UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20172020
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 001-37704
| DarioHealth Corp. |
| (Exact name of registrant as specified in its charter) |
| Delaware | 45-2973162 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| Caesarea Industrial Park, Israel | 3088900 |
| (Address of Principal Executive Offices) | (Zip Code) |
| +972-4-7704055 |
| (Registrant’s telephone number, including area code) |
| n/a |
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||
| Common Stock, par value $0.0001 per share | DRIO | The Nasdaq Capital Market LLC | ||
| Warrants to purchase Common Stock | DRIOW | The Nasdaq Capital Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒x No ☐¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒x No ☐¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | Accelerated filer | ||
| Non-accelerated filer | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):. Yes ☐¨ No ☒x
As of November 10, 2017,2020, the registrant had 10,352,4248,114,360 shares of common stock outstanding.
When used in this quarterly report, the terms “Dario,“DarioHealth,” “the Company,” “we,” “our,” and “us” refer to DarioHealth Corp., a Delaware corporation.corporation and our subsidiary LabStyle Innovation Ltd., an Israeli company. “Dario” is registered as a trademark in the United States, Israel, China, Canada, Hong Kong, South Africa, Japan, Costa Rica and Panama. “DarioHealth” is registered as a trademark in the United States and Israel.
DarioHealth Corp.
Quarterly Report on Form 10-Q
TABLE OF CONTENTS
2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information set forth in this Quarterly Report on Form 10-Q, including in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein may address or relate to future events and expectations and as such constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting our business, including many assumptions regarding future events. Such forward-looking statements include statements regarding, among other things:
| • | our current and future capital requirements and our ability to satisfy our capital needs through financing transactions or otherwise; | |
| • | our launch and market penetration plans; | |
| • | our ability to manufacture, market and generate sales of our Dario Smart Diabetes Management Solution; | |
| • | our ability to commercialize DarioEngage; | |
| • | our ability to develop, launch and commercialize Dario Intelligence; | |
| • | our ability to maintain our relationships with key partners; | |
| • | our ability to complete required clinical trials of our product and obtain clearance or approval from the United States Food and Drug Administration, or FDA, or other regulatory agencies in different jurisdictions; | |
| • | our ability to maintain or protect the validity of our U.S. and other patents and other intellectual property; | |
| • | our ability to retain key executive members; | |
| • | our ability to internally develop new inventions and intellectual property; | |
| • | interpretations of current laws and the passages of future laws; | |
| • | our expectations regarding the impact of the COVID-19 pandemic on our business and operations; and | |
| • | acceptance of our business model by investors. |
Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “would,” “could,” “scheduled,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors. These statements may be found under the section of our Annual Report on Form 10-K for the year ended December 31, 20162019 (filed on March 22, 2017)17, 2020) entitled “Risk Factors” as well as in our other public filings.
In light of these risks and uncertainties, and especially given the start-up nature of our business, there can be no assurance that the forward-looking statements contained herein will in fact occur. Readers should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
All information in this Quarterly Report, relating to shares or price per share reflects the 1-for-20 reverse stock split effected by us on November 18, 2019.
3
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
SUBSIDIARY
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2017
2020
UNAUDITED
INDEX
F-1
DARIOHEALTH CORP. AND ITS SUBSIDIARIESSUBSIDIARY
U.S. dollars in thousands
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| Unaudited | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 6,262 | $ | 1,093 | ||||
| Short-term bank deposits | 241 | 225 | ||||||
| Trade Receivables | 419 | 226 | ||||||
| Inventories | 924 | 888 | ||||||
| Other receivables and prepaid expenses | 768 | 504 | ||||||
| Total current assets | 8,614 | 2,936 | ||||||
| LEASE DEPOSITS | 32 | 35 | ||||||
| PROPERTY AND EQUIPMENT, NET | 811 | 901 | ||||||
| Total assets | $ | 9,457 | $ | 3,872 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except stock and stock data)
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| Unaudited | ||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Trade payables | $ | 1,983 | $ | 1,812 | ||||
| Other payables and accrued expenses | 1,357 | 1,113 | ||||||
| Total current liabilities | 3,340 | 2,925 | ||||||
| LIABILITY RELATED TO WARRANTS | 2 | 7,488 | ||||||
| STOCKHOLDERS' EQUITY (DEFICIENCY) | ||||||||
| Common Stock of $0.0001 par value - Authorized: 160,000,000 shares at September 30, 2017 (unaudited) and December 31, 2016; Issued and Outstanding: 10,238,220 and 5,713,383 shares at September 30, 2017 (unaudited) and December 31, 2016, respectively | 6 | 6 | ||||||
| Preferred Stock of $0.0001 par value - Authorized: 5,000,000 shares at September 30, 2017 (unaudited) and December 31, 2016; Issued and Outstanding: 2,307,654 and None at September 30, 2017 (unaudited) and December 31, 2016, respectively | *) - | - | ||||||
| Additional paid-in capital | 64,892 | 48,413 | ||||||
| Accumulated deficit | (58,783 | ) | (54,960 | ) | ||||
| Total stockholders' equity (deficiency) | 6,115 | (6,541 | ) | |||||
| Total liabilities and stockholders' equity (deficiency) | $ | 9,457 | $ | 3,872 | ||||
*) Represents an amount lower than $1.
| September 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Unaudited | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 36,907 | $ | 20,395 | ||||
| Short-term restricted bank deposits | 179 | 191 | ||||||
| Trade receivables | 543 | 672 | ||||||
| Inventories | 1,572 | 1,414 | ||||||
| Other accounts receivable and prepaid expenses | 629 | 267 | ||||||
| Total current assets | 39,830 | 22,939 | ||||||
| NON-CURRENT ASSETS: | ||||||||
| Deposits | 20 | 17 | ||||||
| Operating lease right of use assets | 541 | 765 | ||||||
| Long-term assets | 176 | 200 | ||||||
| Property and equipment, net | 577 | 648 | ||||||
| Total non-current assets | 1,314 | 1,630 | ||||||
| Total assets | $ | 41,144 | $ | 24,569 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
F-2
DARIOHEALTH CORP. AND ITS SUBSIDIARIESSUBSIDIARY
U.S. dollars in thousands (except stock and stock data)
| September 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Unaudited | ||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Trade payables | $ | 1,999 | $ | 1,656 | ||||
| Deferred revenues | 1,285 | 1,223 | ||||||
| Operating lease liabilities | 285 | 317 | ||||||
| Other accounts payable and accrued expenses | 2,283 | 2,024 | ||||||
| Total current liabilities | 5,852 | 5,220 | ||||||
| OPERATING LEASE LIABILITIES | 258 | 455 | ||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Common Stock of $0.0001 par value – Authorized: 160,000,000 shares at September 30, 2020 (unaudited) and December 31, 2019; Issued and Outstanding: 7,892,308 and 2,235,649 shares at September 30, 2020 (unaudited) and December 31, 2019, respectively **) | *)- | *)- | ||||||
| Preferred Stock of $0.0001 par value - Authorized: 5,000,000 shares at September 30, 2020 (unaudited) and December 31, 2019; Issued and Outstanding: 15,879 and 21,375 shares at September 30, 2020 (unaudited) and December 31, 2019, respectively | *)- | *)- | ||||||
| Additional paid-in capital | 168,618 | 129,039 | ||||||
| Accumulated deficit | (133,584 | ) | (110,145 | ) | ||||
| Total stockholders' equity | 35,034 | 18,894 | ||||||
| Total liabilities and stockholders' equity | $ | 41,144 | $ | 24,569 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
| *) | Represents an amount lower than $1. |
| **) | On November 18, 2019, the company affected a 1-for 20 reverse stock split (the “Reverse Stock Split”), see note 1f. |
F-3
DARIOHEALTH CORP. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
U.S. dollars in thousands (except stock and stock data)
Three months ended September 30 | Nine months ended September 30 | |||||||||||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | Three months ended September 30 | Nine months ended September 30 | |||||||||||||||||||||||||||
| Unaudited | Unaudited | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||
| Unaudited | Unaudited | |||||||||||||||||||||||||||||||
| Revenues | $ | 1,375 | $ | 728 | $ | 3,592 | $ | 1,965 | $ | 2,042 | $ | 1,868 | $ | 5,496 | $ | 5,761 | ||||||||||||||||
| Cost of revenues | 1,099 | 652 | 2,850 | 2,148 | 1,493 | 995 | 3,532 | 4,004 | ||||||||||||||||||||||||
| Gross profit (loss) | 276 | 76 | 742 | (183 | ) | |||||||||||||||||||||||||||
| Gross profit | 549 | 873 | 1,964 | 1,757 | ||||||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||
| Research and development | 797 | 659 | 2,450 | 1,577 | $ | 954 | $ | 859 | $ | 3,010 | $ | 2,852 | ||||||||||||||||||||
| Sales and marketing | 1,682 | 1,533 | 5,707 | 3,194 | 3,635 | 1,865 | 10,334 | 8,804 | ||||||||||||||||||||||||
| General and administrative | 781 | 605 | 3,887 | 2,313 | 2,562 | 948 | 9,459 | 3,625 | ||||||||||||||||||||||||
