in NIS, in Euro and in Japanese yen.
Interest rate risk
The Group has no material exposure as of December 31, 2017.
NOTE 26 – FINANCIAL INSTRUMENTS
a. Credit risk
1) Exposure to credit risk
The carrying amount of financial assets reflects the maximum credit exposure. Maximum
credit risk exposure as of the report date was as follows:
Cash and cash equivalents
Trade receivables (including long-term trade
receivables)
Investments in securities
Pledged deposits in banks
Other accounts receivable
December 31,
2017
2016
U.S. dollars in thousands
7,643
5,835
3,173
313
185
17,149
23,358
5,149
2,781
287
240
31,815
The maximum exposure to credit risk in respect of cash and cash and cash equivalents, trade
receivables, other accounts receivable and other investments, as of the report date, by
geographic locations was as follows:
Israel
U.S. and Canada
Asia Pacific
Europe
Other
54
December 31,
2017
2016
U.S. dollars in thousands
9,581
5,815
817
909
27
25,977
4,577
791
426
44
ITAMAR
MEDICAL
LTD.
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
17,149
31,815
2) Aging of receivables and impairment
Aging of trade receivables:
December 31, 2017
Gross
Amount
U.S. dollars in thousands
Impairment
December 31, 2016
Gross
amount
U.S. dollars in thousands
Impairment
Not in arrears
In arrears up to three months
In arrears up to six months
In arrears up to 12 months
In arrears over 12 months
4,503
1,160
200
71
442
6,376
-
-
35
64
442
541
4,607
312
285
142
253
5,599
151
-
13
73
213
450
Movements in the allowance for impairment of receivables and loans granted during the
year were as follows:
Year Ended December 31,
2016
U.S. dollars in thousands
2017
450
148
(57)
541
256
849
(655)
450
Balance at beginning of year
Recognized impairment loss
Bad debt
Balance at end of year
b. Liquidity risk
Below is an analysis of contractual maturities of financial liabilities including estimated interest
payments:
December 31, 2017
Carrying
Amount
Contractual
Cash flow
Up to 6
months
6-12 months
U.S. dollars in thousands
1-2 years
2-5 years
Over 5
years
Non-derivative financial
liabilities
Convertible notes, including
current maturities
Trade payables
Other long-term accounts
payable*
Other accounts payable**
Total
11,022
1,262
948
2,714
15,946
11,473
1,262
948
2,714
16,397
11,473
1,262
-
2,536
15,271
-
-
-
178
178
-
-
-
-
-
-
-
-
-
-
-
-
948
-
948
55
NOTES
TO
THE
CONSOLIDATED
STATEMENTS
ITAMAR
MEDICAL
LTD.
FINANCIAL
December 31, 2016
Carrying
Amount
Contractual
Cash flow
Up to 6
months
6-12 months
U.S. dollars in thousands
1-2 years
2-5 years
Over 5
years
18,378
1,324
860
2,086
22,648
21,548
1,324
860
2,086
25,818
10,774
1,324
-
1,908
14,006
429
-
-
178
607
10,345
-
-
-
10,345
-
-
860
-
860
-
-
-
-
-
Non-derivative financial
liabilities
Convertible notes, including
current maturities
Trade payables
Other long-term accounts
payable*
Other accounts payable**
Total
*
Composition is based on expected future sales of the product developed for which
grants were received (see Note 14).
**
Includes the accrued expenses and other accounts payable.
