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 ~~June 30~~March 31, ~~2021~~2022

☐	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.)


~~142~~18 W. ~~57th~~18th St.~~, 8th Floor~~
New York, New York	~~10019~~10011
(Address of Principal Executive Offices)	(Zip Code)

(~~646~~972)-4 ~~665-4667~~770-6377

(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

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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 ☒

As of ~~August 11, 2021,~~May 9, 2022, the registrant had ~~16,509,365~~21,986,598 shares of common stock outstanding.

When used in this quarterly report, the terms “DarioHealth,” “the Company,” “we,” “our,” and “us” refer to DarioHealth Corp., a Delaware corporation, our subsidiaries LabStyle Innovation Ltd. and Upright Technologies Ltd., each of which are Israeli companies, and Upright Technologies Inc. and PsyInnovations Inc., each a Delaware 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.

Table of Contents

DarioHealth Corp.

Quarterly Report on Form 10-Q

TABLE OF CONTENTS

		Page

Cautionary Note Regarding Forward-Looking Statements		3

PART 1- FINANCIAL INFORMATION

Item 1.	Interim Consolidated Financial Statements (unaudited)	F-1

	Interim Consolidated Balance Sheets	F-2 – F-3

	Interim Consolidated Statements of Comprehensive Loss	F-4

	Interim Statements of Stockholders’ Equity	F-5 – F- 6

	Interim Consolidated Statements of Cash Flows	F-7 ~~– F- 8~~

	Notes to Interim Consolidated Financial Statements	~~F-9~~F-8 – ~~F-21~~F-18

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	1110

Item 4.	Control and Procedures	1110

PART II- OTHER INFORMATION		1311

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	1311

Item 6.	Exhibits	1311

SIGNATURES		1412

Table of Contents

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~~product launches and market penetration plans;

●

the ~~expected~~ execution of agreements with various providers for our solution;

●

our ability to ~~manufacture, market and generate sales of our medical devices, including Dario Blood Glucose monitor, Dario Blood Pressure monitor and Dario Weight Scale;~~

●

our ability to commercialize our membership programs, including our per member per month program for people with diabetes and hypertension, and our Business to Business to Consumer (“B2B2C”) services;

●

~~our ability to develop, launch and commercialize Dario Loop;~~

●

~~our ability to~~ maintain our relationships with key ~~partners;~~partners, including Sanofi U.S. Services Inc. (“Sanofi”) ;

●

our ability to complete required clinical trials of our product and obtain clearance or approval from the United States Food and Drug Administration (the “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;

●

the impact of the COVID-19 pandemic on our manufacturing, sales, business plan and the global economy;

●

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, ~~2020~~2021 (filed on March ~~9, 2021)~~22, 2022) 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.

Table of Contents

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF ~~JUNE 30, 2021~~MARCH 31, 2022

UNAUDITED

INDEX

		Page
Interim Consolidated Balance Sheets		F-2 – F-3

Interim Consolidated Statements of Comprehensive Loss		F-4

Interim Statements of Stockholders’ Equity		F-5 – F- 6

Interim Consolidated Statements of Cash Flows		F-7 ~~– F-8~~

Notes to InterimConsolidated Financial Statements		~~F-9~~F-8 – F-2118

F-1

Table of Contents

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIMCONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands


	June 30,		December 31,		March 31,		December 31,
	2021		2020		2022		2021
	Unaudited				Unaudited
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	63,865	$	28,590	$	55,558	$	35,808
Short-term restricted bank deposits		248		187		190		192
Trade receivables		1,433		124		4,574		1,310
Inventories		4,575		2,293		7,783		6,228
Other accounts receivable and prepaid expenses		1,488		2,934		3,271		2,067

Total current assets		71,609		34,128		71,376		45,605

NON-CURRENT ASSETS:
Deposits		20		20		7		20
Operation lease right of use assets		433		498
Operating lease right of use assets						280		287
Long-term assets		137		185		16		57
Property and equipment, net		686		576		698		702
Intangible assets, net		18,699		-		13,314		12,460
Goodwill		39,399		-		41,640		41,640

Total non-current assets		59,374		1,279		55,955		55,166

Total assets	$	130,983	$	35,407	$	127,331	$	100,771

The accompanying notes are an integral part of the unaudited interim consolidated financial statements.

F-2

Table of Contents

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIMCONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands (except stock and stock data)

June 30,

December 31,


2021

2020

Unaudited

LIABILITIES AND STOCKHOLDERS’ EQUITY



CURRENT LIABILITIES:





Trade payables

$
4,044

$
2,480

Deferred revenues

1,309

1,224

Operating lease liabilities

311

310

Other accounts payable and accrued expenses

7,081

3,020

Total current liabilities

12,745

7,034

OPERATING LEASE LIABILITIES

125

222

STOCKHOLDERS’ EQUITY

Common Stock of $0.0001 par value - Authorized: 160,000,000 shares at June 30, 2021 (unaudited) and December 31, 2020; Issued and Outstanding: 16,330,842 and 8,119,493 shares at June 30, 2021 (unaudited) and December 31, 2020, respectively

*) -

*) -

Preferred Stock of $0.0001 par value - Authorized: 5,000,000 shares at June 30, 2021 (unaudited) and December 31, 2020; Issued and Outstanding: 12,122 and 15,823 shares at June 30, 2021 (unaudited) and December 31, 2020, respectively

*) -

*) -

Additional paid-in capital

295,124

171,399

Accumulated deficit

(177,011)

(143,248)

Total stockholders’ equity

118,113

28,151

Total liabilities and stockholders’ equity

$
130,983

$
35,407


	March 31,		December 31,
	2022		2021
	Unaudited
LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
Trade payables	$	4,228	$	5,109
Deferred revenues		1,093		1,195
Operating lease liabilities		212		266
Other accounts payable and accrued expenses		7,192		7,806
Earn-out liability		373		825

Total current liabilities		13,098		15,201

NON-CURRENT LIABILITIES
Operating lease liabilities		48		21

Total non-current liabilities		48		21

STOCKHOLDERS’ EQUITY
Common stock of $0.0001 par value - Authorized: 160,000,000 shares at March 31, 2022 (unaudited) and December 31, 2021; Issued and Outstanding: 22,070,963 and 16,573,420 shares at March 31, 2022 (unaudited) and December 31, 2021, respectively		2		2
Preferred stock of $0.0001 par value - Authorized: 5,000,000 shares at March 31, 2022 (unaudited) and December 31, 2021; Issued and Outstanding: 10,897 and 11,927 shares at March 31, 2022 (unaudited) and December 31, 2021, respectively		*) -		*) -
Additional paid-in capital		352,564		307,561
Accumulated deficit		(238,381)		(222,014)

Total stockholders’ equity		114,185		85,549

Total liabilities and stockholders’ equity	$	127,331	$	100,771

*) - Represents an amount lower than $1

The accompanying notes are an integral part of the unaudited interim consolidated financial statements.

F-3

Table of Contents

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIMCONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

U.S. dollars in thousands (except stock and stock data)


	Three months ended
	March 31,
	2022		2021

	Unaudited
Revenues	$	8,059	$	3,595
Cost of revenues (excluding amortization and inventories step-up shown separately below)		3,142		1,988
Amortization of acquired intangible assets and inventories step-up		932		526

Gross profit		3,985		1,081

Operating expenses:
Research and development	$	5,927	$	2,655
Sales and marketing		9,535		7,132
General and administrative		4,395		5,621

Total operating expenses		19,857		15,408

Operating loss		15,872		14,327

Total financial expenses, net		44		639

Net loss	$	15,916	$	14,966

Deemed dividend	$	451	$	544

Net loss attributable to holders of common stock	$	16,367	$	15,510

Net loss per share:

Basic and diluted loss per share	$	0.74	$	0.92
Weighted average number of common stock used in computing basic and diluted net loss per share		19,624,079		14,025,921

Three months ended

Six months ended

June 30,

June 30,


2021

2020

2021

2020

Unaudited

Unaudited

Revenues

$
5,261

$
1,787

$
8,856

$
3,454

Cost of revenues

2,661

1,151

4,649

2,039

Amortization of acquired intangible assets and inventories step-up

1,092

-

1,618

-

Gross profit

1,508

636

2,589

1,415

Operating expenses:

Research and development

$
3,742

$
825

$
6,397

$
2,056

Sales and marketing

9,648

2,608

16,780

6,699

General and administrative

6,121

1,326

11,742

6,897

Total operating expenses

19,511

4,759

34,919

15,652

Operating loss

(18,003)

(4,123)

(32,330)

(14,237)

Total financial (income) expenses, net

(238)

(117)

401

(339)

Net loss

$
(17,765)

$
(4,006)

$
(32,731)

$
(13,898)

Deemed dividend

$
488

$
786

$
1,032

$
2,061

Net loss attributable to holders of Common Stock

$
(18,253)

$
(4,792)

$
(33,763)

$
(15,959)

Net loss per share:

Basic and diluted net loss per share

$
(0.99)

$
(0.68)

$
(1.85)

$
(2.33)

Weighted average number of Common Stock used in computing basic and diluted net loss per share

15,691,359

4,121,965

15,460,758

3,606,378

The accompanying notes are an integral part of the unaudited interim consolidated financial statements.

F-4

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DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIMSTATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

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, 2021

8,119,493

$
*)-

15,823

$
*)-

$
171,399

$
(143,248)

$
28,151

Payment for executives and directors under Stock for Salary Program

5,579

*)-

-

-

72

-

72
Exercise of options

33,773

*)-

-

-

201

-

201
Exercise of placement agent warrants

92,575

*)-

-

-

-

-

*)-
Exercise of warrants

219,760

*)-

-

-

633

-

633
Issuance of common stock to consultants and service provider

102,667

*)-

-

-

1,484

-

1,484
Conversion of preferred stock to common stock

802,061

*)-

(3,423)

*)-

-

-

*)-
Deemed dividend related to issuance of preferred stock

-

-

-

-

544

(544)

-
Issuance of warrants to service providers

-

-

-

-

846

-

846
Stock-based compensation

1,056,643

*)-

-

-

2,036

-

2,036
Issuance of common stock, net of issuance cost

3,278,688

*)-

-

-

64,877

-

64,877
Issuance of common stock upon acquisition of Upright Technologies Ltd.

