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 SeptemberJune 30, 20172019
¨ | 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) |
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
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 |
As of November 10, 2017,August 12, 2019, the registrant had 10,352,42443,601,280 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; 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, 20162018 (filed on March 22, 2017)25, 2019) 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.
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
SUBSIDIARY
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBERJUNE 30, 2017
2019
UNAUDITED
INDEX
F-1 |
U.S. dollars in thousands
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
Unaudited | ||||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 7,986 | $ | 10,997 | ||||
Restricted bank deposits | 186 | 180 | ||||||
Trade Receivables | 278 | 168 | ||||||
Inventories | 1,819 | 1,377 | ||||||
Other accounts receivable and prepaid expenses | 553 | 591 | ||||||
Total current assets | 10,822 | 13,313 | ||||||
LEASE DEPOSITS | 44 | 43 | ||||||
OPERATING LEASE RIGHT OF USE ASSET | 749 | - | ||||||
PROPERTY AND EQUIPMENT, NET | 711 | 733 | ||||||
Total assets | $ | 12,326 | $ | 14,089 |
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.
F-2 |
DARIOHEALTH CORP. AND ITS SUBSIDIARIESSUBSIDIARY
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except stock and stock data)
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
Unaudited | ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Trade payables | $ | 2,384 | $ | 2,574 | ||||
Deferred revenues | 1,398 | 736 | ||||||
Operating lease liability | 277 | - | ||||||
Other accounts payable and accrued expenses | 1,664 | 1,854 | ||||||
Total current liabilities | 5,723 | 5,164 | ||||||
OPERATING LEASE LIABILITY | 509 | - | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Common Stock of $0.0001 par value – Authorized: 160,000,000 shares at June 30, 2019 (unaudited) and December 31, 2018; Issued and Outstanding: 42,859,386 and 36,607,755 shares at June 30, 2019 (unaudited) and December 31, 2018, respectively | 8 | 8 | ||||||
Preferred Stock of $0.0001 par value - Authorized: 5,000,000 shares at June 30, 2019 (unaudited) and December 31, 2018; Issued and Outstanding: None at June 30, 2019 (unaudited) and December 31, 2018 | - | - | ||||||
Additional paid-in capital | 106,098 | 98,171 | ||||||
Accumulated deficit | (100,012 | ) | (89,254 | ) | ||||
Total stockholders' equity | 6,094 | 8,925 | ||||||
Total liabilities and stockholders' equity | $ | 12,326 | $ | 14,089 |
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 |
The accompanying notes are an integral part of the consolidated financial statements.
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 June 30 | Six months ended June 30 | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Unaudited | Unaudited | |||||||||||||||
Revenues | $ | 1,651 | $ | 2,059 | $ | 3,893 | $ | 3,815 | ||||||||
Cost of revenues | 1,325 | 1,537 | 3,009 | 2,741 | ||||||||||||
Gross profit | 326 | 522 | 884 | 1,074 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | $ | 991 | $ | 1,010 | $ | 1,993 | $ | 1,752 | ||||||||
Sales and marketing | 2,993 | 2,369 | 6,939 | 4,233 | ||||||||||||
General and administrative | 1,704 | 2,936 | 2,677 | 3,797 | ||||||||||||
Total operating expenses | 5,688 | 6,315 | 11,609 | 9,782 | ||||||||||||
Operating loss | (5,362 | ) | (5,793 | ) | (10,725 | ) | (8,708 | ) | ||||||||
Financial expenses, net: | ||||||||||||||||
Revaluation of warrants | - | *)- | - | 1 | ||||||||||||
Other financial expense, net | (20 | ) | (45 | ) | (33 | ) | (50 | ) | ||||||||
Total financial expenses, net | (20 | ) | (45 | ) | (33 | ) | (49 | ) | ||||||||
Net loss | $ | (5,382 | ) | $ | (5,838 | ) | $ | (10,758 | ) | $ | (8,757 | ) | ||||
Deemed dividend related to warrant exchange | $ | - | $ | 493 | $ | - | $ | 493 | ||||||||
Net loss attributable to holders of Common Stock | $ | (5,382 | ) | $ | (6,331 | ) | $ | (10,758 | ) | $ | (9,250 | ) | ||||
Net loss per share | ||||||||||||||||
Basic and diluted loss per share | $ | (0.13 | ) | $ | (0.32 | ) | $ | (0.27 | ) | $ | (0.52 | ) | ||||
Weighted average number of Common Stock used in computing basic and diluted net loss per share | 42,519,825 | 19,801,891 | 39,654,408 | 17,758,064 |
The accompanying notes are an integral part of the consolidated financial statements.
F-4 |
DARIOHEALTH CORP. AND ITS SUBSIDIARY
STATEMENTS OF CHANGES IN 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 December 31, 2018 | 36,607,775 | $ | 8 | - | $ | - | $ | 98,171 | $ | (89,254 | ) | $ | 8,925 | |||||||||||||||
Payment for executives and directors under Stock for Salary Program | 213,398 | *)- | - | - | 210 | - | 210 | |||||||||||||||||||||
Stock-based compensation | - | - | - | - | 106 | - | 106 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (5,376 | ) | (5,376 | ) | |||||||||||||||||||
Balance as of March 31, 2019 (unaudited) | 36,821,173 | $ | 8 | - | $ | - | $ | 98,487 | $ | (94,630 | ) | 3,865 | ||||||||||||||||
Payment for executives under Stock for Salary Program | 142,624 | *)- | - | - | 141 | - | 141 | |||||||||||||||||||||
Exercise of Options | 8,104 | *)- | - | - | *)- | - | - | |||||||||||||||||||||
Public Offering | 4,855,341 | 6,558 | - | 6,558 | ||||||||||||||||||||||||
Issuance of Common Stock to directors and employees | 1,032,144 | *)- | - | - | 795 | 795 | ||||||||||||||||||||||
Stock-based compensation | - | - | - | - | 117 | - | 117 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (5,382 | ) | (5,382 | ) | |||||||||||||||||||
Balance as of June 30, 2019 (unaudited) | 42,859,386 | $ | 8 | - | $ | - | $ | 106,098 | $ | (100,012 | ) | $ | 6,094 |
*) Represents an amount lower than $1.