c. Market risk
1) Exposure to the Israeli CPI and foreign currency risk
The Group’s exposure to the Israeli CPI and foreign currency risk is as follows:
Assets
Cash and cash equivalents
Marketable securities
Trade receivables (including long-term trade
receivables)
Accounts receivable
Inventories
Long-term restricted deposits
Long-term prepaid expenses
Property and equipment and intangible assets
Liabilities
Trade payables
Employee benefits
Provisions
Other accounts payable (including accrued expenses)
Convertible notes
Financial derivatives
Other long-term accounts payable
Total exposure in the statement of financial position
in respect of financial assets and financial liabilities
December 31, 2017
Currency different from dollar
Dollars
NIS
unlinked
NIS linked
to the
Israeli CPI
Euro
Other
currencie
s
Non-
monetar
y items
Total
U.S. dollars in thousands
2,337
-
4,952
137
-
108
-
-
7,534
382
-
-
1,877
-
-
905
3,164
5,124
1,797
194
45
-
205
-
-
7,365
833
-
-
1,117
10,696
2,875
-
15,521
-
1,376
-
-
-
-
-
-
1.376
-
-
-
-
-
-
43
43
160
-
689
3
-
-
-
-
852
47
-
-
70
-
-
-
117
22
-
-
-
-
-
-
-
22
-
-
-
-
-
-
-
-
-
-
7,643
3,173
-
500
2,260
-
69
1,299
4,128
-
533
183
339
-
-
-
1,055
5,835
685
2,260
313
69
1,299
21,277
1262
533
183
3,403
10,696
2,875
948
19,900
4,370
(8,156)
1,333
735
22
3,073
1,377
56
NOTES
TO
THE
CONSOLIDATED
STATEMENTS
ITAMAR
MEDICAL
LTD.
FINANCIAL
Assets
Cash and cash equivalents
Marketable securities
Trade receivables (including long-term trade
receivables)
Accounts receivable
Inventories
Long-term restricted deposits
Long-term prepaid expenses
Property and equipment and intangible assets
Liabilities
Trade payables
Employee benefits
Provisions
Other accounts payable (including accrued expenses)
Convertible notes
Financial derivatives
Other long-term accounts payable
Total exposure in the statement of financial position
in respect of financial assets and financial liabilities
December 31, 2016
Currency different from dollar
Dollars
NIS
unlinked
NIS linked
to the
Israeli CPI
Euro
Other
currencie
s
Non-
monetar
y items
Total
U.S. dollars in thousands
4,266
-
18,371
1,460
-
1,321
680
-
4,687
193
-
108
-
-
9,254
803
-
-
1,538
-
-
836
3,177
104
40
-
179
-
-
20,154
501
-
-
1,069
17,791
6,800
-
26,161
-
-
-
-
-
-
1.321
358
2
-
-
-
-
1,040
-
-
-
-
-
-
24
24
20
-
-
47
-
-
-
67
41
-
-
5
-
-
-
-
46
-
-
-
19
-
-
-
19
-
-
23,358
2,781
-
510
1,784
-
173
1,265
3,732
-
354
167
337
-
-
-
858
5,149
750
1,784
287
173
1,265
35,547
1,324
354
167
3,010
17,791
6,800
860
30,306
6,077
(6,007)
1,297
973
27
2,874
5,241
Below is data on consumer price indices and significant exchange rate against the dollar:
December 31
2017
2016
The Israeli CPI (In points)
The NIS exchange rate
The Euro exchange rate
The exchange rate of 100 Japanese
Yen
118.69
0.2884
1.1978
0.8885
118.34
0.2601
1.0517
0.8547
Year Ended December 31
2016
2017
% of change
The Israeli CPI
The NIS exchange rate
The Euro exchange rate
The exchange rate of 100 Japanese
Yen
0.30
10.90
13.89
3.95
(0.30)
1.48
(3.37)
2.92
57
ITAMAR
MEDICAL
LTD.
FINANCIAL
NOTES
TO
THE
CONSOLIDATED
2) Sensitivity analysis
STATEMENTS
A stronger dollar against the following currencies at the end of each reporting period, and
an increase in the Israeli CPI would have increased (decreased) equity and net income/loss
by the following amounts (after-tax). The following analysis is based on changes to
exchange rates and to the Israeli CPI, which the Group believes to be reasonably possible
as of the end of the reported year. This analysis assumes all other variables, especially
interest rates, remain constant.
