DRIO 10-Q
DarioHealth Corp. (DRIO)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(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.
(Exact name of registrant as specified in its charter) |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) |
| |
(Address of Principal Executive Offices) | (Zip Code) |
( |
(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 |
|
| The 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.
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).
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 |
☒ | 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
As of August 11, 2021, the registrant had
When used in this quarterly report, the terms “DarioHealth,” “the Company,” “we,” “our,” and “us” refer to DarioHealth Corp., a Delaware corporation, our subsidiaries LabStyle Innovation Ltd. and Upright Technologies Ltd., each of which are Israeli companies, and Upright Technologies Inc. and PsyInnovations Inc., each a Delaware company. “Dario” is registered as a trademark in the United States, Israel, China, Canada, Hong Kong, South Africa, Japan, Costa Rica and Panama. “DarioHealth” is registered as a trademark in the United States and Israel.
DarioHealth Corp.
Quarterly Report on Form 10-Q
TABLE OF CONTENTS
| Page | ||
3 | |||
PART 1- FINANCIAL INFORMATION | |||
F-1 | |||
F-2 – F-3 | |||
F-4 | |||
F-5 – F- 6 | |||
F-7 – F- 8 | |||
F-9 – F-21 | |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 4 | ||
11 | |||
11 | |||
13 | |||
13 | |||
13 | |||
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 launch and market penetration plans; |
| ● | the expected execution of agreements with various providers for our solution; |
| ● | our ability to manufacture, market and generate sales of our medical devices, including Dario Blood Glucose monitor, Dario Blood Pressure monitor and Dario Weight Scale; |
| ● | our ability to commercialize our membership programs, including our per member per month program for people with diabetes and hypertension, and our Business to Business to Consumer (“B2B2C”) services; |
| ● | our ability to develop, launch and commercialize Dario Loop; |
| ● | our ability to maintain our relationships with key partners; |
| ● | 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; |
| ● | interpretations of current laws and the passages of future laws; |
| ● | our expectations regarding the impact of the COVID-19 pandemic on our business and operations; and |
| ● | acceptance of our business model by investors. |
Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “would,” “could,” “scheduled,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors. These statements may be found under the section of our Annual Report on Form 10-K for the year ended December 31, 2020 (filed on March 9, 2021) 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 JUNE 30, 2021
UNAUDITED
INDEX
Page | ||
| F-2 – F-3 | |
F-4 | ||
F-5 – F- 6 | ||
F-7 – F-8 | ||
F-9 – F-21 |
F-1
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
June 30, | December 31, | ||||||
| 2021 |
| 2020 | ||||
Unaudited |
|
| |||||
ASSETS | |||||||
| |||||||
CURRENT ASSETS: |
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|
| |||
Cash and cash equivalents | $ | | $ | | |||
Short-term restricted bank deposits |
| |
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Trade receivables |
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Inventories |
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Other accounts receivable and prepaid expenses |
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Total current assets |
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NON-CURRENT ASSETS: |
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Deposits | | | |||||
Operation lease right of use assets |
| |
| | |||
Long-term assets | | | |||||
Property and equipment, net | | | |||||
Intangible assets, net | | - | |||||
Goodwill | | - | |||||
Total non-current assets | | | |||||
Total assets | $ | | $ | | |||
The accompanying notes are an integral part of the consolidated financial statements.
F-2
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except stock and stock data)
June 30, | December 31, | ||||||
| 2021 |
| 2020 | ||||
Unaudited | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
| |||||
CURRENT LIABILITIES: |
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| |||
Trade payables | $ | | $ | | |||
Deferred revenues |
| |
| | |||
Operating lease liabilities | | | |||||
Other accounts payable and accrued expenses |
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Total current liabilities |
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OPERATING LEASE LIABILITIES |
| |
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STOCKHOLDERS’ EQUITY |
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| |||
Common Stock of $ |
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Preferred Stock of $ |
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Additional paid-in capital |
| |
| | |||
Accumulated deficit |
| ( |
| ( | |||
| |||||||
Total stockholders’ equity |
| |
| | |||
| |||||||
Total liabilities and stockholders’ equity | $ | | $ | | |||
*) Represents an amount lower than $1
The accompanying notes are an integral part of the consolidated financial statements.
F-3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
U.S. dollars in thousands (except stock and stock data)
Three months ended | Six months ended | ||||||||||||
June 30, | June 30, | ||||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||||
Unaudited | Unaudited | ||||||||||||
Revenues | $ | | $ | | $ | | $ | | |||||
Cost of revenues |
| |
| |
| |
| | |||||
Amortization of acquired intangible assets and inventories step-up | | - | | - | |||||||||
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| ||||||||||
Gross profit |
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| |
| |
| | |||||
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Operating expenses: |
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Research and development | $ | | $ | | $ | | $ | | |||||
Sales and marketing |
| |
| |
| |
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General and administrative |
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Total operating expenses |
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| |
| |
| | |||||
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Operating loss |
| ( |
| ( |
| ( |
| ( | |||||
Total financial (income) expenses, net |
| ( |
| ( |
| |
| ( | |||||
|
|
|
| ||||||||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||
|
|
|
| ||||||||||
Deemed dividend | $ | | $ | | $ | | $ | | |||||
|
|
|
| ||||||||||
Net loss attributable to holders of Common Stock | $ | ( | $ | ( | $ | ( | $ | ( | |||||
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Net loss per share: |
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Basic and diluted net loss per share | ( | ( | ( | ( | |||||||||
Weighted average number of Common Stock used in computing basic and diluted net loss per share |
| |
| |
| |
| | |||||
The accompanying notes are an integral part of the consolidated financial statements.