| Total operating expenses | 3,260 | 2,797 | 12,044 | 7,084 | 7,151 | 3,672 | 22,803 | 15,281 | ||||||||||||||||||||||||
| Operating loss | (2,984 | ) | (2,721 | ) | (11,302 | ) | (7,267 | ) | (6,602 | ) | (2,799 | ) | (20,839 | ) | (13,524 | ) | ||||||||||||||||
| Financial income, net: | ||||||||||||||||||||||||||||||||
| Revaluation of warrants | 1 | 2,788 | 7,486 | 938 | ||||||||||||||||||||||||||||
| Other financial (expense) income, net | 5 | (678 | ) | (7 | ) | (697 | ) | |||||||||||||||||||||||||
| Total financial income, net | 6 | 2,110 | 7,479 | 241 | ||||||||||||||||||||||||||||
| Total financial expenses (income), net | (52 | ) | 6 | (391 | ) | 39 | ||||||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||
| Net loss | (2,978 | ) | (611 | ) | (3,823 | ) | (7,026 | ) | $ | (6,550 | ) | $ | (2,805 | ) | $ | (20,448 | ) | $ | (13,563 | ) | ||||||||||||
| Deemed dividend related to Series A Preferred Stock exchange agreement | - | - | - | 455 | ||||||||||||||||||||||||||||
| Deemed dividend related to extension of July 2015 Series A warrants in July 2016 | - | 265 | - | 265 | ||||||||||||||||||||||||||||
| Deemed dividend | $ | 930 | $ | - | $ | 2,991 | $ | - | ||||||||||||||||||||||||
| Net loss attributable to holders of Common Stock | (2,978 | ) | (876 | ) | (3,823 | ) | (7,746 | ) | $ | (7,480 | ) | $ | (2,805 | ) | $ | (23,439 | ) | $ | (13,563 | ) | ||||||||||||
| Net loss per share | ||||||||||||||||||||||||||||||||
| Net loss per Common Stock: | ||||||||||||||||||||||||||||||||
| Basic and diluted loss per share | $ | (0.30 | ) | $ | (0.15 | ) | $ | (0.43 | ) | $ | (1.54 | ) | ||||||||||||||||||||
| Weighted average number of Common Stock used in computing basic and diluted net loss per share | 9,950,443 | 5,705,229 | 8,931,460 | 5,019,918 | ||||||||||||||||||||||||||||
| Basic and diluted net loss per Common Stock | $ | (0.71 | ) | $ | (1.11 | ) | $ | (2.95 | ) | $ | (5.52 | ) | ||||||||||||||||||||
| Weighted average number of shares of Common Stock used in computing basic and diluted net loss per Common Stock**) | 7,328,420 | 2,536,513 | 4,856,115 | 2,455,092 | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
| **) | On November 18, 2019, the company affected the Reverse Stock Split, see note 1f. |
F-4
DARIOHEALTH CORP. AND ITS SUBSIDIARIESSUBSIDIARY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
U.S. dollars in thousands (except stock and stock data)
| Common Stock | Preferred Stock | Additional paid-in | Accumulated | Total stockholders' equity | ||||||||||||||||||||||||
| Number | Amount | Number | Amount | capital | deficit | (deficiency) | ||||||||||||||||||||||
| Balance as of December 31, 2015 | 2,911,788 | $ | 5 | - | $ | $ | 41,769 | $ | (43,354 | ) | $ | (1,580 | ) | |||||||||||||||
| Issuance of Common Stock in March 2016 Public Offering, net of issuance cost | 1,333,333 | 1 | - | - | 1,571 | - | 1,572 | |||||||||||||||||||||
| Issuance of Common Stock in March 2016 Private Placement, net of issuance cost | 599,999 | *) - | - | - | 828 | - | 828 | |||||||||||||||||||||
| Issuance of Common Stock in January 2016 to service provider | 5,556 | *) - | - | - | 37 | - | 37 | |||||||||||||||||||||
| Payment for executives, employee and directors under Salary Program | 57,910 | *) - | - | - | 310 | - | 310 | |||||||||||||||||||||
| Issuance of Common Stock in March 2016 to officer | 20,000 | *) - | - | - | 86 | - | 86 | |||||||||||||||||||||
| Exercise of warrants into Common Stock, net of issuance cost | 77,019 | *) - | - | - | 210 | - | 210 | |||||||||||||||||||||
| Exercise of non-plan options | 84,106 | *) - | - | - | *) - | - | *) - | |||||||||||||||||||||
| Deemed dividend related to Series A Preferred Stock exchange agreement into Common Stock in March 2016 | 124,737 | - | - | - | 455 | (455 | ) | - | ||||||||||||||||||||
| Deemed dividend related to extension of July 2015 Series A warrants in July 2016 | - | - | - | - | 265 | (265 | ) | - | ||||||||||||||||||||
| Conversion of Series A Preferred Stock into Common Stock | 498,935 | *) - | - | - | 2,277 | - | 2,277 | |||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 605 | - | 605 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (10,887 | ) | (10,887 | ) | |||||||||||||||||||
| Balance as of December 31, 2016 | 5,713,383 | 6 | - | - | 48,413 | (54,960 | ) | (6,541 | ) | |||||||||||||||||||
| Issuance of Common Stock in January 2017 Private Placement, net of issuance cost | 1,113,922 | *) - | - | - | 2,886 | - | 2,886 | |||||||||||||||||||||
| Payment for executives and directors under Stock for Salary Program | 185,656 | *) - | - | - | 547 | - | 547 | |||||||||||||||||||||
| Issuance of Common Stock in to Employees | 452,257 | *) - | - | - | 1,472 | - | 1,472 | |||||||||||||||||||||
| Issuance of Common Stock to consultants and service provider | 114,654 | *) - | - | - | 423 | - | 423 | |||||||||||||||||||||
| Issuance of Common Stock in March 2017 Private Placement, net of issuance cost | 707,515 | *) - | - | - | 1,878 | - | 1,878 | |||||||||||||||||||||
| Issuance of Common Stock in April 2017 Public offering, net of issuance cost | 1,450,000 | *) - | - | - | 3,855 | - | 3,855 | |||||||||||||||||||||
| Exercise of options | 17,500 | *) - | - | - | *) - | - | *) - | |||||||||||||||||||||
| Issuance of Common Stock in August 2017 Private Placement, net of issuance cost | 483,333 | *) - | - | - | 801 | - | 801 | |||||||||||||||||||||
| Issuance of Preferred Stock in August 2017 Private placement, net of issuance cost | - | - | 2,307,654 | *) - | 3,711 | - | 3,711 | |||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 906 | - | 906 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (3,823 | ) | (3,823 | ) | |||||||||||||||||||
| Balance as of September 30, 2017 (unaudited) | 10,238,220 | $ | 6 | 2,307,654 | $ | *) - | $ | 64,892 | $ | (58,783 | ) | $ | 6,115 | |||||||||||||||
| Common Stock **) | Preferred Stock | Additional paid-in | Accumulated | Total stockholders’ | ||||||||||||||||||||||||
| Number | Amount | Number | Amount | capital | deficit | equity | ||||||||||||||||||||||
| Balance as of January 1, 2020 | 2,235,649 | $ | *)- | 21,375 | $ | *)- | $ | 129,039 | $ | (110,145 | ) | $ | 18,894 | |||||||||||||||
| Payment for executives and directors under Stock for Salary Program | 46,678 | *)- | - | - | 274 | - | 274 | |||||||||||||||||||||
| Issuance of Common Stock to directors and employees | 654,642 | *)- | - | - | 4,076 | - | 4,076 | |||||||||||||||||||||
| Issuance of Common Stock to consultants and service provider | 66,905 | *)- | - | - | 360 | - | 360 | |||||||||||||||||||||
| Conversion of Preferred Stock to Common Stock | 2,160 | *)- | (12 | ) | *)- | - | - | - | ||||||||||||||||||||
| Deemed dividend related to warrants exchange | 97,536 | *)- | - | - | 376 | (376 | ) | - | ||||||||||||||||||||
| Deemed dividend related to issuance of Preferred Stock | - | - | - | - | 899 | (899 | ) | - | ||||||||||||||||||||
| Issuance of Warrants to service providers | - | - | - | - | 1,131 | - | 1,131 | |||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 583 | - | 583 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (9,892 | ) | (9,892 | ) | |||||||||||||||||||
| Balance as of March 31, 2020 (unaudited) | 3,103,570 | $ | *)- | 21,363 | $ | *)- | $ | 136,738 | $ | (121,312 | ) | $ | 15,426 | |||||||||||||||
| Payment for executives and directors under Stock for Salary Program | 37,504 | *)- | - | - | 141 | - | 141 | |||||||||||||||||||||
| Issuance of Common Stock to directors and employees | 4,638 | *)- | - | - | 17 | - | 17 | |||||||||||||||||||||
| Issuance of Common Stock to consultants and service provider | 36,249 | *)- | - | - | 180 | - | 180 | |||||||||||||||||||||
| Conversion of Preferred Stock to Common Stock | 917,130 | *)- | (3,965 | ) | *)- | - | - | - | ||||||||||||||||||||
| Deemed dividend related to issuance of Preferred Stock | - | - | - | - | 786 | (786 | ) | - | ||||||||||||||||||||
| Issuance of Warrants to service providers | - | - | - | - | 150 | - | 150 | |||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 318 | - | 318 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (4,006 | ) | (4,006 | ) | |||||||||||||||||||
| Balance as of June 30, 2020 (unaudited) | 4,099,091 | $ | *)- | 17,398 | $ | *)- | $ | 138,330 | $ | (126,104 | ) | $ | 12,226 | |||||||||||||||
| Payment for executives and directors under Stock for Salary Program | 38,771 | *)- | - | - | 193 | - | 193 | |||||||||||||||||||||
| Exercise of Agent Warrants | 144,053 | *)- | - | - | - | - | - | |||||||||||||||||||||
| Exercise of repriced Warrants | 88,889 | *)- | - | - | 1,088 | - | 1,088 | |||||||||||||||||||||
| Issuance of Common Stock to directors and employees | 52,936 | *)- | - | - | 670 | - | 670 | |||||||||||||||||||||
| Issuance of Common Stock to consultants and service provider | 58,458 | *)- | - | - | 531 | - | 531 | |||||||||||||||||||||
| Conversion of Preferred Stock to Common Stock | 345,577 | *)- | (1,519 | ) | *)- | - | - | - | ||||||||||||||||||||
| Deemed dividend related to warrants exchange | 63,781 | *)- | - | - | 223 | (223 | ) | - | ||||||||||||||||||||
| Deemed dividend related to issuance of Preferred Stock | - | - | - | - | 707 | (707 | ) | - | ||||||||||||||||||||
| Issuance of Warrants to service providers | - | - | - | - | 90 | - | 90 | |||||||||||||||||||||
| Issuance of Common Stock, net of issuance cost | 3,000,752 | *)- | - | - | 26,460 | - | 26,460 | |||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 326 | - | 326 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (6,550 | ) | (6,550 | ) | |||||||||||||||||||
| Balance as of September 30, 2020 (unaudited) | 7,892,308 | $ | *)- | 15,879 | $ | *)- | $ | 168,618 | $ | (133,584 | ) | $ | 35,034 | |||||||||||||||
*) The accompanying notes are an integral part of the consolidated financial statements.
