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 |
| |
☐ | 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 | (I.R.S. Employer Identification No.) |
18 W. 18th St. |
|
New York, New York | 10011 |
(Address of Principal Executive Offices) | (Zip Code) |
(972)-4 770-6377 |
(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 NovemberAugust 11, 2022,8, 2023, the registrant had 23,296,75427,229,544 shares of common stock outstanding.
When used in this quarterly report, the terms “DarioHealth,” “the Company,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 arean Israeli companies, and Upright Technologies Inc. andcompany, PsyInnovations Inc., each a Delaware company, and DarioHealth India Services Pvt. Ltd., an Indian company. “Dario” is registered as a trademark in the United States, Israel, China, Canada, Hong Kong, South Africa, Japan, Costa Rica and Panama. “DarioHealth” is registered as a trademark in the United States and Israel.
DarioHealth Corp.
Quarterly Report on Form 10-Q
TABLE OF CONTENTS
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| F-1 | ||
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| F-2 – F-3 | ||
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| F-4 | ||
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| F-5 | ||
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| F-7 | ||
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| F-8 – | ||
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 4 | |
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| 11 | ||
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| 12 | ||
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| 12 | ||
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| 13 | ||
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| 14 |
2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information set forth in this Quarterly Report on Form 10-Q, including in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein may address or relate to future events and expectations and as such constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting our business, including many assumptions regarding future events. Such forward-looking statements include statements regarding, among other things:
● | our current and future capital requirements and our ability to satisfy our capital needs through financing transactions or otherwise; |
● | our product launches and market penetration plans; |
● | the execution of agreements with various providers for our solution; |
● | our ability to maintain our relationships with key 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; 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 are describedmay be found under the heading “Risk Factors” in Part I, Item 1A.,section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Annual Report”) and in Part II, Item 1A., of our Quarterly Report2022 (filed on Form 10-Q for the quarter ended June 30, 2022 (the “Quarterly Report”),March 9, 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.
3
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBERJUNE 30, 20222023
UNAUDITED
INDEX
| | Page |
| F-2 – F-3 | |
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| F-4 | |
| | |
| F-5 | |
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| F-7 | |
| | |
| F-8 – F- |
F-1
INTERIM CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
| | | | | | | | | | | | | |
| | September 30, | | December 31, | | | June 30, | | December 31, | ||||
|
| 2022 |
| 2021 | |
| 2023 |
| 2022 | ||||
| | Unaudited |
| |
| | | Unaudited |
| |
| ||
ASSETS | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
CURRENT ASSETS: |
| |
|
| |
| |
| |
|
| |
|
Cash and cash equivalents | | $ | 57,081 | | $ | 35,808 | | | $ | 52,602 | | $ | 49,357 |
Short-term restricted bank deposits | |
| 176 | |
| 192 | | |
| 393 | |
| 165 |
Trade receivables | |
| 4,521 | |
| 1,310 | | |
| 4,821 | |
| 6,416 |
Inventories | |
| 7,762 | |
| 6,228 | | |
| 5,914 | |
| 7,956 |
Other accounts receivable and prepaid expenses | |
| 2,042 | |
| 2,067 | | |
| 2,047 | |
| 1,630 |
| | | | | | | | | | | | | |
Total current assets | |
| 71,582 | |
| 45,605 | | |
| 65,777 | |
| 65,524 |
| | | | | | | | | | | | | |
NON-CURRENT ASSETS: | |
| | |
| | | |
| | |
| |
Deposits | | | 6 | | | 20 | | | | 6 | | | 6 |
Operating lease right of use assets | |
| 1,174 | |
| 287 | | |
| 1,071 | |
| 1,206 |
Long-term assets | | | 21 | | | 57 | | | | 170 | | | 111 |
Property and equipment, net | | | 858 | | | 702 | | | | 817 | | | 788 |
Intangible assets, net | | | 11,053 | | | 12,460 | | | | 7,678 | | | 9,916 |
Goodwill | | | 41,640 | | | 41,640 | | | | 41,640 | | | 41,640 |
| | | | | | | | | | | | | |
Total non-current assets | | | 54,752 | | | 55,166 | | | | 51,382 | | | 53,667 |
| | | | | | | | | | | | | |
Total assets | | $ | 126,334 | | $ | 100,771 | | | $ | 117,159 | | $ | 119,191 |
The accompanying notes are an integral part of the unaudited interim consolidated financial statements.
F-2
INTERIM CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except stock and stock data)
| | | | | | | |
| | September 30, | | December 31, | | ||
|
| 2022 |
| 2021 | | ||
| | Unaudited | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| |
| |
| | | | | | | |
CURRENT LIABILITIES: |
| |
|
| |
| |
Trade payables | | $ | 1,982 | | $ | 5,109 | |
Deferred revenues | |
| 990 | |
| 1,195 | |
Operating lease liabilities | | | 270 | | | 266 | |
Other accounts payable and accrued expenses | |
| 6,512 | |
| 7,806 | |
Earn-out liability | | | 1,770 | | | 825 | |
| | | | | | | |
Total current liabilities | |
| 11,524 | |
| 15,201 | |
| | | | | | | |
NON-CURRENT LIABILITIES | | | | | | | |
Operating lease liabilities | |
| 817 | |
| 21 | |
Long-term loan | | | 24,046 | | | — | |
Warrant liability | |
| 1,001 | |
| — | |
| | | | | | | |
Total non-current liabilities | | | 25,864 | | | 21 | |
| | | | | | | |
STOCKHOLDERS’ EQUITY | |
| | |
| | |
Common stock of $0.0001 par value - Authorized: 160,000,000 shares at September 30, 2022 (unaudited) and December 31, 2021; Issued and Outstanding: 23,291,008 and 16,573,420 shares at September 30, 2022 (unaudited) and December 31, 2021, respectively | |
| 2 | |
| 2 | |
Preferred stock of $0.0001 par value - Authorized: 5,000,000 shares at September 30, 2022 (unaudited) and December 31, 2021; Issued and Outstanding: 9,912 and 11,927 shares at September 30, 2022 (unaudited) and December 31, 2021, respectively | |
| *) - | |
| *) - | |
Additional paid-in capital | |
| 361,912 | |
| 307,561 | |
Accumulated deficit | |
| (272,968) | |
| (222,014) | |
| | | | | | | |
Total stockholders’ equity | |
| 88,946 | |
| 85,549 | |
| | | | | | | |
Total liabilities and stockholders’ equity | | $ | 126,334 | | $ | 100,771 | |
| | | | | | |
| | June 30, | | December 31, | ||
|
| 2023 |
| 2022 | ||
| | Unaudited | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| |
|
| | | | | | |
CURRENT LIABILITIES: |
| |
|
| |
|
Trade payables | | $ | 1,451 | | $ | 2,322 |
Deferred revenues | |
| 789 | |
| 1,320 |
Operating lease liabilities | | | 145 | | | 293 |
Other accounts payable and accrued expenses | |
| 5,691 | |
| 6,592 |
Loan, current | | | — | | | 8,823 |
| | | | | | |
Total current liabilities | |
| 8,076 | |
| 19,350 |
| | | | | | |
NON-CURRENT LIABILITIES | | | | | | |
Operating lease liabilities | |
| 885 | |
| 827 |
Long-term loan | | | 29,094 | | | 18,105 |
Warrant liability | |
| 664 | |
| 910 |
Other long-term liabilities | |
| 36 | |
| — |
| | | | | | |
Total non-current liabilities | | | 30,679 | | | 19,842 |
| | | | | | |
STOCKHOLDERS’ EQUITY | |
| | |
| |
Common stock of $0.0001 par value - authorized: 160,000,000 shares; issued and outstanding: 26,784,674 and 25,724,470 shares on June 30, 2023 and December 31, 2022, respectively | |
| 3 | |
| 3 |
Preferred stock of $0.0001 par value - authorized: 5,000,000 shares; issued and outstanding: 18,959 and 3,567 shares on June 30, 2023 and December 31, 2022, respectively | |
| *) - | |
| *) - |
Additional paid-in capital | |
| 395,352 | |
| 365,846 |
Accumulated deficit | |
| (316,951) | |
| (285,850) |
| | | | | | |
Total stockholders’ equity | |
| 78,404 | |
| 79,999 |
| | | | | | |
Total liabilities and stockholders’ equity | | $ | 117,159 | | $ | 119,191 |
*) - Represents an amount lower than $1
The accompanying notes are an integral part of the unaudited interim consolidated financial statements.
F-3
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
U.S. dollars in thousands (except stock and stock data)
| | | | | | | | | | | | | |
| | Three months ended | | Nine months ended | | ||||||||
| | September 30, | | September 30, | | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | | ||||
| | Unaudited | | Unaudited | | ||||||||
Revenues: | | | | | | | | | | | | | |
Services | | $ | 4,552 | | $ | 776 | | $ | 12,802 | | $ | 1,852 | |
Hardware and consumable products | | | 2,053 | | | 4,853 | | | 8,045 | | | 12,633 | |
Total revenues | | | 6,605 | | | 5,629 | | | 20,847 | | | 14,485 | |
| | | | | | | | | | | | | |
Cost of revenues: | | | | | | | | | | | | | |
Services* | | | 1,826 | | | 126 | | | 3,538 | | | 233 | |
Hardware and consumable products* | | | 1,874 | | | 3,433 | | | 7,255 | | | 8,498 | |
Amortization of acquired intangible assets | | | 1,105 | | | 1,244 | | | 3,131 | | | 2,339 | |
Total cost of revenues | |
| 4,805 | |
| 4,803 | |
| 13,924 | |
| 11,070 | |
| | | | | | | | | | | | | |
Gross profit | |
| 1,800 | |
| 826 | |
| 6,923 | |
| 3,415 | |
| | | | | | | | | | | | | |
Operating expenses: | |
| | |
| | |
| | |
| | |
Research and development | | $ | 4,803 | | $ | 5,506 | | $ | 14,867 | | $ | 11,903 | |
Sales and marketing | |
| 7,571 | |
| 10,696 | |
| 26,403 | |
| 27,476 | |
General and administrative | |
| 3,999 | |
| 7,123 | |
| 13,453 | |
| 18,865 | |
| | | | | | | | | | | | | |
Total operating expenses | |
| 16,373 | |
| 23,325 | |
| 54,723 | |
| 58,244 | |
| | | | | | | | | | | | | |
Operating loss | |
| 14,573 | |
| 22,499 | |
| 47,800 | |
| 54,829 | |
| | | | | | | | | | | | | |
Total financial (income) expenses, net | |
| 1,059 | |
| (55) | |
| 1,775 | |
| 346 | |
| | | | | | | | | | | | | |
Loss before taxes | | | 15,632 | | | 22,444 | | | 49,575 | | | 55,175 | |
| | | | | | | | | | | | | |
Income Tax | | | — | | | — | | | 1 | | | — | |
| | | | | | | | | | | | | |
Net loss | | $ | 15,632 | | $ | 22,444 | | $ | 49,576 | | $ | 55,175 | |
| | | | | | | | | | | | | |
Other comprehensive income (loss): | | | | | | | | | | | | | |
Deemed dividend | | $ | 494 | | $ | 488 | | $ | 1,378 | | $ | 1,520 | |
| | | | | | | | | | | | | |
Net loss attributable to shareholders | | $ | 16,126 | | $ | 22,932 | | $ | 50,954 | | $ | 56,695 | |
| | | | | | | | | | | | | |
Net loss per share: | |
| | |
| | |
| | |
| | |
| | | | | | | | | | | | | |
Basic and diluted loss per share | | $ | 0.64 | | $ | 1.18 | | $ | 2.03 | | $ | 2.98 | |
Weighted average number of common stock used in computing basic and diluted net loss per share | |
| 22,973,197 | |
| 16,473,449 | |
| 22,876,397 | |
| 16,202,541 | |
| | | | | | | | | | | | |
| | Three months ended | | Six months ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
| | Unaudited | | Unaudited | ||||||||
Revenues: | | | | | | | | | | | | |
Services | | $ | 4,149 | | $ | 3,265 | | $ | 9,406 | | $ | 8,249 |
Consumer hardware | | | 2,003 | | | 2,918 | | | 3,812 | | | 5,993 |
Total revenues | | | 6,152 | | | 6,183 | | | 13,218 | | | 14,242 |
| | | | | | | | | | | | |
Cost of revenues: | | | | | | | | | | | | |
Services | | | 1,625 | | | 1,259 | | | 3,102 | | | 1,711 |
Consumer hardware | | | 1,359 | | | 2,692 | | | 2,699 | | | 5,382 |
Amortization of acquired intangible assets | | | 1,094 | | | 1,094 | | | 2,175 | | | 2,026 |
Total cost of revenues | |
| 4,078 | |
| 5,045 | |
| 7,976 | |
| 9,119 |
| | | | | | | | | | | | |
Gross profit | |
| 2,074 | |
| 1,138 | |
| 5,242 | |
| 5,123 |
| | | | | | | | | | | | |
Operating expenses: | |
| | |
| | |
| | |
| |
Research and development | | $ | 5,222 | | $ | 4,137 | | $ | 10,387 | | $ | 10,064 |
Sales and marketing | |
| 6,460 | |
| 9,297 | |
| 12,800 | |
| 18,832 |
General and administrative | |
| 4,412 | |
| 5,059 | |
| 8,483 | |
| 9,454 |
| | | | | | | | | | | | |
Total operating expenses | |
| 16,094 | |
| 18,493 | |
| 31,670 | |
| 38,350 |
| | | | | | | | | | | | |
Operating loss | |
| 14,020 | |
| 17,355 | |
| 26,428 | |
| 33,227 |
| | | | | | | | | | | | |
Total financial expenses, net | |
| 2,565 | |
| 672 | |
| 2,982 | |
| 716 |
| | | | | | | | | | | | |
Loss before taxes | | | 16,585 | | | 18,027 | | | 29,410 | | | 33,943 |
| | | | | | | | | | | | |
Income Tax | | | — | | | 1 | | | — | | | 1 |
| | | | | | | | | | | | |
Net loss | | $ | 16,585 | | $ | 18,028 | | $ | 29,410 | | $ | 33,944 |
| | | | | | | | | | | | |
Other comprehensive loss: | | | | | | | | | | | | |
Deemed dividend | | $ | 1,691 | | $ | 433 | | $ | 1,691 | | $ | 884 |
| | | | | | | | | | | | |
Net loss attributable to shareholders | | $ | 18,276 | | $ | 18,461 | | $ | 31,101 | | $ | 34,828 |
| | | | | | | | | | | | |
Net loss per share: | |
| | |
| | |
| | |
| |
| | | | | | | | | | | | |
Basic and diluted loss per share of common stock | | $ | 0.58 | | $ | 0.74 | | $ | 1.03 | | $ | 1.43 |
Weighted average number of common stock used in computing basic and diluted net loss per share | |
| 28,186,345 | |
| 22,426,019 | |
| 27,879,881 | |
| 21,925,089 |
* Excluding amortization
The accompanying notes are an integral part of the unaudited interim consolidated financial statements.