The accompanying notes are an integral part of the consolidated financial statements.
DARIOHEALTH CORP. AND ITS SUBSIDIARIESSUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSCHANGES IN STOCKHOLDERS' EQUITY
U.S. dollars in thousands (except stock and stock data)
Three months ended September 30 | Nine months ended September 30 | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Unaudited | Unaudited | |||||||||||||||
Revenues | $ | 1,375 | $ | 728 | $ | 3,592 | $ | 1,965 | ||||||||
Cost of revenues | 1,099 | 652 | 2,850 | 2,148 | ||||||||||||
Gross profit (loss) | 276 | 76 | 742 | (183 | ) | |||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 797 | 659 | 2,450 | 1,577 | ||||||||||||
Sales and marketing | 1,682 | 1,533 | 5,707 | 3,194 | ||||||||||||
General and administrative | 781 | 605 | 3,887 | 2,313 | ||||||||||||
Total operating expenses | 3,260 | 2,797 | 12,044 | 7,084 | ||||||||||||
Operating loss | (2,984 | ) | (2,721 | ) | (11,302 | ) | (7,267 | ) | ||||||||
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 | ||||||||||||
Net loss | (2,978 | ) | (611 | ) | (3,823 | ) | (7,026 | ) | ||||||||
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 | ||||||||||||
Net loss attributable to holders of Common Stock | (2,978 | ) | (876 | ) | (3,823 | ) | (7,746 | ) | ||||||||
Net loss per share | ||||||||||||||||
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 |
The accompanying notes are an integral part of the consolidated financial statements.
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
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 |
Additional | Total | |||||||||||||||||||||||||||
Common Stock | Preferred Stock | paid-in | Accumulated | stockholders’ | ||||||||||||||||||||||||
Number | Amount | Number | Amount | capital | deficit | equity | ||||||||||||||||||||||
Balance as of December 31, 2017 | 14,074,238 | $ | 7 | - | $ | - | $ | 74,892 | $ | (70,958 | ) | $ | 3,941 | |||||||||||||||
Payment for executives and directors under Stock for Salary Program | 102,548 | *)- | - | - | 161 | - | 161 | |||||||||||||||||||||
Issuance of Common Stock to consultants and service provider | 41,109 | *)- | - | - | 60 | - | 60 | |||||||||||||||||||||
Issuance of Common Stock, net of issuance cost | 2,262,269 | *)- | - | - | 2,865 | - | 2,865 | |||||||||||||||||||||
Issuance of Preferred Stock, net of issuance cost | - | - | 1,234,080 | *)- | 3,124 | - | 3,124 | |||||||||||||||||||||
Stock-based compensation | - | - | - | - | 139 | - | 139 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (2,919 | ) | (2,919 | ) | |||||||||||||||||||
Balance as of March 31, 2018 (unaudited) | 16,480,164 | $ | 7 | 1,234,080 | $ | *)- | $ | 81,241 | $ | (73,877 | ) | 7,371 | ||||||||||||||||
Payment for executives and directors under Stock for Salary Program | 272,837 | *)- | - | - | 436 | - | 436 | |||||||||||||||||||||
Issuance of Common Stock to consultants and service provider | 75,640 | *)- | - | - | 118 | - | 118 | |||||||||||||||||||||
Deemed dividend related to May 2018 warrant exchange | 636,752 | 493 | (493 | ) | - | |||||||||||||||||||||||
Conversion of Preferred Stock to Common Stock | 2,468,160 | (1,234,080 | ) | *)- | - | - | - | |||||||||||||||||||||
Issuance of Common Stock to directors and employees | 1,147,840 | *)- | - | - | 1,779 | 1,779 | ||||||||||||||||||||||
Stock-based compensation | - | - | - | - | 289 | - | 289 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (5,838 | ) | (5,838 | ) | |||||||||||||||||||
Balance as of June 30, 2018 (unaudited) | 21,081,393 | $ | 7 | - | $ | *)- | $ | 84,356 | $ | (80,208 | ) | $ | 4,155 |
*) Represents an amount lower than $1.
The accompanying notes are an integral part of the consolidated financial statements.