1,687,612

*)-

-

-

28,933

-

28,933
Net loss

-

-

-

-

-

(14,966)

(14,966)

-

Balance as of March 31, 2021 (unaudited)

15,398,851

$
*)-

12,400

$
*)-

$
271,025

$
(158,758)

$
112,267

Payment for executives and directors under Stock for Salary Program

1,754

*)-

-

-

27

-

27
Exercise of options

6,772

*)-

-

-

55

-

55
Exercise of placement agent warrants

18,486

*)-

-

-

-

-

-
Exercise of warrants

232

*)-

-

-

-

-

-
Issuance of common stock to consultants and service provider

72,754

*)-

-

-

889

-

889
Conversion of preferred stock to common stock

64,369

*)-

(278)

*)-

-

-

-
Deemed dividend related to issuance of preferred stock

-

-

-

-

488

(488)

-
Issuance of warrants to service providers

-

-

-

-

1,951

-

1,951
Stock-based compensation

(500)

*)-

-

-

2,595

-

2,595
Issuance of common stock upon acquisition of PsyInnovations Inc.(dba WayForward)

768,124

*)-

-

-

18,094

-

18,094
Net loss

-

-

-

-

-

(17,765)

(17,765)

Balance as of June 30, 2021 (unaudited)

16,330,842

$
*)-

12,122

$
*)-

$
295,124

$
(177,011)

$
118,113


							Additional				Total
	Common Stock			Preferred Stock			paid-in		Accumulated		stockholders’
	Number	Amount		Number	Amount		capital		deficit		equity
Balance as of December 31, 2021(audited)	16,573,420	$	2	11,927	$	*)-	$	307,561	$	(222,014)	$	85,549

Exercise of warrants	81,221		*)-	-		-		-		-		-
Issuance of common stock to directors and employees	24,191		*)-	-		-		161		-		161
Issuance of common stock to consultants and service provider	4,983		*)-	-		-		113		-		113
Conversion of preferred stock to common stock	316,052		*)-	(1,030)		*)-		-		-		*)-
Deemed dividend related to issuance of preferred stock	-		-	-		-		451		(451)		-
Issuance of warrants to service providers	-		-	-		-		1,301		-		1,301
Stock-based compensation	139,982		*)-	-		-		3,768		-		3,768
Issuance of common stock and pre-funded warrants, net of issuance cost	4,674,454		*)-	-		-		38,023		-		38,023
Issuance of Common Stock, net of issuance cost upon Acquisition of Physimax Technologies Ltd.	256,660		*)-	-		-		1,186		-		1,186
Net loss	-		-	-		-		-		(15,916)		(15,916)
				-
Balance as of March 31, 2022 (unaudited)	22,070,963	$	2	10,897	$	*)-	$	352,564	$	(238,381)	$	114,185

*) Represents an amount lower than $1.

The accompanying notes are an integral ~~notes~~ part of the unaudited interim consolidated financial statements.

F-5

Table of Contents

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIMSTATEMENTS OF STOCKHOLDERS’ EQUITY(UNAUDITED)

U.S. dollars in thousands (except stock and stock data)


							Additional				Total								Additional				Total
	Common Stock			Preferred Stock			paid-in		Accumulated		shareholders'		Common Stock			Preferred Stock			paid-in		Accumulated		shareholders'
	Number	Amount		Number	Amount		capital		deficit		equity		Number	Amount		Number	Amount		capital		deficit		equity
Balance as of January 1, 2020	2,235,649	$	*)-	21,375	$	*)-	$	129,039	$	(110,145)	$	18,894
Balance as of December 31, 2020 (audited)													8,119,493	$	*)-	15,823	$	*)-	$	171,399	$	(143,248)	$	28,151

Payment for executives and directors under Stock for Salary Program	47,074		*)-	-		-		274		-		274	5,579		*)-	-		-		72		-		72
Exercise of options													33,773		*)-	-		-		201		-		201
Exercise of placement agent warrants													92,575		*)-	-		-		—		-		*)-
Exercise of warrants													219,760		*)-					633				633
Issuance of common stock to directors and employees	654,246		*)-	-		-		4,076		-		4,076	102,667		*)-					1,484				1,484
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 warrant 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)		*)-		-		-		-	802,061		*)-	(3,423)		*)-		—				*)-
Deemed dividend related to issuance of preferred stock	-		-	-		-		786		(786)		-	—		—					544		(544)		—
Issuance of warrants to service providers	-		-	-		-		150		-		150	—		—					846		-		846
Stock-based compensation	-		-	-		-		318		-		318	1,056,643		*)-	-		-		2,036		—		2,036
Issuance of common stock, net of issuance cost													3,278,688		*)-	-		-		64,877		—		64,877
Issuance of common stock upon acquisition of Upright Technologies Ltd.													1,687,612		*)-	-		-		28,933		-		28,933
Net loss	-		-	-		-		-		(4,006)		(4,006)	-		-	-		-		—		(14,966)		(14,966)

Balance as of June 30, 2020 (unaudited)	4,099,091	$	*)-	17,398	$	*)-	$	138,330	$	(126,104)	$	12,226
Balance as of March 31, 2021 (unaudited)													15,398,851	$	*)-	12,400	$	*)-	$	271,025	$	(158,758)	$	112,267

*) Represents an amount lower than $1.

The accompanying notes are an integral part of the unaudited interim consolidated financial ~~statements.~~statements

F-6

Table of Contents

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

Six months ended

June 30,


2021

2020

Unaudited

Cash flows from operating activities:

Net loss

$
(32,731)

$
(13,898)

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

9,900

7,178

Depreciation

133

92

Change in operating lease right of use assets

65

162

Amortization of acquired inventories step-up

523

-

Amortization of acquired intangible assets

1,106

-

Decrease (increase) in trade receivables

(452)

48

Decrease (increase) in other accounts receivable, prepaid expense and long-term assets

134

(197)

Decrease in inventories

41

73

Increase (decrease) in trade payables

54

(77)

Decrease in other accounts payable and accrued expenses

(1,472)

(446)

Increase (decrease) in deferred revenues

(43)

47

Change in operating lease liabilities

(96)

(166)

Net cash used in operating activities

(22,838)

(7,184)

Cash flows from investing activities:





Investment in deposit

(1)

(2)

Purchase of property and equipment

(97)

(41)

Cash paid as part of PsyInnovations Inc. (dba WayForward) acquisition

(5,023)

-

Loans repaid as part of Upright Technologies Ltd. acquisition

(3,016)

-

Cash acquired as part of Upright Technologies Ltd. acquisition

544

-

Net cash used in investing activities

(7,593)

(43)

Cash flows from financing activities:

Proceeds from issuance of common stock, net of issuance costs

64,877

-

Proceeds from exercise of warrants

633

-

Proceeds from exercise of options

256

-

Net cash provided by financing activities

65,766

-

Increase (decrease) in cash, cash equivalents and short-term restricted bank deposits

35,335

(7,227)

Cash, cash equivalents and short-term restricted bank deposits at beginning of period

28,725

20,535

Cash, cash equivalents and short-term restricted bank deposits at end of period

$
64,060

$
13,308

~~F-7~~

~~Table of Contents~~

~~DARIOHEALTH CORP. AND ITS SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont.)~~

~~U.S. dollars in thousands~~

Schedule A- Acquisition of Upright Technologies Ltd:

Estimated net fair value of assets acquired and liabilities assumed at the date of acquisition was as follows:

Working capital, net (excluding cash and cash equivalents)

$
(2,171)

$
-

Equipment and other assets

142

-

Intangible assets

9,600

-

Goodwill

25,334

-

Loan of Upright Technologies Ltd

(4,516)

-

Issuance of common stock to Upright Technologies Ltd. shareholders

(28,933)

-

Cash acquired as part of Upright Technologies Ltd. acquisition

$
(544)

$
-

Schedule B- Acquisition of PsyInnovations Inc. (dba WayForward):

Estimated net fair value of assets acquired and liabilities assumed at the date of acquisition was as follows:

Working capital, net (excluding cash and cash equivalents)

$
(901)

$
-

Equipment and other assets

4

-

Intangible assets

10,205

-

Goodwill

14,065

-

Liability to PsyInnovations Inc. (dba WayForward) previous shareholders

(256)

Issuance and expected issuance of common stock to PsyInnovations Inc. (dba WayForward) shareholders

(18,094)

-

Cash paid as part of PsyInnovations Inc. (dba WayForward) acquisition

$
5,023

$
-


	Three months ended
	March 31,
	2022		2021

	Unaudited
Cash flows from operating activities:
Net loss	$	(15,916)	$	(14,966)
Adjustments required to reconcile net loss to net cash used in operating activities:
Stock-based compensation, common stock, and payment in stock to directors, employees, consultants, and service providers		5,343		4,438
Depreciation		70		64
Change in operating lease right of use assets		7		6
Amortization of acquired inventories step-up		-		151
Amortization of acquired intangible assets		963		375
Decrease (increase) in trade receivables		(3,264)		318
Decrease (increase) in other accounts receivable, prepaid expense and long-term assets		(1,550)		207
Increase in inventories		(1,555)		(32)
Increase in trade payables		(890)		(544)
Decrease in other accounts payable and accrued expenses		(721)		(609)
Increase (decrease) in deferred revenues		(102)		93
Change in operating lease liabilities		(27)		(33)
Remeasurement of earn-out		(452)		-

Net cash used in operating activities		(18,094)		(10,532)

Cash flows from investing activities:
Purchase of property and equipment		(66)		(68)
Cash paid as part of Upright Technologies Ltd. acquisition		-		(2,472)
Intangible assets purchases incurred, Physimax Technologies LTD.		(115)		-

Net cash used in investing activities		(181)		(2,540)

Cash flows from financing activities:
Proceeds from issuance of common stock and prefunded warrants (net of issuance costs)		38,023		64,877
Proceeds from exercise of warrants		-		633
Proceeds from exercise of options		-		201

Net cash provided by financing activities		38,023		65,711


Increase in cash, cash equivalents and restricted cash and cash equivalents		19,748		52,639
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period		35,948		28,725

Cash, cash equivalents and restricted cash and cash equivalents at end of period	$	55,696	$	81,364

The accompanying notes are an integral part of the unaudited interim consolidated financial statements.

~~F-8~~F-7

Table of Contents

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except stock and stock data)

NOTE 1: - GENERAL

DarioHealth Corp. (the “Company” or “DarioHealth”) was incorporated in Delaware and commenced operations on August 11, 2011.

DarioHealth is a ~~leading~~ Global Digital Therapeutics (DTx) company ~~revolutionizing~~changing the way people with chronic conditions manage their health. By delivering personalized evidence-based interventions that are driven by precision data analytics, ~~high quality~~ software, and personalized coaching, DarioHealth has developed ~~a novel~~an approach that empowers individuals to adjust their lifestyle in ~~a unique and~~ holistic way.

DarioHealth’s cross-functional team operates at the intersection of life sciences, behavioral science, and software technology to deliver seamlessly integrated and highly engaging digital therapeutics interventions. ~~Being one of the highest rated~~Our diabetes ~~solutions,~~solution, its user-centric approach is ~~loved~~used by tens of thousands of customers around the globe. DarioHealth is rapidly expanding its solutions for additional chronic conditions such as hypertension and moving into new geographic markets.

DarioHealth’s digital therapeutic platform has been designed with a ‘user-first’ strategy, focusing on the user’s needs first and foremost, and user experience and satisfaction. User satisfaction is constantly measured and drives, all company processes, including our technology design.