F-4
INTERIM STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Additional | | | | | Total | ||
| | Common Stock | | Preferred Stock | | paid-in | | Accumulated | | stockholders’ | |||||||||
Three Months Ended September 30, 2022 | | Number | | Amount | | Number | | Amount | | capital | | deficit | | equity | |||||
Balance as of June 30, 2022 (unaudited) |
| 22,860,044 |
| $ | 2 |
| 10,797 |
| $ | *)- |
| $ | 356,492 |
| $ | (256,842) |
| $ | 99,652 |
| | | | | | | | | | | | | | | | | | | |
Issuance of common stock to directors and employees |
| 5,564 | |
| *)- |
| — | |
| — | |
| 29 | |
| — | |
| 29 |
Issuance of common stock to consultants and service provider |
| 8,941 | |
| *)- |
| — | |
| — | |
| 43 | |
| — | |
| 43 |
Conversion of preferred stock to common stock |
| 308,711 | |
| *)- |
| (885) | |
| *)- | |
| — | |
| — | |
| *)- |
Deemed dividend related to issuance of preferred stock |
| — | |
| — |
| — | |
| — | |
| 494 | |
| (494) | |
| — |
Issuance of warrants to service providers |
| — | |
| — |
| — | |
| — | |
| 609 | |
| — | |
| 609 |
Stock-based compensation |
| 107,748 | |
| *)- |
| — | |
| — | |
| 4,245 | |
| — | |
| 4,245 |
Net loss |
| — | |
| — |
| — | |
| — | |
| — | |
| (15,632) | |
| (15,632) |
| | | | | | | | | | | | | | | | | | | |
Balance as of September 30, 2022 (unaudited) |
| 23,291,008 | | $ | 2 |
| 9,912 | | $ | *)- | | $ | 361,912 | | $ | (272,968) | | $ | 88,946 |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Additional | | | | | Total | ||
| | Common Stock | | Preferred Stock | | paid-in | | Accumulated | | stockholders’ | |||||||||
Nine Months Ended September 30, 2022 | | 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 |
| 29,755 | |
| *)- |
| — | |
| — | |
| 190 | |
| — | |
| 190 |
Issuance of common stock to consultants and service provider |
| 21,901 | |
| *)- |
| — | |
| — | |
| 230 | |
| — | |
| 230 |
Conversion of preferred stock to common stock |
| 648,128 | |
| *)- |
| (2,015) | |
| — | |
| — | |
| — | |
| *)- |
Deemed dividend related to issuance of preferred stock |
| — | |
| — |
| — | |
| — | |
| 1,378 | |
| (1,378) | |
| — |
Issuance of warrants to service providers |
| — | |
| — |
| — | |
| — | |
| 2,467 | |
| — | |
| 2,467 |
Stock-based compensation |
| 1,064,126 | |
| *)- |
| — | |
| — | |
| 11,011 | |
| — | |
| 11,011 |
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 |
Repurchase and retirement of common stock | | (58,657) | |
| *)- |
| — | |
| — | |
| (134) | |
| — | |
| (134) |
Net loss |
| — | |
| — |
| — | |
| — | |
| — | |
| (49,576) | |
| (49,576) |
| | | | | | | | | | | | | | | | | | | |
Balance as of September 30, 2022 (unaudited) |
| 23,291,008 | | $ | 2 |
| 9,912 | | $ | *)- | | $ | 361,912 | | $ | (272,968) | | $ | 88,946 |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Additional | | | | | Total | ||
| | Common Stock | | Preferred Stock | | paid-in | | Accumulated | | stockholders’ | |||||||||
Three Months Ended June 30, 2023 | | Number | | Amount | | Number | | Amount | | capital | | deficit | | equity | |||||
Balance as of March 31, 2023 (audited) |
| 25,875,295 |
| $ | 3 |
| 3,557 |
| $ | *)- |
| $ | 370,702 |
| $ | (298,675) |
| $ | 72,030 |
| | | | | | | | | | | | | | | | | | | |
Exercise of options |
| 4,800 | |
| *)- |
| — | |
| — | |
| *)- | |
| — | |
| — |
Extinguishment of preferred stock in connection with preferred stock modification |
| — | |
| — |
| — | |
| — | |
| 984 | |
| (984) | |
| — |
Deemed dividend related to issuance of preferred stock |
| — | |
| — |
| — | |
| — | |
| 707 | |
| (707) | |
| — |
Issuance of warrants to service providers |
| — | |
| — |
| — | |
| — | |
| 595 | |
| — | |
| 595 |
Issuance of warrants related to loan agreement, net of issuance cost |
| — | |
| — |
| — | |
| — | |
| 1,389 | |
| — | |
| 1,389 |
Stock-based compensation |
| 472,199 | |
| *)- |
| — | |
| — | |
| 4,697 | |
| — | |
| 4,697 |
Issuance of common stock and preferred stock, net of issuance cost |
| 355,743 | |
| *)- |
| 15,402 | |
| *)- | |
| 16,278 | |
| — | |
| 16,278 |
Release of common stock related to earnout consideration | | 76,637 | |
| *)- |
| — | |
| — | |
| — | |
| — | |
| — |
Net loss |
| — | |
| — |
| — | |
| — | |
| — | |
| (16,585) | |
| (16,585) |
| | | | | | | | | | | | | | | | | | | |
Balance as of June 30, 2023 (unaudited) |
| 26,784,674 | | $ | 3 |
| 18,959 | | $ | *)- | | $ | 395,352 | | $ | (316,951) | | $ | 78,404 |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Additional | | | | | Total | ||
| | Common Stock | | Preferred Stock | | paid-in | | Accumulated | | stockholders’ | |||||||||
Six Months Ended June 30, 2023 | | Number | | Amount | | Number | | Amount | | capital | | deficit | | equity | |||||
Balance as of December 31, 2022 (audited) |
| 25,724,470 |
| $ | 3 |
| 3,567 |
| $ | *)- |
| $ | 365,846 |
| $ | (285,850) |
| $ | 79,999 |
| | | | | | | | | | | | | | | | | | | |
Exercise of options |
| 4,800 | |
| *)- |
| — | |
| — | |
| *)- | |
| — | |
| — |
Extinguishment of preferred stock in connection with preferred stock modification |
| — | |
| — |
| — | |
| — | |
| 984 | |
| (984) | |
| — |
Deemed dividend related to issuance of preferred stock |
| — | |
| — |
| — | |
| — | |
| 707 | |
| (707) | |
| — |
Issuance of warrants to service providers |
| — | |
| — |
| — | |
| — | |
| 1,225 | |
| — | |
| 1,225 |
Issuance of warrants related to loan agreement, net of issuance cost |
| — | |
| — |
| — | |
| — | |
| 1,389 | |
| — | |
| 1,389 |
Stock-based compensation |
| 619,442 | |
| — |
| — | |
| — | |
| 8,923 | |
| — | |
| 8,923 |
Conversion of preferred stock to common stock |
| 3,582 | |
| *)- |
| (10) | |
| — | |
| — | |
| — | |
| — |
Issuance of common stock and preferred stock, net of issuance cost |
| 355,743 | |
| *)- |
| 15,402 | |
| *)- | |
| 16,278 | |
| — | |
| 16,278 |
Release of common stock related to earnout consideration |
| 76,637 | |
| *)- |
| — | |
| — | |
| — | |
| — | |
| *)- |
Net loss |
| — | |
| — |
| — | |
| — | |
| — | |
| (29,410) | |
| (29,410) |
| | | | | | | | | | | | | | | | | | | |
Balance as of June 30, 2023 (unaudited) |
| 26,784,674 | | $ | 3 |
| 18,959 | | $ | *)- | | $ | 395,352 | | $ | (316,951) | | $ | 78,404 |
| | | | | | | | | | | | | | | | | | | |
*) Represents an amount lower than $1.
The accompanying notes are an integral part of the unaudited interim consolidated financial statements.
F-5
INTERIM STATEMENTS 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 | | stockholders’ | | Common Stock | | Preferred Stock | | paid-in | | Accumulated | | stockholders’ | ||||||||||||||||||
Three Months Ended September 30, 2021 | | Number | | Amount | | Number | | Amount | | capital | | deficit | | equity | ||||||||||||||||||||||||
Balance as of June 30, 2021 (unaudited) |
| 16,330,842 | | $ | *)- | | 12,122 | | $ | *)- | | $ | 295,124 | | $ | (177,011) |
| $ | 118,113 | |||||||||||||||||||
Three Months Ended June 30, 2022 | | Number | | Amount | | Number | | Amount | | capital | | deficit | | equity | ||||||||||||||||||||||||
Balance as of March 31, 2022 (audited) |
| 22,070,963 | | $ | 2 | | 10,897 | | $ | *)- | | $ | 352,564 | | $ | (238,381) |
| $ | 114,185 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Payment for executives and directors under Stock for Salary Program | | 1,791 | | | *)- | | — | | | — | | | 34 | | | — | | | 34 | |||||||||||||||||||
Issuance of common stock to consultants and service provider | | 112,332 | | | *)- | | — | | | — | | | 1,705 | | | — | | | 1,705 | |||||||||||||||||||
Issuance of common stock to directors and employees |
| 18,885 | |
| *)- |
| — | |
| — | |
| 303 | |
| | |
| 303 | |||||||||||||||||||
Conversion of preferred stock to common stock | | 8,100 | | | *)- | | (25) | | | *)- | | | — | | | — | | | *)- |
| 23,365 | |
| *)- |
| (100) | |
| *)- | |
| — | |
| — | |
| *)- |
Deemed dividend related to issuance of preferred stock | | — | | | — | | — | | | — | | | 488 | | | (488) | | | — | | — | | | — | | — | | | — | | | 433 | | | (433) | | | — |
Issuance of warrants to service providers | | — | | | — | | — | | | — | | | 2,121 | | | — | | | 2,121 | | — | | | — | | — | | | — | | | 557 | | | — | | | 557 |
Stock-based compensation | | 37,394 | | | *)- | | — | | | — | | | 4,607 | | | — | | | 4,607 | | 824,373 | | | *)- | | — | | | — | | | 3,072 | | | — | | | 3,072 |
Repurchase and retirement of common stock | | (58,657) | | | *)- | | — | | | — | | | (134) | | | — | | | (134) | |||||||||||||||||||
Net loss | | — | | | — | | — | | | — | | | — | | | (22,444) | | | (22,444) | | — | | | — | | — | | | — | | | — | | | (18,028) | | | (18,028) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of September 30, 2021 (unaudited) |
| 16,509,344 | | $ | *)- |
| 12,097 | | $ | *)- | | $ | 304,382 | | $ | (199,943) | | $ | 104,439 | |||||||||||||||||||
Balance as of June 30, 2022 (unaudited) |
| 22,860,044 | | $ | 2 |
| 10,797 | | $ | *)- | | $ | 356,492 | | $ | (256,842) | | $ | 99,652 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Additional | | | | | Total | | | | | | | | | | | | Additional | | | | | Total | ||||
| | Common Stock | | Preferred Stock | | paid-in | | Accumulated | | stockholders’ | | Common Stock | | Preferred Stock | | paid-in | | Accumulated | | stockholders’ | ||||||||||||||||||
Nine Months Ended September 30, 2021 | | Number | | Amount | | Number | | Amount | | capital | | deficit | | equity | ||||||||||||||||||||||||
Balance as of December 31, 2020 (audited) |
| 8,119,493 |
| $ | *)- |
| 15,823 |
| $ | *)- |
| $ | 171,399 |
| $ | (143,248) |
| $ | 28,151 | |||||||||||||||||||
Six Months Ended June 30, 2022 | | 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 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Payment for executives and directors under Stock for Salary Program |
| 9,124 | |
| *)- |
| — | |
| — | |
| 133 | |
| — | |
| 133 | |||||||||||||||||||
Exercise of options |
| 40,545 | |
| *)- |
| — | |
| — | |
| 256 | |
| — | |
| 256 | |||||||||||||||||||
Exercise of placement agent warrants |
| 111,061 | |
| *)- |
| — | |
| — | |
| — | |
| — | |
| *)- | |||||||||||||||||||
Exercise of warrants | | 219,992 | |
| *)- |
| — | |
| — | |
| 633 | |
| — | |
| 633 | | 81,221 | |
| *)- |
| — | |
| — | |
| — | |
| — | |
| — |
Issuance of common stock to consultants and service provider | | 287,753 | |
| *)- |
| — | |
| — | |
| 4,078 | |
| — | |
| 4,078 | |||||||||||||||||||
Issuance of common stock to directors and employees | | 18,885 | | | *)- |
| — | |
| — | | | 303 | | | — | | | 303 | |||||||||||||||||||
Conversion of preferred stock to common stock | | 874,530 | |
| *)- |
| (3,726) | |
| *)- | |
| — | |
| — | |
| *)- | | 339,417 | |
| *)- |
| (1,130) | |
| *)- | |
| — | |
| — | |
| *)- |
Deemed dividend related to issuance of preferred stock |
| — | |
| — |
| — | |
| — | |
| 1,520 | |
| (1,520) | |
| — |
| — | | | — | | — | | | — | | | 884 | | | (884) | |
| — |
Issuance of warrants to service providers |
| — | |
| — |
| — | |
| — | |
| 4,918 | |
| — | |
| 4,918 |
| — | | | — | | — | | | — | | | 1,858 | | | — | |
| 1,858 |
Stock-based compensation | | 1,093,537 | |
| *)- |
| — | |
| — | |
| 9,238 | |
| — | |
| 9,238 | | 993,529 | |
| *)- |
| — | | | — | | | 7,114 | | | — | |
| 7,114 |
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 | |||||||||||||||||||
Issuance of common stock upon acquisition of PsyInnovations Inc.(dba WayForward) |
| 768,124 | | | *)- | | — | | | — | | | 18,094 | | | — | |
| 18,094 | |||||||||||||||||||
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 | |||||||||||||||||||
Repurchase and retirement of common stock |
| (58,657) | | | *)- | | — | | | — | | | (134) | | | — | |
| (134) | |||||||||||||||||||
Net loss |
| — | |
| — |
| — | |
| — | |
| — | |
| (55,175) | |
| (55,175) |
| — | |
| — |
| — | |
| — | |
| — | |
| (33,944) | |
| (33,944) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of September 30, 2021 (unaudited) |
| 16,509,344 | | $ | *)- |
| 12,097 | | $ | *)- | | $ | 304,382 | | $ | (199,943) | | $ | 104,439 | |||||||||||||||||||
Balance as of June 30, 2022 (unaudited) |
| 22,860,044 | | $ | 2 |
| 10,797 | | $ | *)- | | $ | 356,492 | | $ | (256,842) | | $ | 99,652 |
*) Represents an amount lower than $1.