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 |
Six months ended June 30, | ||||||||
2019 | 2018 | |||||||
Unaudited | ||||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (10,758 | ) | $ | (8,757 | ) | ||
Adjustments required to reconcile net loss to net cash used in operating activities: | ||||||||
Stock-based compensation and Common Stock to service providers | 1,310 | 2,651 | ||||||
Depreciation | 93 | 101 | ||||||
Amortization of operating lease right of use | 130 | - | ||||||
Increase is trade receivables | (110 | ) | (66 | ) | ||||
Decrease in accounts receivables and prepaid expenses | 38 | 47 | ||||||
Decrease (increase) in inventories | (442 | ) | 16 | |||||
Increase (decrease) in trade payables | (190 | ) | 226 | |||||
Increase (decrease) in other accounts payable and accrued expenses | (131 | ) | 939 | |||||
Increase in deferred revenues | 662 | 50 | ||||||
Change in operating lease liability | (93) | - | ||||||
Change in fair value of warrants to purchase shares of Common Stock | - | (1 | ) | |||||
Net cash used in operating activities | (9,491 | ) | (4,794 | ) | ||||
Cash flows from investing activities: | ||||||||
Maturities (investment) of restricted bank deposit | (6 | ) | 76 | |||||
Investment in lease deposits | (1 | ) | - | |||||
Purchase of property and equipment | (71 | ) | (23 | ) | ||||
Net cash provided by (used in) investing activities | (78 | ) | 53 | |||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of Common Stock, Preferred Stock and warrants, net of issuance cost | 6,558 | 6,034 | ||||||
Net cash provided by financing activities | 6,558 | 6,034 | ||||||
Increase (decrease) in cash and cash equivalents | (3,011 | ) | 1,293 | |||||
Cash and cash equivalents at the beginning of the period | 10,997 | 3,718 | ||||||
Cash and cash equivalents at the end of the period | $ | 7,986 | $ | 5,011 | ||||
Non-cash investing and financing activities: | ||||||||
Payment for directors and consultants under Shares for Salary Program | $ | 59 | $ | 201 |
*) 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
DARIOHEALTH CORP. AND ITS SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except stock and stock data) |
NOTE 1: - | GENERAL |
a. | DarioHealth Corp. (formerly LabStyle Innovations Corp.) (the Dario Health 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 |
These conditions raise substantial doubt about the Company'sCompany’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. | On March 4, 2016, the Company's |
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, 2018 are applied consistently in these unaudited interim consolidated financial statements, except for the below: Effective as of January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (ASC 606) and ASU No. 2016-02, “Leases” (ASC 842). For further information refer to Note 2b. |
F-8 |
DARIOHEALTH CORP. AND ITS SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
U.S. dollars in thousands (except stock and stock data) |
NOTE 2: - | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
b. | Adoption of new accounting principles |
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASC 606. The significantstandard replaced the revenue recognition guidance in U.S. generally accepted accounting policiesprinciples under ASC 605, and was required to be applied retrospectively to each prior period presented, or applied using a modified retrospective method with the cumulative effect recognized in the audited annual consolidated financial statementsbeginning retained earnings during the period of initial application. Subsequently, the FASB issued several additional ASUs related to ASU No. 2014-09, collectively referred to as the “new revenue standards”, which became effective for the Company beginning January 1, 2019. The Company adopted the standard using the modified retrospective method. The adoption of ASC 606 did not have a significant impact on the Company’s Condensed Consolidated Financial Statements. See Note 5 for further information.
The Company recognizes revenue when (or as) it satisfies performance obligations by transferring promised products or services to its customers in an amount that reflects the consideration the Company expects to receive. The Company applies the following five steps: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.
The Company considers customer and distributers purchase orders to be the contracts with a customer. For each contract, the Company considers the promise to transfer tangible products and services, each of which are distinct, to be the identified performance obligations. In determining the transaction price, the Company evaluates whether the price is subject to rebates and adjustments to determine the net consideration to which the Company expects to receive. As the Company’s standard payment terms are less than one year, the contracts have no significant financing component. The Company allocates the transaction price to each distinct performance obligation based on their relative standalone selling price. Revenue from tangible products is recognized when control of the Companyproduct is transferred to the customer (i.e., when the Company’s performance obligation is satisfied), which typically occurs at shipment. The revenues from fixed-price services are recognized ratably over the contract period and the costs associated with these contracts are recognized as disclosed inincurred. The Company's standard arrangements with its customers typically do not allow for rights of return.
In February 2016, the Company's Annual ReportFASB issued ASU No. 2016-02, “Leases” (ASC 842). The standard requires lessees to recognize almost all leases on Form 10-Kthe balance sheet as a right-of-use (“ROU”) asset and a lease liability and requires leases to be classified as either an operating or a finance type lease. The standard excludes leases of intangible assets or inventory. The standard becomes effective for the Company beginning January 1, 2019. The Company adopted ASC 842 using the modified retrospective approach, by applying the new standard to all leases existing at the date of initial application. Results and disclosure requirements for reporting periods beginning after January 1, 2019 are presented under ASC 842, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under ASC 840. The Company elected the package of practical expedients permitted under the standard, which also allowed the Company to carry forward historical lease classifications. The Company also elected the practical expedient related to treating lease and non-lease components as a single lease component for all equipment leases as well as electing a policy exclusion permitting leases with an original lease term of less than one year ended December 31, 2016 are applied consistently in these unaudited interim consolidated financial statements.to be excluded from the ROU assets and lease liabilities.
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
DARIOHEALTH CORP. AND ITS SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except stock and stock data) |
NOTE 2: - | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
As a result of the adoption of ASC 842 on January 1, 2019, the Company recorded both operating lease ROU assets and operating lease liabilities of $847. The adoption did not impact the Company's beginning retained earnings, or prior year condensed consolidated statements of comprehensive loss and statements of cash flows. See Note 7 for further information on leases.
Under ASU No. 2016-02, “Leases” (ASC 842), the Company determines if an arrangement is a lease at inception. ROU assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement, however, certain lease agreements contain variable payments, which are expensed as incurred and not included in the operating lease assets and liabilities. These amounts include payments affected by the Consumer Price Index. As most of the Company's leases do not provide an implicit rate, the Company, with the assistance of a third party valuation firm, determined the incremental borrowing rate in determining the present value of lease payments. The ROU assets also include any lease payments made prior to commencement and are recorded net of any lease incentives received. The Company lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options.
Operating leases are included in operating lease ROU assets, current and non-current operating lease liabilities, on the Company's condensed consolidated balance sheets.
In June 2018, the FASB issued ASU 2018-07, “Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” This ASU supersedes ASC 505-50, “Equity—Equity Based Payments to Non-Employees,” and expands the scope of ASC 718, “Compensation – Stock Compensation,” to include all share-based payment arrangements related to the acquisition of goods and services from both nonemployees and employees. The standard becomes effective for the Company beginning January 1, 2019. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
c. | Recently issued accounting pronouncements, not yet adopted: |
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement”, which is designed to improve the effectiveness of disclosures by removing, modifying and adding disclosures related to fair value measurements. ASU No. 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years; the ASU allows for early adoption in any interim period after issuance of the update. The adoption of this ASU is not expected to have a significant impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses” (Topic 326), to require the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years; the ASU allows for early adoption as of the beginning of an interim or annual reporting period beginning after December 15, 2018. The Company is currently assessing the impact this ASU will have on its consolidated financial statements.