F-4
STATEMENTS OF STOCKHOLDERS’ EQUITY
U.S. dollars in thousands (except stock and stock data)
Additional | Total | ||||||||||||||||||
Common Stock | Preferred Stock | paid-in | Accumulated | stockholders’ | |||||||||||||||
Number | Amount | Number | Amount | capital | deficit | equity | |||||||||||||
Balance as of January 1, 2021 |
| |
| $ | *)- |
| |
| $ | *)- |
| $ | |
| $ | ( |
| $ | |
Payment for executives and directors under Stock for Salary Program |
| |
| *)- |
| - |
| - |
| |
| - |
| | |||||
Exercise of options |
| |
| *)- |
| - |
| - |
| |
| - |
| | |||||
Exercise of placement agent warrants |
| |
| *)- |
| - |
| - |
| - |
| - |
| *)- | |||||
Exercise of warrants |
| |
| *)- |
| - |
| - |
| |
| - |
| | |||||
Issuance of common stock to consultants and service provider |
| |
| *)- |
| - |
| - |
| |
| - |
| | |||||
Conversion of preferred stock to common stock |
| |
| *)- |
| ( |
| *)- |
| - |
| - |
| *)- | |||||
Deemed dividend related to issuance of preferred stock |
| - |
| - |
| - |
| - |
| |
| ( |
| - | |||||
Issuance of warrants to service providers |
| - |
| - |
| - |
| - |
| |
| - |
| | |||||
Stock-based compensation |
| |
| *)- |
| - |
| - |
| |
| - |
| | |||||
Issuance of common stock, net of issuance cost |
| |
| *)- |
| - |
| - |
| |
| - |
| | |||||
Issuance of common stock upon acquisition of Upright Technologies Ltd. |
| |
| *)- |
| - |
| - |
| |
| - |
| | |||||
Net loss |
| - |
| - |
| - |
| - |
| - |
| ( |
| ( | |||||
- | |||||||||||||||||||
Balance as of March 31, 2021 (unaudited) |
| | $ | *)- |
| | $ | *)- | $ | | $ | ( | $ | | |||||
Payment for executives and directors under Stock for Salary Program |
| |
| *)- |
| - |
| - |
| |
| - |
| | |||||
Exercise of options | | *)- | - | - | | - | | ||||||||||||
Exercise of placement agent warrants | | *)- | - | - | - | - | - | ||||||||||||
Exercise of warrants | | *)- | - | - | - | - | - | ||||||||||||
Issuance of common stock to consultants and service provider |
| |
| *)- |
| - |
| - |
| |
| - |
| | |||||
Conversion of preferred stock to common stock |
| |
| *)- |
| ( |
| *)- |
| - |
| - |
| - | |||||
Deemed dividend related to issuance of preferred stock |
| - |
| - |
| - |
| - |
| |
| ( |
| - | |||||
Issuance of warrants to service providers |
| - |
| - |
| - |
| - |
| |
| - |
| | |||||
Stock-based compensation |
| ( |
| *)- |
| - |
| - |
| |
| - |
| | |||||
Issuance of common stock upon acquisition of PsyInnovations Inc.(dba WayForward) | | *)- | - | - | | - | | ||||||||||||
Net loss |
| - |
| - |
| - |
| - |
| - |
| ( |
| ( | |||||
Balance as of June 30, 2021 (unaudited) |
| | $ | *)- |
| | $ | *)- | $ | | $ | ( | $ | | |||||
*) Represents an amount lower than $1.
The accompanying are an integral notes part of the consolidated financial statements.
F-5
STATEMENTS OF STOCKHOLDERS’ EQUITY
U.S. dollars in thousands (except stock and stock data)
Additional | Total | ||||||||||||||||||
Common Stock | Preferred Stock | paid-in | Accumulated | shareholders' | |||||||||||||||
Number | Amount | Number | Amount | capital | deficit | equity | |||||||||||||
Balance as of January 1, 2020 |
| |
| $ | *)- |
| |
| $ | *)- |
| $ | |
| $ | ( |
| $ | |
Payment for executives and directors under Stock for Salary Program |
| |
| *)- |
| - |
| - |
| |
| - |
| | |||||
Issuance of common stock to directors and employees |
| |
| *)- |
| - |
| - |
| |
| - |
| | |||||
Issuance of common stock to consultants and service provider |
| |
| *)- |
| - |
| - |
| |
| - |
| | |||||
Conversion of preferred stock to common stock |
| |
| *)- |
| ( |
| *)- |
| - |
| - |
| *)- | |||||
Deemed dividend related to warrant exchange |
| |
| *)- |
| - |
| - |
| |
| ( |
| *)- | |||||
Deemed dividend related to issuance of preferred stock |
| - |
| - |
| - |
| - |
| |
| ( |
| - | |||||
Issuance of warrants to service providers |
| - |
| - |
| - |
| - |
| |
| - |
| | |||||
Stock-based compensation |
| - |
| - |
| - |
| - |
| |
| - |
| | |||||
Net loss |
| - |
| - |
| - |
| - |
| - |
| ( |
| ( | |||||
Balance as of March 31, 2020 (unaudited) |
| | $ | *)- |
| | $ | *)- | $ | | $ | ( | $ | | |||||
Payment for executives and directors under Stock for Salary Program |
| |
| *)- |
| - |
| - |
| |
| - |
| | |||||
Issuance of common stock to directors and employees |
| |
| *)- |
| - |
| - |
| |
| - |
| | |||||
Issuance of common stock to consultants and service provider |
| |
| *)- |
| - |
| - |
| |
| - |
| | |||||
Conversion of preferred stock to common stock |
| |
| *)- |
| ( |
| *)- |
| - |
| - |
| - | |||||
Deemed dividend related to issuance of preferred stock |
| - |
| - |
| - |
| - |
| |
| ( |
| - | |||||
Issuance of warrants to service providers |
| - |
| - |
| - |
| - |
| |
| - |
| | |||||
Stock-based compensation |
| - |
| - |
| - |
| - |
|
| - |
| | ||||||
Net loss |
| - |
| - |
| - |
| - |
| - |
| ( |
| ( | |||||
Balance as of June 30, 2020 (unaudited) |
| | $ | *)- |
| | $ | *)- | $ | | $ | ( | $ | | |||||
*) Represents an amount lower than $1.
The accompanying notes are an integral part of the consolidated financial statements.
F-6
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Six months ended | |||||||
June 30, | |||||||
| 2021 |
| 2020 | ||||
Unaudited | |||||||
Cash flows from operating activities: | |||||||
Net loss | $ | ( | $ | ( | |||
Adjustments required to reconcile net loss to net cash used in operating activities: |
|
|
|
| |||
Stock-based compensation, common stock, and stock instead of cash compensation to directors, employees, consultants, and service providers |
| |
| | |||
Depreciation |
| |
| | |||
Change in operating lease right of use assets |
| |
| | |||
Amortization of acquired inventories step-up |
| |
| - | |||
Amortization of acquired intangible assets |
| |
| - | |||
Decrease (increase) in trade receivables |
| ( |
| | |||
Decrease (increase) in other accounts receivable, prepaid expense and long-term assets |
| |
| ( | |||
Decrease in inventories |
| |
| | |||
Increase (decrease) in trade payables |
| |
| ( | |||
Decrease in other accounts payable and accrued expenses |
| ( |
| ( | |||
Increase (decrease) in deferred revenues |
| ( |
| | |||
Change in operating lease liabilities |
| ( |
| ( | |||
|
| ||||||
Net cash used in operating activities |
| ( |
| ( | |||
Cash flows from investing activities: |
|
|
|
| |||
Investment in deposit | ( | ( | |||||
Purchase of property and equipment |
| ( |
| ( | |||
Cash paid as part of PsyInnovations Inc. (dba WayForward) acquisition | ( | - | |||||
Loans repaid as part of Upright Technologies Ltd. acquisition | ( | - | |||||
Cash acquired as part of Upright Technologies Ltd. acquisition | | - | |||||
Net cash used in investing activities |
| ( |
| ( | |||
|
| ||||||
Cash flows from financing activities: |
|
| |||||
Proceeds from issuance of common stock, net of issuance costs |
| |
| - | |||
Proceeds from exercise of warrants |
| |
| - | |||
Proceeds from exercise of options |
| |
| - | |||
Net cash provided by financing activities |
| |
| - | |||
Increase (decrease) in cash, cash equivalents and short-term restricted bank deposits |
| |
| ( | |||
Cash, cash equivalents and short-term restricted bank deposits at beginning of period |
| |
| | |||
Cash, cash equivalents and short-term restricted bank deposits at end of period | $ | | $ | | |||
F-7
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont.)