The accompanying notes are an integral part of the unaudited interim consolidated financial statements
F-6
| | | | | | | | | | | | | |
| | Nine months ended | | | Six months ended | ||||||||
| | September 30, | | | June 30, | ||||||||
|
| 2022 |
| 2021 | |
| 2023 |
| 2022 | ||||
| | Unaudited | | | Unaudited | ||||||||
Cash flows from operating activities: | | | | | | | | | | | | | |
Net loss | | $ | (49,576) | | $ | (55,175) | | | $ | (29,410) | | $ | (33,944) |
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 | |
| 13,898 | |
| 18,670 | | |
| 10,148 | |
| 8,972 |
Depreciation | |
| 243 | |
| 202 | | |
| 191 | |
| 154 |
Change in operating lease right of use assets | |
| (887) | |
| 137 | | |
| 135 | |
| 75 |
Amortization of acquired intangible assets and inventories step-up | |
| 3,224 | |
| 3,381 | | ||||||
Increase in trade receivables | |
| (3,211) | |
| (1,125) | | ||||||
Decrease in other accounts receivable, prepaid expense and long-term assets | |
| 129 | |
| 221 | | ||||||
Increase in inventories | |
| (1,534) | |
| 96 | | ||||||
Increase in trade payables | |
| (3,136) | |
| - | | ||||||
Amortization of acquired intangible assets | |
| 2,238 | |
| 2,087 | |||||||
Decrease (increase) in trade receivables | |
| 1,595 | |
| (1,828) | |||||||
Increase in other accounts receivable, prepaid expense and long-term assets | |
| (476) | |
| (562) | |||||||
Decrease (increase) in inventories | |
| 2,042 | |
| (2,119) | |||||||
Decrease in trade payables | |
| (871) | |
| (1,838) | |||||||
Decrease in other accounts payable and accrued expenses | |
| (1,401) | |
| (1,368) | | |
| (865) | |
| (1,107) |
Decrease in deferred revenues | |
| (205) | |
| (139) | | |
| (531) | |
| (196) |
Change in operating lease liabilities | |
| 800 | |
| (173) | | |
| (90) | |
| (98) |
Remeasurement of earn-out | |
| 945 | |
| - | | |
| — | |
| 939 |
Non-Cash financial expenses | |
| 807 | |
| - | | ||||||
Non cash financial expenses | |
| 1,501 | |
| 256 | |||||||
| | | | | | | | | | | | | |
Net cash used in operating activities | |
| (39,904) | |
| (35,273) | | |
| (14,393) | |
| (29,209) |
| | | | | | | | | | | | | |
Cash flows from investing activities: | |
|
| |
|
| | |
|
| |
|
|
Investment In deposit | | | - | | | (2) | | ||||||
Purchase of property and equipment | |
| (399) | |
| (193) | | |
| (220) | |
| (225) |
Cash paid as part of PsyInnovations Inc. (dba WayForward) acquisition | | | - | | | (5,023) | | ||||||
Purchase of short-term investments | | | (4,996) | | | - | |||||||
Proceeds from redemption of short-term investments | | | 5,033 | | | - | |||||||
Cash paid as part of Upright Technologies Ltd. acquisition | | | - | | | (2,472) | | | | - | | | (115) |
Purchase of intangible assets | | | (115) | | | - | | ||||||
| | | | | | | | | | | | | |
Net cash used in investing activities | |
| (514) | |
| (7,690) | | |
| (183) | |
| (340) |
| | | | | | | | | | | | | |
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 | |
| - | |
| 256 | | ||||||
Proceeds from issuance of common stock and prefunded warrants, net of issuance costs | |
| 1,410 | |
| 38,023 | |||||||
Proceeds from issuance of preferred stock, net of issuance costs | |
| 14,868 | |
| - | |||||||
Proceeds from borrowings on credit agreement | | | 23,786 | | | - | | | | 29,604 | | | 23,786 |
Repayment of long-term loan | | | (27,833) | | | - | |||||||
Repurchase and retirement of common stock | | | (134) | | | - | | | | - | | | (134) |
| | | | | | | | | | | | | |
Net cash provided by financing activities | |
| 61,675 | |
| 65,766 | | |
| 18,049 | |
| 61,675 |
| | | | | | | | | | | | | |
Increase in cash, cash equivalents and restricted cash and cash equivalents | |
| 21,257 | |
| 22,803 | | |
| 3,473 | |
| 32,126 |
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period | |
| 35,948 | |
| 28,725 | | |
| 49,470 | |
| 35,948 |
| | | | | | | | ||||||
Cash, cash equivalents and restricted cash and cash equivalents at end of period | | $ | 57,205 | | $ | 51,528 | | | $ | 52,943 | | $ | 68,074 |
Supplemental disclosure of cash flow information: | |
| | |
|
| | |
| | |
|
|
Cash paid during the period for interest on long-term loan | | $ | 969 | | $ | - | | | $ | 2,044 | | $ | 181 |
Non-cash activities: | |
| | |
|
| | |
| | |
|
|
Right-of-use assets obtained in exchange for lease liabilities | | $ | 1,177 | | $ | 80 | | | $ | 14 | | $ | 58 |
The accompanying notes are an integral part of the unaudited interim consolidated financial statements.
F-7
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
NOTE 1: - GENERAL
a. | DarioHealth Corp. (the “Company” or “DarioHealth”) was incorporated in the State of Delaware and commenced operations on August 11, 2011. |
DarioHealth is a Global Digital Therapeuticsglobal digital therapeutics (DTx) company changing the way people with chronic conditions manage their health. By delivering personalized evidence-based interventions that are driven by precision data analytics, software, and personalized coaching, DarioHealth has developed an approach that empowerswith the intent to empower individuals to adjust their lifestyle in holistic way.
DarioHealth’s cross-functional team operates at the intersection of life sciences, behavioral science, and software technology to deliver seamlessly integrated and highly engaging digital therapeutics interventions. Our platform and suite of solutions deliver personalized and dynamic interventions driven by data analytics and one-on-one coaching for diabetes, solution, its user-centric approach is used by tens of thousands of customers around the globe. DarioHealth is rapidly expanding its solutions for additional chronic conditions such as hypertension, weight management, musculoskeletal pain, 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.behavioral health.
The Company operates ashas one reporting unit and one operating segment.
b. | The Company has a wholly owned subsidiary, LabStyle Innovation Ltd. (“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. |
c. | Financial instruments that potentially subject the Company to credit risk primarily consist of cash and cash equivalents, short-term deposits, restricted deposits, and trade receivables. For cash and cash equivalents, the Company is exposed to credit risks in the event of default by the financial institutions to the extent of the amounts recorded on the accompanying consolidated balance sheets exceed federally insured limits. The Company places its cash and cash equivalents and short-term deposits with financial institutions with high-quality credit ratings and has not experienced any losses in such accounts. |
For trade receivables, the Company is exposed to credit risk in the event of non-payment by customers to the extent of the amounts recorded on the accompanying consolidated balance sheets.
As of SeptemberJune 30, 2022,2023, the Company's two major customerscustomer accounted for 39.3% and 30.3%, respectively,68.8% of the Company's accounts receivable balance.
TheFor the three and six-month period ended June 30, 2023, the Company's two major customerscustomer accounted for 26.9%37.8% and 20.7%40.2%, respectively, for the three months period ended September 30, 2022, and 8.5% and 35.2%, respectively, for the nine-months period ended September 30, 2022, of the Company's revenue in the relevant periods.period.
d. |
F-8
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.)
During the |
F-8
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
NOTE 2: - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited interim consolidated financial statements as of SeptemberJune 30, 2022,2023, have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair presentation of the Company’s consolidated financial position as of SeptemberJune 30, 2022,2023, and the Company’s consolidated results of operations and the Company’s consolidated cash flows for the ninesix months ended SeptemberJune 30, 2022.2023. Results for the ninesix months ended SeptemberJune 30, 20222023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.2023. 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, 2021.2022.
Use of Estimates
Preparation of condensed consolidated financial statements in conformity with U.S. 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.
F-9
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.)
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, 20212022 are applied consistently in these unaudited interim consolidated financial statements.statements, except as noted in Note 1 (d).
b. Short-term restricted bank deposits:
The following table provides a reconciliation of the cash balances reported on the balance sheets and the cash, cash equivalents, and short-term restricted bank deposits balances reported in the statements of cash flows:
| | | | | | | | | | | | | | |
| | September 30, | | September 30, | | | June 30, | | June 30, | | ||||
|
| 2022 |
| 2021 | |
| 2023 |
| 2022 | | ||||
| | Unaudited | | Unaudited | | | Unaudited | | Unaudited | | ||||
Cash, and cash equivalents as reported on the balance sheets | | $ | 57,081 |
| $ | 51,331 | | | $ | 52,602 |
| $ | 67,949 | |
Short-term restricted bank deposits, as reported on the balance sheets | | | 124 |
| | 197 | | |||||||
Short-term restricted bank deposits | | | 341 |
| | 125 | | |||||||
| | | | | | | | | | | | | | |
Cash, restricted cash, cash equivalents and restricted cash and cash equivalents as reported in the statements of cash flows | | $ | 57,205 |
| $ | 51,528 | | |||||||
Cash, restricted cash, cash equivalents, and restricted cash and cash equivalents as reported in the statements of cash flows | | $ | 52,943 |
| $ | 68,074 | |
F-9
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
NOTE 2: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
c. Business and Asset AcquisitionsRevenue recognition
WhenThe Company recognizes revenue in accordance with ASC 606, “Revenue from contracts with customers,” when (or as) it satisfies performance obligations by transferring promised products or services to its customers in an amount that reflects the consideration the Company acquiresexpects to receive. The Company applies the following five steps: (1) identify the contract with a business,customer, (2) identify the purchaseperformance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.
The Company applied the practical expedient in ASC 606 and did not evaluate payment terms of one year or less for the existence of a significant financing component.
If the contract contains a single performance obligation, the entire transaction price is allocated to the tangible and identifiable intangible assets, net of liabilities assumed. Any residual purchasesingle performance obligation. For contracts that contain multiple performance obligations, the Company allocates the transaction price is recorded as goodwill.to each performance obligation based on the relative standalone selling price (“SSP”) for each performance obligation. The allocation of the purchase price requires management to make significant estimatesCompany uses judgment in determining the fair valuesSSP for its hardware and services. To determine SSP, the Company maximizes the use of assets acquiredobservable standalone sales and liabilities assumed, especiallyobservable data, where available. In instances where performance obligations do not have observable standalone sales, the Company may use alternative methods to estimate the standalone selling price, such as cost plus margin approach.
Consumers revenue
The Company considers customer and distributor purchase orders to be contracts with respecta customer. For each contract, the Company considers the promise to intangible assets. These estimates can include, buttransfer tangible products and/or services, each of which are not limiteddistinct, to be the identified performance obligations. In determining the transaction price, the Company evaluates whether the price is subject to rebates and adjustments to determine the net consideration to which the Company expects to receive. Revenue from tangible products is recognized when control of the product is transferred to the cash flows that an assetcustomer (i.e., when the Company’s performance obligation is expectedsatisfied), which typically occurs at shipment. The revenues from fixed-price services are recognized ratably over the contract period.
Commercial revenue
The Company provides a mobile and web-based digital therapeutics health management programs to generateemployers and health plans for their employees or covered individuals. Such programs include live clinical coaching, content, automated journeys, hardware, and lifestyle coaching, currently supporting diabetes, prediabetes and obesity, hypertension, behavioral health (BH) and musculoskeletal health (MSK). At contract inception, the Company assesses the type of services being provided and assesses the performance obligations in the future, the appropriate weighted-average cost of capital.contract. 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 recordedsolutions integrate access to the Company’s consolidated statements of operations.
web-based platform, and clinical and data services to provide an overall health management solution. The Company accounts for a transaction as an asset acquisition when substantially all of the fair value of the gross assets acquiredpromises to transfer these goods and services are not separately identifiable and is concentrated inconsidered a single identifiable asset or group of similar identifiable assets, or otherwise does not meet the definitioncontinuous service comprised of a business. Asset acquisition-related costsseries of distinct services that are capitalizedsubstantially the same and have the same pattern of transfer (i.e., distinct days of service). These services are consumed as partthey are received, and the Company recognizes revenue each month using the variable consideration allocation exception. Revenue is recognized either on a per engaged member per month (PEMPM) or a per employee per month (PEPM) basis. Contracts typically have a duration of the asset or assets acquired.more than one year.
F-10
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
NOTE 2: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Certain of the Company’s contracts include client performance guarantees and a portion of the fees in those contracts are subject to performance-based metrics such as clinical outcomes or minimum member utilization rates. The Company includes in the transaction price some or all of an amount of variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Refunds to a customer that results from performance levels that were not met by the end of the measurement period are adjusted to the transaction price, and therefore estimated at the outset of the arrangement.
The Company has also entered into contracts (Note 4) with a preferred partner and a health plan provider in which the Company provides data license, development and implementation services.
d. Recently issued accounting pronouncements, not yet adopted:Adopted Accounting Pronouncements
| In |
In August 2020, the FASB issued ASU 2020-06, |
F-11
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
NOTE 3: – 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.
The consideration transferred included the issuance of 256,660 shares of its 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 fourth quarter of 2021, and the remaining to be paid on the second quarter of 2022, The total consideration transferred in the acquisition of Physimax Technology was $1,686. In addition, the Company incurred acquisition-related costs in an amount of $131.
Purchase price allocation:
Under asset acquisition accounting principles, the total purchase price was allocated to Physimax Technology as set forth below.
| | | | | | |
|
| | | | | |
| | | | Amortization | ||
| | | | period (Years) | ||
| | | | | | |
Technology | | $ | 1,817 | | | 3 |
NOTE 4:3: - INVENTORIES
| | | | | | | | | | | | | |
| | September 30, | | December 31, | | | June 30, | | December 31, | ||||
| | 2022 | | 2021 | | | 2023 | | 2022 | ||||
| | Unaudited | | | | | | Unaudited | | | | ||
Raw materials |
| $ | 1,339 |
| $ | 714 | |
| $ | 1,151 |
| $ | 1,346 |
Finished products | |
| 6,423 | |
| 5,514 | | |
| 4,763 | |
| 6,610 |
| | | | | | | | | | | | | |
| | $ | 7,762 | | $ | 6,228 | | | $ | 5,914 | | $ | 7,956 |
During the nine-monthsix-month period ended SeptemberJune 30, 2022,2023, and the year ended December 31, 2021,2022, total inventory write-down expenses amounted to $22$51 and $73,$88, respectively.
F-12
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
NOTE 5:4: - 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.
Agreement with Preferred Partner
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 (the “Exclusive Agreement”). Pursuant to the Exclusive 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 aggregate consideration under the contract is up to $30 million over the initial term of the Exclusive Agreement, consisting of (i) an upfront payment, (ii) annual compensationpayments for development costsservices per annual development plansplan 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 Exclusive Agreement.
During
Since the second quarter of 2022, the parties' joint steering committee approved the first-year development plan, pursuant to the terms of the Exclusive Agreement. The Company has concluded that the development plan is a contract modification which should be accounted for as a separate contract. The Company has also concluded that the development plan includes a single performance obligation – to provide development services, which is satisfied over time. The contract consideration includes fixed and variable consideration. Asconsideration, as of SeptemberJune 30, 2022,2023, the Company excluded the variable payments from the transaction price since it is not probable that a significant reversal in the amount of cumulative revenue recognized will occur when the uncertainty associated with the variable consideration is resolved. The Company has also concluded that the measure of progress that best depicts the Company's performance in transferring control of the services transferred to the customer is an input method, based on labor hours consumed. During the three months ended September 30, 2022, the Company has recognized revenues under the development plan of $1,370 with additional revenues of $655 expected to be recognized by the end of 2022.
Agreement with National Health Plan
On October 1 2021,In 2022, the Company entered into a Master Service Agreement (“MSA”) with a national healthfirst development plan (“Health Plan”). Pursuant to the terms of the MSA, the Company will perform services as set forth in each statement of work (each “SOW”).
On October 1, 2021, the Company entered into an SOW (“October SOW”) with the Health Plan. Pursuant to the October SOW, the Company will provide the Health Plan access to webwas approved and app-based platform, for behavioral health.
completed. The Company concluded that the MSA and the October SOWfirst development plan should be combined intoaccounted for as a singleseparate contract. As such, for the year ended December 31, 2022, the Company recognized $4,000 in revenues for the completion of the first development plan.
On December 13, 2022, the second development plan was approved by the parties. The Company concluded that the second development plan should be accounted for as a separate contract (the “Contract”).which includes development services performance obligations, satisfied over time, based on labor hours. As such, for the year ended December 31, 2022, the Company recognized $1,506 in revenues, and for the six months ended June 30, 2023, the Company recognized $2,494 in revenues for the completion of the second development plan.
F-13F-12
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
NOTE 5:4: - REVENUES (Cont.)
On June 15, 2023, the third development plan (initiated in April 2023), was approved by the parties. The Company concluded that the third development plan should be accounted for as a separate contract which includes development services performance obligations, satisfied over time, based on labor hours. As such, for the three months ended June 30, 2023, the Company recognized $1,316 in revenues, with additional revenues from the third development plan of $1,684 expected to be recognized by the end of June 2024.
Agreement with National Health Plan
On October 1, 2021, the Company entered into a Master Service Agreement (the “MSA”) and into a statement of work (“SOW”, and such SOW, the “October SOW”) with a national health plan (“Health Plan”). Pursuant to the October SOW, the Company will provide the Health Plan access to the Company’s web and app-based platform for behavioral health. The Company has concluded that the Contractcontract contained a single performance obligation – to provide access to the Company's platform. The consideration in the Contractcontract was based entirely on customer usage. Since no usage has occurred as of September 30, 2022, the Company has yet to recognize any revenues from the October SOW.