NOTE 3: - | UNAUDITED INTERIM FINANCIAL STATEMENTS |
The accompanying unaudited interim consolidated financial statements as of SeptemberJune 30, 2017,2019, 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 SeptemberJune 30, 2017,2019, and the Company's consolidated results of operations and the Company's consolidated cash flows for the ninethree and six months ended SeptemberJune 30, 2017.2019. Results for the ninethree and six months ended SeptemberJune 30, 20172019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2019.
F-10 |
DARIOHEALTH CORP. AND ITS SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except stock and stock data) |
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
Unaudited | ||||||||
Raw materials | $ | 494 | $ | 431 | ||||
Finished products | 430 | 457 | ||||||
$ | 924 | $ | 888 |
NOTE 4: - | INVENTORIES |
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
Unaudited | ||||||||
Raw materials | $ | 602 | $ | 424 | ||||
Finished products | 1,217 | 953 | ||||||
$ | 1,819 | $ | 1,377 |
During the nine months'six months’ period ended SeptemberJune 30, 20172019, and the year ended December 31, 2016,2018, total inventory write-off expenses amounted to $120$0 and $315,$190, respectively.
NOTE 5: - | REVENUE |
On January 1, 2019, the Company adopted ASC 606 using the modified retrospective method and applied the standard to those contracts which were not completed as of January 1, 2019. Results for reporting periods beginning after January 1, 2019 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the historic accounting under ASC 605.
The following tables represent our total revenues for the three and six months ended June 30, 2019 and 2018 by product type (prior period amounts have not been adjusted under the modified retrospective method):
Three months ended June 30 | Six months ended June 30 | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Unaudited | Unaudited | |||||||||||||||
Products | $ | 1,235 | $ | 2,059 | $ | 3,071 | $ | 3,815 | ||||||||
Services | 416 | - | 822 | - | ||||||||||||
1,651 | 2,059 | 3,893 | 3,815 |
The Company recognizes contract liabilities, or deferred revenues, when it receives advance payments from customers before performance obligations primarily related services have been performed. Advance payments are received at the beginning of the service period and the related deferred revenues are reclassified to revenue ratably over the service period. The balance of deferred revenues approximates the aggregate amount of the transaction price allocated to the unsatisfied performance obligations at the end of reporting period.
The following table presents the significant changes in the deferred revenue balance during the six months ended June 30, 2019:
Balance, beginning of the period | $ | 736 | ||
New performance obligations | 2,011 | |||
Reclassification to revenue as a result of satisfying performance obligations | (1,349 | ) | ||
Balance, end of the period | $ | 1,398 |
Because all performance obligations in the Company’s contracts with customers relate to contracts with a duration of less than one year, the Company has elected to apply the optional exemption and is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.
F-11 |
DARIOHEALTH CORP. AND ITS SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except stock and stock data) |
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: - | LEASES |
At the beginning of fiscal 2019, the Company adopted ASC 842. The adoption of ASC 842 did not have a significant impact on the Company’s consolidated financial statements.
The Company has entered into various non-cancelable operating lease agreements for certain of its offices and car leases. The Company's leases have original lease periods expiring between 2019 and 2022. Many leases include one or more options to renew. The Company does not assume renewals in determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The components of lease costs, lease term and discount rate are as follows:
Six Months Ended | ||||
June 30, 2019 | ||||
Lease cost | ||||
Operating lease cost | $ | 133 | ||
Short term lease cost | 19 | |||
Variable lease cost | 37 | |||
Total lease cost | 189 | |||
Weighted Average Remaining Lease Term | ||||
Operating leases | 3.23 years | |||
Weighted Average Discount Rate | ||||
Operating leases | 7.23 | % |
The following is a schedule, by years, of maturities of lease liabilities as of June 30, 2019:
Operating Leases | ||||
The remainder of 2019 | $ | 146 | ||
2020 | 276 | |||
2021 | 246 | |||
2022 | 209 | |||
Total undiscounted cash flows | 877 | |||
Less imputed interest | (91 | ) | ||
Present value of lease liabilities | $ | 786 |
Supplemental cash flow information related to leases are as follows:
Six Months Ended | ||||
June 30, 2019 | ||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||
Operating cash flows from operating leases | $ | 152 | ||
Lease liabilities arising from obtaining right-of-use assets: | ||||
Operating leases | $ | 878 |
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
DARIOHEALTH CORP. AND ITS SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except stock and stock data) |
In January and April |
In April 2019, the |
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
On |
The Pre-Funded Warrants was sold at a public offering price of $0.5999 per Pre-Funded Warrant, which represents the per share public offering price per Share, less a $0.0001 per share exercise price for each such Pre-Funded Warrant. The shares and Pre-Funded Warrants were offered, issued and sold pursuant to a shelf registration statement filed with the Securities and Exchange Commission. The Pre-Funded Warrants have been accounted for as equity instruments.
The Pre-Funded Warrants are exercisable at any time after the date of issuance. A holder of Pre-Funded Warrants may not exercise the warrant if the holder, together with any group that the holder is a member, would beneficially own more than 4.99% (or, at the election of the purchaser, 9.99%) of the number of shares of common stock outstanding immediately after giving effect to such exercise. A holder of Pre-Funded Warrants may terminate, increase or decrease this percentage by providing at least 61 days’ prior notice to the Company. A holder of Pre-Funded Warrants is also subject to a limitation on exercise of the Pre-Funded Warrant if such exercise would result in such holder, together with any group that the holder is a member, beneficially owning more 19.99% of the number of shares of common stock outstanding immediately before giving effect to such exercise, unless shareholder approval is obtained.