~~DarioHealth has 1 reporting~~The Company operates as a unit and 1 operating segment.

The ~~Company’s~~Company has a wholly owned subsidiary, LabStyle Innovation Ltd. ~~(the “Subsidiary”~~(“LabStyle”), which was incorporated and commenced operations on September 14, 2011 in Israel. Its principal business activity is to hold the Company’s intellectual property and to perform research and development, manufacturing, marketing and other business activities.

On January 26, 2021, the Company entered into a share purchase agreement (the “Share Purchase Agreement”) pursuant to which the Company, through ~~the Subsidiary,~~LabStyle, acquired all of the outstanding securities of Upright Technologies Ltd. and its wholly owned subsidiary Upright Technologies Inc. (“Upright”). Upright is a ~~leading~~ digital musculoskeletal (“MSK”) health company focused on preventing and treating the most common MSK conditions through behavioral science, biofeedback, coaching, and wearable tech.

On May 15, 2021, the Company entered into an agreement and plan of merger ~~(the “Agreement and Plan of Merger”)~~ pursuant to which the Company, through its ~~fully~~wholly owned subsidiary WF Merger Sub, Inc. (“Merger Sub”), merged with PsyInnovations Inc. (“WayForward”), pursuant to which the Merger Sub was the surviving company. ~~PsyInnovations Inc. (dba WayForward)~~WayForward is a mental health company who develops the WayForward behavioral digital health platform with artificial intelligence (AI) enabled screening to triage and navigate members to specific interventions, digital cognitive behavioral therapy (CBT), self-directed care, expert coaching and access to in-person and telehealth provider visits.

During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, the Company incurred operating losses and negative cash flows from operating activities amounting to ~~$32,330~~$15,872 and ~~$22,838,~~$18,094, respectively. On ~~June 30, 2021,~~March 31, 2022, we had ~~$63,865~~$55,558 in available cash and cash equivalent. Management believesthat ~~the Company’s~~our cash on hand is sufficient to meet ~~its~~our obligations as they come due for at least a period of twelve months from the date of the issuance ofthese ~~unaudited condensed~~ consolidated financial statements. There are no assurances, however, that the Company will be able to obtain an adequate level of financial resources that are required for the long-term development and commercialization of its product offering.

~~F-9~~F-8

Table of Contents

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except stock and stock data)

NOTE ~~1: - GENERAL~~ ~~(Cont.)~~

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 the Nasdaq Capital Market under the symbols “DRIO” and “DRIOW,” respectively. Our listed warrants expired in March 2021 and ceased trading on the Nasdaq Capital Market as a result.

~~The Company has been carefully monitoring the COVID-19 pandemic and its impact on its business. In that regard, the Company has continued to sell its Dario~~^TM Blood Sugar Monitor and has not experienced disruptions in its supply chains. With respect to the Company’s DTx platform, it has observed that some of its business-to-business prospective partners have been addressing their business needs as a result of the COVID-19 pandemic, which has resulted in a slowdown of negotiations and discussions with some of these potential partners. In addition, the Company has also seen an increase in interest from other business-to-business prospective partners in its DTx platform, as certain parties are seeking tele-health products. The Company expects the significance of the COVID-19 pandemic, including the extent of its effect on the Company’s financial and operational results, to be dictated by, among other things, its duration, the success of efforts to contain it and the impact of actions taken in response. While the Company is not able at this time to estimate the impact of the COVID-19 pandemic on its financial and operational results, it could be material.

~~NOTE~~ 2: - SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited interim consolidated financial statements as of March 31, 2022, have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. s. 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 March 31, 2022, and the Company’s consolidated results of operations and the Company’s consolidated cash flows for the three months ended March 31, 2022. Results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

Use of Estimates

Preparation of condensed consolidated financial statements in conformity with GAAP requires the use of estimates and judgments that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical information and on various other assumptions that we believe are reasonable under the circumstances. These estimates are based on management's knowledge about current events and expectations about actions we may undertake in the future. Actual results could differ materially from those estimates.

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, ~~2020~~2021 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:

June 30,
June 30,

2021

2020

Unaudited

Unaudited

Cash, and cash equivalents as reported on the balance sheets

$
63,865

$
13,182

Short-term restricted bank deposits, as reported on the balance sheets

195

126

Cash, restricted cash, cash equivalents and short-term restricted bank deposits as reported in the statements of cash flows

$
64,060

$
13,308

~~F-10~~F-9

Table of Contents

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except stock and stock data)

NOTE 2: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)


	March 31,		March 31,
	2022		2021
	Unaudited		Unaudited
Cash, and cash equivalents as reported on the balance sheets	$	55,558	$	81,171
Short-term restricted bank deposits, as reported on the balance sheets		138		193

Cash, restricted cash, cash equivalents and restricted cash and cash equivalents as reported in the statements of cash flows	$	55,696	$	81,364

c. Business and Asset Acquisitions

When the Company acquires a business, the purchase price is allocated to the tangible and identifiable intangible assets, net of liabilities assumed. Any residual purchase price is recorded as goodwill. The allocation of the purchase price requires management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, especially with respect to intangible assets. These estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-average cost of capital and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and unpredictable. During the measurement period, which may be up to one year from the acquisition date, adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s consolidated statements of operations.

The Company accounts for a transaction as an asset acquisition when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, or otherwise does not meet the definition of a business. Asset acquisition-related costs are capitalized as part of the asset or assets acquired.

d. Recently issued accounting pronouncements, not yet adopted:

~~In September 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU"~~
1.
In September 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 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 most financial assets and certain other instruments. For tradeand 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.

F-10

Table of Contents

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except stock and stock data)

NOTE 2: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

In August 2020, the FASB issued ASU 2020-06 (“ASU 2020-06”), which simplifies the guidance on the issuer’s accounting for convertible debt instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. The elimination of these models will reduce reported interest expense and

increase reported net income for entities that have issued a convertible instrument that was within the scope of those models before the adoption of ASU 2020-06. ASU 2020-06 also requires that the effect of potential share settlement be included in the diluted earnings per share calculation when an instrument may be settled in cash or share. This amendment removes current guidance that allows an entity to rebut this presumption if it has a history or policy of cash settlement. Furthermore, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share, the treasury stock method will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2023, with early adoption permitted for fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, which requires companies to apply ASC 606 to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination. This creates an exception to the general recognition and measurement principle in ASC 805. requires companies to apply ASC 606 to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination. For the Company, the guidance is effective for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years. The Company is currently evaluating the impact of ASU 2021-08 on its consolidated financial statements.

NOTE 3: ~~- UNAUDITED INTERIM FINANCIAL STATEMENTS~~– ACQUISITIONS

Technology Purchase of Physimax Technologies Ltd.

On March 31, 2022 (the “Acquisition Date”), the Company completed the acquisition, through its subsidiary LabStyle, of a technology from Physimax Technologies Ltd (“Physimax Technology”). The Company considered this transaction as an asset acquisition. As a result, the estimated fair value of the assets acquired have been included in the accompanying balance sheet from the Acquisition Date.

The ~~accompanying unaudited interim consolidated financial statements as~~consideration transferred included the issuance of ~~June 30, 2021, have been prepared in accordance with U.S. generally accepted accounting principles and standards~~256,660 shares of Common Stock subjected to certain terms of lock-up periods valued at $1,186, a cash payment of $500, of which $400 was paid during 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 opinionfourth quarter 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 June 30, 2021, and the ~~Company’s consolidated results~~remaining to be paid on the second quarter of ~~operations~~2022, The total consideration transferred in the acquisition of Physimax Technology was $1,686.

In addition, the Company capitalized acquisition-related costs in an aggregate amount of $131. The acquisition-related costs include legal and the Company’s consolidated cash flows for the six months ended June 30, 2021. Results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.accounting services.

~~NOTE 4 – ACQUISITIONS~~

~~Acquisition of Upright~~

On January 26, 2021 (the “Acquisition Date”), the Company entered into the Share Purchase Agreement with Upright’s shareholders pursuant to which the Company, through the Subsidiary, acquired 100% of the ordinary shares of Upright.

Pursuant to the terms of the Share Purchase Agreement, the acquisition closed on February 1, 2021. The consideration payable in connection with the Agreement was capped at $31,000 and in any event, is subject to certain indemnity provisions, and took into account certain working capital excess generated, among other matters, by a convertible bridge loan in the amount of $1,500 previously disbursed by the Company to Upright, which was converted into 1 ordinary share of Upright at the closing. The Company agreed to bear certain liabilities of Upright, which were reduced from the aggregate consideration, in an estimated amount of $3,700.

F-11

Table of Contents

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except stock and stock data)

NOTE 3: – ACQUISITIONS (Cont.)

Purchase price allocation:

Under asset acquisition accounting principles, the total purchase price was allocated to Physimax Technology as anintangible asset based on cost value as set forth below.

NOTE 4: - INVENTORIES


	March 31,		December 31,
	2022		2021
	Unaudited
Raw materials	$	927	$	714
Finished products		6,857		5,514

	$	7,783	$	6,228

During the three-month period ended March 31, 2022, and the year ended December 31, 2021, total inventory write-downs expenses amounted to $18 and $73, respectively.

NOTE 5: - REVENUES

The Company is operating a multi-condition healthcare business, empowering individuals to manage their chronic conditions and take steps to improve their overall health. The Company generates revenue directly from individuals through a la carte offering and membership plans. The Company also contracts with enterprise business market groups to provide digital therapeutics solutions for individuals to receive access to services through the Company’s commercial arrangements.

On February 28, 2022, the Company entered into an exclusive preferred partner, co-promotion, development collaboration and license agreement for a term of five (5) years. Pursuant to the Agreement, the Company will provide a license to access and use certain Company data. In addition, the Company may provide development services for new products of the other party.

The Company has determined that the other party is a customer. The aggregative consideration under the contract is up to $30 million over the initial term of the agreement, consisting of (i) an upfront payment, (ii) annual compensation for development costs per annual development plans to be agreed upon annually and (iii) certain contingent milestone payments upon meeting certain net sales and enrollment rate milestones at any time during the term of the Agreement.

F-12

Table of Contents

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except stock and stock data)

~~NOTE 4 – ACQUISITIONS~~ ~~(Cont.)~~

~~Acquisition of Upright~~ ~~(Cont.)~~

The preliminary estimated fair value of consideration transferred on the Acquisition Date was comprised of (i) share consideration to owners of Upright for approximately 1,490,154 shares of the Company’s Common Stock (ii) and approximately 37,857 employees’ options to purchase shares of the Company’s Common Stock on account of Upright’s vested options valued at a total of $28,933.

In addition, 62,371 restricted stock units are being held in escrow for future vested stock options valued at $969, and 113,576 restricted shares of Common Stock are being held in escrow issuable to Upright Founder upon the completion of a holdback service period of 18 months (“Holdback restricted stock units”), valued at $2,069. In addition, the Company incurred acquisition-related costs in a total amount of $378. Acquisition-related costs include legal and accounting services.