U.S. dollars in thousands
Schedule A- Acquisition of Upright Technologies Ltd: | |||||||
Estimated net fair value of assets acquired and liabilities assumed at the date of acquisition was as follows: | |||||||
Working capital, net (excluding cash and cash equivalents) | $ | ( | $ | - | |||
Equipment and other assets | | - | |||||
Intangible assets | | - | |||||
Goodwill | | - | |||||
Loan of Upright Technologies Ltd | ( | - | |||||
Issuance of common stock to Upright Technologies Ltd. shareholders | ( | - | |||||
Cash acquired as part of Upright Technologies Ltd. acquisition | $ | ( | $ | - | |||
Schedule B- Acquisition of PsyInnovations Inc. (dba WayForward): | |||||||
Estimated net fair value of assets acquired and liabilities assumed at the date of acquisition was as follows: | |||||||
Working capital, net (excluding cash and cash equivalents) | $ | ( | $ | - | |||
Equipment and other assets | | - | |||||
Intangible assets | | - | |||||
Goodwill | | - | |||||
Liability to PsyInnovations Inc. (dba WayForward) previous shareholders | ( | ||||||
Issuance and expected issuance of common stock to PsyInnovations Inc. (dba WayForward) shareholders | ( | - | |||||
Cash paid as part of PsyInnovations Inc. (dba WayForward) acquisition | $ | | $ | - |
The accompanying notes are an integral part of the consolidated financial statements.
F-8
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
NOTE 1: - GENERAL
| a. | DarioHealth Corp. (the “Company”) was incorporated in Delaware and commenced operations on August 11, 2011. |
DarioHealth is a leading Global Digital Therapeutics (DTx) company revolutionizing the way people with chronic conditions manage their health. By delivering personalized evidence-based interventions that are driven by precision data analytics, high quality software, and personalized coaching, DarioHealth has developed a novel approach that empowers individuals to adjust their lifestyle in a unique and holistic way.
DarioHealth’s cross-functional team operates at the intersection of life sciences, behavioral science, and software technology to deliver seamlessly integrated and highly engaging digital therapeutics interventions. Being one of the highest rated diabetes solutions, its user-centric approach is loved by tens of thousands of customers around the globe. DarioHealth is rapidly expanding its solutions for additional chronic conditions such as hypertension and moving into new geographic markets.
DarioHealth’s digital therapeutic platform has been designed with a ‘user-first’ strategy, focusing on the user’s needs first and foremost, and user experience and satisfaction. User satisfaction is constantly measured and drives, all company processes, including our technology design.
DarioHealth has
| b. | The Company’s wholly owned subsidiary, LabStyle Innovation Ltd. (the “Subsidiary”), 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. | On January 26, 2021, the Company entered into a share purchase agreement (the “Share Purchase Agreement”) pursuant to which the Company, through the Subsidiary, acquired all of the outstanding securities of Upright Technologies Ltd. and its wholly owned subsidiary Upright Technologies Inc. (“Upright”). Upright is a leading digital musculoskeletal (“MSK”) health company focused on preventing and treating the most common MSK conditions through behavioral science, biofeedback, coaching, and wearable tech. |
| d. | On May 15, 2021, the Company entered into an agreement and plan of merger (the “Agreement and Plan of Merger”) pursuant to which the Company, through its fully owned subsidiary WF Merger Sub, Inc. (“Merger Sub”) merged with PsyInnovations Inc. (“WayForward”), pursuant to which the Merger Sub was the surviving company. PsyInnovations Inc. (dba WayForward) is a mental health company who develops the WayForward behavioral digital health platform with artificial intelligence (AI) enabled screening to triage and navigate members to specific interventions, digital cognitive behavioral therapy (CBT), self-directed care, expert coaching and access to in-person and telehealth provider visits. |
| e. | During the six months ended June 30, 2021, the Company incurred operating losses and negative cash flows from operating activities amounting to $ |
F-9
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
NOTE 1: - GENERAL (Cont.)
| f. | In December 2015, the United States Food and Drug Administration granted the Subsidiary 510(k) clearance for the Dario Blood Glucose Monitoring System, including its components, the Dario Blood Glucose Meter, Dario Blood Glucose Test Strips, Dario Glucose Control Solutions and the Dario app on the Apple IOS 6.1 platform and higher. |
| g. | On March 4, 2016, the Company’s Common Stock, par value $ |
| h. | The Company has been carefully monitoring the COVID-19 pandemic and its impact on its business. In that regard, the Company has continued to sell its DarioTM Blood Sugar Monitor and has not experienced disruptions in its supply chains. With respect to the Company’s DTx platform, it has observed that some of its business-to-business prospective partners have been addressing their business needs as a result of the COVID-19 pandemic, which has resulted in a slowdown of negotiations and discussions with some of these potential partners. In addition, the Company has also seen an increase in interest from other business-to-business prospective partners in its DTx platform, as certain parties are seeking tele-health products. The Company expects the significance of the COVID-19 pandemic, including the extent of its effect on the Company’s financial and operational results, to be dictated by, among other things, its duration, the success of efforts to contain it and the impact of actions taken in response. While the Company is not able at this time to estimate the impact of the COVID-19 pandemic on its financial and operational results, it could be material. |
NOTE 2: - SIGNIFICANT ACCOUNTING POLICIES
a. The significant accounting policies applied in the audited annual consolidated financial statements of the Company as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 are applied consistently in these unaudited interim consolidated financial statements.
b. Short-term restricted bank deposits:
The following table provides a reconciliation of the cash balances reported on the balance sheets and the cash, cash equivalents and short-term restricted bank deposits balances reported in the statements of cash flows:
June 30, | June 30, | ||||||
| 2021 |
| 2020 | ||||
Unaudited | Unaudited | ||||||
Cash, and cash equivalents as reported on the balance sheets | $ | |
| $ | | ||
Short-term restricted bank deposits, as reported on the balance sheets | |
| | ||||
Cash, restricted cash, cash equivalents and short-term restricted bank deposits as reported in the statements of cash flows | $ | |
| $ | | ||
F-10
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
NOTE 2: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
c. Recently issued accounting pronouncements, not yet adopted:
In September 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans, and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. The guidance also
requires increased disclosures. For the Company, the amendments in the update were originally effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.
In November 2019, the FASB issued ASU No. 2019-10, which delayed the effective date of ASU 2016-13 for smaller reporting companies (as defined by the U.S. Securities and Exchange Commission) and other non-SEC reporting entities to fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods. Early adoption is permitted. The Company is currently assessing the impact the guidance will have on its consolidated financial statements.
NOTE 3: - UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements as of June 30, 2021, have been prepared in accordance with U.S. generally accepted accounting principles and standards of the Public Company Accounting Oversight Board for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, the unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair presentation of the Company’s consolidated financial position as of June 30, 2021, and the Company’s consolidated results of operations and the Company’s consolidated cash flows for the six months ended June 30, 2021. Results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
NOTE 4 – ACQUISITIONS
| a. | Acquisition of Upright |
On
Pursuant to the terms of the Share Purchase Agreement, the acquisition closed on February 1, 2021. The consideration payable in connection with the Agreement was capped at $
F-11
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
NOTE 4 – ACQUISITIONS (Cont.)
| a. | Acquisition of Upright (Cont.) |
The preliminary estimated fair value of consideration transferred on the Acquisition Date was comprised of (i) share consideration to owners of Upright for approximately
In addition,
Purchase price allocation:
Under business combination accounting principles, the total purchase price was allocated to Upright’s net tangible and intangible assets based on their estimated fair values as set forth below. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill.