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
DARIOHEALTH CORP. AND ITS SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except stock and stock data) |
STOCKHOLDERS' EQUITY (Cont.) |
d. | Stock option compensation: |
Transactions related to the grant of options to employees, directors and non-employees under the above plans during the nine-monthsix month period ended SeptemberJune 30, 20172019, were as follows:
Number of options | Weighted average exercise price | Weighted average remaining contractual life | Aggregate Intrinsic value | Number of options | Weighted average exercise price | Weighted average remaining contractual life | Aggregate Intrinsic value | |||||||||||||||||||||||||
$ | Years | $ | $ | Years | $ | |||||||||||||||||||||||||||
Options outstanding at beginning of year | 583,334 | 16.53 | 4.87 | 7 | 1,787,801 | 5.59 | 4.32 | 368 | ||||||||||||||||||||||||
Options granted | 823,413 | 2.00 | 584,698 | 0.73 | ||||||||||||||||||||||||||||
Options exercised | (17,500 | ) | 0.00 | (8,104 | ) | 0.00 | ||||||||||||||||||||||||||
Options expired | (40,528 | ) | 5.27 | (61,182 | ) | 4.36 | ||||||||||||||||||||||||||
Options forfeited | (27,681 | ) | 38.86 | (55,588 | ) | 1.58 | ||||||||||||||||||||||||||
Options outstanding at period end (unaudited) | 1,321,038 | 7.71 | 4.96 | 424 | 2,247,625 | 4.47 | 4.33 | 217 | ||||||||||||||||||||||||
Options vested and expected to vest at period end (unaudited) | 1,200,770 | 7.97 | 4.970 | 424 | 2,015,682 | 4.58 | 4.30 | 216 | ||||||||||||||||||||||||
Exercisable at period end (unaudited) | 696,783 | 11.85 | 4.64 | 309 | 1,309,145 | 6.88 | 3.55 | 348 |
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 thirdsecond quarter of 20172019 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 SeptemberJune 30, 2017.2019. This amount is impacted by the changes in the fair market value of the Common Stock.
As of SeptemberJune 30, 2017,2019, the total amount of unrecognized stock-based compensation expense was approximately $1,010 thousand$561 which will be recognized over a weighted average period of 1.15 years.1.29 year.
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 June 30, | ||||||||
2019 | 2018 | |||||||
Volatility | 85.53%-90.82 | % | 85.99%-105.38 | % | ||||
Risk-free interest rate | 2.26%-2.28 | % | 2.66%-2.77 | % | ||||
Dividend yield | 0 | % | 0 | % | ||||
Expected life (years) | 3.5-4.5 | 3.5-5.94 |
The total compensation cost related to all of the Company's equity-based awards recognized during the nine-monthsix month period ended SeptemberJune 30, 20172019, and 20162018 was comprised as follows:
Nine months ended September 30, | ||||||||||||||||
2017 | 2016 | Six months ended June 30, | ||||||||||||||
Unaudited | 2019 | 2018 | ||||||||||||||
Unaudited | ||||||||||||||||
Cost of revenues | $ | 102 | $ | 37 | $ | 57 | $ | 83 | ||||||||
Research and development | 206 | 81 | 111 | 299 | ||||||||||||
Sales and marketing | 515 | 81 | 95 | 280 | ||||||||||||
General and administrative | 2,239 | 715 | 1,047 | 1,989 | ||||||||||||
Total stock-based compensation expenses | $ | 3,062 | $ | 914 | $ | 1,310 | $ | 2,651 |
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
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:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in |
Six months ended June 30, | ||||||||
2019 | 2018 | |||||||
Unaudited | ||||||||
Bank charges | $ | 14 | $ | 7 | ||||
Foreign currency translation adjustments | 19 | 42 | ||||||
Total financial expenses, net | $ | 33 | $ | 49 |
NOTE 10: - | SUBSEQUENT EVENTS |
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 |
------
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, 2016.2018. 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”.Statements.” You should review the “Risk Factors” section of our Annual Report for the fiscal year ended December 31, 20162018 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 (DTx) company revolutionizing the way people manage their health across the chronic condition spectrum by delivering evidence-based interventions that are driven by precision data analytics, high quality software, and personalized coaching. We have developed a novel approach that empowers individuals to adjust their lifestyle in a unique and holistic way. Our cross-functional team operates at the intersection of life science, behavioral science, and software technology to deliver seamlessly integrated and highly engaging therapeutic interventions. Already one of the highest-rated diabetes solutions, its user-centric approach is loved by tens of thousands of customers around the globe. We are rapidly expanding solutions for additional chronic conditions such as hypertension, using a performance-based approach to improve the health of users managing chronic disease.
Our flagship product, Dario, which we also refer to as our Dario Smart Diabetes Management Solution, is a mobile, real-time, cloud-based, diabetes management solution based on an innovative, multi-feature software application to track and monitor all facets of diabetes, combined with a stylish, ‘all-in-one’, pocket-sized, blood glucose monitoring device, which we call the Dario Blood Glucose Monitoring System, that essentially turns a smartphone into a glucometer. In addition, our product offerings will focus on the newly launched Dario Engage software platform, where we digitally engage with Dario users, assist them in monitoring their chronic illnesses and provide them with coaching, support, digital communications and real time alerts, trends and pattern analysis. The Dario Engage platform can be leveraged by our potential partners, such as clinics, health (mHealth) companycare service providers, employers and payers for scalable monitoring of people with diabetes in a cost-effective manner, which we expect will open for us additional revenue streams. Finally, we intend to utilize the data we obtain from our Dario Smart Diabetes Management Solution and Dario Engage platform to develop our upcoming healthcare analytics program, Dario Intelligence. As such our solutions will span the full spectrum of disease monitoring, user-centric engagement, coaching tools, and big data and intelligence solutions. We have obtained regulatory clearance or approval for the Dario Blood Glucose Monitoring System in the U.S., Canada, the E.U., Israel and Australia, among others. We believe that our targeted health platform is developinga highly personalized preventative and commercializing a patentedproactive approach to health improvement based on individual behavior and proprietary technology providing consumers with laboratory-testing capabilities using smart phones and other mobile devices. treatment, tailored to each person’s unique profile.
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 application combinedcorporation with a stylish, ‘all-in-one’, pocket-sized, blood glucose monitoring device, whichthe name LabStyle Innovations Corp. On July 28, 2016, we call the Dario™ Smart Meter.changed our name to DarioHealth Corp.