An increase in the exchange rate of:
NIS by 5%
Euro by 5%
Yen by 5%
December 31 2017
Equity
U.S. dollars in thousands
Profit (loss)
(340)
37
1
(340)
37
1
The weakening of these currencies against the dollar and the decrease in the Israeli CPI at
a similar rate as of December 31, 2017 had a similar effect, albeit in the opposite direction,
assuming that all other variables remain constant.
An increase in the exchange rate of:
NIS by 5%
Euro by 5%
December 31 2016
Equity
U.S. dollars in thousands
Profit (loss)
(236)
49
(236)
49
The weakening of these currencies against the dollar and the decrease in the Israeli CPI at
a similar rate as of December 31, 2016 had a similar effect, albeit in the opposite direction,
assuming that all other variables remain constant.
d. Interest rate risk
All of the Group’s interest-bearing instruments bear fixed interest excluding the liability to
the Innovation Authority and to the Foreign Trade Administration of the Ministry of the
Economy and Industry bearing semi-annual LIBOR interest rate.
The Group’s assets and liabilities bearing fixed interest are not measured at fair value in the
statement of operations. Therefore, the change in interest rates as of the reporting dates
should not have any effect on net income/loss.
e. Fair value of financial instruments measured at fair value, for disclosure purposes only
The carrying amount of the cash and cash equivalents, trade receivables, other accounts
receivable, bank deposits, pledged deposits, trade payables, and other accounts payable and
derivatives is identical or approximate to their fair values due to the lifetime of these items.
The fair value of other financial assets and liabilities and their carrying amounts, as
presented in the statement of financial position, are as follows:
58
NOTES
TO
THE
CONSOLIDATED
STATEMENTS
ITAMAR
MEDICAL
LTD.
FINANCIAL
Liabilities:
Convertible notes **
Liability in respect of royalties to
the Innovation Authority and the
Foreign Trade Administration at the
Ministry of the Economy and
Industry
December 31 2017
December 31 2016
Carrying
amount
Fair value
Carrying
amount
U.S. dollars in thousands
Fair value
11,118
11,283
20,616
21,062
948
12,066
430
11,713
860
21,476
276
21,338
* Including interest payable and the conversion component.
As for the basis for determining the fair value, see Note 4.
f. Fair value hierarchy of financial instruments measured at fair value
The following table shows an analysis of the financial instruments measured at fair value
using the valuation method.
For details of the fair value hierarchy, see Note 4.
December 31, 2017
Level 1
Level 3
Total
U.S. dollars in thousands
Financial instruments - securities
Financial instruments – derivative
instruments
3,173
-
-
2,875
3,173
2,875
December 31, 2017
Level 1
Level 3
Total
U.S. dollars in thousands
Financial instruments - securities
Financial instruments – derivative
instruments
2,781
-
-
6,800
2,781
6,800
NOTE 27 – RELATED PARTIES
a. Compensation to key executives (including directors)
Chairmen of the Board of Directors and former Co-Chairman of the Board of Directors
The Company entered into agreements with two of its shareholders for provision of services of
Co-Chairmen. The Company pays the Chairman of the Board of Directors $6,250 per month.
The Company also committed to reimburse the expenses incurred by the Chairman of the
Board of Directors incurred with respect to promoting the Company’s business, at amounts to
be approved from time to time by the Company’s Board of Directors.
The former Co-Chairman of the Board of Directors received $1,250 a month up to and
including March 31, 2016. As of the said date, upon the termination of his term as Co-
Chairman of the Board of Directors, he began receiving directors’ compensation according to
the Companies Regulations (Rules Regarding Compensation and Expenses of an External
Director), 2000.
59
NOTES
TO
THE
CONSOLIDATED
STATEMENTS
ITAMAR
MEDICAL
LTD.