On August 2022, the Company entered into an additional SOW (“August(the “August SOW”) with the Health Plan and as a result,according to which the Company will provide implementation services and shall develop additional servicesfeatures to be included in the Health Plan.platform.
The Company concluded that the August SOW is a contract modification, which should be accounted for as a separate contract which includescontract. The Company has concluded that the August SOW contained two performance obligations as follows:
(i)Phase 1 – Digital Behavioral Health Navigation Platform Implementation. This performance obligation includes configuration and implementation of the platform.
(ii)Phase 2 – Enhancements to the Digital Behavioral Health Navigation Platform. This performance obligation includes adding additional features and capabilities to the Platform, such as user chat, additional sorting questions and linking to the Health Plan’s additional services.
(i) | Digital Behavioral Health Navigation Platform Implementation. This performance obligation includes configuration and implementation of the platform. |
(ii) | Enhancements to the Digital Behavioral Health Navigation Platform. This performance obligation includes adding additional features and capabilities to the platform. |
The August SOW includes a fixed consideration in the amount of $2,650. The Company allocated the consideration between the two performance obligations based on standalone selling prices. The Company determined the standalone selling prices based on the expected cost plus a margin approach.
As
On February 21, 2023, the Company entered into a change order with the Health Plan according to which the Company will provide additional implementation services and shall develop additional features to be included in the platform. The change order includes a fixed consideration in the amount of September 30,$90.
For the year ended December 31, 2022, the Company has recognized revenues of $1,778 with additional$1,778. For the three and six months ended June 30, 2023, the Company recognized $255 and $962 in revenues, respectively.
F-13
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
NOTE 4: - REVENUES (Cont.)
expected to be recognized by June of 2023.
Revenue Source:
The following tables represent the Company’s total revenues for the three and ninesix months ended SeptemberJune 30, 2022,2023, and 20212022 disaggregated by revenue source:
| | | | | | | | | | | | | |
| | Three months ended | | Nine months ended | | ||||||||
| | September 30, | | September 30, | | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | | ||||
| | Unaudited | | Unaudited | | ||||||||
Commercial |
| $ | 4,195 |
| $ | 309 |
| $ | 11,591 |
| $ | 491 | |
Consumers | | | 2,410 | | | 5,320 | | | 9,256 | | | 13,994 | |
| | | | | | | | | | | | | |
|
| $ | 6,605 |
| $ | 5,629 |
| $ | 20,847 |
| $ | 14,485 | |
| | | | | | | | | | | | |
| | Three months ended | | Six months ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
| | Unaudited | | Unaudited | ||||||||
Commercial |
| $ | 3,915 |
| $ | 2,847 |
| $ | 8,865 |
| $ | 7,396 |
Consumers | | | 2,237 | | | 3,336 | | | 4,353 | | | 6,846 |
| | | | | | | | | | | | |
|
| $ | 6,152 |
| $ | 6,183 |
| $ | 13,218 |
| $ | 14,242 |
Deferred Revenue
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 atprior to the beginningsatisfaction of the service period and the related deferred revenues are reclassified to revenue ratably over the service period.Company's performance obligations. The balance of deferred revenues approximates the aggregate amount of the transaction price allocated to the unsatisfied performance obligations at the end of the reporting period.
The following table presents the significant changes in the deferred revenue balance during the six months ended June 30, 2023:
| | | |
Balance, beginning of the period |
| $ | 1,320 |
New performance obligations | | | 13,218 |
Reclassification to revenue as a result of satisfying performance obligations | | | (13,749) |
| | | |
Balance, end of the period |
| $ | 789 |
Costs to Fulfill a Contract
The Company defers costs incurred to fulfill contracts that: (1) relate directly to the contract; (2) are expected to generate resources that will be used to satisfy the Company’s performance obligations under the contract; and (3) are expected to be recovered through revenue generated under the contract. Contract fulfillment costs are expensed as the Company satisfies its performance obligations and recorded into cost of revenue.
Costs to fulfill a contract are recorded in other accounts receivable and prepaid expenses and long-term assets.
Costs to fulfill a contract consist of (1) deferred consumer hardware costs incurred in connection with the delivery of services that are deferred, and (2) deferred costs incurred, related to future performance obligations which are capitalized.
F-14
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
NOTE 5:4: - REVENUES (Cont.)
The following table presentsCosts to fulfill a contract as of June 30, 2023, and December 31, 2022, consisted of the significant changes in the deferred revenue balance during the nine months ended September 30, 2022:following:
| | | |
Balance, beginning of the period |
| $ | 1,195 |
New performance obligations | | | 5,754 |
Reclassification to revenue as a result of satisfying performance obligations | | | (5,959) |
Balance, end of the period |
| $ | 990 |
| | | | | | |
| | June 30, | | December 31, | ||
| | 2023 | | 2022 | ||
| | Unaudited | | | | |
Costs to fulfill a contract, current | | $ | 236 |
| $ | 483 |
Costs to fulfill a contract, noncurrent | |
| 76 | |
| 41 |
| | | | | | |
Total costs to fulfill a contract | | $ | 312 | | $ | 524 |
Because all performance obligations in the Company’s contracts with customers relateCosts to contracts withfulfill a duration of less than one year, the Company has contract were as follows:
| | | |
| | | Costs to |
| | | fulfill a contract |
| | | |
Beginning balance as of December 31, 2022 | | $ | 524 |
Additions | | | 325 |
Cost of revenue recognized | | | (537) |
| | | |
Ending balance as of June 30, 2023 | | | 312 |
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 6:5: - 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 |
|
Level 2 - | Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. |
Level |
| ||
|
|
The availability of observable inputs can vary from instrument to instrument and is affected by a wide variety of factors, including, for example, the type of investment, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment, and the investments are categorized as Level 3.
F-15
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
NOTE 6:5: - FAIR VALUE MEASUREMENTS (Cont.)
The carrying amounts of cash and cash equivalents, short-term restricted bank deposits, trade receivables, other accounts receivable and prepaid expenses, trade payables and other accounts payable and accrued expenses approximate their fair value due to the short-term maturity of such instruments. The Company's Avenue Loan Facility (as defined herein), and warrant liability were measured at fair value using Level 3 unobservable inputs until the payoff date of May 1, 2023. Subsequently, a new loan agreement (Note 6) was obtained, and both the new loan and the warrant liability were measured at fair value.
The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| September 30, 2022 |
| June 30, 2023 | ||||||||||||||||||||||
| | Unaudited | | Unaudited | ||||||||||||||||||||||
|
| Fair Value | |
| Level 1 | | Level 2 | | Level 3 |
| Fair Value | |
| Level 1 | | Level 2 | | Level 3 | ||||||||
|
| | |
| (in thousands) | | |
| | |
| (in thousands) | | | ||||||||||||
Financial Assets: |
| | | |
| | | | | | | | | |||||||||||||
Financial commitment asset (“FCA”) | | $ | 454 | |
| $ | — | | $ | — | | $ | 454 | |||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Total Financial Assets | | $ | 454 | | | $ | — | | $ | — | | $ | 454 | |||||||||||||
|
| | | |
| | | | | | | | | |||||||||||||
Financial Liabilities: |
| | | |
| | | | | | | | | |||||||||||||
Earn out liability |
| $ | 1,770 | |
| $ | — | | $ | — | | $ | 1,770 | |||||||||||||
Long Term Loan | | | 24,046 | |
| | — | | | — | | | 24,046 | |||||||||||||
Financial liabilities: |
| | | |
| | | | | | | | | |||||||||||||
Long term loan | | | 29,094 | |
| | — | | | — | | | 29,094 | |||||||||||||
Warrant liability | | | 1,001 | |
| | — | | | — | | | 1,001 | | | 664 | |
| | — | | | — | | | 664 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Financial Liabilities | | $ | 26,817 | | | $ | — | | $ | — | | $ | 26,817 | |||||||||||||
Total financial liabilities | | $ | 29,758 | | | $ | — | | $ | — | | $ | 29,758 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2022 | ||||||||||||||||||||||
| | Fair Value | |
| Level 1 | | Level 2 | | Level 3 | | Fair Value | |
| Level 1 | | Level 2 | | Level 3 | ||||||||
| | | |
| (in thousands) | | | | | |
| (in thousands) | | | ||||||||||||
Financial Liabilities: |
| | | |
| | | | | | | | | |||||||||||||
Earn out liability |
| $ | 825 | |
| $ | — | | $ | — | | $ | 825 | |||||||||||||
Financial liabilities: |
| | | |
| | | | | | | | | |||||||||||||
Long term loan | | | 26,928 | |
| | — | | | — | | | 26,928 | |||||||||||||
Warrant liability |
| $ | 910 | |
| | — | | | — | | | 910 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Financial Liabilities |
| $ | 825 | |
| $ | — | | $ | — | | $ | 825 | |||||||||||||
Total financial liabilities |
| $ | 27,838 | |
| $ | — | | $ | — | | $ | 27,838 |
FCALoan Facilities
On June 9, 2022, the Company entered into a Credit Agreement (the “Credit Agreement”), by and between the Company, as borrower, and OrbiMed Royalty and Credit Opportunities III, LP, as the lender (the “Lender”“Orbimed Lender”). The Credit Agreement provides for a five-yearfive-year senior secured credit facility in an aggregate principal amount of up to $50 million$50,000 (the “Loan Facility” or “Loan”“Orbimed Loan”), of which $25 million$25,000 was made available on the Closing Dateclosing date (the “Initial Commitment Amount” or "First Tranche") and up to $25 million may be made$25,000 was available on or prior to June 30, 2023, subject to certain revenue requirements (the “Delayed Draw Commitment Amount” or “Second Tranche”). The Delayed Draw Commitment Amount did not materialize due to the repayment of the loan. On June 9, 2022, the Company closed on the Initial Commitment Amount, less certain fees and expenses payable to or on behalf of the Orbimed Lender.
The FCA instrument was recognized in connection with the Delayed Draw Commitment Amount (Note 7). The fair value of the FCA is estimated by the Company at each reporting date, which are prepared based on significant inputs that are generally determined based on relative value analyses. The FCA fair value was estimated using a discount rate of 15.6% which reflects the internal rate of return of the Loan at closing of the transactions contemplated by the Credit Agreement as of June 9, 2022and represents the $25 million Delayed Draw Commitment Amount that may be made available on or prior to June 30, 2023 on similar terms to the Initial Commitment Amount. Therefore, the value of the FCA for the Delayed Draw Commitment Amount of the Loan was initially estimated as 50% of the sum of the commitment fee paid upfront and the lender expenses in relation to the Loan origination.
F-16
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
NOTE 6:5: - FAIR VALUE MEASUREMENTS (Cont.)
The fair value of the FCA is amortized over the period of the Delayed Draw Commitment Amount on a straight-line basis. The total amount was estimated at $454.
Earn out Liability
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 liabilityand subsequently measured at fair value through earnings until the settlement date of December 31, 2022.
On July 7, 2022,May 1, 2023, the Company entered into an Amendment toa Loan and Security Agreement, and Plan of MergerSupplement thereto (the “Amendment”“LSA”), by and between the Company and its subsidiary PsyInnovations Inc. (“PsyInnovations”), collectively as the borrowers (the “Borrowers”) with representativesand Avenue Venture Opportunities Fund II, L.P. and Avenue Venture Opportunities Fund, L.P., collectively as the lenders (the “Avenue Lenders”) (Note 6). Upon the initial closing of the former equity holders of PsyInnovations, Inc. PursuantLSA, the Company repaid the Orbimed Loan to the termsOrbimed Lender. The LSA provides for a four-year secured credit facility in an aggregate principal amount of up to $40,000 (the “Avenue Loan Facility”), of which $30,000 was made available on the closing date (the “Initial Tranche”) and up to $10,000 (the “Discretionary Tranche”) may be made available on the later of July 1, 2023 or the date the Avenue Lenders approve the issuance of the Amendment,Discretionary Tranche. On May 1, 2023, the Company agreedBorrowers closed on the Initial Tranche, less certain fees and expenses payable to reduce the earn-out threshold of revenue derived from Wayforward products from $5 million to $3 million.
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 relyor on repeated random variables.
The significant inputs into the models were:
| | | | | | | |
| | | September 30, | | December 31, | ||
| | | 2022 | | 2021 | ||
Expected Term (in years) | | | 0.33 | | | | 1.08 |
Expected Volatility | | | 32.1% | | | | 32.1% |
Beta | | | 45% | | | | 45% |
Debt Rate | | | 4.62% | | | | 0.82% |
For the nine months ended September 30, 2022, the Company recorded expenses from remeasurementbehalf of the earn-out in the amount of $945.
Loan FacilityAvenue Lenders.
The fair value of the Avenue Loan Facility is recognized in connection with the Company’s Credit Agreement with respect to the Initial Commitment Amount only (Note 7)6). The fair value of the Avenue Loan Facility was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The fair value of the Avenue Loan Facility, which is reported within non-current liabilities (Maturity Date - June 9,May 1, 2027) on the consolidated balance sheets, is estimated by the Company at each reporting date based on significant inputs that are generally determined based on relative value analyses.
The AvenueLoan Facility incorporates comparisons to instruments with similar covenants, collateral, and risk profiles and was obtained using a discounted cash flow technique. On the date of AvenueLoan Facility origination, or June 9, 2022,May 1, 2023, the discount rate was arrived at by calibrating the loan amount of $25$30 million with the fair value of the warrants of $1,930$1,413 and the loan terms interest rate equal to the greater of secured overnight financing rate (“SOFR”(i) the sum of four and one-half percent (4.50%) + 9.5%plus the Prime Rate, and (ii) twelve and one-half percent (12.50%). The implied internal rate of return of the loan was 15.6%19%. The fair value of the AvenueLoan Facility, as of SeptemberJune 30, 2022,2023, was estimated using a discount rate of 15.6%19% which reflects the internal rate of return of the AvenueLoan Facility at closing, as of June 9, 2022. May 1 2023. The change in the fair value of the loan was recorded in earnings since the Company has concluded that no adjustment related to instrument specificinstrument-specific credit risk was required.
F-17
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.)
Warrant Liability
The fair value of the warrant liability is recognized in connection with the Company’s Loan agreementCredit Agreement with the Orbimed Lender and with respect to the Initial Commitment Amount only (Note 7)6). The fair value of the warrant liability was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The fair value of the warrant liability, which is reported within non-current liabilities on the consolidated balance sheets, is estimated by the Company based on the Monte-Carlo simulation valuation technique, in order to predict the probability of different outcomes that rely on repeated random variables.
F-17
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
NOTE 5: - FAIR VALUE MEASUREMENTS (Cont.)