The allocation of the purchase price to the assets acquired and liabilities assumed based on management’s estimate of fair values at the date of acquisition as follows:
| June 30, | |||||
2021 | Amortization | |||||
Unaudited | period (Years) | |||||
Tangible assets acquired | $ | | ||||
Inventory *) | | |||||
Liabilities assumed | ( | |||||
Net liabilities assumed | ( | |||||
Technology | | |||||
Goodwill | | Infinite | ||||
Total purchase price | $ | | ||||
*) Including step-up in inventory fair value of $
The table below summarizes the value of the total consideration given in the transaction:
Amount | |||
Unaudited | |||
Shares issued to owners | $ | | |
Shares issued for vested options | | ||
Preliminary purchase price | | ||
Restricted stock units held in escrow | | ||
Holdback restricted stock units | | ||
Total consideration | $ | | |
F-12
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
NOTE 4 – ACQUISITIONS (Cont.)
| b. | Acquisition of WayForward |
On June 7, 2021, the Company through the Merger Sub, completed the acquisition of WayForward through the merger of WayForward into Merger Sub., which changed its name to PsyInnovations, Inc. in connection with the merger (collectively, the “Merger”). Under the Agreement and Plan of Merger, dated as of May 15, 2021, the Company paid, aggregate consideration (“Merger Consideration”) of (A) $
Purchase price allocation:
Under business combination accounting principles, the total purchase price was allocated to WayForward’s net tangible and intangible assets based on their estimated fair values as set forth below. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill.
The allocation of the purchase price to the assets acquired and liabilities assumed based on management’s estimate of fair values at the date of acquisition as follows:
| June 30, | |||||
2021 | Amortization | |||||
Unaudited | period (years) | |||||
Tangible assets acquired | $ | | ||||
Liabilities assumed | ( | |||||
Net liabilities assumed | ( | |||||
Technology | | |||||
Brand | | |||||
Goodwill | | Infinite | ||||
Total purchase price | $ | | ||||
The table below summarizes the value of the total consideration given in the transaction:
Amount | |||
Unaudited | |||
Shares issued and expected to be issued to owners | $ | | |
Cash consideration | | ||
Earn-out consideration | | ||
Preliminary purchase price | | ||
F-13
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
NOTE 4 – ACQUISITIONS (Cont.)
In accordance with Accounting Standards Codification (ASC) 805 “Business Combinations” the measurement period for the acquisition of Upright and WayForward is for one year during which the Company may reevaluate the assets acquired, liabilities assumed and the goodwill resulting from the transaction as well as the change in amortization as a result of changes in the provisional amounts as if the accounting had been completed at the Acquisition Date. Our purchase price allocation was made using our best estimates of fair value, which are dependent upon certain valuation and other analyses that are not yet final.
Pro forma results
The following table sets forth a summary of the unaudited pro forma results of the Company as if the acquisition of Upright and WayForward, which closed in February and June 2021, respectively, had taken place on the first day of the period presented. These combined results are not necessarily indicative of the results that may have been achieved had Upright and WayForward been acquired as of the first day of the period presented.
Six months ended | |||
June 30, | |||
2021 | |||
Total revenue |
| $ | |
Total expenses | | ||
Preferred stock Deemed dividend | | ||
Net loss attributable to holders of common stock | ( | ||
Basic and diluted net loss per share | $ | ( | |
NOTE 5: - INVENTORIES
June 30, | December 31, | |||||
2021 | 2020 | |||||
Unaudited | ||||||
Raw materials |
| $ | |
| $ | |
Finished products |
| |
| | ||
|
| |||||
$ | | $ | | |||
During the six-month period ended June 30, 2021, and the year ended December 31, 2020, total inventory write-off expenses amounted to $
F-14
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
NOTE 6: - REVENUES
The following tables represent the Company’s total revenues for the three and six months ended June 30, 2021 and 2020 by product type:
Three months ended | Six months ended | ||||||||||||
June 30, | June 30, | ||||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||
| Unaudited | Unaudited | |||||||||||
Products |
| $ | |
| $ | |
| $ | |
| $ | | |
Services | | | | | |||||||||
| |
| |
| $ | |
| $ | | ||||
The Company recognizes contract liabilities, or deferred revenues, when it receives advance payments from customers before performance obligations primarily related services have been performed. Advance payments are received at the beginning of the service period and the related deferred revenues are reclassified to revenue ratably over the service period. The balance of deferred revenues approximates the aggregate amount of the transaction price allocated to the unsatisfied performance obligations at the end of reporting period.
The following table presents the significant changes in the deferred revenue balance during the six months ended June 30, 2021:
Balance, beginning of the period |
| $ | |
New performance obligations | | ||
Reclassification to revenue as a result of satisfying performance obligations | ( | ||
Balance, end of the period |
| $ | |
Because all performance obligations in the Company’s contracts with customers relate to contracts with a duration of less than one year, the Company has to apply the optional exemption and is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.
F-15
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
NOTE 7: - COMMITMENTS AND CONTINGENT LIABILITIES
From time to time the Company is involved in claims and legal proceedings. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss.
NOTE 8: - STOCKHOLDERS’ EQUITY
| a. | During the six-month ended June 30, 2021, the Company’s Compensation Committee (the “Compensation Committee”) of the Board of Directors approved an aggregate of |
In January 2021, the Board of Directors approved the grant of an aggregate of
During the six months ended June 30, 2021, the Board of Directors approved the grant of
During the six months ended June 30, 2021, the Company’s Compensation Committee approved the grant of an aggregate of
In April 2020, the Compensation Committee approved a monthly grant of shares of Common Stock equal up to between $
During the six months ended June 30, 2021, a total of
In April 2020, the Audit and Compensation Committee of the Board of Directors approved monthly grants of
During the six months ended June 30, 2021, a total of
F-16
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
NOTE 8: - STOCKHOLDERS' EQUITY (Cont.)
| b. | In May 2021, the Compensation Committee of the Board of Directors approved an inducement grant of a non-qualified stock option award to purchase |
| c. | In January and June 2021, pursuant to the terms of the 2020 Plan as approved by the Company’s stockholders, the Company increased the number of shares authorized for issuance under the 2020 Plan by |
| d. | In May 2020, the Compensation Committee of the Board of Directors authorized the Company to issue warrants to purchase |
In February 2021, the Board of Directors authorized the Company to issue warrants to purchase up to
In April 2021, the Compensation Committee authorized the Company to issue warrants to purchase
During the six months ended June 30, 2021 certain Company warrants holders have exercised warrants into
| e. | In November and December 2019, the Company entered into subscription agreements for a sale of an aggregate of |
During the six months ended June 30, 2021
Pursuant to the placement agency agreement executed by and between the Company and the registered broker dealer retained to act as the Company’s exclusive placement agent (the “Placement Agent”) for the offering of the Series A Preferred Stock, the Company paid the Placement Agent an aggregate cash fee of $
F-17
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
NOTE 8: - STOCKHOLDERS' EQUITY (Cont.)