FINANCIAL
b. Transactions with related parties
Compensation to key executives (including directors) includes:
2017
Year Ended December 31,
2016
2015
Number
of persons
Amount
U.S. dollars
in
thousands
Number of
persons
7
7
1,384
1,083
2,467
6
6
Amount
U.S. dollars
in
thousands
1,590
1,168
2,758
Number of
persons
7
7
Amount
U.S. dollars
in
thousands
1,373
128
1,501
Short-term employee
compensation
Share-based payment
Compensation to key executives (including directors) not employed by the Company:
Number
of persons
2017
Amount
U.S. dollars in
thousands
Year Ended December 31,
2016
Number
of persons
Amount
U.S. dollars in
thousands
Number
of persons
2015
Amount
U.S. dollars in
thousands
Total benefits to
directors not
employed
by the Company
Key executives (including
directors)
of the Company
.
c. Private placement
9
306
9
278
9
263
2017
Year Ended December 31,
2016
Transaction amounts
U.S. dollars in thousands
2015
December 31,
2017
2016
Carrying amount
U.S. dollars in thousands
2,773
3,035
1,764
1,147
2,042
As for the private placement to Viola in the year ended December 31, 2015 and 2016, see Note
16b.
d. Capital reserve for transactions with shareholders
The capital reserve from transactions with shareholders includes the waiver of the Company’s
shareholders of any amounts due to them for the services provided to the Company, as well as
the interest rate differentials in respect of loans extended to the Company by its four major
shareholders and the market interest rate at the time of receipt of the loans.
e. Officer and directors liability insurance
On November 27, 2017,
the
recommendations of the Compensation Committee, approved the purchase of an insurance
policy for its officer and directors, both for the Company and its subsidiary, providing coverage
the Company’s Board of Directors, after receiving
60
NOTES
TO
THE
CONSOLIDATED
STATEMENTS
ITAMAR
MEDICAL
LTD.
FINANCIAL
of up to $20 million per case and for the insurance period on aggregate, from January 6, 2018 to
February 6, 2019. This insurance policy also covers directors considered to be related parties.
The annual premium for the insurance policy, for said period is approximately $25 thousand.
the compensation policy and after receiving
In addition, on November 30, 2015, following the Viola Investment Transaction in the
Company and Viola becoming a controlling shareholder, the Company’s Board of Directors, in
accordance with Article 1b(1) of the Companies Regulations (Reliefs in Certain Interested
the
Parties’ Transactions), 2000 and
recommendations of the Compensation Committee, approved the purchase of the run-off policy
for the officers’ liability insurance. The Company’s agreement regarding the run-off policy is
consistent with the conditions set out in the compensation policy in that the run-off policy
covers the exposure of the Company and its directors and officers in the amount of up to $20
million, for the period beginning on January 1, 1997 and ending on the date of completion of
the first phase of the Viola Transaction, November 5, 2015 and will be valid for a period of 84
months starting from November 5, 2015 and the one-time premium paid in its respect does not
exceed the maximum premium specified in the compensation policy. With the entry into force
of the run-off policy the existing policy was automatically canceled, and therefore the
Company’s Board of Directors approved, on the same date and in accordance with the
recommendations of the Compensation Committee, the acquisition of a new policy insuring the
liability of directors and officers of the Company and its subsidiaries, under the same conditions
of the existing policy.
On October 7, 2014, the Company’s Board of Directors approved the Company’s commitment
to indemnify the Company’s officers for any liability or expense imposed due to any action
taken in the course of their work with the Company. The commitment to indemnify is limited to
such events as approved by the Board of Directors. The indemnification amount is limited, for a
single set of events, to 15 million NIS (linked to the Israeli CPI for August 2014). Furthermore,
the shareholders approved that subject to the provisions of any law, the Company shall
undertake in respect of each officer to grant him a letter of indemnity whereby for seven years
following the completion of his term of officer it will continue to purchase an officers’ liability
insurance policy also covering the liability of the officer ending his term with the Company so
as not to leave the officers exposed to claims after the completion of their office in the
Company.
f. Marketing agreement with a former controlling shareholder in the Company
In March 2014, the Company entered into a marketing agreement (in this Section: the
“Agreement”) with Medtronic (which at the time was a controlling shareholder) to market
WatchPAT as part of a total sleep solution to be offered by the companies to physicians
specializing in cardiological electro-physiology exclusively in the U.S. The Agreement includes
a commitment by Medtronic to make a specified investment in marketing as well as minimum
sales quotas.