| *) | Represents an amount lower than $1. |
| **) | On November 18, 2019, the company affected the Reverse Stock Split, see note 1f. |
F-5
DARIOHEALTH CORP. AND ITS SUBSIDIARY
STATEMENTS OF STOCKHOLDERS' EQUITY
U.S. dollars in thousands (except stock and stock data)
| Additional | Total | |||||||||||||||||||||||||||
| Common Stock **) | Preferred Stock | paid-in | Accumulated | stockholders’ | ||||||||||||||||||||||||
| Number | Amount | Number | Amount | capital | deficit | equity | ||||||||||||||||||||||
| Balance as of January 1, 2019 | 1,831,746 | $ | *)- | - | $ | - | $ | 98,179 | $ | (89,254 | ) | $ | 8,925 | |||||||||||||||
| Payment for executives and directors under Stock for Salary Program | 10,678 | *)- | - | - | 210 | - | 210 | |||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 106 | - | 106 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (5,376 | ) | (5,376 | ) | |||||||||||||||||||
| Balance as of March 31, 2019 (unaudited) | 1,842,424 | $ | *)- | - | $ | - | $ | 98,495 | $ | (94,630 | ) | 3,865 | ||||||||||||||||
| Payment for executives under Stock for Salary Program | 7,133 | *)- | - | - | 141 | - | 141 | |||||||||||||||||||||
| Exercise of Options | 406 | *)- | - | - | *)- | - | *)- | |||||||||||||||||||||
| Public Offering | 242,768 | *)- | - | - | 6,558 | - | 6,558 | |||||||||||||||||||||
| Issuance of Common Stock to directors and employees | 51,613 | *)- | - | - | 795 | - | 795 | |||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 117 | - | 117 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (5,382 | ) | (5,382 | ) | |||||||||||||||||||
| Balance as of June 30, 2019 (unaudited) | 2,144,344 | $ | *)- | - | $ | - | $ | 106,106 | $ | (100,012 | ) | $ | 6,094 | |||||||||||||||
| Payment for executives under Stock for Salary Program | 37,101 | *)- | - | - | 445 | - | 445 | |||||||||||||||||||||
| Issuance of Common Stock to consultants and service provider | 4,128 | *)- | - | - | 55 | - | 55 | |||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 118 | - | 118 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (2,805 | ) | (2,805 | ) | |||||||||||||||||||
| Balance as of September 30, 2019 (unaudited) | 2,185,573 | $ | *)- | - | $ | - | $ | 106,724 | $ | (102,817 | ) | $ | 3,907 | |||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
| *) | Represents an amount lower than $1. | |
| **) | On November 18, 2019, the company affected the Reverse Stock Split, see note 1f. |
F-6
DARIOHEALTH CORP. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Nine months ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| Unaudited | ||||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (20,448 | ) | $ | (13,563 | ) | ||
| Adjustments required to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation, common stock, and stock instead of cash compensation to directors, employees, consultants, and service providers | 8,988 | 1,928 | ||||||
| Depreciation | 140 | 138 | ||||||
| Change in operating lease right of use assets | 224 | 160 | ||||||
| Decrease (increase) in trade receivables | 129 | (351 | ) | |||||
| Decrease (increase) in accounts receivables and prepaid expenses and long-term assets | (338 | ) | 199 | |||||
| Increase in inventories | (158 | ) | (96 | ) | ||||
| Increase (decrease) in trade payables | 343 | (1,168 | ) | |||||
| Increase (decrease) in other accounts payable and accrued expenses | 311 | (580 | ) | |||||
| Increase in deferred revenues | 62 | 575 | ||||||
| Change in operating lease liabilities | (229 | ) | (115 | ) | ||||
| Net cash used in operating activities | (10,976 | ) | (12,873 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Investment in deposit | (4 | ) | (8 | ) | ||||
| Purchase of property and equipment | (69 | ) | (79 | ) | ||||
| Net cash used in investing activities | (73 | ) | (87 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of Common Stock, warrants and warrant exercises, net of issuance costs | 27,548 | 6,558 | ||||||
| Net cash provided by financing activities | 27,548 | 6,558 | ||||||
| Increase (decrease) in cash, cash equivalents and short-term restricted bank deposits | 16,499 | (6,402 | ) | |||||
| Cash, cash equivalents and short-term restricted bank deposits at beginning of the period | 20,535 | 11,126 | ||||||
| Cash, cash equivalents and short-term restricted bank deposits at end of the period | $ | 37,034 | $ | 4,724 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
F-7
DARIOHEALTH CORP. AND ITS SUBSIDIARIESSUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Nine months ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| Unaudited | ||||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (3,823 | ) | $ | (7,026 | ) | ||
| Adjustments required to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation and Common Stock to service providers | 3,062 | 914 | ||||||
| Registration rights waiver | - | 650 | ||||||
| Depreciation | 155 | 273 | ||||||
| Increase in trade receivables | (193 | ) | (257 | ) | ||||
| Decrease (increase) in other receivables and prepaid expenses | (264 | ) | 80 | |||||
| Increase in inventories | (36 | ) | (517 | ) | ||||
| Increase in trade payables | 171 | 49 | ||||||
| Decrease in deferred revenues | - | (31 | ) | |||||
| Increase in other payables and accrued expenses | 191 | 283 | ||||||
| Change in fair value of warrants to purchase shares of Common Stock | (7,486 | ) | (938 | ) | ||||
| Net cash used in operating activities | (8,223 | ) | (6,520 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Investment in short-term bank deposit | (16 | ) | (155 | ) | ||||
| Maturity of lease deposits | 3 | 1 | ||||||
| Purchase of property and equipment | (64 | ) | (406 | ) | ||||
| Net cash used in investing activities | (77 | ) | (560 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of Stock and warrants, net of issuance cost | 13,469 | 7,538 | ||||||
| Proceeds from exercise of options and warrants | *) - | 210 | ||||||
| Net cash provided by financing activities | 13,469 | 7,748 | ||||||
| Increase in cash and cash equivalents | 5,169 | 668 | ||||||
| Cash and cash equivalents at the beginning of the period | 1,093 | 2,671 | ||||||
| Cash and cash equivalents at the end of the period | $ | 6,262 | $ | 3,339 | ||||
| Non-cash investing and financing activities: | ||||||||
| Conversion of Series A Preferred Stock to Common Stock | $ | - | $ | 2,277 | ||||
| Payment for directors and employees under Stock for Cash Program | $ | 183 | $ | 154 | ||||
*) Represents an amount lower than $1.
The accompanying notes are an integral part of the consolidated financial statements.
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
NOTE 1:- GENERAL
| NOTE 1: - | GENERAL |
| a. | DarioHealth Corp. DarioHealth is a leading Global Digital Therapeutics (DTx) company revolutionizing the way people with chronic conditions manage their health. By delivering personalized evidence-based interventions that are driven by precision data analytics, high quality software, and personalized coaching, DarioHealth has developed a novel approach that empowers individuals to adjust their lifestyle in a unique and holistic way. DarioHealth’s cross-functional team operates at the intersection of life sciences, behavioral science, and software technology to deliver seamlessly integrated and highly engaging digital DarioHealth’s digital therapeutic platform has been designed with a |
| b. | The |
| c. | During the nine months ended September 30, |
These conditions raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
| d. | In December 2015, the United States Food and Drug Administration granted the Subsidiary 510(k) clearance for the Dario Blood Glucose Monitoring System, including its components, the Dario Blood Glucose Meter, Dario Blood Glucose Test Strips, Dario Glucose Control Solutions and the Dario app on the Apple iOS 6.1 platform and higher. |
| On March 4, 2016, the Company's Common Stock, par value $0.0001 per share (the “Common Stock”) and warrants to purchase shares of Common Stock were approved for listing on |
| f. | On November 18, 2019, the Company affected a 1-for-20 reverse stock split (referred to herein as the “Reverse Stock Split”) of its Common Stock. No fractional shares were issued, and no cash or other consideration were paid as a result of the Reverse Stock Split. Instead, the Company issued one additional whole share of the post-Reverse Stock Split Common Stock to any shareholder who otherwise would have received a fractional share as a result of the Reverse Stock Split. The amount of authorized Common Stock was not affected. All issued and outstanding share and per share amounts included in the accompanying consolidated financial statements have been adjusted to reflect this Reverse Stock Split for all periods presented. |
| g. |
F-8
The significant accounting policies applied in the audited annual consolidated financial statements of the Company as disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2016 are applied consistently in these unaudited interim consolidated financial statements.
DARIOHEALTH CORP. AND ITS SUBSIDIARIESSUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
| NOTE 2: - | SIGNIFICANT ACCOUNTING POLICIES |
| a. | The significant accounting policies applied in the audited annual consolidated financial statements of the Company as disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 are applied consistently in these unaudited interim consolidated financial statements. |
| b. | Short-term restricted bank deposits: |
The following table provides a reconciliation of the cash balances reported on the balance sheets and the cash, cash equivalents and short-term restricted bank deposits balances reported in the statements of cash flows:
| September 30, | September 30, | |||||||
| 2020 | 2019 | |||||||
| Unaudited | Unaudited | |||||||
| Cash, and cash equivalents as reported on the balance sheets | $ | 36,907 | $ | 4,585 | ||||
| Short-term restricted bank deposits, as reported on the balance sheets | 127 | 139 | ||||||
| Cash, restricted cash, cash equivalents and short-term restricted bank deposits as reported in the statements of cash flows | $ | 37,034 | $ | 4,724 | ||||
| c. | Recently issued accounting pronouncements, not yet adopted: |
In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans, and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. The guidance also requires increased disclosures. For the Company, the amendments in the update were originally effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In November 2019, the FASB issued ASU No. 2019-10, which delayed the effective date of ASU 2016-13 for smaller reporting companies (as defined by the U.S. Securities and Exchange Commission) and other non-SEC reporting entities to fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods. Early adoption is permitted. The Company is currently assessing the impact the guidance will have on its consolidated financial statements.
| NOTE 3: - | UNAUDITED INTERIM FINANCIAL STATEMENTS |
The accompanying unaudited interim consolidated financial statements as of September 30, 2017,2020, have been prepared in accordance with U.S. generally accepted accounting principles and standards of the Public Company Accounting Oversight Board for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, the unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair presentation of the Company's consolidated financial position as of September 30, 2017,2020, and the Company's consolidated results of operations and the Company's consolidated cash flows for the three and nine months ended September 30, 2017.2020. Results for the three and nine months ended September 30, 20172020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2020.