~~Purchase price allocation:~~

Under business combination accounting principles, the total purchase price was allocated to Upright’s net tangible and intangible assets based on their estimated fair values as set forth below. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill.

~~The allocation of the purchase price to the assets acquired and liabilities assumed based on management’s estimate of fair values at the date of acquisition as follows:~~

June 30,

2021

Amortization

Unaudited

period (Years)
Tangible assets acquired

$
1,427

Inventory *)

2,845

Liabilities assumed

(10,273)

Net liabilities assumed

(6,001)

Technology

9,600

4
Goodwill

25,334

Infinite
Total purchase price

$
28,933

*) Including step-up in inventory fair value of $1,140

~~The table below summarizes the value of the total consideration given in the transaction:~~

Amount

Unaudited
Shares issued to owners

$
28,221
Shares issued for vested options

712
Preliminary purchase price

28,933
Restricted stock units held in escrow

969
Holdback restricted stock units

2,069
Total consideration

$
31,971

~~F-12~~

~~Table of Contents~~

~~DARIOHEALTH CORP. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands (except stock and stock data)~~

~~NOTE 4 – ACQUISITIONS~~ ~~(Cont.)~~

~~Acquisition of WayForward~~

On June 7, 2021, the Company through the Merger Sub, completed the acquisition of WayForward through the merger of WayForward into Merger Sub., which changed its name to PsyInnovations, Inc. in connection with the merger (collectively, the “Merger”). Under the Agreement and Plan of Merger, dated as of May 15, 2021, the Company paid, aggregate consideration (“Merger Consideration”) of (A) $5,750 in cash and (B) up to $21,250 million equal to 768,124 in shares of Company common stock, par value $0.0001 per share (the “Common Stock”), (C) Up to $5,000 equal to 237,076 in shares of Common Stock structured as an earn-out payable in shares of Common Stock if behavioral health revenues from the Company exceed a certain threshold in 2022, subject to customary working capital and other adjustments as of the closing of the Merger (the "Closing"). The Company will pay $3,000 of the Merger Consideration, consisting of $2,750 equal up to 130,397 in shares of Common Stock and up to $250 in cash, after a minimum of ~~eighteen~~ (18) months to secure indemnification obligations. In addition, the Company incurred acquisition-related costs in a total amount of $502. Acquisition-related costs include legal and accounting services.

~~Purchase price allocation:~~

Under business combination accounting principles, the total purchase price was allocated to WayForward’s net tangible and intangible assets based on their estimated fair values as set forth below. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill.

~~The allocation of the purchase price to the assets acquired and liabilities assumed based on management’s estimate of fair values at the date of acquisition as follows:~~

June 30,

2021

Amortization

Unaudited

period (years)
Tangible assets acquired

$
398

Liabilities assumed

(1,157)

Net liabilities assumed

(759)

Technology

9,666

4
Brand

539

3
Goodwill

14,065

Infinite
Total purchase price

$
23,511

~~The table below summarizes the value of the total consideration given in the transaction:~~

Amount

Unaudited
Shares issued and expected to be issued to owners

$
14,272
Cash consideration

5,417
Earn-out consideration

3,822
Preliminary purchase price

23,511

~~F-13~~

~~Table of Contents~~

~~DARIOHEALTH CORP. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands (except stock and stock data)~~

~~NOTE 4 – ACQUISITIONS~~ ~~(Cont.)~~

In accordance with Accounting Standards Codification (ASC) 805 “Business Combinations” the measurement period for the acquisition of Upright and WayForward is for one year during which the Company may reevaluate the assets acquired, liabilities assumed and the goodwill resulting from the transaction as well as the change in amortization as a result of changes in the provisional amounts as if the accounting had been completed at the Acquisition Date. Our purchase price allocation was made using our best estimates of fair value, which are dependent upon certain valuation and other analyses that are not yet final.

~~Pro forma results~~

The following table sets forth a summary of the unaudited pro forma results of the Company as if the acquisition of Upright and WayForward, which closed in February and June 2021, respectively, had taken place on the first day of the period presented. These combined results are not necessarily indicative of the results that may have been achieved had Upright and WayForward been acquired as of the first day of the period presented.

Six months ended

June 30,

2021
Total revenue

$
10,298
Total expenses

48,938
Preferred stock Deemed dividend

1,032
Net loss attributable to holders of common stock

(39,672)

Basic and diluted net loss per share

$
(2.06)

NOTE 5: - ~~INVENTORIES~~

June 30,

December 31,

2021

2020

Unaudited

Raw materials

$
557

$
377
Finished products

4,018

1,916

$
4,575

$
2,293

~~During the six-month period ended June 30, 2021, and the year ended December 31, 2020, total inventory write-off expenses amounted to $42 and $99, respectively.~~

~~F-14~~

~~Table of Contents~~

~~DARIOHEALTH CORP. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands (except stock and stock data)~~

~~NOTE 6: -~~ REVENUES (Cont.)

The following tables represent the Company’s total revenues for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022, and 2021 ~~and 2020~~disaggregated by ~~product type:~~revenue source:


	Three months ended				Six months ended
	June 30,				June 30,				March 31,
	2021		2020		2021		2020		2022		2021

	Unaudited				Unaudited				Unaudited
Products	$	4,660	$	1,305	$	7,751	$	2,490
Services		601		482		1,105		964
Commercial									$	4,549	$	53
Consumers										3,510		3,542

		5,261		1,787	$	8,856	$	3,454	$	8,059	$	3,595

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~~three months ended ~~June 30, 2021:~~March 31, 2022:


Balance, beginning of the period	$	1,224	$	1,195
New performance obligations		1,778		608
Reclassification to revenue as a result of satisfying performance obligations		(1,693)		(710)
Balance, end of the period	$	1,309	$	1,093

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: - FAIR VALUE MEASUREMENTS

Under U.S. GAAP, fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants and requires that assets and liabilities carried at fair value are classified and disclosed in the following three categories:



Level 1-		Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at measurement date.

Level 2-		Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3		Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

F-13

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DARIOHEALTH CORP. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except stock and stock data)

NOTE 6: - FAIR VALUE MEASUREMENTS (Cont.)

As part of the acquisition of Wayforward on June 7, 2021, the consideration transferred included earn-out payable in up to 237,076 restricted shares of Common Stock. The earn-out arrangement is not indexed to the Company's own stock, and was accounted as a liability, subsequently measured at fair value through earnings until settlement.

In determining the earn-out fair value, the Company used the Monte-Carlo simulation valuation technique, in order to predict the probability of different outcomes that rely on repeated random variables.

For the three months ended March 31, 2022, the Company recorded income from remeasurement in the amount of $452.

The following table presents information about our financial instruments that are measured at fair value basis:


	March 31, 2022
	Unaudited
	Fair Value		Level 1		Level 2		Level 3

			(in thousands)
Financial Liabilities:
Earn out liability	$	373	$	—	$	—	$	373

	December 31, 2021
	Fair Value		Level 1		Level 2		Level 3

			(in thousands)
Financial Liabilities:
Earn out liability	$	825	$	—	$	—	$	825

NOTE 7: - 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.

Royalties:

The company has a liability to pay future royalties to the Israeli Innovation Authority (the “IIA) for participated in programs sponsored bythe Israeli government for the support of research and development activities. The Company is obligated to pay royalties to the IIA, amounting to 3% of thesales of the products and other related revenues (based on the US dollar) generated from such projects, up to 100%of the grants received. Royalty payment obligations also bear interest at the LIBOR rate. The obligation to paythese royalties is contingent on actual sales of the products and in the absence of suchsales, 0 payment isrequired.

F-14

Table of Contents

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except stock and stock data)

NOTE 8: - STOCKHOLDERS’ EQUITY

On January 4, 2022, out of the pre-funded warrants that were issued in May 2019, 81,233 were exercised on a cashless basis into 81,221 shares of Common Stock.As of March 31, 2022 the Company’s total outstanding prefunded warrants amounted to 1,769,794.

On February 28, 2022, the Company entered into securities purchase agreements with institutional accredited investors relating to an offering with respect to the sale of an aggregate of 4,674,454 shares of the Company’s Common Stock, and pre-funded warrants to purchase an aggregate of 667,559 shares of Common Stock at an exercise price of $0.0001 per share, at a purchase price of $7.49 per share (or share equivalent). The aggregate gross proceeds were approximately $40,000 ($38,023, net of issuance expenses).

On March 9, 2022, the Company’s Compensation Committee of the Board of Directors approved the grant of 24,191 shares of Common Stock to employees of the Company, and the grant of 149,550 restricted shares of Common Stock to employees and consultants. The shares vest over a period of three years commencing on the respective grant dates. The Compensation Committee also approved the grant of options to purchase up to 396,050 shares of Common Stock to employees and a consultant of the Company, at exercise prices between $6.67 and $8.10 per share. The stock options vest over a three-year period commencing on the respective grant dates. The options have a ten-year term and were issued under the 2020 Plan.

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 $16 of restricted shares per month to a certain service provider, to be granted monthly during the period that the certain consulting agreement remains in effect. During the first quarter of 2022, the Company issued a total of 4,983 restricted shares of Common Stock to the certain service provider.

In February 2021, the Board of Directors authorized the Company to issue warrants to purchase up to 400,000, shares of Common Stock, to a certain consultant of the Company, at a purchase price of $25.00. During the three-month ended March 31, 2022, the Company recorded compensation expense for this certain service provider in the amount of $863.

In July 2021, the Compensation Committee authorized the Company to issue warrants to purchase 30,000 shares of Common Stock, to certain consultants of the Company, with an exercise price of $23.30 per share, and warrants to purchase 83,948 shares of Common Stock with an exercise price of $16.06 per share. Of these warrants, warrants to purchase 35,000 shares of Common Stock shall vest over a 48-month period and warrants to purchase 48,948 shares of Common Stock are subjected to certain performance terms. During the three-month ended March 31, 2022 the Company recorded compensation expense for this certain service provider in the amount of $11.

In October and December 2021, the Compensation Committee authorized the Company to issue 8,000 shares which shall vest over a six-month period, and warrants to purchase up to 40,000, and 208,000 shares of Common Stock, respectively, to certain consultants of the Company, at a purchase price of $25.10 and $13.60, respectively. During the three-month ended March 31, 2022, the Company recorded compensation expense for those certain service providers in the amount of $427

During the three-month ended March 31, 2022, certain series A Convertible Preferred Stockholders converted 1,030 shares of various classes of the Company’s A Convertible Preferred stock into 254,322 shares of Common Stock.

F-15

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DARIOHEALTH CORP. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except stock and stock data)

NOTE 7:8: - ~~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.STOCKHOLDERS' EQUITY (Cont.)

~~NOTE 8: - STOCKHOLDERS’ EQUITY~~

a.i.