The Agreement term is 43 months. In September 2014, the Company announced that the
Agreement would be extended for six months to enable the parties to complete the process of
building and entrenching the overall solution.
On April 1, 2015, the Company reported that the pilot period of the agreement has ended and
that the parties are in negotiations to continue the contract, including the terms set out in the
reports referred to above, subject to a number of changes in light of the lessons learned during
the pilot.
On 19 April 2015, the Company reported that it and Medtronic decided to continue the contract
between them and move on to the full format of the marketing agreement (i.e., the end of the
pilot that was limited to one geographic area and a move to national distribution throughout the
U.S.), subject to a number of updates to the agreement (the “Amendment to the Agreement”),
as follows:
1) According to the Amendment to the Agreement, Medtronic will focus on raising
61
NOTES
TO
THE
CONSOLIDATED
STATEMENTS
ITAMAR
MEDICAL
LTD.
FINANCIAL
awareness to the WatchPAT product amongst customers as a tool for diagnosing sleep-
disordered breathing in order to bring about sales of the WatchPAT product.
2)
It was decided to cancel Medtronic’s commitment to a specific investment in marketing
and achieving minimum goals and instead Medtronic will support the activities stated in
(1) above in using Medtronic’s resources. It was therefore decided that the agreement will
be for a period of 13 months (rather than 36 months) starting on March 2015 to April 2016
(inclusive).
In April 2016, the amended agreement was extended until April 28, 2017 and in April 2017, the
agreement was extended for an additional period ending on June 30, 2017, after which the
agreement will be renewed for periods of 30 days each.
In the years ended on December 31 2017, 2016 and 2015, the Company recognized revenues
from sales to customers (third parties) under the Agreement in the amount of approximately
$307 thousand, $177 thousand and $222 thousand, respectively. The total sales commissions to
Medtronic in these years under the Agreement totaled approximately $61 thousand, $35
thousand and $44 thousand, respectively.
g. Special bonus to the President and Chief Executive Officer
On May 14, 2017, the Company’s shareholders approved the recommendation of the Board of
Directors from March 29, 2017 to grant a special bonus to the Company’s President and Chief
Executive Officer in the amount of NIS 250,000.
h. Loans from related parties
As to the intentions of interested parties who held the notes to give loans to the Company out of
the amounts that they were supposed to repay in respect of the notes they held, see Note 10b.
NOTE 28 – SUBSEQUENT EVENTS
a. Grant of options and RSUs
On March 14, 2018, the Company’s Board of Directors approved a grant of 2,066,193 options
and 278,566 RSUs to 21 grantees, as follows:
The instrument
conditions
The number of
instruments
Vesting conditions
The grant date
and the entitled
employees
Grant of options
to two office
holders (with
service conditions
only)
Each option is
exercisable into a
share of NIS 0.01
par value with an
exercise price of
NIS 1.12*
Grant of options
to three key
employees (with
service conditions
only)
Each option is
exercisable into a
share of NIS 0.01
par value with an
exercise price of
NIS 1.12*
Contractual
duration of
the options
(years)
10 years from
January 21,
2016
10 years from
January 21,
2016
118,374 25% will vest and become exercisable on
March 31, 2019. The remaining 75% will
vest and become exercisable in 12 equal
quarterly portions, at the end of each
calendar quarter commencing on the date
of vesting of the first tranche (i.e., March
31, June 30, September 30 and December
31). The first quarterly tranche will vest on
June 30, 2019.
118,375 25% will vest and become exercisable on
March 31, 2019. The remaining 75% will
vest and become exercisable in 12 equal
quarterly portions, at the end of each
calendar quarter commencing on the date
of vesting of the first tranche (i.e., March
31, June 30, September 30 and December
31). The first quarterly tranche will vest on
June 30, 2019.