F-9
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
| NOTE 4: - | INVENTORIES |
| September 30, | December 31, | |||||||||||||||
| 2017 | 2016 | September 30, | December 31, | |||||||||||||
| Unaudited | 2020 | 2019 | ||||||||||||||
| Unaudited | ||||||||||||||||
| Raw materials | $ | 494 | $ | 431 | $ | 626 | $ | 536 | ||||||||
| Finished products | 430 | 457 | 946 | 878 | ||||||||||||
| $ | 924 | $ | 888 | $ | 1,572 | $ | 1,414 | |||||||||
During the nine months'month period ended September 30, 20172020, and the year ended December 31, 2016,2019, total inventory write-off expenses amounted to $120$70 and $315,$62, respectively.
| NOTE 5: - | REVENUE |
The following tables represent the Company’s total revenues for the three and nine months ended September 30, 2020 and 2019 by product type:
| Three months ended September 30 | Nine months ended September 30 | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Unaudited | Unaudited | |||||||||||||||
| Products | $ | 1,556 | $ | 1,244 | $ | 4,052 | $ | 4,315 | ||||||||
| Services | 486 | 624 | 1,444 | 1,446 | ||||||||||||
| 2,042 | 1,868 | 5,496 | 5,761 | |||||||||||||
Consolidated revenues by category type are as follows:
| Three months ended September 30 | Nine months ended September 30 | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Unaudited | Unaudited | |||||||||||||||
| Consumer Products and other revenues | $ | 1,257 | $ | 1,135 | $ | 3,224 | $ | 3,686 | ||||||||
| Membership services | 785 | 733 | 2,272 | 2,075 | ||||||||||||
| 2,042 | 1,868 | 5,496 | 5,761 | |||||||||||||
The Company recognizes contract liabilities, or deferred revenues, when it receives advance payments from customers before performance obligations primarily related services have been performed. Advance payments are received at the beginning of the service period and the related deferred revenues are reclassified to revenue ratably over the service period. The balance of deferred revenues approximates the aggregate amount of the transaction price allocated to the unsatisfied performance obligations at the end of reporting period.
F-10
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
| NOTE 5: - | REVENUE (Cont.) |
The following table presents the significant changes in the deferred revenue balance during the nine months ended September 30, 2020:
| Balance, beginning of the period | $ | 1,223 | ||
| New performance obligations | 2,394 | |||
| Reclassification to revenue as a result of satisfying performance obligations | (2,332 | ) | ||
| Balance, end of the period | $ | 1,285 |
Because all performance obligations in the Company’s contracts with customers relate to contracts with a duration of less than one year, the Company has elected to apply the optional exemption and is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.
| NOTE 6: - | COMMITMENTS AND CONTINGENT LIABILITIES |
From time to time the Company is involved in claims and legal proceedings. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss.
| NOTE 7: - |
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
| STOCKHOLDERS' EQUITY |
| a. |
During January, April and July |
In January In January and March 2020, the Compensation Committee of the Board of Directors approved an inducement grant of a non-qualified stock option award to purchase 140,000 shares of the Company’s Common Stock, as well as an additional inducement grant consisting of a non-qualified performance-based stock option award to purchase an additional 90,000 shares of the Company’s Common Stock outside of the Company’s 2012 Plan, pursuant to Nasdaq Listing Rule 5635(c)(4), in connection with the employment of its President and General Manager of North America and of its Chief Medical Officer. During January, March, May, August and September 2020, the Board of Directors approved the grant of 110,250 shares of Common Stock and fully vested options to purchase 5,540 shares of Common Stock to certain consultants of the Company, a portion of which were During February, |
F-11
DARIOHEALTH CORP. AND ITS SUBSIDIARIESSUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
| NOTE 7: - | STOCKHOLDERS' EQUITY |
| In April |
In April 2020, the Audit and Compensation Committee of the In May 2020, the Compensation Committee of the Board of Directors authorized the Company to issue, in several installments, 45,000 shares and warrants to purchase 110,000 shares of Common Stock, to certain consultants of the Company, of which warrants to purchase 60,000 shares of Common Stock are vesting over a 12 month period. The warrants exercise prices are between $6.39 and $10.00 per share. During the nine-month period ended September 30, 2020, a total of 30,000 shares and warrants to purchase 90,000 shares were issued under the said approval. As such, the Company recorded a shares and warrants compensation expense for service providers in the amount of $384. |
| On February 5, 2020, the Company’s stockholders approved an amendment to the 2012 Plan to increase the number of shares authorized for issuance under the 2012 Plan by 1,350,000 shares, from 618,650 to 1,968,650. |
F-12
DARIOHEALTH CORP. AND ITS SUBSIDIARIESSUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
| NOTE 7: - | STOCKHOLDERS' EQUITY |
| d. | In March 2020, the Board of Directors authorized the Company to issue warrants to purchase up to 500,000 shares of Common Stock to a business partner of the Company, subject to certain thresholds criteria, at a purchase price of $5.94. |
| e. | In November and December 2019, the Company entered into subscription agreements for a sale of an aggregate of 21,375 shares of newly designated Series A, A-1, A-2, A-3 and A-4 Convertible Preferred Stock (collectively, the “Series A Convertible Preferred Stock”), at a purchase price of $1,000 per share, for aggregate gross proceeds of $21,375 ($18,689 net of issuance expenses). The initial conversion price for the Series A, A-1, A-2, A-3 and A-4 Convertible Preferred Stock was $4.05, $4.05, $4.28, $4.98 and $5.90, respectively, and the total amount of Common Stock issuable upon conversion of all classes of the Series A Convertible Preferred Stock is up to 4,960,281 shares of Common Stock. During the nine months ended September 30, 2020 5,496 of certain Series A Convertible Preferred Stock were converted into 1,264,867 shares of Common Stock. Pursuant to the placement agency agreement executed by and between the Company and the registered broker dealer retained to act as the Company’s exclusive placement agent (the “Placement Agent”) for the offering of the Series A Preferred Stock, the Company paid the Placement Agent an aggregate cash fee of $1,788, non-accountable expense allowance of $641 and was required to issue to the Placement Agent or its designees warrants to purchase 719,243 shares of Common Stock at an exercise price ranging from $4.05 to $5.90 per share (the “Placement Agent Warrants”). The Placement Agent Warrants are exercisable for a period of five years from the date of the final closing of the Series A Preferred Stock Offering. During the nine months ended September 30, 2020, 194,940 Placement Agent Warrants that were issued in December 2019 were exercised into 144,053 shares of Common Stock. |
| f. | The Series A Convertible Preferred Stock will automatically convert into shares of Common Stock, subject to certain beneficial ownership limitations, on the earliest to occur of (i) upon the approval of the holders at least 50.1% of the outstanding shares of Series A Convertible Preferred with respect to the Series A Convertible Preferred Stock; or (ii) the 36-month anniversary of each of the Series A Effective Date. The holders of Series A Preferred Stock will also be entitled dividends payable as follows: (i) a number of shares of Common Stock equal to ten percent (10%) of the number of shares of Common Stock issuable upon conversion of the Series A Convertible Preferred Stock then held by such holder on the 12-month anniversary of the Series A Effective Date, (ii) a number of shares of Common Stock equal to fifteen percent (15%) of the number of shares of Common Stock issuable upon conversion of the Series A Convertible Preferred then held by such holder on the 24-month anniversary of the Series A Effective Date, and (iii) a number of shares of Common Stock equal to twenty percent (20%) of the shares of Common Stock issuable upon conversion of the Series A Convertible Preferred Stock then held by such holder on the 36-month anniversary of the Series A Effective Date. The Company accounted for the dividend as a deemed dividend during the three and nine months ended September 30, 2020 in a total amount of $707 and $2,392, respectively. |
| g. | In July 2020, the Company entered into exchange agreements (each an “Exchange Agreement”) with certain Company warrant holders who were granted warrants to purchase up to an aggregate of 91,116 shares of Common Stock in September 2018 (the “2018 Warrants”). Pursuant to the terms of the Exchange Agreements, the warrant holders agreed to surrender such warrants for cancellation and receive, as consideration for the cancellation of such 2018 Warrants, an aggregate of 63,781 restricted shares of Common Stock, thereby creating a benefit to these warrant holders. As such the Company recorded a deemed dividend in the amount of $223. |
| h. | On July 28, 2020, the Company entered into subscription agreements with accredited investors relating to an offering with respect to the sale of an aggregate of (i) 2,969,266 shares of the Company’s Common Stock, at a purchase price of $7.47 per Share, and (ii) pre-funded warrants to purchase 824,689 shares of Common Stock, at a purchase price of $7.4699 per Pre-Funded Warrant. In addition, on July 30, 2020, the Company entered into a subscription agreement with an accredited investor for the purchase of 31,486 shares of Common Stock at a purchase price per share of $7.94 per Share. The aggregate gross proceeds were approximately $28,591 ($26,460 net of issuance costs). |
F-13
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
| NOTE 7: - | STOCKHOLDERS' EQUITY (Cont.) |
| i. | In September 2020, the Company entered into an agreement with a certain warrant holder who was granted warrants to purchase up to an aggregate of 88,889 shares of Common Stock in September 2018. Warrants to purchase 88,889 shares of Common Stock were exercised into shares of Common Stock at an exercise price of $13.00 per share. The aggregate gross proceeds were approximately $1,156 ($1,088 net of issuance expenses costs). |
| g. | Stock option compensation: |
Transactions related to the grant of options to employees, directors, and non-employees under the above plans during the nine-month period ended September 30, 20172020, were as follows:
| Number of options | Weighted average exercise price | Weighted average remaining contractual life | Aggregate Intrinsic value | |||||||||||||||||||||||||||||
| $ | Years | $ | Number of options | Weighted average exercise price | Weighted average remaining contractual life | Aggregate Intrinsic value | ||||||||||||||||||||||||||
| $ | Years | $ | ||||||||||||||||||||||||||||||
| Options outstanding at beginning of year | 583,334 | 16.53 | 4.87 | 7 | 148,080 | 68.56 | 4.41 | 192 | ||||||||||||||||||||||||
| Options granted | 823,413 | 2.00 | 775,031 | 8.42 | ||||||||||||||||||||||||||||
| Options exercised | (17,500 | ) | 0.00 | - | - | |||||||||||||||||||||||||||
| Options expired | (40,528 | ) | 5.27 | (8,040 | ) | 33.24 | ||||||||||||||||||||||||||
| Options forfeited | (27,681 | ) | 38.86 | (22,024 | ) | 13.11 | ||||||||||||||||||||||||||
| Options outstanding at period end (unaudited) | 1,321,038 | 7.71 | 4.96 | 424 | 893,047 | 18.06 | 5.16 | 7,389 | ||||||||||||||||||||||||
| Options vested and expected to vest at period end (unaudited) | 1,200,770 | 7.97 | 4.970 | 424 | 725,239 | 18.07 | 5.16 | 6,001 | ||||||||||||||||||||||||
| Exercisable at period end (unaudited) | 696,783 | 11.85 | 4.64 | 309 | 140,074 | 69.33 | 3.87 | 1,060 | ||||||||||||||||||||||||
F-14
DARIOHEALTH CORP. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
| NOTE 7: - | STOCKHOLDERS' EQUITY (Cont.) |
The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company's closing stock price on the last day of the third quarter of 20172020 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2017.2020. This amount is impacted by the changes in the fair market value of the Common Stock.