During the ~~six-month~~three-month ended ~~June 30, 2021, the Company’s Compensation Committee (the “Compensation Committee”) of the Board of Directors approved an aggregate of 7,333~~March 31, 2022, 61,730 shares of Common Stock were issued as dividend to certain ~~officers and employees~~Series A Convertible Preferred stockholders upon conversion of ~~the Company as consideration for a reduction in, or waiver, of cash salary, or fees owed to~~ such ~~individuals and the grant of 5,000 restricted shares of Common~~ shares.

Stock to employee. 10,579 shares were issued under the Company’s Amended and Restated 2012 Equity Incentive Plan, as amended (the “2012 Plan”) and 1,754 shares were issued under the 2020 Equity Incentive Plan (the “2020 Plan”).based compensation:

InOn January ~~2021,~~23, 2012, the Company’s Amended and Restated 2012 Equity Incentive Plan (the “2012 Plan”) was adopted by the Board of Directors of the Company and approved by a majority of the ~~grant of an aggregate of 99,074~~Company’s stockholders, under which options to purchase Common Stock to officers, employees, and consultants of Upright, at exercise prices between $0.01 to $24.48 per share. The stock options vest over a period of four years or less commencing on the respective original grant dates. The options have a ten-year term and were issued under the Company’s 2020 Plan.

~~During the six months ended June 30, 2021, the Board of Directors approved the grant of 166,068 unregistered~~ shares of Common Stock have been reserved. Under the 2012 Plan, options to ~~certain consultants of the Company.~~

~~During the six months ended June 30, 2021, the Company’s Compensation Committee approved the grant of an aggregate of 1,051,643 restricted~~purchase shares of Common Stock ~~subject~~may be granted to ~~time vesting to directors, officers,~~ employees and ~~consultants~~non-employees of the Company ~~as well as~~or any affiliate, each option granted can be exercised to one share of Common Stock. The 2012 Plan has expired.

On October 14, 2020, the ~~grant~~Company’s stockholders approved the 2020 Equity Incentive Plan (the “2020 Plan”) and the immediate reservation of ~~490,858~~900,000 shares under the 2020 Plan for the remainder of the 2020 fiscal year. Under the 2020 Plan, options to purchase Common Stock, and 10,000 performance-based options to purchase Common Stock to officers, employees and consultants of the Company, at exercise prices between $14.15 and $25.84 per share. The time vesting restricted shares and stock options vest over a period of three years commencing on the respective grant dates. The options have a ten-year term and were issued under the 2020 Plan.

~~In April 2020, the Compensation Committee approved a monthly grant of~~ shares of Common Stock ~~equal up to between $12.00 to $16.00 of restricted shares to certain service providers per month, to~~may be granted ~~monthly~~to employees and non-employees of the Company or any affiliate, each option granted can be exercised to one share of Common Stock.

In January 2022, pursuant to the terms of the 2020 plan as approved by the Company’s stockholders, the Company increased the number of shares authorized for issuance under the 2020 Plan by 1,339,624 shares, from 2,528,890 to 3,868,514.

Transactions related to the grant of options to employees, directors, and non-employees under the above plans during the three-months period ~~that~~ended March 31, 2022, were as follows:


			Weighted
		Weighted	average
		average	remaining	Aggregate
		exercise	contractual	Intrinsic
	Number of	price	life	value
	options	$	Years	$
Options outstanding at beginning of period	1,878,168	18.13	6.96	3,861
Options granted	396,050	7.41	—	—
Options exercised			—	—
Options expired	(70,711)	9.44	—	—
Options forfeited	(78,391)	15.82	—	—

Options outstanding at end of period	2,125,116	17.04	7.35	179

Options vested and expected to vest at end of period	1,942,997	16.20	7.03	178

Exercisable at end of period	728,983	21.68	5.50	176

The aggregate intrinsic value in the ~~certain consulting agreement remains in effect.~~

~~During~~table above represents the ~~six months ended June 30, 2021, a~~ total ~~of 4,853 restricted unregistered shares of Common Stock were issued to certain service providers under this approval.~~

~~In April 2020,~~intrinsic value (the difference between the ~~Audit and Compensation Committee~~Company’s closing stock price on the last day of the ~~Board~~first quarter of ~~Directors approved monthly grants~~2022 and the exercise price, multiplied by the number of ~~1,500 shares~~in-the-money options) that would have been received by the option holders had all option holders exercised their options on March 31, 2022. This amount is impacted by the changes in the fair market value of the Common ~~Stock, of which 639 shares are to be issued to a board member granted monthly during the 12 month period that the certain consulting agreement with said service providers is in effect.~~

During the six months ended June 30, 2021, a total of 4,500 shares of Common Stock were issued under the said approval of which 1,857 shares were issued to a board member and 2,643 shares were issued to certain service providers under the 2012 and 2020 Plans.Stock.

F-16

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DARIOHEALTH CORP. AND ITS SUBSIDIARIES

NOTES TO ~~CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands (except stock and stock data)~~

~~NOTE 8: - STOCKHOLDERS' EQUITY (Cont.)~~

In May 2021, the Compensation Committee of the Board of Directors approved an inducement grant of a non-qualified stock option award to purchase 60,000 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 15,000 shares of the Company’s Common Stock outside of the Company’s 2020 Plan, pursuant to Nasdaq Listing Rule 5635(c)(4),in connection with the employment of one employee as part of the acquisition of WayForward (see note 4), the options were granted on June 7, 2021 as part of the closing of the Merger.

In January and June 2021, pursuant to the terms of the 2020 Plan as approved by the Company’s stockholders, the Company increased the number of shares authorized for issuance under the 2020 Plan by 1,628,890 shares, from 900,000 to 2,528,890.

In May 2020, the Compensation Committee of the Board of Directors authorized the Company to issue warrants to purchase 60,000 shares of Common Stock vesting over a 12 month period, to certain consultants. The warrants exercise price is $6.39 per share. During the first half of 2021, the Company recorded warrants compensation expense for service provider in the amount of $18.

In February 2021, the Board of Directors authorized the Company to issue warrants to purchase up to 400,000, shares of Common Stock, to certain consultant of the Company, at a purchase price of $25.00. As such, the Company recorded a warrant compensation expense for service providers in the amount of $2,391.

In April 2021, the Compensation Committee authorized the Company to issue warrants to purchase 30,000 shares of Common Stock, to a certain consultant of the Company, with an exercise price of $35.00 per share, and warrants to purchase 12,500 shares of Common Stock with an exercise price of $18.57 per share. As such, the Company recorded a warrant compensation expense for service providers in the amount of $387.

~~During the six months ended June 30, 2021 certain Company warrants holders have exercised warrants into 219,992 shares for total proceeds of $633.~~

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 six months ended June 30, 2021 3,701 of certain Series A Convertible Preferred Stock were converted into 866,430 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, a 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.

~~F-17~~

~~Table of Contents~~

~~DARIOHEALTH CORP. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands (except stock and stock data)~~

~~NOTE 8: - STOCKHOLDERS' EQUITY (Cont.)~~

~~During the six months ended June 30, 2021, 144,425 Placement Agent Warrants that were issued in December 2020 were exercised into 111,061 shares of Common Stock.~~

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 date the Series A Convertible Preferred Stock was issued (each, 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 deemed dividend, during the six months ended June 30, 2021 a total amount of $1,032 was recorded.

On February 1, 2021, the Company entered into securities purchase agreements with institutional accredited investors relating to an offering with respect to the sale of an aggregate of 3,278,688 shares of Common Stock, at a purchase price of $21.35 per share. The aggregate gross proceeds were approximately $70,000 ($64,877, net of issuance expenses).

~~During the six months ended June 30, 2021, options were exercised into 40,545 shares of Common Stock, with aggregate gross proceeds of approximately $256.~~

~~F-18~~

~~Table of Contents~~

~~DARIOHEALTH CORP. AND ITS SUBSIDIARIES~~

~~NOTES TO~~INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except stock and stock data)

NOTE 8: - STOCKHOLDERS' EQUITY (Cont.)

~~Stock based compensation:~~

~~Transactions related to the grant of options to employees, directors, and non-employees under the above plans during the six-months period ended June 30, 2021, were as follows:~~

Weighted


Weighted

average

average

remaining

Aggregate

exercise

contractual

Intrinsic

Number of

price

life

value

options

$

Years

$

Options outstanding at beginning of period

973,575

17.56

4.99

5,510
Options granted

674,932

21.23

-

-
Options exercised

(40,545)

6.32

-

-
Options expired

(25,269)

10.02

-

-
Options forfeited

(37,507)

14.66

-

-

Options outstanding at end of period

1,545,186

19.65

6.62

11,845

Options vested and expected to vest at end of period

1,467,677

19.84

6.60

11,321

Exercisable at end of period

296,908

32.41

4.65

4,070

Transactions related to the grant of restricted shares to employees, directors, and non-employees under the above plans during the ~~six-months~~three-months period ended ~~June 30, 2021,~~March 31, 2022, were as follows:


								Number of
								Restricted shares

Restricted shares outstanding at beginning of period								-1,094,637
Restricted shares granted								~~1,056,643~~149,550
Restricted shares forfeited								~~(500)~~(9,568)

Restricted shares outstanding at end of period								~~1,056,143~~1,234,619

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 second quarter of 2021 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 June 30, 2021. This amount is impacted by the changes in the fair market value of the Common Stock.

As of ~~June 30, 2021,~~March 31, 2022, the total amount of unrecognized stock-based compensation expense was approximately ~~$23,703~~$25,395 which will be recognized over a weighted average period of ~~1.32~~1.2 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
	March 31,
	2022		2021

	Unaudited
Volatility	91.11-91.40	%	94.73-111.82	%
Risk-free interest rate	1.89	%	0.11-0.96	%
Dividend yield	0	%	0	%
Expected life (years)	5.81-5.88		2.09-5.88

The total compensation cost related to all of the Company’s stock-based awards recognized during the three-month period ended March 31, 2022, and 2021 was comprised as follows:


	Three months ended
	March 31,
	2022		2021

	Unaudited
Cost of revenues	$	23	$	13
Research and development		1,488		414
Sales and marketing		1,651		1,035
General and administrative		2,181		2,976

Total stock-based compensation expenses	$	5,343	$	4,438

~~F-19~~F-17

Table of Contents

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except stock and stock data)

~~NOTE 8: - STOCKHOLDERS' EQUITY (Cont.)~~

~~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,


2021

2020



Volatility

95.84
%
-
95.84
%
92.60
%
‑
95.61
%

Risk-free interest rate

0.01
%
-
0.01
%
0.25
%
‑
0.32
%

Dividend yield

-

-
%

-
%

Expected life (years)

5.81

-
5.81

3.5

‑
4.5

~~The total compensation cost related to all of the Company’s stock-based awards recognized during the six-month period ended June 30, 2021, and 2020 was comprised as follows:~~

Six months ended

June 30,

2021

2020

Unaudited

Cost of revenues

$
37

$
20

Research and development

1,064

446

Sales and marketing

2,204

1,749

General and administrative

6,595

4,963

Total stock-based compensation expenses

$
9,900

$
7,178

NOTE 9: - FINANCIAL EXPENSES (INCOME), NET


	Six months ended				Three months ended
	June 30,				March 31,
	2021		2020		2022		2021

	Unaudited				Unaudited
Bank charges	$	56	$	38	$	26	$	43
Foreign currency adjustments (income) losses, net		369		(341)
Foreign currency adjustments expenses, net						22		605
Interest income		(24)		(36)		(4)		(9)

Total financial (income) losses, net	$	401	$	(339)
Total Financial losses, net					$	44	$	639

~~F-20~~

~~Table of Contents~~

~~DARIOHEALTH CORP. AND ITS SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands (except stock and stock data)~~

NOTE 10: - SUBSEQUENT EVENTS

In ~~July 2021, the Compensation Committee of the Board of Directors approved a grant of 109,272 shares of Common Stock to certain consultants~~April and ~~service providers, of which 7,500 were issued under the 2012 Plan.~~

In July 2021, the Compensation Committee of the Board of Directors approved a grant of 58,985 shares of Common Stock to certain employees and service providers, which were issued under the 2020 Plan. In addition, the Compensation Committee approved the grant of options to purchase up to 210,641 shares of Common Stock at exercise price of $16.06 and $20.33 per share.