During the six months ended June 30, 2021,
| f. | The Series A Convertible Preferred Stock will automatically convert into shares of Common Stock, subject to certain beneficial ownership limitations, on the earliest to occur of (i) upon the approval of the holders at least |
| g. | On February 1, 2021, the Company entered into securities purchase agreements with institutional accredited investors relating to an offering with respect to the sale of an aggregate of |
| h. | During the six months ended June 30, 2021, options were exercised into |
F-18
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
NOTE 8: - STOCKHOLDERS' EQUITY (Cont.)
| i. | Stock based compensation: |
Transactions related to the grant of options to employees, directors, and non-employees under the above plans during the six-months period ended June 30, 2021, were as follows:
|
|
|
| Weighted |
| |||
Weighted | average | |||||||
average | remaining | Aggregate | ||||||
exercise | contractual | Intrinsic | ||||||
Number of | price | life | value | |||||
options | $ | Years | $ | |||||
Options outstanding at beginning of period |
| | ||||||
Options granted |
| | - | - | ||||
Options exercised |
| ( | | - | - | |||
Options expired |
| ( | | - | - | |||
Options forfeited |
| ( | | - | - | |||
|
|
|
| |||||
Options outstanding at end of period |
| | ||||||
|
|
|
| |||||
Options vested and expected to vest at end of period |
| | ||||||
|
|
|
| |||||
Exercisable at end of period |
| |
Transactions related to the grant of restricted shares to employees, directors, and non-employees under the above plans during the six-months period ended June 30, 2021, 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 |
| |
The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company’s closing stock price on the last day of the second quarter of 2021 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2021. This amount is impacted by the changes in the fair market value of the Common Stock.
As of June 30, 2021, the total amount of unrecognized stock-based compensation expense was approximately $
F-19
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
NOTE 8: - STOCKHOLDERS' EQUITY (Cont.)
The following table presents the assumptions used to estimate the fair values of the options granted to employees, directors and non-employees in the period presented:
Three months ended |
| |||||||||||
June 30, |
| |||||||||||
| 2021 |
| 2020 |
|
| |||||||
Volatility |
| | % | - | | % | | % | ‑ | | % | |
Risk-free interest rate |
| | % | - | | % | | % | ‑ | | % | |
Dividend yield |
| - | - | % | - | % | ||||||
Expected life (years) |
| - |
| ‑ | ||||||||
The total compensation cost related to all of the Company’s stock-based awards recognized during the six-month period ended June 30, 2021, and 2020 was comprised as follows:
Six months ended | |||||||
June 30, | |||||||
| 2021 |
| 2020 | ||||
Unaudited | |||||||
Cost of revenues | $ | | $ | | |||
Research and development |
| |
| | |||
Sales and marketing |
| |
| | |||
General and administrative |
| |
| | |||
|
| ||||||
Total stock-based compensation expenses | $ | | $ | | |||
NOTE 9: - FINANCIAL EXPENSES (INCOME), NET
Six months ended | |||||||
June 30, | |||||||
| 2021 |
| 2020 | ||||
Unaudited | |||||||
Bank charges | $ | | $ | | |||
Foreign currency adjustments (income) losses, net |
| |
| ( | |||
Interest income | ( | ( | |||||
Total financial (income) losses, net | $ | | $ | ( | |||
F-20
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except stock and stock data)
NOTE 10: - SUBSEQUENT EVENTS
| a. | In July 2021, the Compensation Committee of the Board of Directors approved a grant of |
| b. | In July 2021, the Compensation Committee of the Board of Directors approved a grant of |
| c. | In April 2020, the Compensation Committee approved a monthly grant of shares of Common Stock, equal to up to $ |
| d. | In July 2021, the Compensation Committee approved the grant of |
| e. | In July 2021, the Compensation Committee authorized the Company to issue warrants to purchase |
| f. | In July 2021, the Compensation Committee of the Board of Directors approved the grant of a non-qualified stock option award to purchase |
| g. | In August 2021, certain Series A Convertible Preferred Stockholders converted |
| h. | During July and August 2021, |
F-21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Readers are advised to review the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2020. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements”. You should review the “Risk Factors” section of our Annual Report for the fiscal year ended December 31, 2020 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
The following financial data in this narrative are expressed in thousands, except for stock and stock data or as otherwise noted.
We are a leading global Digital Therapeutics (“DTx”) company revolutionizing the way people manage their health across the chronic condition spectrum to live a better and healthier life. Our mission is to transform how affected individuals manage their health and chronic conditions by empowering our customers to easily manage their conditions and take steps to improve their overall health. Most chronic conditions are driven by personal behaviors and the individual actions that are or are not taken. We believe that changing these behaviors can dramatically improve our customers’ overall health and substantially reduce unnecessary health spending. However, behavioral change and habit formation are difficult, especially in managing chronic disease and related conditions. Our digital therapeutics endeavor to produce lasting behavior changes in our customers by applying a novel combination of artificial intelligence (“AI”)-driven dynamic personalization and behavioral science at scale. This allows us to engage and support our customers, and offer them a complete virtual care solution, ideally resulting in improved health outcomes and reduced total cost of care.
Our principal operating subsidiary, LabStyle Innovation Ltd., is an Israeli company with its headquarters in Caesarea, Israel. We were formed on August 11, 2011, as a Delaware corporation with the name LabStyle Innovations Corp. On July 28, 2016, we changed our name to DarioHealth Corp. We began our sales in the direct-to-consumer space, solving first for what we deemed the most difficult problems: how to engage users and support behavior change to improve clinical outcomes in diabetes. Our most developed AI tools leverage the direct-to-consumer experience from over 150,000 members to drive superior engagement and outcomes. In early 2020, we broadened our solutions to include other medical conditions in addition to diabetes, and to serve business customers who seek to improve the health of their stakeholders. Presently, we have deployed solutions for diabetes, hypertension, and pre-diabetes, and through our acquisition of Upright Technologies Ltd. (“Upright”), we now offer solutions for musculoskeletal (“MSK”) conditions. We are currently delivering B2B2C solutions for providers, employers, and pharmaceutical companies, and we plan to develop a full-risk health plan business, which we expect will provide our AI driven, remote patient monitoring (“RPM”) and coaching for a variety of chronic conditions, across a range of customer product lines in 2021.
Upright, which we acquired on February 1, 2021, is a leading digital MSK health company focused on preventing and treating the most common MSK conditions through behavioral science, biofeedback, coaching, and wearable tech. Upright has over 90,000 active users and its clinically validated solution is recommended by more than 500 clinics worldwide.
On June 7, 2021, we acquired to PsyInnovations, Inc. (“WayForward”), a behavioral digital health platform with AI-enabled screening to triage and navigate members to specific interventions, digital cognitive behavioral therapy (“CBT”), self-directed care, coaching and access to in-person and telehealth provider visits.
We offer a customized, user-centric, modular platform integrating digital therapeutics, coaching, devices, and care providers. Our suite of offerings includes Dario Tools, which are devices that integrate with applications on a user’s smartphone, DarioEngage, a population health management platform (“DarioEngage”), and the Dario Loop, our AI-driven journey engine.