As of September 30, 2017,2020, the total amount of unrecognized stock-based compensation expense was approximately $1,010 thousand$3,294 which will be recognized over a weighted average period of 1.151.46 years.
The following table presents the assumptions used to estimate the fair values of the options granted to employees, directors and non-employees in the period presented:
| Three months ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| Volatility | 94.0%-99.89 | % | 85.07%-88.25 | % | ||||
| Risk-free interest rate | 0.19%-0.25 | % | 1.42 | % | ||||
| Dividend yield | 0 | % | 0 | % | ||||
| Expected life (years) | 3.5-4.5 | 3.5-4.5 | ||||||
The total compensation cost related to all of the Company's equity-based awards recognized during the nine-month period ended September 30, 20172020, and 20162019 was comprised as follows:
| Nine months ended September 30, | ||||||||||||||||
| 2017 | 2016 | Nine months ended September 30, | ||||||||||||||
| Unaudited | 2020 | 2019 | ||||||||||||||
| Unaudited | ||||||||||||||||
| Cost of revenues | $ | 102 | $ | 37 | $ | 24 | $ | 82 | ||||||||
| Research and development | 206 | 81 | 591 | 198 | ||||||||||||
| Sales and marketing | 515 | 81 | 2,267 | 231 | ||||||||||||
| General and administrative | 2,239 | 715 | 6,106 | 1,417 | ||||||||||||
| Total stock-based compensation expenses | $ | 3,062 | $ | 914 | $ | 8,988 | $ | 1,928 | ||||||||
| NOTE 8: - | FINANCIAL EXPENSES (INCOME), NET |
Nine months ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| Unaudited | ||||||||
| Bank charges | $ | 42 | $ | 19 | ||||
| Foreign currency adjustments (income) losses, net | (382 | ) | 20 | |||||
| Interest income | (51 | ) | - | |||||
| Total Financial expenses (income), net | (391 | ) | 39 | |||||
F-15
DARIOHEALTH CORP. AND ITS SUBSIDIARIESSUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
Accounting Standards Codification 820, "Fair Value Measurements and Disclosures" ("ASC 820"), defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance.
ASC 820 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value:
| NOTE 9: - |
On September 23, 2014, the Company consummated a private placement (the "September 2014 Private Placement") consisting of an aggregate of 42,350 units which consisted of 42,350 shares of newly designated Series A Convertible Preferred Stock which were convertible into up to an aggregate of 10,683,662 shares of Common Stock, and warrants to purchase 5,341,834 shares of Common Stock with an exercise price of $0.48 per share which is subject to a standard anti-dilution protections clause.
The warrants issued in the September 2014 Private Placement contain a net settlement cash feature and liquidated damages penalties and therefore the Company accounts for such warrants as a liability according to the provisions of ASC 815-40 "Contracts in entity's own equity," and re-measures such liability using the Binomial option-pricing model as described below.
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
In estimating the warrants' fair value, the Company used the following assumptions:
| ||
Fair value of liability related to warrants | ||||
| Balance at December 31, 2016 | $ | 7,488 | ||
| Change in fair value of warrants during the period | (7,486 | ) | ||
| Balance at September 30, 2017 (unaudited) | $ | 2 | ||
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
Nine months ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| Unaudited | ||||||||
| Bank charges | $ | (9 | ) | $ | (41 | ) | ||
| Foreign currency translation adjustments | 2 | (6 | ) | |||||
| Registration right waiver | - | (650 | ) | |||||
| Change in fair value of warrants | 7,486 | 938 | ||||||
| Total financial income (expenses), net | $ | 7,479 | $ | 241 | ||||
| a. | In |
| b. | In April 2020, the Compensation Committee of the Board of Directors approved a monthly grant of shares of the Company’s Common Stock equal up to $18 of restricted shares to certain service providers per month, to be granted monthly during the period that the certain consulting agreement remains in effect. During the fourth quarter, the Company issued a total of 2,390 restricted shares of the Company’s Common Stock. |
| c. | In October 2020, the Company’s Compensation Committee of the Board of Directors approved the grant of 75,604 shares to consultants of the Company, and the grant of 84,000 options to employees and a consultant of the Company, at exercise prices between $12.67 and $16.124 per share. The stock options vest over a period of three years commencing on the respective grant dates. The options have a six-year term and were issued under the 2012 Plan. |
| d. | In October 2020, the Company’s stockholders approved the 2020 Equity Compensation Plan, and the immediate reservation of 900,000 shares under this Plan for the remainder of the 2020 fiscal year. |
| e. | In October, 2020, the Compensation Committee of the Board of Directors approved the grant of 41,526 shares of Common Stock to a director, officers and employees of the Company as consideration for a reduction in or waiver of cash salary or fees |
| g. | As of November 10, |
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F-16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Readers are advised to review the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2016.2019. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements”. You should review the “Risk Factors” section of our Annual Report for the fiscal year ended December 31, 20162019 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
The following financial data in this narrative are expressed inthousands, except for stock and stock data or as otherwise noted.
We are a leading global Digital Therapeutics, or DTx, company revolutionizing the way people manage their health across the chronic condition spectrum to live a better and healthier life. By delivering personalized evidence-based interventions that are driven by data, high-quality software, easy-to-use medical devices and coaching, we empower individuals to make healthy adjustments to their daily lifestyle choices in a personalized way and improve their overall health. Our cross-functional team operates at the intersection of life sciences, behavioral science and software technology to deliver highly engaging therapeutic interventions. The DarioTM Blood Sugar Monitor is among the most downloaded healthcare apps, with 4.9/5.0 stars from 13,000+ reviews on the Apple App Store as of October 2020. We are rapidly moving into new chronic conditions such as hypertension, using a performance-based approach to improve the health of users managing chronic disease.
We attempt to drive behavioral change by creating highly personalized, closed-loop interactions that support our customers, who become members of our services, via connected FDA cleared monitoring devices, just-in-time health information and real-time coaching. This highly scalable infrastructure results in members with significant improvement in their health conditions at a modest price-point. The Dario solution is intended to stretch across various health conditions and ailments. We currently focus our efforts on diabetes and hypertension, and we plan to expand our focus into additional chronic conditions during 2020, such as weight management.
Our solution goes beyond being simply a device. We are a modular platform that allows for customized implementations by segment and within each segment. Core components of our solution include:
| · | Dario Smart Tools – member-facing devices and integrated smartphone application. |
| · | DarioEngage Platform – population management tool that enables scalable engagement and clinical support by coaches and clinicians, remotely and in real-time. |
| · | Dario Journey Engine – a software-based platform that enables cross-channel communication of highly personalized and deeply customized/configurable journeys for each user starting from member enrollment process and continuing through on-going engagement leading to successful maintenance of health gains. |
We make our services available directly to consumers via online marketplaces, including Amazon, Walmart, Best Buy and the Google and Apple app stores. In 2020, we plan to focus on expanding our offering to include providers, payers, and employers. We believe that these represent significant growth opportunities for our business.
We have designed our DTx platform with a ‘user-first’ strategy, focusing on user’s needs first and foremost, along with user experience and satisfaction. User satisfaction drives all company processes, including our technology design. This approach, which disrupts the traditional approach among healthcare companies, has taken us to a place where MyDarioTM is loved by customers in the diabetes arena. In order to obtain firsthand data and feedback from our users, we decided to launch our product directly to our customers, and initially commenced sales in the United States in March 2016. This user-focused approach led us into a continuous process of product upgrades and improvements in an agile, interactive way to achieve finetuned user satisfaction. Our success is reinforced by the fact that most of our users choose to purchase our solution out of pocket.
We have designed our DTx platform as an open platform that allows us to enable our partners to offer their customers a customized, evidence-based digital therapy solution, which takes advantage of the real-time connectivity of our platform with its users. We believe that our data-evidenced proof of the medical outcomes resulting from the use of our DTx platform represents an attractive return on investment model to healthcare providers in the United States and other geographic regions.
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In addition, we have continued to carefully monitor the COVID-19 pandemic and its impact on our business. In that regard, we have continued to sell our DarioTM Blood Sugar Monitor and have not experienced disruptions in our supply chains. With respect to our DTx platform, we have observed that some of our business-to-business prospective partners have been addressing their business needs as a result of the COVID-19 pandemic, which has resulted in a slowdown of negotiations and discussions with some of these potential partners. In addition, we have also seen an increase in interest from other business-to-business prospective partners in our DTx platform, as certain parties are seeking tele-health products.
We expect the significance of the COVID-19 pandemic, including the extent of its effect on our financial and operational results, to be dictated by, among other things, its duration, the success of efforts to contain it and the impact of actions taken in response. While we are not able at this time to estimate the impact of the COVID-19 pandemic on our financial and operational results, it could be material.
According to a Business Insider Intelligence report published in October 2019, DTx are a new class of treatments disrupting the entire healthcare value chain with their promise to tackle chronic diseases, and which, according to estimates by Business Insider, represents up to $3.3 trillion on chronic disease expenditure in 2018 in the United States alone. Digital therapeutics deliver evidence-based therapies for an array of chronic conditions via software, like mobile health (mHealth) company thatapps and can either replace or complement existing drug treatments. According to a report released by the Rand Corporation, Sixty percent of the United States population suffers from at least one chronic condition, and these diseases come with a hefty price tag, as exemplified by the Business Insider report. DTx companies have shown early evidence of their treatments’ efficacy and ability to slash the costs associated with chronic disease care, which is developing and commercializingfueling the global DTx market to become a patented and proprietary technology providing consumers with laboratory-testing capabilities using smart phones and other mobile devices. $9 billion opportunity by 2025 according to the Business Insider Intelligence report.