62
NOTES
TO
THE
CONSOLIDATED
STATEMENTS
ITAMAR
MEDICAL
LTD.
FINANCIAL
The grant date
and the entitled
employees
The instrument
conditions
The number of
instruments
Vesting conditions
Grant of options
to two office
holders (with
service conditions
and market
conditions)
Each option is
exercisable into a
share of NIS 0.01
par value with an
exercise price of
NIS 1.02**
Grant of options
to a key
employee (with
service conditions
and market
conditions)
Each option is
exercisable into a
share of NIS 0.01
par value with an
exercise price of
NIS 1.02**
Grant of options
to two key
employee of the
U.S. subsidiary
(with service
conditions and
market conditions)
Each option is
exercisable into a
share of NIS 0.01
par value with an
exercise price of
NIS 1.10***
Grant of options
to 15 employees
(with service
conditions only)
Grant of options
to a consultant
(with service
conditions only)
Each option is
exercisable into a
share of NIS 0.01
par value with an
exercise price of
NIS 1.12*
Each option is
exercisable into a
share of NIS 0.01
par value with an
exercise price of
NIS 1.12*
Grant of options
to a consultant
(with service
conditions and
market conditions)
Each option is
exercisable into a
share of NIS 0.01
par value with an
exercise price of
NIS 1.10***
496,882 The options will vest on December 20,
2020 if the share price will be at least NIS
1.70 per share, in which case, the amount
of 50% will vest, and if the share price
will be NIS 4.24 per share, the entire
amount will vest. In the range between
these two stock prices, the relative
quantity will vest.
212,949 The options will vest on December 20,
2020 if the share price will be at least NIS
1.70 per share, in which case, the amount
of 50% will vest, and if the share price
will be NIS 4.24 per share, the entire
amount will vest. In the range between
these two stock prices, the relative
quantity will vest.
283,932 The options will vest on December 20,
2020 if the share price will be at least NIS
1.70 per share, in which case, the amount
of 50% will vest, and if the share price
will be NIS 4.24 per share, the entire
amount will vest. In the range between
these two stock prices, the relative
quantity will vest.
572,000 2/3 will vest and be exercisable after two
years from the date of grant. The
remaining 1/3 will vest and become
exercisable in four equal quarterly
portions, at the end of each calendar
quarter commencing on the date of vesting
of the first tranche. The first quarterly
tranche will vest on June 30, 2020.
50,732 25% will vest and become exercisable on
March 31, 2019. The remaining 75% will
vest and become exercisable in 12 equal
quarterly portions, at the end of each
calendar quarter commencing on the date
of vesting of the first tranche (i.e., March
31, June 30, September 30 and December
31). The first quarterly tranche will vest on
June 30, 2019.
212,949
The options will on December 20, 2020 if
the share price will be at least NIS 1.70
per share, in which case, the amount of
50% will vest, and if the share price will
be NIS 4.24 per share, the entire amount
will vest. In the range between these two
stock prices, the relative quantity will vest.
Contractual
duration of
the options
(years)
10 years from
January 21,
2016
10 years from
January 21,
2016
10 years from
January 21,
2016
5 years from
date of grant
10 years from
January 21,
2016
10 years from
January 21,
2016
Total options
2,066,193
Grant of RSUs to
two office holders
Each RSU is
exercisable into a
115,036 The RSUs will vest on December 20, 2020
if the share price will be at least NIS 1.70
10 years from
January 21,
63
NOTES
TO
THE
CONSOLIDATED
STATEMENTS
ITAMAR
MEDICAL
LTD.
FINANCIAL
The instrument
conditions
The number of
instruments
Vesting conditions
The grant date
and the entitled
employees
(with service
conditions and
market conditions)
share of NIS 0.01
par value without
any exercise
price.
Grant of RSUs to
three key
employees (with
service conditions
and market
conditions)
Each RSU is
exercisable into a
share of NIS 0.01
par value without
any exercise
price.