The fair value of the warrant liability was estimated using a Monte-Carlo simulation valuation technique, with the following significant unobservable inputs (Level 3):
| | | | | | | | | | | | | | | | |
| | | June 9, | | | September 30, | | | June 30, | | | December 31, | ||||
| | | 2022 | | | 2022 | | | 2023 | | | 2022 | ||||
Stock price | | $ | 7.45 | |
| $ | 4.63 | | | $ | 4.01 | |
| $ | 4.28 | |
Exercise price | | | 6.62 | | | | 6.62 | | | | 5.90 | | | | 6.62 | |
Expected term (in years) | | | 7.00 | | | | 6.69 | | | | 5.94 | | | | 6.44 | |
Volatility | | | 148.8% | | | | 146.8% | | | | 89.3% | | | | 148.1% | |
Dividend rate | | | - | | | | - | | | | - | | | | - | |
Risk-free interest rate | | | 3.13% | | | | 4.05% | | | | 4.08% | | | | 4.05% | |
The following tables present the summary of the changes in the fair value of our Level 3 financial instruments:
| | | | | | | | | |
| | Three months ended September 30, 2022 | |||||||
| | Unaudited | |||||||
| | | Long-Term Loan | | | Warrant Liability | | | FCA |
Balance as of June 30, 2022 | | $ | 23,061 | | $ | 1,588 | | $ | 607 |
Change in fair value | | | 985 | | | (587) | | | (153) |
| | | | | | | | | |
Balance as of September 30, 2022 | | $ | 24,046 | | $ | 1,001 | | $ | 454 |
| | | | | | | | | |
| | Nine months ended September 30, 2022 | |||||||
| | Unaudited | |||||||
| | | Long-Term Loan | | | Warrant Liability | | | FCA |
Balance as of January 1, 2022 | | $ | — | | $ | — | | $ | — |
Issuance | | | 23,070 | | | 1,930 |
|
| — |
Initial measurement of the FCA | | | — | | | — | | | 607 |
Change in fair value | | | 976 | | | (929) | | | (153) |
| | | | | | | | | |
Balance as of September 30, 2022 | | $ | 24,046 | | $ | 1,001 | | $ | 454 |
| | | | | | |
| | Six months ended | ||||
| | June 30, 2023 | ||||
| | | Long-Term Loan | | | Warrant Liability |
Balance as of January 1, 2023 | | $ | 26,928 | | $ | 910 |
Issuance | | | 28,587 | | | — |
Principal repayments on long-term loan | | | (27,833) | | | — |
Change in fair value | | | 1,412 | | | (246) |
| | | | | | |
Balance as of June 30, 2023 | | $ | 29,094 | | $ | 664 |
F-18
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
NOTE 7:6: -LONG TERM DEBT
Loan Facility
On June 9, 2022May 1, 2023, the Company entered intorefinanced its existing $25,000 credit facility with a new $30,000 credit facility in the Credit Agreement withLSA by and between Borrowers and the Lender.Avenue Lenders. The Credit AgreementLSA provides for a five-year seniorfour-year secured credit facility in an aggregate principal amount of up to $50 million,$40,000, of which $25 million, representing the Initial Commitment Amount,$30,000 was made available on the closing date and up to $25 million, representing the Delayed Draw Commitment Amount,$10,000 may be made available on the later of July 1, 2023 or prior to June 30,the date the Avenue Lenders approve the issuance of the Discretionary Tranche. On May 1, 2023, subject to certain revenue requirements. On June 9, 2022, the CompanyBorrowers closed on the Initial Commitment Amount,Tranche, less certain fees and expenses payable to or on behalf of the Lender.
All obligations under the Credit Agreement are guaranteed by all of the Company’s wholly owned subsidiaries other than Dario Health Services Private Limited. All obligations under the Credit Agreement, and the guarantees of those obligations, are secured by substantially all of the Company's and each guarantor's assets by a Pledge and Security Agreement, dated June 9, 2022 (the “Pledge and Security Agreement”). If, until the maturity date of the Loan Facility, the Company’s net revenue does not equal or exceed the applicable amount for such period as set in the Credit Agreement, then the Company shall repay in equal monthly installments the outstanding principal amount of the Loan Facility, together with a repayment premium and other fees. The Company shall repay amounts outstanding under the Loan Facility in full immediately upon an acceleration as a result of an event of default as set forth in the Credit Agreement, together with a repayment premium and other fees.Avenue Lenders.
During the term of the Avenue Loan Facility, interest payable in cash by the CompanyBorrowers shall accrue on any outstanding balance due under the Avenue Loan Facility at a rate per annum equal to the higher of (x) the adjusted SOFRsum of four one-half percent (4.50%) plus the prime rate (which isas published in the forward-looking term rate for a one-month tenor based on the secured overnight financing rate administered by the CME Group Benchmark Administration Limited)Wall Street Journal and (y) 0.50% plus, in either case, 9.50%twelve and one-half percent (12.50%).
During an event of default, any outstanding amount under the Avenue Loan Facility will bear interest at a rate of 5.00% in excess of the otherwise applicable rate of interest.
The Credit Agreement contains customary events of default, includingBorrowers will pay certain fees with respect to non-payment of principal, interest,the Avenue Loan Facility, including an upfront commitment fee, an administration fee, and a prepayment premium, as well as certain other fees or other amounts; material inaccuracy of a representation or warranty; failure to perform or observe
covenants; bankruptcy and insolvency events; material monetary judgment defaults; impairment of any material definitive loan documentation; other material adverse effects; key person events and change of control.
Eachexpenses of the Credit Agreement and a Pledge and Security Agreement also contain a number of customary representations, warranties and covenants that, among other things, will limit or restrict the ability of the Company and its subsidiaries to (subject to certain qualifications and exceptions): create liens and encumbrances; incur additional indebtedness; merge, dissolve, liquidate or consolidate; make acquisitions, investments, advances or loans; dispose of or transfer assets; pay dividends or make other payments in respect of their capital stock; amend certain material documents; redeem or repurchase certain debt; engage in certain transactions with affiliates; and enter into certain restrictive agreements. In addition, the Company will be required to maintain at least $10 million of unrestricted cash and cash equivalents at all times.
Avenue Lenders.
F-19
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
NOTE 7: - LONG TERM DEBT (Cont.)
On the closing date, of the Credit Agreement, and with respect to the Initial Commitment AmountTranche only, the Company agreed to issue thefor each Avenue Lender a warrant (the “Warrant”) to purchase up to 226,586292,442 shares of the Company’s common stock, at an exercise price of $6.62$3.334 per share, which shall have a term of 7five years from the issuance date. The Warrant contains customary share adjustment provisions, as well as weighted average price protection in certain circumstances but in no event willadjustments to the number of shares issuable upon exercise of the Warrant and the exercise price in the event of the Warrant be adjusteda bona fide equity raise prior to September 30, 2023, at a price less than $4.00 per share. In the eventthen current exercise price.
The Avenue Lenders have the Companyright, at any time while the Avenue Loan Facility is eligibleoutstanding, to draw the Delayed Draw Commitment Amount, the Company agreed to issue the Lenderconvert an additional warrant (the “Additional Warrant”), with a termamount of 7 years from the issuance date, to purchase up to 6%$2,000 of the Delayed Draw Commitment Amount based on a 10 day volume weighted average priceprincipal amount of the outstanding Avenue Loan Facility into Borrower’s unrestricted shares of the Company’s common stock (the “Volume Weighted Average Price”) with anat a price per share equal to 120% of the then effective exercise price equal toof the Volume Weighted Average Price.Avenue Warrant.
The Company concluded that the Credit Agreement includes three legally detachable and separately exercisable freestanding financial instruments: the Initial Commitment Amount, the warrants, and the right to receive the Delayed Draw Commitment Amount, which we refer to as the "Financial Commitment Asset" or "FCA".
The Company has concluded that the warrants are not indexed to the Company's own stock and should be recorded as a liability measured at fair value with changes in fair value recognized in earnings.
The Company has also concluded that the FCA is not indexed to the Company's own stock and should be recorded as an asset, measured at fair value with changes in fair value recognized in earnings. The FCA is presented within other accounts receivable on the interim consolidated balance sheets.
The Company elected to account for the Initial Commitment AmountAvenue Loan Facility under the fair value option in accordance with ASC 825, “Financial Instruments.” Under the fair value option, changes in fair value are recorded in earnings except for fair value adjustments related to instrument specific credit risk, which are recorded as other comprehensive income or loss.
During the nine-month periodsix months ended on SeptemberJune 30, 2022,2023, the Company recognized $200$320 of remeasurement expenses related to the Initial Commitment Amount, which werewas included as part of financial expenses (income) in the Company's statements comprehensive loss. During the nine-month periodthree- and six-months periods ended on SeptemberJune 30, 2022,2023, the Company did not recognize any instrument specific credit risk fair value adjustment.
Warrant Liability
On June 9, 2022 (the closing date of the Orbimed Loan), the Company agreed to issue Orbimed a warrant (the “Orbimed Warrant”) to purchase up to 226,586 shares of the Company’s common stock, at an exercise price of $6.62 per share, which shall have a term of 7 years from the issuance date. The Orbimed Warrant contains customary share adjustment provisions, as well as weighted average price protection in certain circumstances but in no event will the exercise price of the Warrant be adjusted to a price less than $4.00 per share.
The Company has concluded that the warrants are not indexed to the Company's own stock and should be recorded as a liability measured at fair value with changes in fair value recognized in earnings.
F-19
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
NOTE 8:7: - 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 participatedparticipation in programs sponsored by the Israeli government for the support of research and development activities. The Company is obligated to pay royalties to the IIA, amounting to 3% of the sales of the products and other related revenues (based on the USU.S. 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 pay these royalties is contingent on actual sales of the products and in the absence of such sales,no payment is required. During the six months ended June 30, 2023 the Company did not record IIA royalties related to the acquisition of Physimax Technology.
NOTE 8: - INTANGIBLE ASSETS
| | | | | | | | |
a. Finite-lived other intangible assets: | | | | | | | | |
| | June 30, | | December 31, | | Weighted | ||
| | 2023 | | 2022 | | Average | ||
|
| Unaudited |
| | | Remaining Life | ||
Original amounts: | | | | | | | | |
Technology | | $ | 16,936 | | $ | 16,936 | | 1.7 |
Brand | |
| 376 | |
| 376 | | 1.9 |
| |
| 17,312 | |
| 17,312 | | |
Accumulated amortization: | | | | | | | | |
Technology | |
| 9,375 | |
| 7,199 | | |
Brand | |
| 259 | |
| 197 | | |
| |
| 9,634 | |
| 7,396 | | |
Other intangible assets, net | | $ | 7,678 | | $ | 9,916 | | |
| | | | | | | | |
| | | | | | | | |
b. Amortization expenses for the six-month period ended June 30, 2023 and for the year ended December 31, 2022 amounted to $2,238 and $4,361, respectively. | | | | | | | | |
| | | | | | | | |
c. Estimated amortization expense: | | | | | | | | |
| | | | | | | | |
For the year ended December 31, | | | | | | | | |
Remainder of 2023 |
| $ | 2,274 | | | | | |
2024 | | | 4,452 |
| | | | |
2025 | | | 952 | | | | | |
| | $ | 7,678 | | | | | |
F-20
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
NOTE 9: - STOCKHOLDERS’ EQUITY
a. |
In May and June 2022, the Compensation Committee authorized the Company to grant warrants to purchase up to 70,000, and 175,000 shares (of which warrants to purchase 87,500 have expired) of the Company’s common stock which shall vest over 12 months and |
c. | In December 2022, the Compensation Committee authorized the Company to issue warrants to purchase up to 500,000 shares of common stock, to a certain consultant of the Company which shall vest over a 12-month period, with an exercise price of $5.00. During the six-month period ending June 30, 2023, the Company recorded a warrant compensation expense for the service provider in the amount of $352. |
d. | During the six-month period ended |
e. | During the six-month period ended June 30, 2023, certain Series A Convertible Preferred stockholders converted 10 shares of various classes of the Company’s Series A Convertible Preferred Stock into 3,582 shares of common stock. |
f. | In January and March 2023, the Compensation Committee approved the grant of a non-qualified stock option awards to purchase 200,000 shares of the Company’s common stock, as well as an additional non-qualified performance-based stock option award to purchase an additional 180,000 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 its Senior Vice President of Growth’ and its Chief Product Officer. |
g. | In January 2023, the Compensation Committee approved the grant of warrants to purchase up to 280,000 shares of common stock, with an exercise price of $5.20, per share to certain consultants. The warrants are exercisable into common stock on or before December 31, 2026. During the six months ended June 30, 2023, the Company recorded compensation expense for those certain service providers in the amount of |
F-21
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
NOTE 9: - STOCKHOLDERS' EQUITY (Cont.)
h. |
i. | In January and April 2023, the Board of Directors approved to accelerate the unvested portion of 42,500 restricted shares of the Company’s |
j. | In April 2023, the Company issued 76,637 shares of |
k. | On October 22, 2021, the Company entered into an At-The-Market Equity Offering Sales Agreement (the“ATM”), allowing the Company to sell its common stock for aggregate sales proceeds of up to $50,000 from time to time and at various prices, subject to the conditions and limitations set forth in the sales agreement. If shares of the Company’s common stock are sold, there is a three percent (3%) fee paid to the sales agent. For the six months ended June 30, 2023, the Company received net proceeds of $1,410 from the sale of 355,743 shares of the Company’s common stock. As of June 30, 2023, there were $48,181 remaining funds available under the ATM. |
l. | On May 1, 2023, the Company entered into securities purchase agreements with accredited investors relating to an offering and the sale of an aggregate of 6,200 shares of newly designated Series B Preferred Stock (the “Series B Preferred Stock”), an aggregate of 7,946 shares of Series B-1 Preferred Stock (the “Series B-1 Preferred Stock”), and an aggregate of 150 shares of Series B-2 Preferred Stock (the “Series B-2 Preferred Stock”) at a purchase price of $1,000 for each share of Preferred Stock. Certain of our executive officers and directors purchased shares of Series B-2 Preferred Stock in the offering. On May 5, 2023, the Company entered into purchase agreements with accredited investors, relating to the offering of 1,106 shares of newly designated Series B-3 Preferred Stock (the “Series B-3 Preferred Stock” and, collectively with the Series B Preferred Stock, the Series B-1 Preferred Stock, and the Series B-2 Preferred Stock, the “Preferred Stock”), at a purchase price of $1,000 for each share of Preferred Stock. The initial conversion price for the Series B, B-1, B-2, and B-3 Preferred Stock was $3.334, $3.334, $3.370 and $3.392, respectively, subject to adjustment in the event of stock splits, stock dividends, and similar transactions. As a result of the sale of the Preferred Stock, the aggregate gross proceeds to the Company from the offering were approximately $15,400 ($14,807 net of issuance expenses). |
On September 20, 2022,The Series B Preferred Stock and Series B-3 Preferred Stock will vote together with the Boardcommon stock as a single class on an as-converted basis on any matter presented to the shareholders of Directors authorizedthe Company. The Series B-1 Preferred Stock and Series B-2 Preferred Stock do not possess any voting rights with respect to such matters. Upon any liquidation, dissolution or winding-up of the Company, after the satisfaction in full of the debts of the Company and payment of the liquidation preference to enterthe Senior Securities (as defined herein), holders of Preferred Stock shall be entitled to be paid, on a pari passu basis with the payment of any liquidation preference afforded to holders of any Parity Securities (as defined herein), the remaining assets of the Company available for distribution to its stockholders. For these purposes, (i) “Parity Securities” means the common stock, Series B Preferred Stock, Series B-1 Preferred Stock, the Series B-2 Preferred Stock, the Series B-3 Preferred Stock and any other class or series of capital stock of the Company hereinafter created that expressly ranks pari passu with the Series B Preferred Stock, Series B-1 Preferred Stock, the Series B-2 Preferred Stock and/or the Series B-3 Preferred Stock; and (ii) “Senior Securities” shall mean any class or series of capital stock of the Company hereafter created which expressly ranks senior to the Parity Securities.
F-22
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
NOTE 9: - STOCKHOLDERS' EQUITY (Cont.)