Our principal operating subsidiary, LabStyle Innovation Ltd., is an Israeli company with its headquarters in Caesarea, Israel. We were formed on August 11, 2011, as a Delaware corporation. Our flagship product, Dario™, is a mobile, real-time, cloud-based, diabetes management solution based on an innovative, multi-feature software applicationcorporation with the name LabStyle Innovations Corp. On July 28, 2016, we changed our name to DarioHealth Corp.
Management believes that the proceeds from the recent subscription agreement combined with our cash on hand are sufficient to meet our obligations as they come due for at least a stylish, ‘all-in-one’, pocket-sized, blood glucose monitoring device, which we callperiod of twelve months from the Dario™ Smart Meter.
We commenced a commercial launchdate of the free Dario™ application in the United Kingdom in late 2013 and commenced an initial soft launch of the full Dario™ solution (including the app and the Smart Meter) in selected jurisdictions in March 2014 and continued to scale up launch during 2014 in the United Kingdom, the Netherlands and New Zealand, and during 2015 in Australia, Israel and Canada, with the goal of collecting customer feedback to refine our longer-term roll-out strategy. We are consistently adding new additional features and functionality in making Dario™ the new standard of care in diabetes data management.
Through our Israeli subsidiary, Labstyle Innovation Ltd., our plan of operations is to continue the development of our software and hardware offerings and related technology. During 2015, we successfully launched the Dario™ Smart Diabetes Management Solution according to plan and are currently expanding the launch to other jurisdictions. In 2016, we established our direct to consumer model in the U.S. to achieve higher and faster penetration into the market during the launch phase. We have invested in a robust digital marketing department with in-house platforms, experienced personnel and robust infrastructures to support expected growth of users and online subscribers in this market. During the third quarter of 2016 we expanded these effort to include Australia as well. In supportissuance of these goals, we intendunaudited condensed consolidated financial statements. As a result, the Company has resolved to utilize our fundsremove the going concern note from its financial statements. There are no assurances, however, that the Company will be able to obtain an adequate level of financial resources that are required for the following activities:
Readers are cautioned that, according to our management’s estimates, based on our budget and the initial launchcommercialization of our commercial sales, we believe that we will have sufficient resources to continue our activity only into the third quarter of 2018 without raising additional capital. This includes an amount of anticipated inflows from sales of Dario™ through direct sales in the United States and through distribution partners. As such, we have a significant present need for capital. If we are unable to continue the market penetration of Dario™ or meet our commercial sales targets (or if we are unable to ramp up revenues), and if we are unable to obtain additional capital resources in the near term, we may be unable to continue activities, absent a material alternations in our business plans and our business might fail.its product offering.
Critical Accounting Policies
ReferencePlease see Note 2 of Part I, Item 1 of this Quarterly Report on Form 10-Q for the summary of significant accounting policies. In addition, reference is made to Part I, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation of our Annual Report on Form 10-K for the year ended December 31, 20162019 (filed on March 22, 2017)17, 2020) with respect to our Critical Accounting Policies, whichPolicies. There have not changed.been no other material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2019.
Results of Operations
Comparison of the three and nine months ended September 30, 20172020 and 2016 (in2019 (dollar amounts in thousands)
Revenues
Revenues for the three and nine months ended September 30, 20172020, amounted to $1,375$2,042 and $3,592,$5,496, respectively, compared to $728revenues of $1,868 and $1,965 of revenues$5,761 during the three and nine months ended September 30, 2016.2019, representing an increase of 9.3% and a decrease of 4.6%, respectively. The increasesincrease in revenues for the three months ended September 30, 2020, compared to the three months ended September 30, 2019, is due to an increase in our direct to consumer (“D2C”) revenues in the three andthird quarter of 2020. The decrease in revenues for the nine months ended September 30, 20172020, compared to the three and nine months ended September 30, 2016 are2019, is mainly as a result of increasea decrease in our D2C revenues in the salesfirst quarter of our products.2020 compared to the first quarter of 2019.
Revenues were derived mainly from the sales of Dario™’sDario’s components, including the Smart MeterDario Blood Glucose Monitoring System itself and our membership offering through direct sales to consumersD2C acquisitions located mainly in the United States and Australia, through our on-line store and through distributors.
Cost of Revenues
During the three and nine months ended September 30, 20172020, we recorded costs related to revenues in the amount of $1,099$1,493 and $2,850,$3,532 respectively, as compared to $652 and $2,148 of recorded costs related to revenues of $995 and $4,004 during the three and nine months ended September 30, 2016.2019, representing an increase of 50% and a decrease of 11.8%, respectively. The increasesincrease in costs related to revenues in the three and nine months ended September 30, 20172020, compared to the three and nine months ended September 30, 2016 are2019, is mainly as a result of an increase in the salessale of our products and the write-off of old production fixtures andduring that period. The decrease in costs related inventories amounting to $102revenues in the third quarternine months ended September 30, 2020, compared to the nine months ended September 30, 2019, is mainly a result of 2017.an increase in revenues from our services as percentage of revenues and a decrease in production costs during the first nine months of 2020.
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Cost of revenues consist mainly of cost of device production, employees'employees’ salaries and related overhead costs, depreciation of production line and related cost of equipment used in production, hosting costs, shipping and handling costs and inventory write-downs.
Gross Profit
Gross profit for the three and nine months ended September 30, 2020, amounted to $549 (26.9% of revenues) and $1,964 (35.7% of revenues), respectively, compared to $873 (46.7% of revenues) and $1,757 (30.5% of revenues) during the three and nine months ended September 30, 2019. The decrease in gross profit for the three months ended September 30, 2020, compared to the three months ended September 30, 2019, is mainly a result of an increase in revenues generated from our product sales during that period. The increase in gross profit for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, is mainly as a result of an increase in revenues generated from our membership offering and a corresponding decrease in product sales.
Research and Development Expenses
Our research and development expenses increased by $138,$95, or 21%,11.1% to $797$954 for the three months ended September 30, 20172020, compared to $659$859 for the three months ended September 30, 2016,2019, and increased by $873,$158, or 55%,5.5% to $2,450$3,010 for the nine months ended September 30, 20172020 compared to $1,577$2,852 for the nine months ended September 30, 2016. These increases were2019. The increase for the three months ended September 30, 2020, compared to the three months ended September 30, 2019, was mainly due to an increase in stock-based compensation and other research and development costs relating primarily to product development, partially offset by a decrease in expenses related to travel. The reason for the increase for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, was mainly due to increases in salaries, stock basedpayroll and stock-based compensation, partially offset by a decrease of other research and development costs relating primarily to product development. Our research and development expenses, excluding stock-based compensation and costs associated with clinical trials.depreciation, for the three months ended September 30, 2020 were $803 compared to $766 for the three months ended September 30, 2019, an increase of $37. This increase was due to product development expenses. Our research and development expenses, excluding stock-based compensation and depreciation, for the nine months ended September 30, 2020, were $2,401 compared to $2,636 for the nine months ended September 30, 2019, a decrease of $235. This decrease is mainly the result of a reduction in product development expenses during the first six months of 2020 compared to the first six months of 2019.
Research and development expenses consist mainly of payroll expenses to employees involved in research and development activities, expenses related to our Dario™Dario software application and related Smart Meter device,devices, labor contractors and engineering expenses, depreciation and maintenance fees related to equipment and software tools used in research and development, clinical trials performed in the United States to satisfy the FDA product approval requirements and facilities expenses associated with and allocated to research and development activities.
Sales and Marketing Expenses
Our sales and marketing expenses increased by $149,$1,770, or 9.7%,94.9% to $1,682$3,635 for the three months ended September 30, 20162020, compared to $1,533$1,865 for the three months ended September 30, 20172019, and increased by $2,513,$1,530, or 79%,17.4% to $5,707$10,334 for the nine months ended September 30, 20172020, compared to $3,194$8,804 for the nine months ended September 30, 2016. These increases were2019. The increase for the three months ended September 30, 2020, compared to the three months ended September 30, 2019, was mainly due to an increase in digital marketing expenses, salaries, and stock-based compensation. The reason for the increase for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, was mainly due to an increase in oursalaries and stock-based compensation partially offset by a decrease in digital marketing expenses. Our sales and marketing activities inexpenses, excluding stock-based compensation and depreciation, for the United States and Australia during 2017three months ended September 30, 2020 were $3,108 compared to partial activity during$1,720 for the firstthree months ended September 30, 2019, an increase of $1,388. This increase is a result of increase in salaries and digital marketing expenses. Our sales and marketing expenses, excluding stock-based compensation and depreciation, for the nine months ended September 30, 2020 were $8,042 compared to $8,545 for the nine months ended September 30, 2019, a decrease of 2016,$503. This decrease is mainly the result of a reduction in our digital marketing activity partially offset by an increase in costs of our online marketing campaigns, the cost related to marketing consultants and the costs associated with subcontractors and employee payroll.salaries.
Sales and marketing expenses consist mainly of payroll expenses, online marketing campaigns of the DarioTM, service offering, trade show expenses, customer support expenses and marketing consultants and subcontractors.