In April 2020, the Compensation Committee approved a monthly grant of shares of Common Stock, equal to up to $16.00 per share, of restricted shares to a certain service provider per month, to be granted monthly during the period that the certain consulting agreement remains in effect. During the third quarter of 2021,May 2022, the Company issued a total of ~~1,749~~5,439 restricted shares of Common Stock to ~~that~~a certain service provider. These issuances were made under the compensation committee approval, dated April 2020.

In July 2021, the Compensation Committee approved the grant of 1,791 shares of Common Stock to officers and employees of the Company as consideration for a reduction in or waiver of cash salary owed to such individuals. The shares of Common Stock were issued under the Company’s 2012 Plan.

In July 2021, the Compensation Committee of the Board of Directors approved the grant of a non-qualified stock option award to purchase 20,000 shares of the Company’s Common Stock outside of the Company’s existing equity incentive plans, pursuant to Nasdaq Listing Rule 5635(c)(4), in connection with the employment of its Special Vice President of Market Access.

~~In August 2021, certain Series A Convertible Preferred Stockholders converted 25 shares of various classes of the Company’s Series A Convertible Preferred Stock into 6,173 shares of Common Stock.~~

~~During July and August 2021, 1,927 shares of Common Stock were issued as dividend to certain Series A Convertible Preferred Stockholders upon conversion of such shares.~~

~~F-21~~F-18

Table of Contents

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, ~~2020.~~2021. 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, ~~2020~~2021 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 in thousands, except for stock and stock data or as otherwise noted.

We are ~~a leading global Digital Therapeutics (“DTx”) company~~ revolutionizing ~~the way~~how people with chronic conditions manage their health ~~across~~through the ~~chronic condition spectrum to live~~innovation of a better and healthier life. Our mission is to transform how affected individuals manage their health and chronic conditions by empowering our customers to easily manage their conditions and take steps to improve their overall health. Most chronic conditions are driven by personal behaviors and the individual actions that are or are not taken.new category of digital health: Digital Therapeutics as a Service (DTaaS). We believe that ~~changing these behaviors can dramatically improve~~ our customers’ overall health and substantially reduce unnecessary health spending. However, behavioral change and habit formation are difficult, especially in managing chronic disease and related conditions. Ourinnovative approach to digital therapeutics ~~endeavor~~disrupts the traditional provider-centered system of health care delivery by offering user-centric care that is continuous, customized and multi-condition. Our solutions combine the power of technologies and behavior science to ~~produce lasting behavior changes~~make better health accessible, affordable, and easy for all by solving for what people need, when and where they want it, with hyper-personalized care that is always connected – to services, devices, and people – and delivered continuously. This is how we deliver meaningful and sustainable results that result in ~~our customers by applying~~measurable value for all stakeholders, supporting the full transformation of health care into a ~~novel combination of artificial intelligence (“AI”)-driven dynamic personalization~~more effective and behavioral science at scale. This allows us to engage and support our customers, and offer them a complete virtual care solution, ideally resulting in improved health outcomes and reduced total cost of care.affordable ecosystem.

~~Our principal operating subsidiary, LabStyle Innovation Ltd., is an Israeli company with its headquarters in Caesarea, Israel.~~ We ~~were formed on August 11, 2011,~~began as a ~~Delaware corporation with the name LabStyle Innovations Corp. On July 28, 2016, we changed our name to DarioHealth Corp. We began our sales in the~~ direct-to-consumer ~~space,~~digital therapeutics company, solving first for ~~what we deemed~~ the ~~most difficult problems:~~problem of how to engage users and support behavior change to improve clinical outcomes in diabetes. ~~Our most developed AI tools leverage~~In the last two years, we made two strategic shifts to transform our business: first, we significantly expanded commercial growth opportunities by adding a business-to-business product (B2B) and a commercial team alongside the legacy direct-to-consumer ~~experience~~channel. In addition, we began targeting three traditional health business verticals – health plans, employers, and provider groups. As a result, we believe that our new B2B business now leverages our consumer-centric capabilities as a competitive advantage.

Second, we transitioned from ~~over 150,000 members~~a single condition platform to ~~drive superior engagement and outcomes. In early 2020, we broadened our~~a multi-condition platform, creating a robust suite of solutions to ~~include other medical~~address the five most commonly co-occurring and expensive chronic conditions, ~~in addition to diabetes, and to serve business customers who seek to improve~~which are also representative of some of the most sought-after digital health ~~of their stakeholders. Presently, we have deployed solutions for~~solutions: diabetes, hypertension, pre-diabetes/weight management, musculoskeletal and ~~pre-diabetes,~~behavioral health. After building weight loss and ~~through our~~hypertension management into the legacy diabetes platform, we made three acquisitions in order to expand into musculoskeletal and behavioral health.

Our acquisition of Upright Technologies Ltd. (“Upright”)~~, we now offer solutions for~~ in early 2021 and Physimax in early 2022 enables our musculoskeletal (“MSK”) ~~conditions. We are currently delivering B2B2C~~ solutions ~~for providers, employers, and pharmaceutical companies, and we plan to develop a full-risk~~– “Dario Move.”, our digital behavioral health ~~plan business, which we expect will provide our AI driven, remote patient monitoring (“RPM”) and coaching for a variety~~capabilities were secured through the acquisition of ~~chronic conditions, across a range of customer product lines in 2021.~~

Upright, which we acquired on February 1, 2021, is a leading digital MSK health company focused on preventing and treating the most common MSK conditions through behavioral science, biofeedback, coaching, and wearable tech. Upright has over 90,000 active users and its clinically validated solution is recommended by more than 500 clinics worldwide.

~~On June 7, 2021, we acquired to~~ PsyInnovations, Inc. (“WayForward”), a behavioral digital health platform with AI-enabled screening to triage and navigate members to specific interventions, digital cognitive behavioral therapy (“CBT”), self-directed care, coaching and access to in-person and telehealth provider visits.(dba WayForward) in mid-2021.

We ~~offer~~believe a ~~customized, user-centric, modular~~key success factor is our ability to integrate multiple chronic conditions into a single digital therapeutics’ platform, ~~integrating digital therapeutics, coaching, devices,~~the “Dario One.” During 2021 we successfully won contracts in all three B2B business segments, including several contracts for Dario One, creating a compounding effect as more members enroll and ~~care providers. Our suite~~many in multiple programs. The combination of ~~offerings includes Dario Tools, which are devices~~moving from direct-to-consumer to the enterprise business market (B2B2C) and expanding from a single condition to multi condition platform, created multiple commercial growth engines as well as a multiplying impact that ~~integrate with applications~~we believe will improve our financial profile by increasing potential revenue per account and per user.

According to our management’s estimates, based on ~~a user’s smartphone, DarioEngage, a population health management platform (“DarioEngage”),~~our current cash on hand and further based on our budget and the ~~Dario Loop,~~assumption that initial commercial sales will commence during our ~~AI-driven journey engine.~~

anticipated timeframes, we believe that we will have sufficient resources to continue our activities through 2023.

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~~In addition,~~Since we might be unable to generate sufficient revenue or cash flow to fund our operations for the foreseeable future, we will need to seek additional equity or debt financing to provide the capital required to maintain or expand our operations. We may also need additional funding for developing products and services, increasing our sales and marketing capabilities, and promoting brand identity, as well as for working capital requirements and other operating and general corporate purposes. Moreover, the regulatory compliance arising out of being a publicly registered company has dramatically increased our costs.

We do not currently have ~~continued to carefully monitor the COVID-19 pandemic and its impact on our business. In that regard, we have continued to sell our Dario~~^TM ~~Blood Sugar Monitor and have not experienced disruptions~~any arrangements or credit facilities 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~~place as a ~~result~~source of ~~the COVID-19 pandemic, which has resulted in a slowdown of negotiations~~funds, and ~~discussions with some of these potential partners. In addition,~~there can be no assurance that 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.

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 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 be able to ~~obtain an adequate level~~raise sufficient additional capital on acceptable terms, or at all. If such financing is not available on satisfactory terms, or is not available at all, we may be required to delay, scale back or eliminate the development of business opportunities and our operations and financial ~~resources~~condition may be materially adversely affected.

If we raise additional capital by issuing equity securities, the percentage ownership of our existing stockholders may be reduced, and accordingly these stockholders may experience substantial dilution. We may also issue equity securities that provide for rights, preferences and privileges senior to those of our common stock. Given our need for cash and that equity raising is the most common type of fundraising for companies like ours, the risk of dilution is particularly significant for stockholders of our company.

Debt financing, if obtained, may involve agreements that include liens on our assets, covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, could increase our expenses and require that our assets be provided as a security for such debt. Debt financing would also be required to be repaid regardless of our operating results.

If we raise additional funds through collaborations and licensing arrangements, we may be required to relinquish some rights to our technologies or candidate products, or to grant licenses on terms that are ~~required for~~not favorable to us.

Funding from any source may be unavailable to us on acceptable terms, or at all. If we do not have sufficient capital to fund our operations and expenses, we may not be able to achieve or maintain competitiveness, which could lead to the ~~long-term development~~failure of our business and ~~commercialization~~the loss of ~~its product offering.~~your investment.

Recent Developments

~~Upright GO S Launch~~Employer Contracts and Health Providers

In ~~June 2021,~~April 2022, we announced new contract with Health Plan Colorado Access, the largest public sector health plan in the state of Colorado, to provide digital chronic condition management solutions for its Medicaid population beginning with thousands of its members in the second quarter of 2022.

