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 |
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| The |
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 | ||
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| 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 May 10, 2024, 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., an Israeli company, Twill Inc., a Delaware company, PsyInnovations Inc., 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
| Page | ||
3 | |||
F-1 | |||
F-2 – F-3 | |||
F-4 | |||
F-5 | |||
F-6 | |||
F-7 – F-29 | |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 4 | ||
11 | |||
12 | |||
12 | |||
15 | |||
16 |
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; |
● | interpretations of current laws and the passages of future laws; and |
● | acceptance of our business model by investors. |
Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “would,” “could,” “scheduled,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors. These statements may be found under the section of our Annual Report on Form 10-K for the year ended December 31, 2023 (filed on March 28, 2024) 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 MARCH 31, 2024
UNAUDITED
INDEX
Page | ||
| F-2 – F-3 | |
F-4 | ||
F-5 | ||
F-6 | ||
F-7 – F-29 |
F-1
INTERIM CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
March 31, | December 31, | |||||
| 2024 |
| 2023 | |||
Unaudited |
|
| ||||
ASSETS | ||||||
| ||||||
CURRENT ASSETS: |
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|
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Cash and cash equivalents | $ | | $ | | ||
Short-term restricted bank deposits |
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Trade receivables, net |
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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 | | | ||||
Operating 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 unaudited interim consolidated financial statements.
F-2
INTERIM CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except stock and stock data)
March 31, | December 31, | |||||
| 2024 |
| 2023 | |||
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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Current maturity of long term loan | | | ||||
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Total current liabilities |
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| | ||
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NON-CURRENT LIABILITIES | ||||||
Operating lease liabilities |
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Long-term loan |
| |
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Warrant liability | | | ||||
Other long-term liabilities |
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Total non-current liabilities | | | ||||
STOCKHOLDERS’ EQUITY |
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|
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| ||
Common stock of $ |
| |
| | ||
Preferred stock of $ |
|
| ||||
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 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 | ||||||
March 31, | ||||||
| 2024 |
| 2023 | |||
Unaudited | ||||||
Revenues: | ||||||
Services | $ | | $ | | ||
Consumer hardware | | | ||||
Total revenues | | | ||||
Cost of revenues: | ||||||
Services | | | ||||
Consumer hardware | | | ||||
Amortization of acquired intangible assets | | | ||||
Total cost of revenues |
| |
| | ||
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Gross profit |
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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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Operating loss |
| |
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Total financial expenses (income), net |
| ( |
| | ||
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| |||||
Loss before taxes | | | ||||
Income Tax | | — | ||||
Net loss | $ | | $ | | ||
Other comprehensive loss: |
|
| ||||
Deemed dividend | $ | | $ | - | ||
Net loss attributable to common shareholders | $ | | $ | | ||
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| |||||
Net loss per share: |
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| ||
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| |||||
Basic and diluted loss per share of common stock | $ | | $ | | ||
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 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 March 31, 2024 | Number | Amount | Number | Amount | capital | deficit | equity | ||||||||||||
Balance as of December 31, 2023 (audited) |
| |
| $ | |
| |
| $ | *)- |
| $ | |
| $ | ( |
| $ | |
Exercise of options |
| |
| *)- |
| — |
| — |
| *)- |
| — |
| — | |||||
Deemed dividend related to issuance of preferred stock |
| — |
| — |
| — |
| — |
| |
| ( |
| — | |||||
Issuance of warrants to service providers |
| — |
| — |
| — |
| — |
| |
| — |
| | |||||
Conversion of prefunded warrants to common Stock |
| |
| *)- |
| — |
| — |
| — |
| — |
| — | |||||
Stock-based compensation |
| |
| *)- |
| — |
| — |
| |
| — |
| | |||||
Issuance of preferred stock, net of issuance cost | — | — | | *)- | | | |||||||||||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||
Balance as of March 31, 2024 (unaudited) |
| | $ | |
| | $ | *)- | $ | | $ | ( | $ | | |||||
Additional | Total | ||||||||||||||||||
Common Stock | Preferred Stock | paid-in | Accumulated | stockholders’ | |||||||||||||||
Three Months Ended March 31, 2023 | Number | Amount | Number | Amount | capital | deficit | equity | ||||||||||||
Balance as of December 31, 2022 (audited) |
| |
| $ | |
| |
| $ | *)- |
| $ | |
| $ | ( |
| $ | |
Issuance of warrants to service providers |
| — |
| — |
| — |
| — |
| |
| — |
| | |||||
Stock-based compensation |
| |
| — |
| — |
| — |
| |
| — |
| | |||||
Conversion of preferred stock to common stock |
| |
| *)- |
| ( |
| *)- |
| — |
| — |
| — | |||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||
Balance as of March 31, 2023 (unaudited) |
| | $ | |
| | $ | *)- | $ | | $ | ( | $ | | |||||
*) Represents an amount lower than $1.