4
In addition, we have continued to carefully monitor the COVID-19 pandemic and its impact on our business. In that regard, we have continued to sell our DarioTM Blood Sugar Monitor and have not experienced disruptions in our supply chains. With respect to our DTx platform, we have observed that some of our business-to-business prospective partners have been addressing their business needs as a result of the COVID-19 pandemic, which has resulted in a slowdown of negotiations and discussions with some of these potential partners. In addition, we have also seen an increase in interest from other business-to-business prospective partners in our DTx platform, as certain parties are seeking tele-health products.
We expect the significance of the COVID-19 pandemic, including the extent of its effect on our financial and operational results, to be dictated by, among other things, its duration, the success of efforts to contain it and the impact of actions taken in response. While we are not able at this time to estimate the impact of the COVID-19 pandemic on our financial and operational results, it could be material.
Management believes that the proceeds from the recent subscription agreement combined with our cash on hand are sufficient to meet our obligations as they come due for at least a period of twelve months from the date of the issuance of these unaudited condensed consolidated financial statements. As a result, the Company has resolved to remove the going concern note from its financial statements. There are no assurances, however, that the Company will be able to obtain an adequate level of financial resources that are required for the long-term development and commercialization of its product offering.
Recent Developments
Upright GO S Launch
In June 2021, we announced the launch of the Upright GO S, a new wearable sensor based on the company's pioneering biofeedback technologies to make better back health accessible to more people. This new product from Upright, by Dario, is part of our planned growth strategy for increasing platform membership across both business partnerships and consumer channels.
Coastal Family Health Center
In June 2021, we announced that we were selected as digital health provider by Coastal Family Health Center, a local, non-profit healthcare network providing comprehensive primary care to patients across several underserved counties in and around the Mississippi Gulf Coast.
Workplace Options
In June 2021, we announced that we our digital behavioral health solution now includes Workplace Options (WPO) services for its global users. WPO is the largest independent provider of integrated employee wellbeing solutions around the world. Our digital behavioral health solution, powered by WayForward and now WPO, gives multi-national employers a way to improve mental health parity for international employees by offering the same high-quality care to people outside of the United States.
Critical Accounting Policies
Please see Note 2 of Part I, Item 1 of this Quarterly Report on Form 10-Q for the summary of significant accounting policies. In addition, reference is made to Part I, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation of our Annual Report on Form 10-K for the year ended December 31, 2020 (filed on March 9, 2021) with respect to our Critical Accounting Policies. There have been no other material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2020.
5
Results of Operations
Comparison of the three and six months ended June 30, 2021 and 2020 (dollar amounts in thousands)
Revenues
Revenues for the three and six months ended June 30, 2021, amounted to $5,261 and $8,856, respectively, compared to revenues of $1,787 and $3,454 during the three and six months ended June 30, 2020, representing an increase of 194% and 156% respectively. The increase in revenues for the three and six months ended June 30, 2021, compared to the three and six months ended June 30, 2020, is due to an increase in our direct to consumer (“D2C”) sales in the six months ended June 30, 2021, and from the consolidation of Upright and WayForward revenues. The proforma revenues for the six months ended June 30, 2021, assuming that the closing of the acquisition of Upright and WayForward would have taken place on the first day of the 2021 fiscal year would have amounted to $10,298.
Revenues were derived mainly from the sales of Dario’s products and our membership offering through D2C acquisitions located mainly in the United States and Australia, through our on-line store and through distributors. Revenues also include the consolidated revenues of Upright and WayForward for the periods of February 2, 2021, and June 7, 2021 respectively, through June 30, 2021.
Cost of Revenues
During the three and six months ended June 30, 2021, we recorded cost of revenues in the amount of $3,753 and $6,267 respectively, compared to costs related to revenues of $1,151 and $2,039 during the three and six months ended June 30, 2020, representing an increase of 226% and 207% respectively. The increase in cost of revenues in the three and six months ended June 30, 2021, compared to the three and six months ended June 30, 2020, are mainly a result of the increase in the sales of our products, the consolidation of Upright’s and WayForward’s cost of revenues, and the amortization of inventory step up and acquired technology in the amount of $1,092 and $1,618 respectively as a result of the acquisition of Upright and WayForward.
Cost of revenues consist mainly of cost of device production, employees’ salaries and related overhead costs, depreciation of production line and related cost of equipment used in production, amortization of technologies, hosting costs, shipping and handling costs and inventory write-downs.
Gross Profit
Gross profit for the three and six months ended June 30, 2021, amounted to $1,508 (28.7% of revenues) and $2,589 (29.2% of revenues) respectively compared to $636 (35.6% of revenues) and $1,415 (41.0% of revenues) during the three and six months ended June 30, 2020. The decrease in gross profit as a percentage of revenue for the three and six months ended June 30, 2021, compared to the three and six months ended June 30, 2020, is mainly as a result of amortization of inventory step up and acquired technology following the acquisition of Upright and WayForward amounting to $1,092 and $1,618 respectively. Gross profit excluding these amortizations was $2,600 (49.4% of revenues) and $4,207 (47.5% of revenues).
Research and Development Expenses
Our research and development expenses increased by $2,917, or 354%, to $3,742 for the three months ended June 30, 2021, compared to $825 for the three months ended June 30, 2020, and increased by $4,341, or 211%, to $6,397 for the six months ended June 30, 2021, compared to $2,056 for the six months ended June 30, 2020. These increases were mainly due to the consolidation of Upright and WayForward during the six months ended June 30, 2021. Our research and development expenses, excluding stock-based compensation and depreciation, for the six months ended June 30, 2021 were $5,299 compared to $1,598 for the six months ended June 30, 2020, an increase of $3,701.
6
Research and development expenses consist mainly of payroll expenses to employees involved in research and development activities, expenses related to our Dario, Upright and WayForward software application and related devices, labor contractors and engineering expenses, depreciation and maintenance fees related to equipment and software tools used in research and development, Dario’s clinical trials performed in the United States to satisfy the FDA product approval requirements and facilities expenses associated with and allocated to research and development activities.
Sales and Marketing Expenses
Our sales and marketing expenses increased by $7,040, or 270%, to $9,648 for the three months ended June 30, 2021, compared to $2,608 for the three months ended June 30, 2020, and increased by $10,081, or 150%, to $16,780 for the six months ended June 30, 2021, compared to $6,699 for the six months ended June 30, 2020. These increases were mainly due to increases in our stock-based compensation, payroll related, digital marketing and the consolidation of Upright and WayForward during the six months ended June 30, 2021. Our sales and marketing expenses, excluding stock-based compensation and depreciation, for the six months ended June 30, 2021 were $14,541 compared to $4,934 for the six months ended June 30, 2020, an increase of $9,607.
Sales and marketing expenses consist mainly of payroll expenses, online marketing campaigns of the Dario service offering, trade show expenses, customer support expenses and marketing consultants and subcontractors.
General and Administrative Expenses
Our general and administrative expenses increased by $4,795, or 362%, to $6,121 for the three months ended June 30, 2021, compared to $1,326 for the three months ended June 30, 2020, and increased by $4,845, or 70% to $11,742 for the six months ended June 30, 2021, compared to $6,897 for the six months ended June 30, 2020. This increase was mainly due to increases in our stock-based compensation, investor relations, insurance expenses and the consolidation of Upright and WayForward during the six months ended June 30, 2021. Our general and administrative expenses, excluding stock-based compensation and depreciation, for the six months ended June 30, 2021 were $4,251 compared to $1,928 for the six months ended June 30, 2020, an increase of $2,323.