In addition, in April 2022, we announced the ~~launch~~publication of a retrospective, real-world study demonstrating the ~~Upright GO S,~~impact of managing diabetes and weight together on a ~~new wearable sensor based~~single digital platform at the Advanced Technologies and Treatments for Diabetes (ATTD) Conference held in April 2022 in Barcelona and online. The study found that nearly two thirds of participants with a body mass index (“BMI”) of more than 30 reduced their BMI by an average of 2.8 units with an average weight loss of 7.4% (p≤0.05). In addition, the study also examined a subgroup of participants with BMIs greater than 30 and high-risk blood glucose readings of more than 180 mg/dL to understand the impact on ~~the company's pioneering biofeedback technologies~~both diabetes and weight management. This subgroup also demonstrated improved clinical outcomes, reducing their weight by an average of 4.9% and reducing their average blood glucose by 16.1% over a 12-months period.

Agreement with Sanofi

In March 2022, we announced our entering into a strategic agreement with Sanofi U.S., an innovative global healthcare company. The multi-year, $30 million-dollar agreement, which is subject to ~~make better back health accessible to more people. This new product from Upright, by Dario, is part~~certain contingencies, will help accelerate commercial adoption of our ~~planned growth strategy for increasing platform membership across both business partnerships~~full suite of digital therapeutics and ~~consumer channels.~~

~~Coastal Family Health Center~~

~~In June 2021, we announced that we were selected as~~drive the expansion of digital health ~~provider by Coastal Family Health Center, a local, non-profit healthcare network providing comprehensive primary care~~solutions on our platform. We and Sanofi will collaborate on promoting our multi-condition digital therapeutics solution, significantly increasing our sales reach in the health plan market and selectively in the employer channel. In addition, the agreement calls for us and Sanofi to ~~patients across several underserved counties in~~develop new or enhanced solutions leveraging our platform, and ~~around the Mississippi Gulf Coast.~~

~~Workplace Options~~

In June 2021, we announced that we our digital behavioral health solution now includes Workplace Options (WPO) services for its global users. WPO is the largest independent provider of integrated employee wellbeing solutions around the world. Our digital behavioral health solution, powered by WayForward and now WPO, gives multi-national employers a way to improve mental health parity for international employees by offering the same high-quality care to people outside of the United States.

~~Critical Accounting Policies~~

~~Please 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~~parties 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~~generate robust evidence to support future commercialization in the year ended December 31, 2020 (filed on March 9, 2021) with respect to our Critical Accounting Policies. There have 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, 2020.health plan channel.

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Results of Operations

Comparison of the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (dollar amounts in thousands)

Revenues

Revenues for the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, amounted to ~~$5,261 and $8,856, respectively,~~$8,059, compared to revenues of ~~$1,787 and $3,454~~$3,595 during the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, representing an increase of ~~194% and 156% respectively.~~124.2%. The increase in revenues for the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, compared to the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, is due to anthe increase in ~~our direct to consumer (“D2C”)~~revenues from sales in the six months ended June 30, 2021, and from the consolidation of Upright and WayForward revenues. The proforma revenues for the six months ended June 30, 2021, assuming that the closing of the acquisition of Upright and WayForward would have taken place on the first day of the 2021 fiscal year would have amounted to $10,298.

~~Revenues were derived mainly from the sales of Dario’s products and our membership offering through D2C acquisitions located mainly in the United States and Australia,~~ through our on-line store and through distributors. Revenues also include the consolidated revenues of Upright and WayForward for the periods of February 2, 2021, and June 7, 2021 respectively, through June 30, 2021.commercial channel.

Cost of Revenues

During the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, we recorded ~~cost of~~costs related to revenues in the amount of ~~$3,753 and $6,267 respectively,~~$4,074, compared to costs related to revenues of ~~$1,151 and $2,039~~$2,514 during the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, representing an increase of ~~226% and 207% respectively.~~62%. The increase in cost of revenues in the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, compared to the three ~~and six~~ months ended ~~June 30, 2020, are~~March 31, 2021, was mainly ~~a result~~ due to higher costs related to the shipping of ~~the increase in the sales of our products, the consolidation of Upright’s~~inventory and ~~WayForward’s cost of revenues, and the~~ amortization of ~~inventory step up and~~ acquired technology in the amount of ~~$1,092 and $1,618 respectively as a result of the acquisition of Upright and WayForward.~~$932.

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, amortization of technologies, hosting costs, shipping and handling costs and inventory write-downs.

Gross Profit

Gross profit for the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, amounted to ~~$1,508 (28.7%~~$3,985 (49.4% of revenues) ~~and $2,589 (29.2% of revenues) respectively~~ compared to ~~$636 (35.6% of revenues) and $1,415 (41.0%~~$1,081 (30.1% of revenues) during the three ~~and six~~ months ended ~~June 30, 2020.~~March 31, 2021. The ~~decrease~~increase in gross profit as a percentage of revenue for the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, compared to the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, is ~~mainly as a result of~~due to the revenues derived from sales through our commercial channel, partially offset by amortization of ~~inventory step up and~~ acquired technology ~~following the acquisition of Upright and WayForward~~ amounting to ~~$1,092 and $1,618 respectively.~~$932. Gross profit excluding these amortizations was ~~$2,600 (49.4% of revenues) and $4,207 (47.5%~~$4,917 (61.0% of revenues).

Research and Development Expenses

Our research and development expenses increased by ~~$2,917,~~$3,272, or ~~354%~~123.2%, to ~~$3,742~~$5,927 for the three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$825~~$2,655 for the three months ended ~~June 30, 2020,~~March 31, 2021. This increase was mainly a result of expanding our research and increased by $4,341, or 211%, to $6,397 for the six months ended June 30, 2021, compared to $2,056 for the six months ended June 30, 2020. These increases were mainly due to the consolidation of Upright and WayForward during the six months ended June 30, 2021.development activities into additional product offerings. Our research and development expenses, excluding stock-based compensation and depreciation, for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022, were ~~$5,299~~$4,428 compared to ~~$1,598~~$2,226 for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, an increase of ~~$3,701.~~$2,202.

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Research and development expenses consist mainly of payroll expenses to employees involved in research and development activities, expenses related toto: (i) our solutions including our Dario ~~Upright~~Smart Diabetes Management Solution, DarioEngage platform, Dario Move solution and ~~WayForward software application and related devices,~~our digital behavioral health solution, (ii) labor contractors and engineering expenses, (iii) depreciation and maintenance fees related to equipment and software tools used in research and development, ~~Dario’s~~(iv) clinical trials performed in the United States to satisfy the FDA product approval requirements and (v) facilities expenses associated with and allocated to research and development activities. We view research and development as a principal strategic investment and have continued our commitment to invest in this area. We will need to continue to invest in research and development and such expenses may increase in the future to keep pace with new trends in our industry.

Sales and Marketing Expenses

Our sales and marketing expenses increased by ~~$7,040,~~$2,403, or ~~270%,~~33.7 %, to ~~$9,648~~$9,535 for the three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$2,608~~$7,132 for the three months ended ~~June 30, 2020, and increased by $10,081, or 150%, to $16,780 for the six months ended June 30, 2021, compared to $6,699 for the six months ended June 30, 2020. These increases were~~March 31, 2021. The increase was mainly due to increases in our stock-based compensation and payroll related ~~digital marketing and the consolidation of Upright and WayForward during the six months ended June 30, 2021.~~expenses. Our sales and marketing expenses, excluding stock-based compensation and depreciation, for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 were ~~$14,541~~$7,843 compared to ~~$4,934~~$6,086 for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, an increase of ~~$9,607.~~$1,757.

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Sales and marketing expenses consist mainly of payroll expenses, online marketing campaigns of ~~the Dario~~our service offering, and other costs associated with sales and marketing activities, as well as trade show expenses, customer support expenses and marketing consultants and subcontractors.

General and Administrative Expenses

Our general and administrative expenses ~~increased~~decreased by ~~$4,795,~~$1,226, or ~~362%~~21.8%, to ~~$6,121~~$4,395 for the three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$1,326~~$5,621 for the three months ended ~~June 30, 2020, and increased by $4,845, or 70% to $11,742 for the six months ended June 30, 2021, compared to $6,897 for the six months ended June 30, 2020.~~March 31, 2021. This ~~increase~~decrease was mainly due to ~~increases~~decrease in ~~our stock-based compensation, investor relations, insurance~~consulting expenses ~~and the consolidation of Upright and WayForward~~ during the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022. Our general and administrative expenses, excluding stock-based compensation, depreciation and ~~depreciation,~~earn-out remeasurement for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 were ~~$4,251~~$2,552 compared to ~~$1,928~~$2,260 for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, an increase of ~~$2,323.~~$292.

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)~~ Expenses, net

Our financial ~~income,~~expenses, net for the three months ended ~~June 30, 2021, was $238, representing an increase of 103%,~~March 31, 2022, were $44, compared to financial ~~income~~expenses of ~~$117~~$639 for the three months ended June 30, 2020. Our financial expenses, net for the six months ended June 30, 2021, were $401, representing decrease of 218%, compared to financial income of $339 for the six months ended June 30, 2020.March 31, 2021. The changes in our financial ~~income~~expenses were mainly due to foreign currency translation differences.

Financial (income) expenses, net mainly include bank charges, interest income, lease liability and foreign currency translation differences.

Net loss

Net loss increased by ~~$13,759,~~$950, or ~~343.5%~~6.35%, to ~~$17,765~~$15,916 for the three months ended ~~June 30, 2021,~~March 31, 2022, compared to a net loss of ~~$4,006~~$14,966 for the three months ended ~~June 30, 2020, and increased by $18,833, or 135.5%, to $32,731 for the six months ended June 30, 2021, compared to a net loss of $13,898 for the six months ended June 30, 2020.~~March 31, 2021.

The increase in net loss for the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, compared to the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, was mainly due to the increase in our operating ~~expenses and the consolidation of Upright and WayForward.~~

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~~Non-GAAP Financial Measures~~expenses.

The factors described above resulted in net loss attributable to common stockholders for the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, amounted to ~~$17,765 and $32,731, respectively,~~$16,367, compared to net loss attributable to common stockholders of ~~$4,006 and $13,898.~~$15,510 for the three months ended March 31, 2021.

Non-GAAP Financial Measures

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.