We commenced a commercial launch of theour free Dario™ application in the United Kingdom in late 2013 and commenced an initial soft launch of the full Dario™Dario solution (including the app and the Smart Meter)Dario Blood Glucose Monitoring System) in selected jurisdictions in March 2014 and2014. We 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™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™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 effortefforts to include Australia as well. In 2017, we expanded our direct to consumer marketing efforts in the United Kingdom in cooperation with our local distributor and launched similar marketing efforts in Germany. In support of these goals, we intend to utilize our funds for the following activities:
· | ramp up of mass production, marketing and distribution and sales efforts related to the |
4 |
· | develop our customer support and telemarketing services in order to support the expect growth of our revenues and the increase of user, and service provider who will use our platform to better serve people with diabetes and improve their clinical outcome; |
· | continued product and software development, and related activities (including costs associated with application development and data storage capabilities as well as any necessary design modifications to the various elements of the |
· | continued work on registration of our patents worldwide; |
· | regulatory and quality assurance matters; |
· | professional fees associated with being a publicly reporting company; and |
· | general and administrative matters. |
Readers are cautioned that, according to our management’s estimates, based on our budget and the initial launch of our commercial sales, we believe that we will have sufficient resources to continue our activity only into the third quarter of 2018January 2020 without raising additional capital. This includes an amount of anticipated inflows from sales of Dario™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 penetrationscale up our commercial launch of Dario™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 alternationsalterations in our business plans and our business might fail.
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, 20162018 (filed on March 22, 2017)25, 2019) 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, 2018.
Results of Operations
Comparison of the three and ninesix months ended SeptemberJune 30, 20172019 and 2016 (in2018 (dollar amounts in thousands)
Revenues
Revenues for the three and ninesix months ended SeptemberJune 30, 20172019, amounted to $1,375$1,651 and $3,592,$3,893, respectively, compared to $728revenues of $2,059 and $1,965 of revenues$3,815 during the three and ninesix months ended SeptemberJune 30, 2016.2018, representing a decrease of 20% and an increase of 2%, respectively. The increasesdecrease in revenues infor the three and nine months ended SeptemberJune 30, 20172019, compared to the three and nine months ended SeptemberJune 30, 20162018, is due to a decrease in our direct to consumer (“D2C”) acquisition in the second quarter of 2019, and an increase in our provision for deferred income. The decision to decrease D2C acquisition is a result of our efforts to shift resources from direct to consumer sales to sales through business to business channels that are with lower cost per acquisition. The increase in revenues for the six months ended June 30, 2019, compared to the six months ended June 30, 2018, is mainly as a result of increasehigher revenues in the salesfirst quarter of our products.2019 compared to the first quarter of 2018.
Revenues were derived mainly from the sales of Dario™’sDario’s components, including the Smart MeterDario Blood Glucose Monitoring System itself and the membership offering, through direct sales to consumers located mainly in the United States and Australia, through our on-line store and through distributors.
Cost of Revenues
During the three and ninesix months ended SeptemberJune 30, 20172019, we recorded costs related to revenues in the amount of $1,099$1,325 and $2,850,$3,009 respectively, as compared to $652 and $2,148 of recorded costs related to revenues of $1,537 and $2,741 during the three and ninesix months ended SeptemberJune 30, 2016.2018, representing a decrease of 14% and an increase of 10%, respectively. The increasesdecrease in costs related to revenues in the three and nine months ended SeptemberJune 30, 20172019, compared to three months ended June 30, 2018, is mainly a result of a decrease in the sales of our products during that period. The increase in costs related to revenues in the six months ended June 30, 2019, compared to the three and ninesix months ended SeptemberJune 30, 2016 are2018, is mainly as a result of an increase in the sales of our products andduring the write-off of old production fixtures and related inventories amounting to $102 in the thirdfirst quarter of 2017.2019.
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Cost of revenues consist mainly of cost of device production, employees' salaries and related overhead costs, depreciation of production line and related cost of equipment used in production, shipping and handling costs and inventory write-downs.
Gross Profit
Gross profit for the three and six months ended June 30, 2019, amounted to $326 (19.7% of revenues) and $884 (22.7% of revenues), respectively, compared to $522 (25.4% of revenues) and $1,074 (28.2% of revenues) during the three and six months ended June 30, 2018. The decrease in gross profit for the three and six months ended June 30, 2019, compared to the three and six months ended June 30, 2018, is mainly as a result of the decrease in product sales in the second quarter and the deferral of a portion of the revenues generated from our membership offering.
Research and Development Expenses
Our research and development expenses increaseddecreased by $138,$19, or 21%2%, to $797$991 for the three months ended SeptemberJune 30, 20172019, compared to $659$1,010 for the three months ended SeptemberJune 30, 2016,2018, and increased by $873,$241, or 55%14%, to $2,450$1,993 for the ninesix months ended SeptemberJune 30, 20172019 compared to $1,577$1,752 for the ninesix months ended SeptemberJune 30, 2016. These increases were2018. The second quarter decrease for the three months ended June 30, 2019, compared to the three months ended June 30, 2018, was mainly due to decreases in stock-based compensation, mostly offset by an increase in payroll and other research and development costs relating primarily to product development. The second quarter increase for the six months ended June 30, 2019, compared to the six months ended June 30, 2018, was mainly due to increases in salaries, stock based compensationpayroll and other research and development costs associated with clinical trials.relating primarily to product development.
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 MeterDario Blood Glucose Monitoring System device, 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,$624, or 9.7%26%, to $1,682$2,993 for the three months ended SeptemberJune 30, 20162019, compared to $1,533$2,369 for the three months ended SeptemberJune 30, 20172018, and increased by $2,513,$2,706, or 79%64%, to $5,707$6,939 for the ninesix months ended SeptemberJune 30, 20172019, compared to $3,194$4,233 for the ninesix months ended SeptemberJune 30, 2016.2018. These increases were mainly due to the increase inexpanding our sales and marketing activities in the United States, and Australia during 2017 compared to partial activity during the first nine months of 2016, an increaseincreases in costs of our online marketing campaigns, the cost related to marketing consultants and the costs associated with subcontractors and employee payroll.