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General and Administrative Expenses
Our general and administrative expenses increased by $176,$1,614, or 29%,170% to $781$2,562 for the three months ended September 30, 20172020, compared to $605$948 for the three months September 30, 2019, and increased by $5,834, or 161% to $9,459 for the nine months ended September 30, 2020, compared to $3,625 for the nine months ended September 30, 2019. The increases for the three months and the nine months ended September 30, 2020, compared to the three and nine months ended September 30, 2019, were mainly due to increases in our stock-based compensation, payroll, consulting and investors relations expenses. Our general and administrative expenses, excluding stock-based compensation and depreciation, for the three months ended September 30, 2016,2020 were $1,415 compared to $576 for the three months ended September 30, 2019, an increase of $839. Our general and increased by $1,574, or 68%, to $3,887administrative expenses excluding stock-based compensation and depreciation for the nine months ended September 30, 20172020 were $3,343 compared to $2,313$2,201 for the nine months ended September 30, 2016.2019, an increase of $1,142. These increases wereresulted mainly due tofrom an increase in share based compensation resulting from shares issued to management during the period. On January 30, 2017 the Compensation Committee of the Board of Directors approved the grant of sharesinvestor relations, insurance expenses, salaries, and options to members of management pursuant to our Amendedother general and Restated 2012 Share Incentive Plan. In that regard, on January 30, 2017, we issued 227,616 shares of common stock to our Chairman and Chief Executive Officer and 74,896 shares of common stock to our Chief Financial Officer. These share grants were accounted for as expenses according to the closing price of our shares of common stock on January 30, 2017 ($3.40 per share) amounting to an expense of $1,029 in the aggregate and included in the share based compensation expenses for the period. On April 20, 2017, the Compensation Committee of the Board of Directors approved the grant of shares to management, pursuant to our Amended and Restated 2012 Share Incentive Plan as a bonus payment for the Company’s achievements during the year ending December 31, 2016. In that regard, on April 20, 2017, we issued 50,000 shares of common stock to our Chairman and Chief Executive Officer and 20,000 shares of common stock to our Chief Financial Officer. These share grants were accounted for as expenses according to the closing price of our shares of common stock on April 19, 2017 ($2.73 per share) amounting to an expense of $191 in the aggregate and included in the share based compensation expenses for the period.administrative expenses.
Our general and administrative expenses consist mainly of payroll and stock-based compensation expenses for management, employees, directors and consultants, legal fees, directors’ and officers’ insurance, patent registration, expenses related to investor relations, as well as our office rent and related expenses.
Financial Income,(Income) Expenses, net
Our financial income for the three months ended September 30, 2020, was $52, representing an increase of 967% compared to financial expenses of $6 for the three months ended September 30, 2019. Our financial income for the nine months ended September 30, 2020, was $391, representing an increase of 1,102%, compared to finance expenses $39 for the nine months ended September 30, 2019. The increase in financial income for the three and nine months ended September 30, 2017 were $6 and $7,479, respectively,2020, as compared to finance income of $2,110 and $241 for the three and nine months ended September 30, 2016, respectively. This change was2019, are mainly dueattributable to the reversing of the warrant revaluation expense during the first quarter of 2017 which was initially recorded during the fiscal year ended 2016, due to a price protection feature includedincome from translation differences in warrants issued to investors in March and August of 2016. These price protection features expired on March 8, 2017, and as a result, we cancelled the liability related to these warrants by recording financing income of $7,460 during the period.foreign currency.
Financial (income) expenses include mainly bank charges, interest income, includes mainly the results of a revaluation of warrants to investors and a former placement agent, which are recorded as alease liability and presented at fair value each reporting period.foreign currency translation differences.
Net loss
Net loss increased by $2,367,$3,745, or 387%133.5%, to $2,978$6,550 for the three months ended September 30, 20172020, compared to a net loss of $611$2,805 for the three months ended September 30, 20162019, and decreasedincreased by $3,203,$6,885, or 45%50.8%, to $3,823$20,448 for the nine months ended September 30, 20162020, compared to $7,026$13,563 for the nine months ended September 30, 2016.2019.
Non-GAAP Financial Measures
The increasefactors described above resulted in net loss for the three months ended September 30, 2017 compared to the three months ended September 30, 2016 was mainly due to the financing income recorded in the three months ended September 30, 2017 compared to the financing income recorded in the three months ended September 30, 2016,of $20,448 and the increase in the operating expenses recorded during the three months ended September 30, 2017 compared to the three months ended September 30, 2016.. The decrease in net loss$13,563 for the nine months ended September 30, 2017 compared2020, and 2019, respectively.
To supplement our unaudited condensed consolidated financial statements presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) within this Quarterly Report on Form 10-Q, management provides certain non-GAAP financial measures (“NGFM”) of the Company’s financial results, including such amounts captioned: “net loss before interest, taxes, depreciation, and amortization” or “EBITDA”, and “Non-GAAP Adjusted Loss”, as presented herein below. Importantly, we note the NGFM measures captioned “EBITDA” and “Non-GAAP Adjusted Loss” are not recognized terms under U.S. GAAP, and as such, they are not a substitute for, considered superior to, considered separately from, nor as an alternative to, U.S. GAAP and /or the most directly comparable U.S. GAAP financial measures.
Such NGFM are presented with the intent of providing greater transparency of information used by us in our financial performance analysis and operational decision-making. Additionally, we believe these NGFM provide meaningful information to assist investors, shareholders, and other readers of our unaudited condensed consolidated financial statements, in making comparisons to our historical financial results, and analyzing the underlying financial results of our operations. The NGFM are provided to enhance readers’ overall understanding of our current financial results and to provide further information to enhance the comparability of results between the current year period and the prior year period.
We believe the NGFM provide useful information by isolating certain expenses, gains, and losses, which are not necessarily indicative of our operating financial results and business outlook. In this regard, the presentation of the NGFM herein below, is to help the reader of our unaudited condensed consolidated financial statements to understand the effects of the non-cash impact on our (U.S. GAAP) unaudited condensed consolidated statement of operations of the revaluation of the warrants and the expense related to stock-based compensation, each as discussed herein above.
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A reconciliation to the nine months ended September 30, 2016 was mainly duemost directly comparable U.S. GAAP measure to the financing income recorded in the nine months ended September 30, 2017 compared to the financing income recorded in the nine months ended September 30, 2016.NGFM, as discussed above, is as follows:
| Three Months Ended September 30, (in thousands) | ||||||||||||
| 2020 | 2019 | $ Change | ||||||||||
| Net Loss Reconciliation | ||||||||||||
| Net loss – as reported | $ | (6,550 | ) | $ | (2,805 | ) | $ | (3,745 | ) | |||
| Adjustments | ||||||||||||
| Depreciation expense | 48 | 45 | 3 | |||||||||
| Other financial (income) expenses, net | (52 | ) | 6 | (58 | ) | |||||||
| EBITDA | (6,554 | ) | (2,754 | ) | (3,800 | ) | ||||||
| Stock-based compensation expenses | 1,810 | 618 | 1,192 | |||||||||
| Non-GAAP adjusted loss | $ | (4,744 | ) | $ | (2,136 | ) | $ | (2,608 | ) | |||
| Nine Months Ended September 30, (in thousands) | ||||||||||||
| 2020 | 2019 | $ Change | ||||||||||
| Net Loss Reconciliation | ||||||||||||
| Net loss – as reported | $ | (20,448 | ) | $ | (13,563 | ) | $ | (6,885 | ) | |||
| Adjustments | ||||||||||||
| Depreciation expense | 140 | 138 | 2 | |||||||||
| Other financial (income) expenses, net | (391 | ) | 39 | (430 | ) | |||||||
| EBITDA | (20,699 | ) | (13,386 | ) | (7,313 | ) | ||||||
| Stock-based compensation expenses | 8,988 | 1,928 | 7,060 | |||||||||
| Non-GAAP adjusted loss | $ | (11,711 | ) | $ | (11,458 | ) | $ | (253 | ) | |||
Liquidity and Capital Resources(amounts in thousands except for share and share amounts)
As of September 30, 2017,2020, we had approximately $6,262$36,907 in cash and cash equivalents compared to $1,093$20,395 at December 31, 2016.2019.
We have experienced cumulative losses of $58,783$133,584 from inception (August 11, 2011) through September 30, 2017,2020 and have a stockholders’ equity of $6,115$35,034 on September 30, 2017.2020. In addition, we have not completed our efforts to establish a stable recurring source of revenues sufficient to cover our operating costs and expect to continue to generate losses for the foreseeable future. There are no assurancesHowever, we believe that weour sources of liquidity and capital resources will be ablesufficient to obtain an adequate level of financing neededmeet our business needs for our near term requirements orat least the long-term development and commercialization of our product. These conditions raise substantial doubt about our ability to continue as a “going concern”.next 12 months.
Since inception, we have financed our operations primarily through private placements and public offerings of our common stock, and warrants to purchase shares of our common stock, and the exercise of existing warrants, receiving aggregate net proceeds totaling $51,931$123,974 as of September 30, 2017.2020.
On March 3, 2016,May 24, 2019, we conductedclosed on a firm commitment, underwritten public offering pursuant to which we issued 1,333,333consisting of 242,768 shares of common stock and pre-funded warrants exercisable forto purchase 358,779 shares of our common stock, pursuant to an aggregateunderwriting agreement entered into with Craig-Hallum Capital Group LLC, as representative of 1,333,333the underwriters. The shares of common stock for an aggregate net consideration of $5,038.
Concurrently with ourwere sold at a public offering on March 3, 2016, we conductedprice of $12.00 per share and the pre-funded warrants were sold at a concurrent private placement pursuant to which we issued 555,555 units, with each unit consistingpublic offering price of one share of common stock and one$11.998 per pre-funded warrant, to purchase 1.2 shares of common stock, such that an aggregate of 555,555 shares of common stock and a warrant to exercisable for an aggregate of 666,666 shares of common stock was issued and sold for an aggregate net consideration of approximately $2,500.
On January 9, 2017, we commenced a private placement offering of up to $5,100 consisting of up to 1,821,437 shares of common stock and warrants to purchase up to 1,821,437 shares of common stock. The warrants are exercisable after the six-month anniversary of each respective closing and will expire on the 5-year anniversary of their issuance. On January 9, 2017, we held the initial closing of the offering with a lead investor and an additional investor and issued and sold 1,113,922 shares of common stock and warrants to purchase 1,113,922 shares of common stock for aggregate gross proceeds of approximately $3,119. $7,218.
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On January 11, 2017,November 27, 2019, we entered into securities purchasesubscription agreements with 18accredited investors relating to an offering with respect to the sale of an aggregate of 8,361 shares of newly designated Series A Convertible Preferred Stock and an aggregate of 5,200 shares of newly designated Series A-1 Convertible Preferred Stock, at a purchase price of $1 for each share of Series A Preferred Stock and Series A-1 Preferred Stock, for aggregate gross proceeds to the Company of $13,561. The initial conversion price for the future issuanceSeries A and saleSeries A-1 Convertible Preferred Stock to Common Stock is $4.05. The initial closing of 707,515the offering took place on November 27, 2019. The Series A and Series A-1 Convertible Preferred Stock issued are convertible into up to 3,349,567 shares of common stock and warrants to purchase 707,515 shares of common stock, provided that the issuance and sale of such securities shall only occur upon our obtaining stockholder approval, pursuant to Nasdaq rules.Common Stock. On March 9, 2017, following receipt of stockholder approval, we issued and sold 707,515 shares of common stock and warrants to purchase 707,515 shares of common stock to the 18 investors for gross proceeds of $1,981.