The Preferred Stock will automatically convert into an exchange agreement withshares of common stock, subject to certain beneficial ownership limitations, including a certain preferred stockholdernon-waivable 19.99% ownership blocker, on the 15-month anniversary of the issuance date. The holders of Preferred Stock will also be entitled dividends payable as follows: (i) a number of shares of common stock equal to exchange 885five percent (5.0%) of the number of shares of common stock issuable upon conversion of the Preferred Stock then held by such holder for each full quarter anniversary of holding for a total of four (4) quarters from the closing date, and (ii) 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 Preferred Stock then held by such holder on the fifth full quarter from the closing. The Series B-2 Preferred Stock dividend is the subject to receipt of the approval of the Company’s Series A-1shareholders. The Preferred Stock has been accounted for 308,711 shares of the Company’s common stock. During the nine months ended 30, 2022, the investor exchanged those certain shares. as equity instruments.
m. | On May 1, 2023, the Company entered into agreements with certain holders of 3,557 of the Company’s Series A-1 Preferred stock pursuant to a subscription agreement dated November 27, 2019, which are convertible to 1,273,498 shares of common stock. In consideration for deferring the conversion of the Series A-1 Convertible Preferred Stock, the Company agreed to issue additional shares of common stock upon the deferred conversion of the Series A-1 Convertible Preferred Stock as follows: 63,676 shares, in the aggregate, if not converted for at least one quarter, 127,350 shares, in the aggregate, if not converted for at least two quarters, 191,026 shares, in the aggregate, if not converted for at least three quarters, 254,700 shares if not converted for at least four quarters and 382,050 shares, in the aggregate, if not converted for at least five quarters. |
The Company has concluded that the Series A-1 preferred shares modification should be accounted for the exchange as a modificationan extinguishment transaction and recorded the increase in fair value as a deemed dividend in the amount of $62.
During the nine-month ended September 30, 2022, 61,730 shares of the Company’s common stock were issued as dividend to certain Series A Convertible Preferred stockholders upon conversion of such shares.$984.
During the six months ended June 30, 2023, the Company accounted for the dividend shares of common stock upon the deferred conversion of the Series A-1 Convertible Preferred Stock and the dividend shares earned by Series B Preferred Stock as a deemed dividend in a total amount of $707. |
o. | On May 1, 2023, the Company repaid its existing $25,000 credit facility to the Orbimed Lender with a new $30,000 credit facility in the LSA, by and between the Company and the Avenue Lenders. On the closing date, and with respect to the Initial Tranche only, the Company agreed to issue each Avenue Lender the Avenue Warrant to purchase up to 292,442 shares of the Company’s common stock, at an exercise price of $3.334 per share, which shall have a term of five years from the issuance date. The Company accounted the Avenue Warrants as equity instruments and recorded it in fair value as of May 1, 2023, using the relative fair value method in the amount of $1,389. |
p. | Stock |
On January 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 Company’s stockholders, under which options to purchase shares of the Company’s common stock have been reserved. Under the 2012 Plan, options to purchase shares of Common Stock may be granted to employees and non-employees of the Company or any affiliate, each option granted can be exercised to one share of Common Stock. The 2012 Plan has expired.
On October 14, 2020, the Company’s stockholders approved the 2020 Plan and the immediate reservation of 900,000 shares under the 2020 Plan for the remainder of the 2020 fiscal year. Under the 2020 Plan, options to purchase shares of the Company’s common stock may be granted to employees and non-employees of the Company or any affiliate, each option granted can be exercised to one share of Common Stock.common stock. The 2012 Plan has expired.
In January 2022, pursuant toOn October 14, 2020, the terms ofCompany’s stockholders approved the 2020 Equity incentive Plan (the “2020 Plan”). Under the 2020 Plan, as approved by the Company’s stockholders,options to purchase shares of common stock may be granted to employees and non-employees of the Company increased the numberor any affiliate, each option granted can be exercised to one share of shares authorized for issuance under the 2020 Plan by 1,339,624 shares, from 2,528,890 to 3,868,514.
On April 23, 2022, the Company released 56,788 holdback shares of the Company’s common stock to certain employee of the Company. The holdback release was part of a separation agreement with the employee, pursuant to which the Company waived the lock-up period.stock.
F-22F-23
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
NOTE 9: - STOCKHOLDERS' EQUITY (Cont.)
In January 2023, 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 1,994,346 shares, from 3,868,514 to 5,862,860.
Transactions related to the grant of options to employees, directors, and non-employees under the above plans and non-plan options during the nine-monthssix-months period ended SeptemberJune 30, 2022,2023, (unaudited) were as follows:
| | | | | | | | | | | | | | | | |
|
| |
|
|
| Weighted |
| |
| |
|
|
| Weighted |
| |
| | | | Weighted | | average | | | | | | Weighted | | average | | |
| | | | average | | remaining | | Aggregate | | | | average | | remaining | | Aggregate |
| | | | exercise | | contractual | | Intrinsic | | | | exercise | | contractual | | Intrinsic |
| | Number of | | price | | life | | value | | Number of | | price | | life | | value |
| | options | | $ | | Years | | $ | | options | | $ | | Years | | $ |
Options outstanding at beginning of period |
| 1,878,168 | | 18.13 | | 6.96 | | 3,861 |
| 2,124,302 | | 13.38 | | 6.98 | | 121 |
Options granted |
| 813,050 | | 7.02 | | — | | — |
| 1,156,600 | | 4.37 | | — | | — |
Options exercised |
| | | — | | — | | — |
| (4,800) | | — | | | | |
Options expired |
| (115,271) | | 17.74 | | — | | — |
| (164,982) | | 27.96 | | — | | — |
Options forfeited |
| (409,410) | | 14.95 | | — | | — |
| (173,825) | | 8.31 | | — | | — |
| | | | | | | | | | | | | | | | |
Options outstanding at end of period |
| 2,166,537 | | 14.59 | | 7.07 | | 131 |
| 2,937,295 | | 9.33 | | 7.68 | | 155 |
| | | | | | | | | | | | | | | | |
Options vested and expected to vest at end of period |
| 2,021,479 | | 14.71 | | 7.03 | | 131 |
| 2,384,548 | | 9.74 | | 7.55 | | 140 |
| | | | | | | | | | | | | | | | |
Exercisable at end of period |
| 978,807 | | 18.72 | | 5.55 | | 131 |
| 1,156,150 | | 14.42 | | 5.27 | | 92 |
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 firstsecond quarter of 20222023 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on SeptemberJune 30, 2022.2023. This amount is impacted by the changes in the fair market value of the Common Stock.
common stock.
Transactions related to the grant of restricted shares to employees, directors, and non-employees under the above plans during the nine-monthsthree-month period ended SeptemberJune 30, 2022,2023, (unaudited) were as follows:
| | | | | | | | |
| | | | | | | | Number of |
| | | | | | | | Restricted shares |
| | | | | | | | |
Restricted shares outstanding at beginning of period |
| | | | | | |
|
Restricted shares granted |
| | | | | | |
|
Restricted shares forfeited |
| | | | | | |
|
| | | | | | | | |
Restricted shares outstanding at end of period |
| | | | | | |
|
As of SeptemberJune 30, 2022,2023, the total amount of unrecognized stock-based compensation expense was approximately $26,245$17,166 which will be recognized over a weighted average period of 1.191.05 years.
F-23F-24
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
NOTE 9: - 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 |
| | | Six months ended |
| ||||||||||
| | September 30, |
| | | June 30, |
| ||||||||||
|
| 2022 |
| 2021 |
|
|
| 2023 | | 2022 |
| ||||||
| | | | | | | | | | | | | | Unaudited | | ||
Volatility |
| 92.25 | - | 92.60 | % | 93.34 | - | 96.01 | % | |
| 92.05-92.62 | % | 91.42-92.04 | % | ||
Risk-free interest rate |
| 2.70 | - | 3.01 | % | 0.01 | - | 0.01 | % | |
| 3.45-4.13 | % | 2.89-3.00 | % | ||
Dividend yield |
| - | | | - | % | - | | | - | % | |
| 0 | % | 0 | % |
Expected life (years) |
| 5.81 | - | 5.88 |
| 5.25 | - | 5.88 | | |
| 5.81-5.88 | | 5.81-6.00 | |
The total compensation cost related to all of the Company’s stock-based awards recognized during the nine-monthsix-month period ended SeptemberJune 30, 2022,2023, and 20212022 was comprised as follows:
| | | | | | | | | | | | | |
| | Nine months ended | | | Six months ended | ||||||||
| | September 30, | | | June 30, | ||||||||
|
| 2022 |
| 2021 | |
| 2023 |
| 2022 | ||||
| | Unaudited | | | Unaudited | ||||||||
Cost of revenues | | $ | 72 | | $ | 63 | | | $ | 44 | | $ | 48 |
Research and development | |
| 3,215 | |
| 2,480 | | |
| 2,488 | |
| 2,048 |
Sales and marketing | |
| 5,089 | |
| 4,007 | | |
| 3,670 | |
| 3,132 |
General and administrative | |
| 5,522 | |
| 12,120 | | |
| 3,946 | |
| 3,744 |
| | | | | | | | | | | | | |
Total stock-based compensation expenses | | $ | 13,898 | | $ | 18,670 | | | $ | 10,148 | | $ | 8,972 |
NOTE 10: - FINANCIAL EXPENSES (INCOME), NETSELECTED STATEMENTS OF OPERATIONS DATA
Financial expenses, net:
| | | | | | | | | | | | | |
| | Nine months ended | | | Six months ended | ||||||||
| | September 30, | | | June 30, | ||||||||
|
| 2022 |
| 2021 | |
| 2023 |
| 2022 | ||||
| | Unaudited | | | Unaudited | ||||||||
Bank charges | | $ | 59 | | $ | 60 | | | $ | 65 | | $ | 45 |
Foreign currency adjustments expenses, net | |
| 51 | |
| 322 | | |
| 105 | |
| 138 |
Interest income | | | (228) | | | (36) | | | | (864) | | | (21) |
Loan Interest Expenses | | | 969 | | | — | | ||||||
Revaluation of short-term investments | | | (37) | | | — | |||||||
Remeasurement of long-term loan | | | 976 | | | — | | | | 3,456 | | | 172 |
Remeasurement of warrant liability | | | (929) | | | — | | | | (246) | | | (342) |
Debt issuance cost | | | 724 | | | — | | | | 503 | | | 724 |
Remeasurement of FCA | | | 153 | | | — | | ||||||
| | | | | | | | | | | | | |
Total Financial expenses (income), net | | $ | 1,775 | | $ | 346 | | ||||||
Total Financial expenses, net | | $ | 2,982 | | $ | 716 |
F-24F-25
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
NOTE 11: - BASIC AND DILUTED NETLOSSPER COMMON STOCK
We compute net loss per share of common stock using the two-class method. Basic net loss per share is computed using the weighted-average number of shares outstanding during the period. Diluted net loss per share is computed using the weighted-average number of shares and the effect of potentially dilutive securities outstanding during the period.
The total number of potential shares of common stock related to the outstanding options, warrantwarrants and preferred shares excluded from the calculations of diluted net loss per share due to their anti-dilutive effect was 6,804,53012,195,745 and 5,987,7117,198,771 for the ninesix months ended SeptemberJune 30, 2022,2023, and 2021,2022, respectively.
The following table sets forth the computation of the Company’s basic and diluted net loss per common stock:
| | | | | | | | | | | | | | | | | | | |
| | Nine months ended | | | Three months ended | | Six months ended | ||||||||||||
| | September 30, | | | June 30, | | June 30, | ||||||||||||
|
| 2022 |
| 2021 | |
| 2023 |
| 2022 | | 2023 |
| 2022 | ||||||
| | Unaudited | | | Unaudited | | Unaudited | ||||||||||||
Net loss attributable to common stock shareholders used in computing basic net loss per share | | $ | 46,336 | | $ | 48,357 | | | $ | 16,338 | | $ | 16,607 | | $ | 28,849 | | $ | 31,267 |
| | | | | | | | | | | | | | | | | | | |
Weighted average number of common stock used in computing basic loss per share | | | 22,876,397 | | | 16,202,541 | | | | 28,186,345 | | | 22,426,019 | | | 27,879,881 | | | 21,925,089 |
| | | | | | | | | | | | | | | | | | | |
Basic net loss per common stock | | $ | 2.03 | | $ | 2.98 | | | $ | 0.58 | | $ | 0.74 | | $ | 1.03 | | $ | 1.43 |
NOTE 12: - SUBSEQUENT EVENTS
a. | On July 25, 2023, the Company’s Compensation Committee approved the grant of 296,500 restricted shares of the Company’s common stock to employees and consultants of the Company of which 46,500 are under the 2020 Plan. Out of the restricted shares granted, 100,000 restricted shares will vest immediately, and 196,500 restricted shares will vest over a period between three to four years commencing on the respective grant dates. The Compensation Committee also approved grant warrants to purchase up to 40,000, shares of the Company’s common stock which shall vest over three years to certain consultants of the Company, with an exercise price of $3.46, and the grant of options to purchase up to 57,300 shares of common stock to employees, at exercise prices between $3.69 and $3.97 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 October and November 2022, the Company issued a total of 7,705 restricted shares of the Company’s common stock to a certain service provider, with such issuances approved by the Company’s Compensation Committee of the Board of Directors.
b. | On July 11, 2023, out of the pre-funded warrants that were issued in July 2020 and February 2022, 86,985 were exercised on a cashless basis into 86,983 shares of common stock. |
c. | In July 2023, the Company entered into an amended and restated strategic agreement with Sanofi. In this amendment, the parties adjusted certain pre agreed economic parameters, including revenue share adjustments and to allow the acceleration of certain development milestones agreed upon in the initial agreement. |
F-25F-26
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, 2021.2022. 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 on Form 10-K for the fiscal year ended December 31, 20212022 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 revolutionizing how people with chronic conditions manage their health through the innovation of a new category of digital health: Digital Therapeutics as a Service (DTaaS)(“DTaaS”). We believe that our innovative approach to digital therapeutics disrupts the traditional provider-centered system of health carehealthcare delivery by offering user-centric care that is continuous, customized and multi-condition.supportive of better overall health. Our solutions combine the power of technologies and behavior science to 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 meaningfulOur solutions are proven to drive savings for health plans and sustainable results that result in measurable value for all stakeholders, supportingemployers by improving the full transformationhealth of health care into a more effective and affordable ecosystem.their populations.
We began as a direct-to-consumer digital therapeutics company, solving first for the problem of how to engage users and support behavior change to improve clinical outcomes in diabetes. In the last two years,Beginning in 2020, we made twoenacted a strategic shiftsshift to transform the business model by deploying a business-to-business-to-consumer (“B2B2C”) approach, leveraging the strengths of our business: first, we significantly expandedconsumer solution platform to enable commercial growth opportunities by adding a business-to-business product (B2B) and a commercial team alongside the legacy direct-to-consumer channel. In addition, we began targeting threein traditional health business verticals –channels by selling to 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.employers.
Second,At the same time, we transitionedexpanded from a single conditionsingle-condition platform to a multi-condition platform, creating a robust suite of solutions to address the five most commonly co-occurring, behaviorally driven, and expensive chronic conditions, which are also representative of some of the most sought-after digital health solutions: diabetes, hypertension, pre-diabetes/weight management, musculoskeletal and behavioral health. After building weight loss and hypertension management into the legacy diabetes platform, we made three acquisitions in order to expand into musculoskeletal (MSK) and behavioral health.health (BH). In that regard, we acquired Upright, PsyInnovations and Physimax Technology assets to expand into the fields of MSK and BH. Our approach to integrating all solutions into one digital therapeutics platform follows the “best-of-suite” offering design principal which provides the user one place to monitor all identified chronic conditions and to deliver a seamless user experience for commonly co-occurring chronic conditions.
Our acquisitionThese two shifts led to the rapid expansion of Upright Technologies Ltd. (“Upright”)our B2B2C business over the last two years and positioned us for success in early 2021commercial markets. We continue to achieve key benchmarks as we rapidly scale our B2B2C model, including more than 100 total signed contracts to date and Physimaxthe shift in earlyour commercial pipeline where more than 50% of the contracts signed in the second half of 2022 enablesare for multi-chronic solutions. We believe we have a unique and defensible position in the market thanks to our musculoskeletal (“MSK”) solutions – “Dario Move.”, our digital behavioral health capabilities were secured through the acquisitionunique solution origin in consumer markets.