Our general and administrative expenses consist mainly of payroll and stock-based compensation expenses for management, employees, directors and consultants, legal fees, directors’ and officers’ insurance, patent registration, expenses related to investor relations, as well as our office rent and related expenses.
Financial (Income) Expenses, net
Our financial income, net for the three months ended June 30, 2021, was $238, representing an increase of 103%, compared to financial income of $117 for the three months ended June 30, 2020. Our financial expenses, net for the six months ended June 30, 2021, were $401, representing decrease of 218%, compared to financial income of $339 for the six months ended June 30, 2020. The changes in our financial income were mainly due to foreign currency translation differences.
Financial (income) expenses, net mainly include bank charges, interest income, lease liability and foreign currency translation differences.
Net loss
Net loss increased by $13,759, or 343.5%, to $17,765 for the three months ended June 30, 2021, compared to a net loss of $4,006 for the three months ended June 30, 2020, and increased by $18,833, or 135.5%, to $32,731 for the six months ended June 30, 2021, compared to a net loss of $13,898 for the six months ended June 30, 2020.
The increase in net loss for the three and six months ended June 30, 2021, compared to the three and six months ended June 30, 2020, was mainly due to the increase in our operating expenses and the consolidation of Upright and WayForward.
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Non-GAAP Financial Measures
The factors described above resulted in net loss attributable to common stockholders for the three and six months ended June 30, 2021, amounted to $17,765 and $32,731, respectively, compared to net loss attributable to common stockholders of $4,006 and $13,898.
To supplement our unaudited condensed consolidated financial statements presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) within this Quarterly Report on Form 10-Q, management provides certain non-GAAP financial measures (“NGFM”) of the Company’s financial results, including such amounts captioned: “net loss before interest, taxes, depreciation, and amortization” or “EBITDA”, and “Non-GAAP Adjusted Loss”, as presented herein below. Importantly, we note the NGFM measures captioned “EBITDA” and “Non-GAAP Adjusted Loss” are not recognized terms under U.S. GAAP, and as such, they are not a substitute for, considered superior to, considered separately from, nor as an alternative to, U.S. GAAP and /or the most directly comparable U.S. GAAP financial measures.
Such NGFM are presented with the intent of providing greater transparency of information used by us in our financial performance analysis and operational decision-making. Additionally, we believe these NGFM provide meaningful information to assist investors, shareholders, and other readers of our unaudited condensed consolidated financial statements, in making comparisons to our historical financial results, and analyzing the underlying financial results of our operations. The NGFM are provided to enhance readers’ overall understanding of our current financial results and to provide further information to enhance the comparability of results between the current year period and the prior year period.
We believe the NGFM provide useful information by isolating certain expenses, gains, and losses, which are not necessarily indicative of our operating financial results and business outlook. In this regard, the presentation of the NGFM herein below, is to help the reader of our unaudited condensed consolidated financial statements to understand the effects of the non-cash impact on our (U.S. GAAP) unaudited condensed consolidated statement of operations of the revaluation of the warrants and the expense related to stock-based compensation, each as discussed herein above.
A reconciliation to the most directly comparable U.S. GAAP measure to NGFM, as discussed above, is as follows:
| Three Months Ended June 30, | |||||||||
(in thousands) | ||||||||||
2021 |
| 2020 |
| $ Change | ||||||
Net Loss Reconciliation |
|
|
|
|
|
| ||||
Net loss - as reported | $ | (17,765) | $ | (4,006) | $ | (13,759) | ||||
Adjustments |
|
|
|
|
|
| ||||
Depreciation and amortization expenses |
| 1,172 |
| 46 |
| 1,126 | ||||
Other financial expenses (income), net |
| (238) |
| (117) |
| (121) | ||||
EBITDA |
| (16,831) |
| (4,077) |
| (12,754) | ||||
Stock-based compensation expenses |
| 5,462 |
| 822 |
| 4,640 | ||||
Acquisition costs | 502 | - | 502 | |||||||
Non-GAAP adjusted loss | $ | (10,867) | $ | (3,255) | $ | (7,612) | ||||
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| Six Months Ended June 30, | ||||||||
(in thousands) | |||||||||
2021 |
| 2020 |
| $ Change | |||||
Net Loss Reconciliation |
|
|
|
|
|
| |||
Net loss - as reported | $ | (32,731) | $ | (13,898) | $ | (18,833) | |||
Adjustments |
|
|
|
|
|
| |||
Depreciation expense |
| 1,762 |
| 92 |
| 1,670 | |||
Other financial (income) expenses, net |
| 401 |
| (339) |
| 740 | |||
EBITDA |
| (30,568) |
| (14,145) |
| (16,423) | |||
Stock-based compensation expenses |
| 9,900 |
| 7,178 |
| 2,722 | |||
Acquisition costs |
| 880 |
| - |
| 880 | |||
Non-GAAP adjusted loss | $ | (19,788) | $ | (6,967) | $ | (12,821) | |||
Liquidity and Capital Resources (amounts in thousands except for share and share amounts)
As of June 30, 2021, we had approximately $63,865 in cash and cash equivalents compared to $28,590 at December 31, 2020.
We have experienced cumulative losses of $177,011 from inception (August 11, 2011) through June 30, 2021 and have a stockholders’ equity of $118,113 on June 30, 2021. In addition, we have not completed our efforts to establish a stable recurring source of revenues sufficient to cover our operating costs and expect to continue to generate losses for the foreseeable future. However, we believe that our sources of liquidity and capital resources will be sufficient to meet our business needs for at least the next 12 months.
Since inception, we have financed our operations primarily through private placements and public offerings of our common stock, warrants to purchase shares of our common stock, and the exercise of existing warrants and options, receiving aggregate net proceeds totaling $189,685 as of June 30, 2021.
On May 24, 2019, we closed on a firm commitment, underwritten public offering consisting of 242,768 shares of common stock and pre-funded warrants to purchase 358,779 shares of our common stock, pursuant to an underwriting agreement entered into with Craig-Hallum Capital Group LLC, as representative of the underwriters. The shares of common stock were sold at a public offering price of $12.00 per share and the pre-funded warrants were sold at a public offering price of $11.998 per pre-funded warrant, for aggregate gross proceeds of approximately $7,218.