On March 31, 2017,December 3, 2019, we entered into subscription agreements with accredited investors relating to an underwriting agreement with Aegis Capital Corp., as representativeoffering and the sale of the underwriters named therein for a firm commitment public offeringan aggregate of 1,450,0001,915 shares of common stocknewly designated Series A-2 Convertible Preferred Stock, at a purchase price to the public of $3.10 per$1 for each share, for aggregate gross proceeds of approximately $4,500. On April 5, 2017,to the Company closedof $1,915. The initial conversion price for the Series A-2 Convertible Preferred Stock to Common Stock is $4.28. The Series A-2 Convertible Preferred Stock issued are convertible into up to 448,110 shares of Common Stock. On December 4, 2019, we into subscription agreements with accredited investors relating to an offering and the sale of an aggregate of 3,808 shares of newly designated Series A-3 Convertible Preferred Stock, at a publicpurchase price of $1 for each share, for aggregate gross proceeds to the Company of $3,808. The initial conversion price for the Series A-3 Convertible Preferred Stock to Common Stock is $4.98. The Series A-3 Convertible Preferred Stock issued are convertible into up to 765,408 shares of Common Stock. On December 5, 2019, we entered into subscription agreements with accredited investors relating to an offering and the sale of an aggregate of 745 shares of newly designated Series A-4 Convertible Preferred Stock, at a purchase price of $1 for each share, for aggregate gross proceeds to the Company of $745.The initial conversion price for the Series A-4 Convertible Preferred Stock to Common Stock is $5.90. The Series A-4 Convertible Preferred Stock issued are convertible into up to 126,650 shares of Common Stock. On December 19, 2019, we entered into subscription agreements with accredited investors relating to an offering and the sale of an aggregate of 1,346 shares of newly designated Series A-3 Convertible Preferred Stock, at a purchase price of $1 for each share, for aggregate gross proceeds to the Company of $1,346. The initial conversion price for the Series A-3 Convertible Preferred Stock to Common Stock is $4.98. The Series A-3 Convertible Preferred Stock issued are convertible into up to 270,546 shares of Common Stock. The total aggregate gross proceeds of the offering described above, together with gross proceeds from the closing of the offering of 1,450,000Series A Convertible Preferred Stock, Series A-1 Convertible Preferred Stock, Series A-2 Convertible Preferred Stock, Series A-3 Convertible Preferred Stock and Series A-4 Convertible Preferred Stock was $21,375, and the total amount of Common Stock issuable upon conversion of all the shares of Convertible Preferred Stock is up to 4,960,281 shares of Common Stock. As of November 10, 2020, certain Convertible Preferred Stockholders converted 5,552 shares of various classes of the Company’s A Preferred Stock to 1,278,695 shares of Common Stock.
On July 28, 2020, we entered into subscription agreements with accredited investors relating to an offering with respect to the sale of an aggregate of (i) 2,969,266 shares of our common stock, at a purchase price of $7.47 per Share, and (ii) pre-funded warrants to purchase 824,689 shares of common stock, at a purchase price of $3.10$7.4699 per share,Pre-Funded Warrant. In addition, on July 30, 2020, we entered into a subscription agreement with an accredited investor for aggregate considerationthe purchase of $3,855, net of issuance costs.
Between August 16, 2017 and August 22, 2017, we conducted a private placement offering of 483,333 shares of common stock and 2,307,65431,486 shares of our newly designated Series B Preferred Stock, forcommon stock at a purchase price per share of $7.94 per Share. The aggregate net consideration of $4,799.gross proceeds were approximately $28,591.
AccordingIn September 2020, we and an existing warrant holder entered into an agreement pursuant to our management’s estimates, based on our budget andwhich we agreed to lower the initial launchexercise price of certain warrants from $25 to $13.00 per share, issued in September 2018. As a result, the warrant holder exercised warrants to purchase 88,889 shares of our commercial sales, we believecommon stock resulting in aggregate e gross proceeds of approximately $1,156.
Management believes that wethe proceeds from the recent private placement combined with our cash on hand are sufficient to meet our obligations as they come due for at least a period of twelve months from the date of the issuance of these unaudited condensed consolidated financial statements. As a result, the Company has resolved to remove the going concern note from its financial statements. There are no assurances, however, that the Company will have sufficientbe able to obtain an adequate level of financial resources to continue our activity intothat are required for the third quarterlong-term development and commercialization of 2018 without raising additional capital. This includes an amount of anticipated inflows from sales of Dario™ through distribution partners and to direct customers.its product offering.
As such, we have a significant present need for capital. If we are unable to scale up our commercial launch of Dario™Dario or meet our commercial sales targets (or if we are unable to generate any revenue at all), and if we are unable to obtain additional capital resources in the near term, we may be unable to continue activities absent material alterations in our business plans and our business might fail.
Additionally, readers are advised that available resources may be consumed more rapidly than currently anticipated, resulting in the need for additional funding sooner than expected. Should this occur, we will need to seek additional capital earlier than anticipated in order to fund (1) further development and, if needed testing of our Dario™ Smart Meter and its related application and data storage components, (2) our efforts to obtain regulatory clearances or approvals necessary to be able to commercially launch Dario™,Dario, DarioEngage and Dario Intelligence, (3) expenses which will be required in order to start and expand productionmanufacturing of Dario™,our products, (4) sales and marketing efforts and (5) general working capital. Such funding may be unavailable to us on acceptable terms, or at all. Our failure to obtain such funding when needed could create a negative impact on our stock price or could potentially lead to the failure of our business.company. This would particularly be the case if we are unable to commercially distribute our products and services in the jurisdictions and in the timeframes, we expect.
Cash Flows (dollar amounts in thousands)
The following tables settable sets forth selected cash flow information for the periods indicated:
| September 30 | September 30, | |||||||||||||||
| 2017 | 2016 | 2020 | 2019 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Cash used in operating activities: | (8,223 | ) | (6,520 | ) | (10,976 | ) | (12,873 | ) | ||||||||
| Cash used in investing activities: | (77 | ) | (560 | ) | (73 | ) | (87 | ) | ||||||||
| Cash provided by financing activities: | 13,469 | 7,748 | 27,548 | 6,558 | ||||||||||||
| 5,169 | 668 | 16,499 | (6,402 | ) | ||||||||||||
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Net cash used in operating activities
Net cash used in operating activities was $8,223$10,976 for the nine months ended September 30, 20172020 a decrease of 14.7% compared to $6,520$12,873 used in operations for the same period in 2016.2019. Cash used in operations increaseddecreased mainly due to the increasedecrease in our operating loss.digital marketing expenses.
Net cash used in investing activities
Net cash used infor investing activities was $77$73 for the nine months ended September 30, 20172020, a decrease of 16.1% compared to $560cash derived from investing activities of $87 for the same period in 2016.2019. Cash used infor investing activities decreased mainly due to reductionthe decrease in the purchase of property and equipment and reduction in investment in bank deposits.equipment.
Net cash provided by financing activities
Net cash provided by financing activities was $13,469$27,548 for the nine months ended September 30, 20172020, an increase of 320% compared to $7,748$6,558 for the same period in 2016. During the nine months ended September 30, 2017 we raised net proceeds of approximately $13,469 through our January 2017 private placement, March 2017 underwritten public offering and the August private placement. During the nine months ended September 30, 2016 we raised net proceeds of approximately $7,538 through our March 2016 public offering and private placement transactions and $210 was raised through proceeds from exercise of warrants.2019. This increase was due to funds we raised fromduring the sale of our equity securities.three month ended September 30, 2020.
Off-Balance Sheet Arrangements
As of September 30, 2017,2020, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company and therefore are not required to provide the information for this item of Form 10-Q.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Report, our Chief Executive Officer and Chief Financial Officer, or the Certifying Officers, conducted evaluations of our disclosure controls and procedures. As defined under Sections 13a–15(e) and 15d–15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, or SEC.Commission. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosures.
Based on their evaluation, the Certifying Officers concluded that, as of September 30, 2017,2020, our disclosure controls and procedures were designed at a reasonable assurance level and were therefore effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 20172020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Internal Controls
Readers are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our control have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
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Warrant Exchange Agreement
Given the timing of the event, the following information is included in this Quarterly Report on Form 10-Q pursuant to Item 1.01 “Entry into a Material Definitive Agreement,” Item 1.02 “Termination of a Material Definitive Agreement,” and Item 3.02 “Unregistered2. Unregistered Sales of Equity Securities” and Use of Current Report on Form 8-KProceeds
During the third quarter of 2020, we issued an aggregate of 55,680 shares of our common stock to certain of our service providers as compensation in lieu of filing a Form 8-K.
On November 13, 2017, we entered into exchange agreements (each an “Exchange Agreement”) with certain of our warrant holders who were granted warrantscash compensation owed to purchase shares of Common Stock on August 10, 2016 and January 2017. Pursuant to the terms of the Exchange Agreement, the warrant holders agreed to surrender their warrants to purchase an aggregate of 1,871,436 shares of Common Stockthem for cancellation and received, as consideration for such cancellation, an aggregate of 1,039,676 shares of Common Stock. The description of the Exchange Agreement is not complete and is subject to and qualified in its entirety by reference to the form of Exchange Agreement, a copy of which is filed as Exhibit 10.1 to this Quarterly Report and is incorporated herein by reference.
The securities issued pursuant to the foregoing are exemptservices rendered. We claimed exemption from the registration requirements ofunder the Securities Act of 1933, as amended, pursuant to Section 3(a)(9) and/or the Securities Act, for the foregoing transactions under Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D promulgated thereunder because, among other things, the transaction did not involve a public offering and the warrant holders are accredited investors.Act.
| * | Filed herewith. |
| ** | Furnished herewith. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: November | DarioHealth Corp. | |||
| By: | /s/ Erez Raphael | |||
| Name: | Erez Raphael | |||
| Title: | ||||
| By: | /s/ Zvi Ben David | |||
| Name: | Zvi Ben David | |||
| Title: | Chief Financial Officer, Secretary and Treasurer
| |||
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