We continue to generate a significant number of PsyInnovations, Inc. (dba WayForward)clinical publications. In that regard, we have published 43 real world data studies with total of 10 and 6 generated in mid-2021.2022 and 2023, respectively, and several more already planned for 2023.
We believe a key success factor isthat we are proving the value of our ability to integrate multiple chronic conditions into a single digital therapeutics’ platform, the “Dario One.” During 2021 we successfully won contracts in all three B2B business segments, including several contracts for Dario One, creating a compounding effectsolutions as more members enroll and many in multiple programs. The combination of moving from direct-to-consumer to the enterprise business market (B2B2C) and expanding from a single conditionsales continue to multi condition platform, created multiple commercial growth engines as well as a multiplying impactgrow. With more than 100 signed contracts to date, we have solid evidence on the key differentiators that we believe will improve our financial profile by increasing potential revenue per account and per user.
Accordinglead to our management’s estimates, based on our current cash on hand and further based on our budget and the assumption that initial commercial sales will commence during our anticipated timeframes, we believe that we will have sufficient resources to continue our activities through 2023.
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 ournew business
4
operations. We may also need additional funding for developing productsopportunities: a consumer-friendly approach that drives engagement; deep integration capabilities; 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.
Except as otherwise disclosed herein, we currently do not have any arrangements or credit facilities in place as a source of funds, and there can be no assurance that we will be able to 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 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 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 failure of our business and the loss of your investment.best-in-class clinical outcomes.
Recent Developments
Employer ContractsPIPE Financing
On May 1, 2023, we entered into securities purchase agreements (each, a “Series B Purchase Agreement”) with accredited investors relating to an offering (the “Offering”) and the sale of an aggregate of 6,200 shares of newly designated Series B Preferred Stock (the “Series B Preferred Stock”), an aggregate of 7,946 shares of Series B-1 Preferred Stock (the “Series B-1 Preferred Stock”), and an aggregate of 150 shares of Series B-2 Preferred Stock (the “Series B-2 Preferred Stock”) at a purchase price of $1,000 for each share of Preferred Stock. Certain of our executive officers and directors purchased shares of Series B-2 Preferred Stock in the Offering. On May 5, 2023, we entered into purchase agreements (the “Series B-3 Purchase Agreement” and together with the Series B Purchase Agreement, the “Purchase Agreement”) with accredited investors, relating to the Offering, to an offering and the sale of an aggregate of 1,106 shares of newly designated Series B-3 Preferred Stock (the “Series B-3 Preferred Stock” and, collectively with the Series B Preferred Stock, the Series B-1 Preferred Stock and the Series B-2 Preferred Stock, the “Preferred Stock”), at a purchase price of $1,000 for each share of Preferred Stock. As a result of the sale of the Preferred Stock, the aggregate gross proceeds to us from the Offering are approximately $15.4 million.
On May 1, 2023, we filed the Certificate of Designation of Preferences, Rights and Limitations of the Series B Preferred Stock, the Certificate of Designation of Preferences, Rights and Limitations of the Series B-1 Preferred Stock, and the Certificate of Designation of Preferences, Rights and Limitations of the Series B-2 Preferred Stock with the Secretary of State of the State of Delaware (the “Series B Certificate of Designation,” the “Series B-1 Certificate of Designation,” and the “Series B-2 Certificate of Designation”, respectively). On May 5, 2023, the Company filed the Certificate of Designation of Preferences, Rights and Limitations of the Series B-3 Preferred Stock (the “Series B-3 Certificate of Designation,” and together with the Series B Certificate of Designation, the Series B-1 Certificate of Designation, and the Series B-2 Certificate of Designation, the “Certificates of Designation”). Each share of Preferred Stock is convertible at the option of the holder, subject to certain beneficial ownership limitations as set forth in each of the Certificates of Designation, into such number of shares of our common stock equal to the number of Preferred Shares to be converted, multiplied by the stated value of $1,000 (the “Stated Value”), divided by the conversion price in effect at the time of the conversion (the initial conversion price of the Series B Preferred Stock and Series B-1 Preferred Stock is $3.334, the initial conversion price of the Series B-2 Preferred Stock is $3.37, and the initial conversion price of the Series B-3 Preferred Stock is $3.392) each subject to adjustment in the event of stock splits, stock dividends, and similar transactions.
In September 2022,addition, the Preferred Stock will automatically convert into shares of common stock, subject to certain beneficial ownership limitations, including a non-waivable 19.99% ownership blocker, on the 15-month anniversary of the issuance date. The holders of Preferred Stock will also be entitled dividends payable as follows: (i) a number of shares of common stock equal to five percent (5.0%) of the number of shares of common stock issuable upon conversion of the Preferred Stock then held by such holder for each full quarter anniversary of holding for a total of four (4) quarters from the Closing Date, and (ii) 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 Preferred Stock then held by such holder on the fifth full quarter from the closing date.
Loan Facility
On May 1, 2023, we announced two new employer contracts, including one for the full suite of integrated solutions, which are scheduled to launch in late 2022entered into a Loan and early 2023.
In October 2022, we announced that a mid-sized Midwestern city selected us to provide our full suite of digital therapeutics solutions to several thousand city employees beginning in the first quarter of 2023.
In October 2022, we announced that our full suite of chronic condition management solutions was selectedSecurity Agreement, and Supplement thereto (the “LSA”), by two employers to help improve overall employee health beginning in the first quarter of 2023.
Presentation of New Studies
In September 2022, we announced new research examining the linkand between the useus and our subsidiary, PsyInnovations Inc. (“PsyInnovations”), collectively as the borrowers (the “Borrowers”) and Avenue Venture Opportunities Fund II, L.P. and Avenue Venture Opportunities Fund, L.P., collectively as the lenders (the “Avenue Lenders”). The LSA provides for a four-year secured credit facility in an aggregate principal amount of our biofeedback deviceup to help users improve their posture$40 million (the “Loan Facility”), of which $30 million was made available on the closing date (the “Initial Tranche”) and reduced back pain, which was presented atup to $10 million (the “Discretionary Tranche”) may be made available on the International Associationlater of July 1, 2023 or the date the Avenue Lender approves the issuance of the Study of Pain (IASP) 2022 World CongressDiscretionary Tranche. On May 1, 2023, the Borrowers closed on Pain. The research examined the connection between users of our posture trainer, posture awarenessInitial Tranche, less certain fees and the impactexpenses payable to or on levels of pain. Our posture training solution, partbehalf of the Dario Move suite of musculoskeletal solutions, helps users develop better posture through the use of a wearable biofeedback sensor that vibrates when the user is in a slouching position. Over the course of time, this trains users, helping them to develop awareness and adoption of proper posture. We analyzed the data from close to 1,000 individuals who reported high levels of pain in their initial assessment and who conducted six or more hours a week of posture training for at least eight weeks. This data set allowed researchers to demonstrate that increased time wearing the posture trainer was predictive of posture quality which, in turn, was predictive of the level of pain, establishing the linkage between postural digital biofeedback technology and back pain reduction.Avenue Lenders.
5
As a result of the execution of the LSA and the funding of the Initial Tranche, the Company satisfied its prior Credit Agreement it previously executed with OrbiMed Royalty and Credit Opportunities III, LP (“Orbimed”), on June 9, 2022 and terminated the Credit Agreement with Orbimed.
Employer Contracts
In May 2023, the Company announced a new agreement with MedOne Pharmacy Benefit Solutions (“MedOne”), a national leader in modern pharmacy benefits management, to integrate the Company’s suite of digital health solutions as a complement to MedOne's digital diabetes solution, the Diabetes Care Path.
In June 2023, the Company announced two new employer contracts for the Company's full suite of integrated solutions. The new accounts are scheduled to launch in the second half of 2023.
In July 2023, the Company announced a new agreement with a large regional health plan to deliver highly personalized digital health solutions to more than 160,000 Plan members living with hypertension.
Presentation of New Studies
In July 2023, the Company announced a new analysis by Sanofi demonstrating a significant reduction in the cost of care for Dario users compared to non-users living with Type 2 diabetes. The study used matched claims to show an estimated $5,077 in medical cost savings for Dario users compared to non-users.
Agreement with Sanofi
In July 2023, we entered into an amended and restated strategic agreement with Sanofi, an innovative global healthcare company. In this amendment, the parties adjusted certain pre agreed economic parameters, to better align the common interests of the parties in light of the developments in the digital health market after the first year of partnership, including revenue share adjustments that align with both parties' strategic goals. The changes apply to certain customers in exchange for additional promotional activities to be performed by Sanofi. The parties also agreed to allow the acceleration of certain development milestones agreed upon in the initial agreement. This multi-year, $30 million agreement, which is subject to certain contingencies, will help accelerate commercial adoption of our full suite of digital therapeutics and drive the expansion of digital health 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 develop new or enhanced solutions leveraging our platform, and for the parties to generate robust evidence to support future commercialization in the health plan channel.
New Programs
In August 2023, the Company announced a new program to deliver tailored behavior change support for individuals using GLP-1s and other anti-obesity drugs.
Results of Operations
Comparison of the three and ninesix months ended SeptemberJune 30, 20222023, and 2021June 30, 2022 (dollar amounts in thousands)
Revenues
Revenues for the three and ninesix months ended SeptemberJune 30, 2022,2023, amounted to $6,$6,152605and $$13,21820,847 respectively, compared to revenues of $5,629$6,183 and $14,485$14,242 during the three and ninesix months ended SeptemberJune 30, 2021,2022, representing an increasea decrease of 17%0.5% and 44%7.2%, respectively. The increasedecrease in revenues for the three and ninesix months ended SeptemberJune 30, 2022,2023, compared to the three and ninesix months ended SeptemberJune 30, 2021, is due to an increase 2022, resulted mainly from intended reduction in revenues from sales through our B2B channelthe Company’s consumer (B2C) channel.
.
6
Cost of Revenues
During the three and ninesix months ended SeptemberJune 30, 2022,2023, we recorded cost of revenues in the amount of $4,805$4,078 and $13,924,$7,976, respectively, compared to costs ofrelated to revenues of $4,8035,045 and $11,070$9,119 during the three and ninesix months ended SeptemberJune 30, 2021,2022, representing a zerodecrease of 19.2% and 25.8% increase,12.5%, respectively. The increasedecrease in cost of revenues in the ninethree and six months ended SeptemberJune 30, 2022,2023, compared to the ninethree and six months ended SeptemberJune 30, 2021, resulted from including payroll development costs in the2022, was mainly due to lower cost of revenues which were incurred duringfrom the period.Company’s consumer channel.
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 ninesix months ended SeptemberJune 30, 2022,2023, amounted to $1,800 (27.3%$2,074 (33.7% of revenues) and $6,923 (33.2%$5,242 (39.7% of revenues), respectively, compared to $826 (14.7%$1,138 (18.4% of revenues) and $3,415 (23.6%$5,123 (36% of revenues) during the three and ninesix months ended SeptemberJune 30, 2021.2022. The increase in gross profit as a percentage of revenue for the three and ninesix months ended SeptemberJune 30, 2022,2023, compared to the three and ninesix months ended SeptemberJune 30, 2021,2022, is due to the revenues derived from sales through our B2Bcommercial channel. Gross profit for the three and ninesix months ended SeptemberJune 30, 2022,2023, excluding amortization of acquired technology and inventory step-up were $2,905 (44%$3,168 (51.5% of revenues) and $10,054 (48.2%$7,417 (56.1% of revenues) compared to $2,532 (45%$2,232 (36.1% of revenues) and $6,739 (46.5%$7,149 (50.2% of revenues) during the three and ninesix months ended SeptemberJune 30, 2021.2022.
Research and Development Expenses
Our research and development expenses decreasedincreased by $703,$1,085, or 12.8%26.2%, to $4,803$5,222 for the three months ended SeptemberJune 30, 2022,2023, compared to $5,506$4,137 for the three months ended SeptemberJune 30, 2021,2022, and increased by $2,964,$323, or 24.9%3.2%, to $14,867$10,387 for the ninesix months ended SeptemberJune 30, 2022,2023, compared to $11,903$10,064 for the ninesix months ended SeptemberJune 30, 2021. The decrease for the three months ended September 30, 20222022. This increase was mainly a result of a decrease in payroll expenses. The increase forpayroll-related expenses and share-based compensation due to the nine months ended September 30, 2022 was mainly a resultexpansion of expanding our research and development activities. Our research and development expenses, excluding stock-based compensation and depreciation, for the three and ninesix months ended SeptemberJune 30, 2022,2023, were $3,625$3,904 and $11,620$7,865 compared to $3,854$3,567 and $9,155$7,995 for the three and ninesix months ended SeptemberJune 30, 2021,2022, an increase of $337 and a decrease of $229 and increase of $2,465,$130 respectively.
Research and development expenses consist mainly of payroll expenses to employeesemployees’ salaries and related overhead costs involved in research and development activities, expenses related to: (i) our solutions including our Dario Smart Diabetes Management Solution, DarioEngageDario Engage platform, Dario Move solution and 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, (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.
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Sales and Marketing Expenses
Our sales and marketing expenses decreased by $3,125,$2,837, or 29.2%30.5%, to $7,571$6,460 for the three months ended SeptemberJune 30, 2022,2023, compared to $10,696$9,297 for the three months ended SeptemberJune 30, 2021,2022, and decreased by $1,073,$6,032, or 3.9%32%, to $26,403$12,800 for the ninesix months ended SeptemberJune 30, 2022,2023, compared to $27,476$18,832 for the ninesix months ended SeptemberJune 30, 2021.2022. The decrease was mainly due a decreaseto decreases in our digital marketing expenses, partially offset by an increase in stock-based compensationpayroll and payroll related expenses. Our sales and marketing expenses, excluding stock-based compensation and depreciation, for the three and ninesix months ended SeptemberJune 30, 20222023 were $5,570$4,591 and $20,96$9,039 compared to $8,780$7,553 and $23,322$15,396 for the three and ninesix months ended SeptemberJune 30, 2021,2022, a decrease of $3,210$2,962 and $2,356,increase of $6,356 respectively.
Sales and marketing expenses consist mainly of payroll expenses,employees’ salaries and related overhead costs, online marketing campaigns of our service offering, and other costs associated with sales and marketing activities, as well as trade show expenses, customer support expenses and marketing consultants, marketing expenses and subcontractors.
General and Administrative Expenses
Our general and administrative expenses decreased by $3,124,$647, or 43.8%12.8%, to $3,999$4,412 for the three months ended SeptemberJune 30, 2022,2023, compared to $7,123$5,059 for the three months ended SeptemberJune 30, 2021,2022, and decreased by $5,412,$971, or 28.7%10.3% to $13,453$8,483 for
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the six months ended June 30, 2023, compared to $9,454 for the ninesix months ended SeptemberJune 30, 2022, compared to $18,865 for the nine months ended September 30, 2021.2022. This decrease was mainly due to decreasesa decrease in stock-based compensationacquisition and restructuring costs expenses during the three and ninesix months ended SeptemberJune 30, 2022.2023. Our general and administrative expenses, excluding stock-based compensation, depreciation, acquisition related costs and earn-out remeasurement for the three and ninesix months ended SeptemberJune 30, 20222023 were $2,170$2,229 and $7,099,$4,468 compared to $1,873$2,290 and $6,1244,929 for the three and ninesix months ended SeptemberJune 30, 2021, an increase2022, a decrease of $297$61 and $975,$374, respectively.