On November 27, 2019, we entered into subscription agreements with accredited investors relating to an offering with respect to the sale of an aggregate of 8,361 shares of newly designated Series A Convertible Preferred Stock and an aggregate of 5,200 shares of newly designated Series A-1 Convertible Preferred Stock, at a purchase price of $1 for each share of Series A Preferred Stock and Series A-1 Preferred Stock, for aggregate gross proceeds to the Company of $13,561. The initial conversion price for the Series A and Series A-1 Convertible Preferred Stock to Common Stock is $4.05. The initial closing of the offering took place on November 27, 2019. The Series A and Series A-1 Convertible Preferred Stock issued are convertible into up to 3,349,567 shares of Common Stock. On December 3, 2019, we entered into subscription agreements with accredited investors relating to an offering and the sale of an aggregate of 1,915 shares of newly designated Series A-2 Convertible Preferred Stock, at a purchase price of $1 for each share, for aggregate gross proceeds to the Company of $1,915. The initial conversion price for the Series A-2 Convertible Preferred Stock to Common Stock is $4.28. The Series A-2 Convertible Preferred Stock issued are convertible into up to 448,110 shares of Common Stock. On December 4, 2019, we into subscription agreements with accredited investors relating to an offering and the sale of an aggregate of 3,808 shares of newly designated Series A-3 Convertible Preferred Stock, at a purchase price of $1 for each share, for aggregate gross proceeds to the Company of $3,808. The initial conversion price for the Series A-3 Convertible Preferred Stock to Common Stock is $4.98. The Series A-3 Convertible Preferred Stock issued are convertible into up to 765,408 shares of Common Stock. On December 5, 2019, we entered into subscription agreements with accredited
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investors relating to an offering and the sale of an aggregate of 745 shares of newly designated Series A-4 Convertible Preferred Stock, at a purchase price of $1 for each share, for aggregate gross proceeds to the Company of $745.The initial conversion price for the Series A-4 Convertible Preferred Stock to Common Stock is $5.90. The Series A-4 Convertible Preferred Stock issued are convertible into up to 126,650 shares of Common Stock. On December 19, 2019, we entered into subscription agreements with accredited investors relating to an offering and the sale of an aggregate of 1,346 shares of newly designated Series A-3 Convertible Preferred Stock, at a purchase price of $1 for each share, for aggregate gross proceeds to the Company of $1,346. The initial conversion price for the Series A-3 Convertible Preferred Stock to Common Stock is $4.98. The Series A-3 Convertible Preferred Stock issued are convertible into up to 270,546 shares of Common Stock. The total aggregate gross proceeds of the offering described above, together with gross proceeds from the closing of the offering of Series A Convertible Preferred Stock, Series A-1 Convertible Preferred Stock, Series A-2 Convertible Preferred Stock, Series A-3 Convertible Preferred Stock and Series A-4 Convertible Preferred Stock was $21,375, and the total amount of Common Stock issuable upon conversion of all the shares of Convertible Preferred Stock is up to 4,960,281 shares of Common Stock. As of November 10, 2020, certain Convertible Preferred Stockholders converted 5,552 shares of various classes of the Company’s A Preferred Stock to 1,278,695 shares of Common Stock.
On July 28, 2020, we entered into subscription agreements with accredited investors relating to an offering with respect to the sale of an aggregate of (i) 2,969,266 shares of our common stock, at a purchase price of $7.47 per Share, and (ii) pre-funded warrants to purchase 824,689 shares of common stock, at a purchase price of $7.4699 per Pre-Funded Warrant. In addition, on July 30, 2020, we entered into a subscription agreement with an accredited investor for the purchase of 31,486 shares of our common stock at a purchase price per share of $7.94 per Share. The aggregate gross proceeds were approximately $28,591.
In September 2020, we and an existing warrant holder entered into an agreement pursuant to which we agreed to lower the exercise price of certain warrants from $25 to $13.00 per share, issued in September 2018. As a result, the warrant holder exercised warrants to purchase 88,889 shares of our common stock resulting in aggregate e gross proceeds of approximately $1,156.
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.
Management believes that the proceeds from the recent private placement combined with our cash on hand are sufficient to meet our obligations as they come due for at least a period of twelve months from the date of the issuance of these unaudited condensed consolidated financial statements. As a result, the Company has resolved to remove the going concern note from its financial statements. There are no assurances, however, that the Company will be able to obtain an adequate level of financial resources that are required for the long-term development and commercialization of its product offering.
As such, we have a significant present need for capital. If we are unable to scale up our commercial launch of Dario or meet our commercial sales targets (or if we are unable to generate any revenue at all), and if we are unable to obtain additional capital resources in the near term, we may be unable to continue activities absent material alterations in our business plans and our business might fail.
Additionally, readers are advised that available resources may be consumed more rapidly than currently anticipated, resulting in the need for additional funding sooner than expected. Should this occur, we will need to seek additional capital earlier than anticipated in order to fund (1) further development and, if needed (2) our efforts to obtain regulatory clearances or approvals necessary to be able to commercially launch Dario, DarioEngage and Dario Intelligence, (3) expenses which will be required in order to expand manufacturing of our products, (4) sales and marketing efforts and (5) general working capital. Such funding may be unavailable to us on acceptable terms, or at all. Our failure to obtain such funding when needed could create a negative impact on our stock price or could potentially lead to the failure of our company. This would particularly be the case if we are unable to commercially distribute our products and services in the jurisdictions and in the timeframes, we expect.
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Cash Flows (dollar amounts in thousands)
The following table sets forth selected cash flow information for the periods indicated:
June 30, | ||||
2021 | 2020 | |||
| $ | $ | ||
Cash used in operating activities: | (22,838) |
| (7,184) | |
Cash used in investing activities: | (7,593) |
| (43) | |
Cash provided by financing activities: | 65,766 |
| - | |
35,335 | (7,227) | |||
Net cash used in operating activities
Net cash used in operating activities was $22,838 for the six months ended June 30, 2021 an increase of 217.9% compared to $7,184 used in operations for the same period in 2020. Cash used in operations increased mainly due to the increase in our marketing activities and the consolidation of Upright and WayForward.
Net cash used in investing activities
Net cash used for investing activities was $7,593 for the six months ended June 30, 2021, an increase of 17,558% compared to cash derived from investing activities of $43 for the same period in 2020. Cash used for investing activities increased mainly due to the repayment of a loan we made to Upright as well as cash acquired as part of the acquisition of Upright and WayForward.
Net cash provided by financing activities
Net cash provided by financing activities was $65,766 for the six months ended June 30, 2021 compared to no financing activities during the same period in 2020.
Off-Balance Sheet Arrangements
As of June 30, 2021, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company and therefore are not required to provide the information for this item of Form 10-Q.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Report, our Chief Executive Officer and Chief Financial Officer, or the Certifying Officers, conducted evaluations of our disclosure controls and procedures. As defined under Sections 13a–15(e) and 15d–15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosures.
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Based on their evaluation, the Certifying Officers concluded that, as of June 30, 2021, our disclosure controls and procedures were designed at a reasonable assurance level and were therefore effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Internal Controls
Readers are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our control have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
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PART II- OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the second quarter of 2021, we issued an aggregate of 72,754 shares of our common stock to certain of our service providers as compensation in lieu of cash compensation owed to them for services rendered. We claimed exemption from registration under the Securities Act of 1933, as amended, or the Securities Act, for the foregoing transactions under Section 4(a)(2) of the Securities Act.
Item 6. Exhibits.
No. |
| Description of |
3.1* | Composite Copy of the Company’s Bylaws as amended on July 8, 2021. | |
3.2* | Composite Copy (marked) of the Company’s Bylaws as amended on July 8, 2021. | |
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 June 30, 2021, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Loss, (iii) Statements of Changes in Stockholders’ Deficiency, (iv) Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail. | |
104 | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101). |
*Filed herewith.
**Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: August 16, 2021 | 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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