Sales and marketing expenses consist mainly of payroll expenses, online marketing campaigns of the Dario,TM, trade show expenses, customer support expenses and marketing consultants and subcontractors.
General and Administrative Expenses
Our general and administrative expenses increaseddecreased by $176,$1,232, or 29%42%, to $781$1,704 for the three months ended SeptemberJune 30, 20172019, compared to $605$2,936 for the three months ended SeptemberJune 30, 2016,2018, and increaseddecreased by $1,574,$1,120, or 68%29%, to $3,887$2,677 for the ninesix months ended SeptemberJune 30, 20172019, compared to $2,313$3,797 for the ninesix months ended SeptemberJune 30, 2016.2018. These increasesdecreases were mainly due to an increasedecreases 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 shares and options to members of management pursuant to our Amended 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.share-based compensation.
Our general and administrative expenses consist mainly of payroll and stock-based compensation expenses for management, employees, directors and consultants, legal fees, patent registration, expenses related to investor relations, as well as our office rent and related expenses.
Financial Income,Expenses, net
Our finance incomefinancial expenses for the three and nine months ended SeptemberJune 30, 20172019, were $6 and $7,479, respectively,$20, representing a decrease of 56%, compared to finance incomeexpenses of $2,110 and $241$45 for the three and nine months ended SeptemberJune 30, 2016, respectively. This change was mainly due2018. Our financial expenses for the six months ended June 30, 2019, were $33, representing a decrease of 33%, compared to finance expenses $49 for the six months ended June 30, 2018. The decreases in financial expenses for the three months ended June 30, 2019, as compared to the reversing ofthree months ended June 30, 2018, and for the warrant revaluation expense duringsix months ended June 30, 2019, as compared to the first quarter of 2017 which was initially recorded during the fiscal yearsix months ended 2016, dueJune 30, 2018, are mainly attributable to a price protection feature includeddifferences 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 translation expenses.
Financial income includes mainly the results of a revaluation of warrants to investors and a former placement agent, which are recorded as a liability and presented at fair value each reporting period.
Financial expenses include mainly bank charges, lease liability translation differences and foreign currency translation differences.
Net loss
Net loss increaseddecreased by $2,367,$456, or 387%8%, to $2,978$5,382 for the three months ended SeptemberJune 30, 20172019, compared to a net loss of $611$5,838 for the three months ended SeptemberJune 30, 20162018, and decreasedincreased by $3,203,$2,001, or 45%22.9%, to $3,823$10,758 for the ninesix months ended SeptemberJune 30, 20162019, compared to $7,026$8,757 for the ninesix months ended SeptemberJune 30, 2016.2018.
The increasedecrease in net loss for the three months ended SeptemberJune 30, 20172019, compared to the three months ended SeptemberJune 30, 20162018, was mainly due to the financing incomea decrease in our operating expenses recorded in the three months ended SeptemberJune 30, 2017 compared to the financing income recorded in the three months ended September 30, 2016, and the increase in the operating expenses recorded during the three months ended September 30, 20172019, compared to the three months ended SeptemberJune 30, 2016..2018. The decreaseincrease in net loss for the ninesix months ended SeptemberJune 30, 20172019, compared to the ninesix months ended SeptemberJune 30, 20162018, was mainly due to the financing incomeincrease in operating expenses recorded in the ninesix months ended SeptemberJune 30, 20172019, compared to the financing income recordedsix months ended June 30, 2018.
Non-GAAP Financial Measures
The factors described above resulted in net loss attributable to common stockholders of $10,758 and $8,757 for the six months ended June 30, 2019, and 2018, respectively.
To supplement our unaudited condensed consolidated financial statements presented in accordance with accounting principles generally accepted in the nine months ended September 30, 2016.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.
A reconciliation to the most directly comparable U.S. GAAP measure to NGFM, as discussed above, is as follows:
Three Months Ended June 30, (in thousands) | ||||||||||||
2019 | 2018 | $ Change | ||||||||||
Net Loss Reconciliation | ||||||||||||
Net loss attributable to common stockholders – as reported | $ | (5,382 | ) | $ | (6,331 | ) | $ | 949 | ||||
Deemed dividend – related to warrant exchange | 493 | (493 | ) | |||||||||
Net Loss as reported | (5,382 | ) | (5,838 | ) | 456 | |||||||
Adjustments | ||||||||||||
Depreciation expense | 47 | 48 | (1 | ) | ||||||||
Other financial expenses, net | 20 | 45 | (25 | ) | ||||||||
EBITDA | (5,315 | ) | (5,745 | ) | 430 | |||||||
Stock-based compensation expenses | 1,053 | 2,421 | (1,368 | ) | ||||||||
Revaluation of warrants | - | (* - | (* - | |||||||||
Non-GAAP adjusted loss | $ | (4,262 | ) | $ | (3,324 | ) | $ | (938 | ) |
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Six Months Ended June 30, (in thousands) | ||||||||||||
2019 | 2018 | $ Change | ||||||||||
Net Loss Reconciliation | ||||||||||||
Net loss attributable to common stockholders – as reported | $ | (10,758 | ) | $ | (9,250 | ) | $ | (1,508 | ) | |||
Deemed dividend – related to warrant exchange | 493 | (493 | ) | |||||||||
Net Loss as reported | (10,758 | ) | (8,757 | ) | (2,001 | ) | ||||||
Adjustments | ||||||||||||
Depreciation expense | 93 | 101 | (8 | ) | ||||||||
Other financial expenses, net | 33 | 50 | (17 | ) | ||||||||
EBITDA | (10.632 | ) | (8,606 | ) | (2,026 | ) | ||||||
Stock-based compensation expenses | 1,310 | 2,651 | (1,341 | ) | ||||||||
Revaluation of warrants | (1 | ) | 1 | |||||||||
Non-GAAP adjusted loss | $ | (9,322 | ) | $ | (5,956 | ) | $ | (3,366 | ) |
Liquidity and Capital Resources(amounts in thousands except for share and share amounts)
As of SeptemberJune 30, 2017,2019, we had approximately $6,262$7,986 in cash and cash equivalents compared to $1,093$10,997 at December 31, 2016.2018.