Our general and administrative expenses consist mainly of payrollemployees’ salaries and stock-based compensation expenses for management, employees, directorsrelated overhead costs, directors’ fees, legal and consultants, legalaccounting 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 expenses, net for the three months ended SeptemberJune 30, 2022,2023, were $1,059,$2,565, representing an increase of $1,114,$1,893, compared to financial incomeexpenses of $55$672 for the three months ended SeptemberJune 30, 2021.2022. Our financial expenses, net for the ninesix months ended SeptemberJune 30, 2022,2023, were $1,775,$2,982 representing an increase of $1,429,$2,266, compared to financial expenses of $346$716 for the ninesix months ended SeptemberJune 30, 2021.2022. The increase in our financial expenses was mainly due to costexpenses, related to obtaining the Company’s refinancing its existing $25,000 credit facility agreement datedobtained on June 9, 2022 andwith a new $30,000 credit facility, interest expense, fordebt issuance costs and the period from June 9, 2022 in the amount of $1,693 and due to revaluation of the long-term loan and the warrant liability, and the financial commitment asset relating to our loan from OrbiMed Royalty and Credit Opportunities III, LP, as the lender (the “Lender”), in the amount of $200.$3,713 partially offset by interest income and the revaluation of short-term investments in the amount of $901.
Financial expenses, net primarily consists of credit facility interest expense, debt issuance costs, interest income from cash balances, the revaluation of short-term investments, loss on early extinguishment of debt, bank charges, lease liability and foreign currency translation differences.
Net loss
Net loss decreased by $6,812,$1,443, or 30.4%8%, to $15,632$16,585 for the three months ended SeptemberJune 30, 2022,2023, compared to a net loss of $22,444$18,028 for the three months ended SeptemberJune 30, 2021,2022, and decreased by $5,599,$4,533, or 10.1%13.4%, to $49,576$29,410 for the ninesix months ended SeptemberJune 30, 2022,2023, compared to a net loss of $55,175$33,944 for the ninesix months ended SeptemberJune 30, 2021. 2022.
The decrease in net loss for the three and ninesix months ended SeptemberJune 30, 2022,2023, compared to the three and ninesix months ended SeptemberJune 30, 2021,2022, was mainly due to the increase in our gross profit and the decrease in our operating expenses.
The factors described above resulted in net loss attributable to common stockholders for the three and ninesix months ended SeptemberJune 30, 2022,2023, amounted to $16,126$18,276 and $50,954,$31,101, respectively, compared to net loss attributable to common stockholders of $22,932$18,461 and $56,695.$34,828.
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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.“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 September 30, | |
| Three Months Ended June 30, | ||||||||||||||
| | (in thousands) | | | (in thousands) | ||||||||||||||
| | 2022 |
| 2021 |
| $ Change | | | 2023 |
| 2022 |
| $ Change | ||||||
Net Loss Reconciliation |
| |
|
| |
|
| |
| |
| |
|
| |
|
| |
|
Net loss - as reported | | $ | (15,632) | | $ | (22,444) | | $ | 6,812 | | | $ | (16,585) | | $ | (18,028) | | $ | 1,443 |
| | | | | | | | | | | | | | | | | | | |
Adjustments | |
|
| |
|
| |
| | | |
|
| |
|
| |
| |
Depreciation expense | |
| 89 | |
| 69 | |
| 20 | | |
| 94 | |
| 84 | |
| 10 |
Inventory step up amortization | | | — | | | 462 | | | (462) | | |||||||||
Amortization of acquired technology and brand | | | 1,136 | | | 1,290 | | | (154) | | | | 1,125 | | | 1,125 | | | — |
Other financial expenses (income), net | | | 1,059 | | | (55) | | | 1,114 | | |||||||||
Other financial expenses, net | | | 2,565 | | | 672 | | | 1,893 | ||||||||||
Income tax | |
| — | |
| 1 | |
| (1) | ||||||||||
| | | | | | | | | | | | | | | | | | | |
EBITDA | |
| (13,348) | |
| (20,678) | |
| 7,330 | | |
| (12,801) | |
| (16,146) | |
| 3,345 |
| | | | | | | | | | | | | | | | | | | |
Earn-out remeasurement | |
| 6 | |
| — | |
| 6 | | |
| — | |
| 1,391 | |
| (1,391) |
Stock-based compensation expenses | |
| 4,926 | |
| 8,770 | |
| (3,844) | | |
| 5,292 | |
| 3,629 | |
| 1,663 |
| | | | | | | | | | | | | | | | | | | |
Non-GAAP adjusted loss | | $ | (8,416) | | $ | (11,908) | | $ | 3,492 | | | $ | (7,509) | | $ | (11,126) | | $ | 3,617 |
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| | | | | | | | | | | | | | | | | | |
|
| Nine Months Ended September 30, |
| Six Months Ended June 30, | ||||||||||||||
| | (in thousands) | | (in thousands) | ||||||||||||||
| | 2022 |
| 2021 |
| $ Change | | 2023 |
| 2022 |
| $ Change | ||||||
Net Loss Reconciliation |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Net loss - as reported | | $ | (49,576) | | $ | (55,175) | | $ | 5,599 | | $ | (29,410) | | $ | (33,944) | | $ | 4,534 |
| | | | | | | | | | | | | | | | | | |
Adjustments | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Depreciation expense | |
| 243 | |
| 202 | |
| 41 | |
| 191 | |
| 154 | |
| 37 |
Inventory step up amortization | | | — | | | 985 | | | (985) | |||||||||
Amortization of acquired technology and brand | | | 3,224 | | | 2,396 | | | 828 | | | 2,238 | | | 2,088 | | | 150 |
Other financial expenses, net | |
| 1,775 | |
| 346 | |
| 1,429 | |
| 2,982 | |
| 716 | |
| 2,266 |
Income Tax | |
| 1 | |
| — | |
| 1 | |||||||||
Income tax | |
| — | |
| 1 | |
| (1) | |||||||||
| | | | | | | | | | | | | | | | | | |
EBITDA | |
| (44,333) | |
| (51,246) | |
| 6,913 | |
| (23,999) | |
| (30,985) | |
| 6,986 |
| | | | | | | | | | | | | | | | | | |
Acquisition costs | | | — | | | 880 | | | (880) | |||||||||
Earn-out remeasurement | |
| 945 | |
| — | |
| 945 | |
| — | |
| 939 | |
| (939) |
Stock-based compensation expenses | |
| 13,898 | |
| 18,670 | |
| (4,772) | |
| 10,148 | |
| 8,972 | |
| 1,176 |
| | | | | | | | | | | | | | | | | | |
Non-GAAP adjusted loss | | $ | (29,490) | | $ | (31,696) | | $ | 2,206 | | $ | (13,851) | | $ | (21,074) | | $ | 7,223 |
Liquidity and Capital Resources (amounts in thousands except for share and share amounts)
As of SeptemberJune 30, 2022,2023, we had approximately $57,081$52,602 in cash and cash equivalents compared to $35,808$49,357 on December 31, 2021.2022.
We have experienced cumulative losses of $272,968 from$316,951 since inception (August 11, 2011) through SeptemberJune 30, 20222023, and have a stockholders’ equity of $88,946 on September$78,404 as of June 30, 2022.2023. 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
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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 twelve months.
Since inception, we have financed our operations primarily through private placements and public offerings of our common stock and warrants to purchase shares of our common stock, the exercise of existing warrants and options, and credit facility,receiving aggregate net proceeds totaling $251,494$244,188 and a credit facility of $25,564 as of SeptemberJune 30, 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 $70,000.2023.
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.
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 June 30, 2022,2023, we have not conducted any sales throughsold an aggregate of 429,050 shares of our common stock for aggregate net proceeds of approximately $1,670, pursuant to the Sales Agreement with Cowen.Agreement.
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On June 9, 2022 (the “Closing Date”),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 credit agreement (the “Credit Agreement”)purchase price of $21.35 per share. The aggregate gross proceeds were approximately $70,000.
On May 1, 2023, we entered into securities purchase agreements with accredited investors relating to an offering and the sale of an aggregate of 6,200 shares of newly designated Series B Preferred Stock, an aggregate of 7,946 shares of Series B-1 Preferred Stock, and an aggregate of 150 shares of Series B-2 Preferred Stock, at a purchase price of $1,000 for each share of Preferred Stock. Certain of our executive officers and directors purchased shares of Series B-2 Preferred Stock in the offering. On May 5, 2023, we entered into securities purchase agreements with accredited investors, relating to an offering and the sale of an aggregate of 1,106 shares of newly designated Series B-3 Preferred Stock, at a purchase price of $1,000 for each share of Preferred Stock. As a result of the sale of the Preferred Stock, the aggregate gross proceeds to us from the offering are approximately $15.4 million.
On May 1, 2023, we entered into the LSA, with the Lender. The Credit AgreementAvenue Lenders, which provides for a five-year seniorfour-year secured credit facility in an aggregate principal amount of up to $50$40 million, of which $25$30 million was made available on the Closing Date (the “Initial Commitment Amount”)closing date and up to $25$10 million may be made available on the later of July 1, 2023 or prior to June 30,the date the Avenue Lenders approve the issuance of the Discretionary Tranche. On May 1, 2023, subject to certain revenue requirements (the “Delayed Draw Commitment Amount”). On the Closing Date, we closed on the Initial Commitment Amount,Tranche, less certain fees and expenses. If, until the maturity dateexpenses payable to or on behalf of the Loan Facility, our net revenue does not equal or exceedAvenue Lenders. As a result of the applicable amount for such period as set inexecution of the LSA and the funding of the Initial Tranche, the Company satisfied its prior Credit Agreement it previously executed with Orbimed on June 9, 2022 and terminated the Credit Agreement then we shall repay in equal monthly installments the outstanding principal amount of the Loan Facility During the term of the Loan Facility, interest payable in cash by us shall accrue on any outstanding balance due. We will pay certain fees with respect to the Loan Facility, including an upfront fee, an unused fee on the undrawn portion of the Loan Facility, an administration fee, a repayment premium and an exit fee, as well as certain other fees and expenses of the Lender. We agreed to issue the Lender a warrant to purchase up to 226,586 shares of our common stock, at an exercise price of $6.62 per share, which shall have a term of 7 years from the issuance date. In the event we are eligible to draw the Delayed Draw Commitment Amount, we agreed to issue the Lender an additional warrant, with a term of 7 years from the issuance date, to purchase up to 6% of the Delayed Draw Commitment Amount based on a 10 day volume weighted average price of our common stock with an exercise price equal to the Volume Weighted Average Price.Orbimed.
Management believes that the proceeds from the prior private placementplacements and the Avenue Loan Facility and the funds we may draw down from the Sales Agreement, combined with our cash on hand and short-term investments 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, we have resolved to remove the going concern note from our financial statements. There are no assurances, however, that we will be able to obtain an adequate level of financial resources that are required for the long-term development and commercialization of our product offering.offerings.
As such, we have a significant present need for capital. If we are unable to scale up our commercial launch of 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.
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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, DarioEngageDario Engage 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.
Cash Flows (dollar amounts in thousands)
The following table sets forth selected cash flow information for the periods indicated:
| | | | | | | | |
| | September 30, | | June 30, | ||||
| | 2022 | | 2021 | | 2023 | | 2022 |
|
| $ | | $ |
| $ | | $ |
Cash used in operating activities: | | (39,904,000) |
| (35,273,000) | | (14,393) |
| (29,209) |
Cash used in investing activities: | | (514,000) |
| (7,690,000) | | (183) |
| (340) |
Cash provided by financing activities: | | 61,675,000 |
| 65,766,000 | | 18,049 |
| 61,675 |
| | 21,257,000 | | 22,803,000 | | 3,473 | | 32,126 |
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Net cash used in operating activities
Net cash used in operating activities was $39,904$14,393 for the ninesix months ended SeptemberJune 30, 2022 an increase2023 a decrease of 13.1%50.7% compared to $35,273$29,209 used in operations for the same period in 2021.2022. Cash used in operations increaseddecreased mainly due to the increasedecrease in our operating activities.expenses.
Net cash used in investing activities
Net cash used forin investing activities was $514$183 for the ninesix months ended SeptemberJune 30, 2022, a decrease of $7,1762023 compared to $7,690 for$340 net cash used in investing activities during the same period in 2021. Cash used for investing activities decreased mainly due to2022. The decrease is a result of the reductiondecline in acquisition activitiesour intangible assets purchased in the six months ended June 30, 2023 compared to the payments made as part of the acquisition of Upright and PsyInnovations Inc. during the nine months ended September 30, 2021.same period in 2022.
Net cash provided byderived from financing activities
Net cash provided byderived from financing activities was $61,675$18,049 for the ninesix months ended SeptemberJune 30, 20222023 compared to $65,766$61,675 net cash provided by financing activities during the same period in 2021.2022. The decrease results from the decrease in the proceeds from the issuance of preferred shares in the six months ended June 30, 2023 compared to the proceeds from the issuance of common stock and prefunded warrants in the six months ended June 30, 2022.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer or the Certifying Officers,(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, (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 (the “SEC”).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
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communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosures.
Based on their evaluation, the Certifying Officers concluded that, as of SeptemberJune 30, 2022,2023, our disclosure controls and procedures were designed at a reasonable assurance level and were therefore effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended SeptemberJune 30, 2022,2023, 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-II - OTHER INFORMATION
Item 1A. Risk Factors.
In addition to the other information set forth in this report,Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2021 Annual Report and in our Quarterly Report,on Form 10-K for the year ended December 31, 2022, which could materially affect our business, financial condition, or future results.
There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021,2022, except as noted below.
Currently, our revenues are concentrated with two major customers, Sanofi, and a national health plan, and our revenues may decrease significantly if we were to lose our major customers.
Due to our limited operating history, we have a limited customer base and have depended on a major customer, Sanofi, for a significant portion of our revenue. On February 8, 2022, we entered into an exclusive preferred partner, co-promotion, development collaboration and license agreement for a term of five (5) years (the “Exclusive Agreement”) with Sanofi. Pursuant to the Exclusive Agreement, we will provide a license to access and use certain Company data. As of SeptemberJune 30, 2022,2023, our major customer accounted for 27.9%68.8% of our accounts receivable balance and, for the ninethree- and three monthsix-month periods ended SeptemberJune 30, 2022,2023, Sanofi accounted for 34.7%37.8% and 19.7%40.2%, respectively, of our revenue in the relevant periods.revenue. If Sanofi were to terminate the Exclusive Agreement, or if we fail to adequately perform under the Exclusive Agreement, and if we are unable to diversify our customer base, our revenue could decline, and our results of operations could be adversely affected.
In addition, in October 2021, we entered into a master services agreement with a national health plan, which provided for various projects that may be undertaken by us at the direction of the national health plan customer. As of SeptemberJune 30, 2022,2023, the national health plan customer accounted for 39.3%11% of our accounts receivable balance and, for the ninethree- and three month periodssix months period ended SeptemberJune 30, 2022,2023, they accounted for 8.5%4.1% and 26.9%,7.3% respectively, of our revenue in the relevant periods.revenue. During these periods,this period, these revenues were as a result of a specific project that we were assigned to complete for this particular customer. There is no guarantee that the national health plan customer will continue to assign us projects under the master services agreement in the future and we may not realize any significant revenues, if at all, if we are not
12
assigned such projects. If we are unable to realize any additional revenues from our master services agreement with the national health plan customer, our revenue could decline, and our results of operations could be adversely affected.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the three month period ended September 30, 2022,second quarter of 2023, we issued an aggregate of 8,941123,591 shares of the Company’s common stock to certain of our service providers as compensation in lieu of cash compensation owed to them for services rendered.
In addition, on September 20, 2022, we entered into an exchange agreement with a certain preferred stockholder to exchange 885 shares of our Series A-1 Preferred Stock for 308,711 shares of our common stock.
We claimed exemption from registration under the Securities Act of 1933, as amended or the Securities Act,(the “Securities Act”), for the foregoing transactions under Section 4(a)(2) of the Securities Act.
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Item 6. Exhibits.
No. |
| Description of |
10.1*Ù | | |
31.1* | | |
31.2* | | |
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 |
104 | | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101). |
| | |
*Filed herewith.
**Furnished herewith.
ÙCertain 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: | 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) |
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