Grant of RSUs to
a consultant (with
service conditions
and market
conditions)
Each RSU is
exercisable into a
share of NIS 0.01
par value without
any exercise
price.
Contractual
duration of
the options
(years)
2016
10 years from
January 21,
2016
10 years from
January 21,
2016
per share, in which case, the amount of
50% will vest, and if the share price will
be NIS 4.24 per share, the entire amount
will vest. In the range between these two
stock prices, the relative quantity will vest.
114,498 The RSUs will vest on December 20, 2020
49,032
if the share price will be at least NIS 1.70
per share, in which case, the amount of
50% will vest, and if the share price will
be NIS 4.24 per share, the entire amount
will vest. In the range between these two
stock prices, the relative quantity will vest.
The RSUs will vest on December 20, 2020
if the share price will be at least NIS 1.70
per share, in which case, the amount of
50% will vest, and if the share price will
be NIS 4.24 per share, the entire amount
will vest. In the range between these two
stock prices, the relative quantity will vest.
Total RSUs
278,566
* The exercise price of each option is NIS 1.12 (determined according to the average closing
price of the Company’s share on the TASE in the 30 trading days prior to the date of
approval of the grant by the Board of Directors, i.e., March 14, 2018, plus 10%).
** The exercise price of each option is NIS 1.02 (determined according to the average closing
price of the Company’s share on the TASE in the 30 trading days prior to the date of
approval of the grant by the Board of Directors, i.e., March 14, 2018).
*** The exercise price of each option is NIS 1.10 (determined according to the closing price of
the Company’s share on the TASE prior to the date of approval of the grant by the Board of
Directors, i.e., March 14, 2018).
b. A change of the vesting terms of the options and RSUs granted to the CEO, officers and
key employees of the Company and the subsidiaries
On March 14, 2018, the Company’s Board of Directors resolved to change the vesting terms of
the options and RSUs with service terms and market conditions granted to the CEO and officers
and key employees of the Company and its subsidiaries, such that the minimum share price will
be NIS 1.70 instead of NIS 2.14 and the exercise period will be December 20, 2020 instead of
January 20 2020. There shall be no change in the other terms of the options and the RSUs,
including the exercise price and the other vesting conditions. The change in the aforesaid
conditions regarding the CEO is subject to the approval of the Company’s shareholders.
c. As to the amendment of the credit agreement with a bank in January 2018 and the withdrawal
of loans from it in February 2018, see Note 10a.
d. As to the repayment of the notes and the intention of interested parties who held the notes to
grant a loan to the Company or to participate in a private placement out of the amounts that
were due to be paid to them in respect of the notes, see Note 10b.
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NOTES
TO
THE
CONSOLIDATED
STATEMENTS
ITAMAR
MEDICAL
LTD.
FINANCIAL
e. On March 14, 2018 (after obtaining the approval of the Audit Committee), the Board of
Directors approved principles for a private placement to the following shareholders: the
controlling shareholder, Viola Growth II A.V. LP, a limited partnership, which holds the
Company's shares through Viola Growth II (A) L.P and Viola Growth II (B) L.P (the above
three corporations will be called “Viola”), the shareholders mentioned in Note 10b, and an
institutional investor who is also an interested party in the Company (the “Interested Parties’
Investors”). Under the principles formulated by the parties, the offer will be for ordinary shares
that will constitute approximately 6.59% (including the shares offered in this private placement)
of the Company’s issued and outstanding share capital, for a total consideration of NIS 17.2
million (a consideration reflecting the average price of the Company’s share in 15 trading days
preceding the date of publication of the Company’s annual financial statements for 2017, less a
discount of 7%). It should be clarified that as of the date of this report, the final agreements
with the shareholders have not yet been signed, and that execution of the private placement is
subject to final approval by the Company’s Board of Directors for the agreements, approval of
the general meeting of the Company’s shareholders and approval for listing of the shares by the
TASE.
65