We have experienced cumulative losses of $58,783$100,012 from inception (August 11, 2011) through SeptemberJune 30, 2017,2019, and have a stockholders’ equity of $6,115 on September$6,094 at June 30, 2017.2019. 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 assurances that we will be able to obtain an adequate level of financing needed for our near term requirements or the long-term development and commercialization of our product. These conditions raise substantial doubt about our ability to continue as a “going concern”.concern.”
Since inception, we have financed our operations primarily through private placements and public offerings of our common stock and warrants to purchase shares of our common stock, receiving aggregate net proceeds totaling $51,931$77,737 as of SeptemberJune 30, 2017.2019.
On March 3, 2016, we conductedMay 24, 2019, the Company closed on its a firm commitment, underwritten public offering pursuant to which we issued 1,333,333consisting of 4,855,341 shares of common stock and pre-funded warrants exercisable forto purchase 7,175,525 shares of its 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 $0.60 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 warrant to purchase 1.2 shares of common stock, such that an$0.5999, for 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 considerationgross proceeds of approximately $2,500.$6,558.
On January 9, 2017,February 28, 2018 and March 6, 2018, we commenced aclosed two concurrent private placement offering of up to $5,100placements offerings consisting of up to 1,821,4372,262,269 shares of our common stock at $1.40 per share, 1,234,080 shares of our Series C Convertible Preferred Stock at $2.80 per share 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 1,113,9223,784,351 shares of common stock for aggregate gross proceeds of approximately $3,119. $6,623.
On January 11, 2017,September 13, 2018 and September 26, 2018, we entered into securities purchase agreements with 18 investors for the future issuance and saleclosed two concurrent private placements offerings consisting of 707,5154,266,800 shares of our common stock at $0.90 per share, 1,890,257 shares of our Series D Convertible Preferred Stock at $3.60 per share, 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, pursuantup to Nasdaq rules. 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, we entered into an underwriting agreement with Aegis Capital Corp., as representative of the underwriters named therein for a firm commitment public offering of 1,450,0009,462,272 shares of common stock at aan exercise price to the public of $3.10$1.25 per share, for aggregate gross proceeds of approximately $4,500. On April 5, 2017, the Company closed a public offering of 1,450,000 shares of common stock, at a purchase price of $3.10 per share, for aggregate consideration of $3,855, net of issuance costs.$10,645.
Between August 16, 2017On December 13, 2018 and August 22, 2017,December 27, 2018, we conductedclosed a private placement offering of 483,333 shares of common stock and 2,307,6543,050,000 shares of our newly designated Series B Preferred Stock,common stock at a purchase price of $1.00 per share and warrants to purchase up to 3,050,000 shares of our common stock at an exercise price of $1.25 per share, for aggregate net considerationgross proceeds of $4,799.approximately $3,050.
According to our management’s estimates, based on our budget and the initial launch of our commercial sales, we believe that we will have sufficient resources to continue our activity into the third quarter of 2018April 2020 without raising additional capital. This includes an amount of anticipated inflows from sales of Dario™Dario through distribution partners and to direct customers.
As such, we have a significant present need for capital. If we are unable to scale up our commercial launch of Dario™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™Dario Smart Meter and its related application and data storage components,Diabetes Management Solution, (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 production of Dario™,Dario, (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 launch Dario, DarioEngage and Dario Intelligence in the jurisdictions and in the timeframes we expect.
Cash Flows (dollar amountsin thousands)
The following tables settable sets forth selected cash flow information for the periods indicated:
September 30 | June 30, | |||||||||||||||
2017 | 2016 | 2019 | 2018 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Cash used in operating activities: | (8,223 | ) | (6,520 | ) | (9,491 | ) | (4,794 | ) | ||||||||
Cash used in investing activities: | (77 | ) | (560 | ) | ||||||||||||
Cash provided by (used in) investing activities: | (78 | ) | 53 | |||||||||||||
Cash provided by financing activities: | 13,469 | 7,748 | 6,558 | 6,034 | ||||||||||||
5,169 | 668 | (3,011 | ) | 1,293 |
Net cash used in operating activities
Net cash used in operating activities was $8,223$9,491 for the ninesix months ended SeptemberJune 30, 20172019, an increase of 98% compared to $6,520$4,794 used in operations for the same period in 2016.2018. Cash used in operations increased due to the increase in our operating loss.loss, and a decrease in trade payables, other accounts payables and accrued expenses.
Net cash used in investing activities
Net cash used infor investing activities was $77$78 for the ninesix months ended SeptemberJune 30, 20172019, an increase of 247% compared to $560cash derived from investing activities of $53 for the same period in 2016.2018. Cash used infor investing activities decreasedincreased mainly due to reductioninvestments in the purchase of property and equipment and reductioninvestments in investment in bank deposits.restricted cash.
Net cash provided by financing activities
Net cash provided by financing activities was $13,469$6,558 for the ninesix months ended SeptemberJune 30, 20172019, an increase of 9% compared to $7,748$6,034 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.2018. This increase was due to a higher amount of funds we raised from the sale of our equity securities.
Off-Balance Sheet Arrangements
As of SeptemberJune 30, 2017,2019, 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.
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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 SeptemberJune 30, 2017,2019, 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 SeptemberJune 30, 20172019, 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.
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 “Unregistered Sales of Equity Securities,” of Current Report on Form 8-K 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 warrants 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 Stock 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 exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 3(a)(9) and/or 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.
* | Filed herewith. |
** | Furnished herewith. |
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: | DarioHealth Corp. | ||
By: | /s/ Erez Raphael | ||
Name: | Erez Raphael | ||
Title: | |||
(Principal Executive Officer) | |||
By: | /s/ Zvi Ben David | ||
Name: | Zvi Ben David | ||
Title: | Chief Financial Officer, Secretary and Treasurer
|