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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,						Three Months Ended March 31,
	(in thousands)						(in thousands)
	2021		2020		$ Change		2022		2021		$ Change
Net Loss Reconciliation
Net loss - as reported	$	(17,765)	$	(4,006)	$	(13,759)	$	(15,916)	$	(14,966)	$	(950)

Adjustments
Depreciation and amortization expenses		1,172		46		1,126
Other financial expenses (income), net		(238)		(117)		(121)
Depreciation expense								70		64		6
Inventory step up amortization								—		151		(151)
Amortization of acquired technology								963		375		588
Other financial expenses, net								44		639		(595)

EBITDA		(16,831)		(4,077)		(12,754)		(14,839)		(13,737)		(1,102)

Acquisition costs								87		378		(291)
Earn-out remeasurement								(452)		—		(452)
Stock-based compensation expenses		5,462		822		4,640		5,343		4,438		905
Acquisition costs		502		-		502

Non-GAAP adjusted loss	$	(10,867)	$	(3,255)	$	(7,612)	$	(9,861)	$	(8,921)	$	(940)

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Six Months Ended June 30,

(in thousands)

2021

2020

$ Change
Net Loss Reconciliation






Net loss - as reported

$
(32,731)

$
(13,898)

$
(18,833)

Adjustments






Depreciation expense

1,762

92

1,670
Other financial (income) expenses, net

401

(339)

740

EBITDA

(30,568)

(14,145)

(16,423)

Stock-based compensation expenses

9,900

7,178

2,722
Acquisition costs

880

-

880

Non-GAAP adjusted loss

$
(19,788)

$
(6,967)

$
(12,821)

Liquidity and Capital Resources (amounts in thousands except for share and share amounts)

As of ~~June 30, 2021,~~March 31, 2022, we had approximately ~~$63,865~~$55,558 in cash and cash equivalents compared to ~~$28,590 at~~$35,808 on December 31, ~~2020.~~2021.

We have experienced cumulative losses of ~~$177,011~~$238,381 from inception (August 11, 2011) through ~~June 30, 2021~~March 31, 2022 and have a stockholders’ equity of ~~$118,113~~$114,185 on ~~June 30, 2021.~~March 31, 2022. 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. However, we believe that our sources of liquidity and capital resources will be sufficient to meet our business needs for at least the next 12twelve months.

Since inception, we have financed our operations primarily through private placements and public offerings of our common stock, warrants to purchase shares of our common stock, and the exercise of existing warrants and options, receiving aggregate net proceeds totaling ~~$189,685~~$227,708 as of ~~June 30, 2021.~~

On May 24, 2019, we closed on a firm commitment, underwritten public offering consisting of 242,768 shares of common stock and pre-funded warrants to purchase 358,779 shares of our common stock, pursuant to an underwriting agreement entered into with Craig-Hallum Capital Group LLC, as representative of the underwriters. The shares of common stock were sold at a public offering price of $12.00 per share and the pre-funded warrants were sold at a public offering price of $11.998 per pre-funded warrant, for aggregate gross proceeds of approximately $7,218.

On November 27, 2019, we entered into subscription agreements with accredited 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 Series A and Series A-1 Convertible Preferred Stock to Common Stock is $4.05. The initial closing of the 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. On December 3, 2019, we entered into subscription agreements with accredited investors relating to an offering and the sale of an aggregate of 1,915 shares of newly designated Series A-2 Convertible Preferred Stock, at a purchase price of $1 for each share, for aggregate gross proceeds to the Company of $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 purchase 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

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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 Series 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 $7.4699 per Pre-Funded Warrant. In addition, on July 30, 2020, we entered into a subscription agreement with an accredited investor for the purchase of 31,486 shares of our common stock at a purchase price per share of $7.94 per Share. The aggregate gross proceeds were approximately $28,591.

In September 2020, we and an existing warrant holder entered into an agreement pursuant to which we agreed to lower the exercise 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 common stock resulting in aggregate e gross proceeds of approximately $1,156.March 31, 2022.

On February 1, 2021, we entered into securities purchase agreements with institutional accredited investors relating to an offering with respect to the sale of an aggregate of 3,278,688 shares of Common Stock, at a purchase price of $21.35 per share. The aggregate gross proceeds were approximately $70,000.

On February 28, 2022, we entered into a securities purchase agreement with institutional investors, pursuant to which we agreed to issue and sell to the investors in a registered direct offering priced at-the-market under Nasdaq rules an aggregate of 4,674,454 shares of our common stock, par value $0.0001 per share, and pre-funded warrants to purchase an aggregate of 667,559 shares of our common stock. Each share was sold at an offering price of $7.49 per share, and each pre-funded warrant was sold at an offering price of $7.4899, for aggregate gross proceeds of approximately $40 million before deducting the offering expenses. In addition, the investors have executed lock up agreements agreeing to a lock up period of three days.

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On October 22, 2021, we entered into a Sales Agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”), as agent, pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $50 million from time to time through Cowen. As of March 31, 2022, we have not conducted any sales through our Sales Agreement with Cowen.

Management believes that the 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~~hawse have resolved to remove the going concern note from its financial statements. There are no assurances, however, that ~~the Company~~we will be able to obtain an adequate level of financial resources that are required for the long-term development and commercialization of ~~its~~our product offering.

As such, we have a significant present need for capital. If we are unable to scale up our commercial launch of ~~Dario~~our products 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 (2) our efforts to obtain regulatory clearances or approvals necessary to be able to commercially launch Dario, DarioEngage and Dario Intelligence, (3) expenses which will be required in order to expand manufacturing of 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 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.

~~Table of Contents~~

Cash Flows (dollar amounts in thousands)

The following table sets forth selected cash flow information for the periods indicated:


	June 30,		March 31,
	2021	2020	2022	2021
	$	$	$	$
Cash used in operating activities:	(22,838)	(7,184)	(18,094,000)	(10,532,000)
Cash used in investing activities:	(7,593)	(43)	(181,000)	(2,540,000)
Cash provided by financing activities:	65,766	-	38,023,000	65,711,000
	35,335	(7,227)	19,748,000	52,639,000

Net cash used in operating activities

Net cash used in operating activities was ~~$22,838~~$18,094 for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 an increase of ~~217.9%~~71.8% compared to ~~$7,184~~$10,532 used in operations for the same period in ~~2020.~~2021. Cash used in operations increased mainly due to the increase in our ~~marketing activities and the consolidation of Upright and WayForward.~~operating activities.

Net cash used in investing activities

Net cash used for investing activities was ~~$7,593~~$181 for the ~~six~~three months ended ~~June 30, 2021, an increase~~March 31, 2022, a decrease of ~~17,558%~~2,359 compared to ~~cash derived from investing activities of $43~~$2,540 for the same period in ~~2020.~~2021. Cash used for investing activities ~~increased~~decreased mainly due to the repayment ~~of a loan we~~ made ~~to Upright as well as cash acquired~~ as part of the acquisition of Upright ~~and WayForward.~~in the three months ended March 31, 2021.

Net cash provided by financing activities

Net cash provided by financing activities was ~~$65,766~~$38,023 for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 compared to no$65,711 net cash provided by financing activities during the same period in ~~2020.~~2021.

~~Off-Balance Sheet Arrangements~~9

AsTable of ~~June 30, 2021, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.~~Contents

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.~~Commission (the “SEC”). 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.

~~Table of Contents~~

Based on their evaluation, the Certifying Officers concluded that, as of ~~June 30, 2021,~~March 31, 2022, 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 ~~June 30, 2021,~~March 31, 2022, 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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PART II- OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the ~~second~~first quarter of ~~2021,~~2022, we issued an aggregate of ~~72,754~~4,983 shares of our common stock to certain of our service providers as compensation in lieu of cash compensation owed to them for services rendered. We claimed exemption from registration under the Securities Act of 1933, as amended, or the Securities Act, for the foregoing transactions under Section 4(a)(2) of the Securities Act.

Item 6. Exhibits.

No.		Description of Exhibit
3.110.1˄	~~Composite Copy of the Company’s Bylaws as amended on July 8, 2021.~~Exclusive Preferred Partner, Co-Promotion, Development Collaboration and License Agreement by and between Sanofi US Services, Inc. and DarioHealth Corp., dated February 28, 2022.
3.210.2	~~Composite Copy (marked) of the Company’s Bylaws as amended on July 8, 2021.~~Technology Purchase Agreement by and among Physimax Technologies Ltd., Labstyle Innovation Ltd. and DarioHealth Corp., dated January 18, 2022.
31.1*		Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a).
31.2*		Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a).
32.1**		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350.
32.2**		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350.
101.1*		The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2021,~~March 31, 2022, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Loss, (iii) Statements of Changes in Stockholders’ Deficiency, (iv) Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail.
104		Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101).

*Filed herewith.

**Furnished herewith.

˄Certain identified information in the exhibit has been excluded from the exhibit because it is both (i) not material

and (ii) would likely cause competitive harm to the Company if publicly disclosed. The Company agrees to furnish

supplementally a copy of any omitted schedule or exhibit to the SEC upon request.

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SIGNATURES

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: ~~August 16, 2021~~May 11, 2022		DarioHealth Corp.

	By:	/s/ Erez Raphael
		Name:	Erez Raphael
		Title:	Chief Executive Officer (Principal Executive Officer)

	By:	/s/ Zvi Ben David
		Name:	Zvi Ben David
		Title:	Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer)

1412

Schedule A- Acquisition of Upright Technologies Ltd:
Estimated net fair value of assets acquired and liabilities assumed at the date of acquisition was as follows:
Working capital, net (excluding cash and cash equivalents)	$	(2,171)	$	-
Equipment and other assets		142		-
Intangible assets		9,600		-
Goodwill		25,334		-
Loan of Upright Technologies Ltd		(4,516)		-
Issuance of common stock to Upright Technologies Ltd. shareholders		(28,933)		-

Cash acquired as part of Upright Technologies Ltd. acquisition	$	(544)	$	-

Schedule B- Acquisition of PsyInnovations Inc. (dba WayForward):
Estimated net fair value of assets acquired and liabilities assumed at the date of acquisition was as follows:
Working capital, net (excluding cash and cash equivalents)	$	(901)	$	-
Equipment and other assets		4		-
Intangible assets		10,205		-
Goodwill		14,065		-
Liability to PsyInnovations Inc. (dba WayForward) previous shareholders		(256)
Issuance and expected issuance of common stock to PsyInnovations Inc. (dba WayForward) shareholders		(18,094)		-

Cash paid as part of PsyInnovations Inc. (dba WayForward) acquisition	$	5,023	$	-


	Amount
	Unaudited
Shares issued to owners	$	28,221
Shares issued for vested options		712
Preliminary purchase price		28,933
Restricted stock units held in escrow		969
Holdback restricted stock units		2,069
Total consideration	$	31,971


	Amount
	Unaudited
Shares issued and expected to be issued to owners	$	14,272
Cash consideration		5,417
Earn-out consideration		3,822
Preliminary purchase price		23,511


	Six Months Ended June 30,
	(in thousands)
	2021		2020		$ Change
Net Loss Reconciliation
Net loss - as reported	$	(32,731)	$	(13,898)	$	(18,833)

Adjustments
Depreciation expense		1,762		92		1,670
Other financial (income) expenses, net		401		(339)		740

EBITDA		(30,568)		(14,145)		(16,423)

Stock-based compensation expenses		9,900		7,178		2,722
Acquisition costs		880		-		880

Non-GAAP adjusted loss	$	(19,788)	$	(6,967)	$	(12,821)

Amortization

period (Years)

Technology