The accompanying notes are an integral part of the unaudited interim consolidated financial statements.
F-5
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Three months ended | ||||||
March 31, | ||||||
| 2024 |
| 2023 | |||
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 payment in stock to directors, employees, consultants, and service providers |
| |
| | ||
Depreciation |
| |
| | ||
Change in operating lease right of use assets |
| |
| | ||
Amortization of acquired intangible assets |
| |
| | ||
Decrease (increase) in trade receivables |
| ( |
| | ||
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 |
| ( |
| ( | ||
Decrease in deferred revenues |
| |
| ( | ||
Change in operating lease liabilities |
| ( |
| ( | ||
Change in fair value of warrant liability |
| ( |
| ( | ||
Non-Cash financial income |
| ( |
| ( | ||
Other |
| ( |
| — | ||
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| |||||
Net cash used in operating activities |
| ( |
| ( | ||
Cash flows from investing activities: |
|
|
|
| ||
Purchase of property and equipment |
| ( |
| ( | ||
Purchase of short-term investments | - | ( | ||||
Proceeds from redemption of short-term investments | - | | ||||
Payments for business acquisitions, net of cash acquired | ( | - | ||||
Net cash used in investing activities |
| ( |
| ( | ||
|
| |||||
Cash flows from financing activities: |
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| ||||
Proceeds from issuance of preferred stock, net of issuance costs |
| |
| - | ||
Principal payments on long-term loan |
| - |
| ( | ||
Net cash provided by financing activities |
| |
| ( | ||
Increase in cash, cash equivalents and restricted cash and cash equivalents |
| ( |
| ( | ||
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period |
| |
| | ||
Cash, cash equivalents and restricted cash and cash equivalents at end of period | $ | | $ | | ||
Supplemental disclosure of cash flow information: |
|
|
|
| ||
Cash paid during the period for interest on long-term loan | $ | | $ | | ||
Non-cash activities: |
|
|
|
| ||
Right-of-use assets obtained in exchange for lease liabilities | $ | | $ | |
The accompanying notes are an integral part of the unaudited interim consolidated financial statements.
F-6
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 therapeutics (DTx) company delivering personalized evidence-based interventions that are driven by precision data analytics, software, and personalized coaching, DarioHealth has developed an approach with 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, hypertension, weight management, musculoskeletal pain, and behavioral health.
The Company has
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. | On February 15, 2024 (the “Closing Date”), the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Twill, Inc. (“Twill”), (see note 4). Pursuant to the provisions of the Merger Agreement, on the Closing Date, TWILL Merger Sub, Inc. (“Merger Sub”) was merged with and into Twill, the separate corporate existence of Merger Sub ceased and Twill continued as the surviving company and a wholly owned subsidiary of the Company. Twill is a clinical grade technology company working to shorten the distance between need and care by configuring personalized digital therapeutics and care solutions at scale for the modern healthcare cloud. Twill’s Intelligent Healing Platform(tm): integrates AI with empathy, making healing more personal, precise, and connected for the entire care journey. Twill deploys a full spectrum of science-backed care solutions—including digital therapeutics, coaching, community, and well-being products for pharma, health plans, enterprises, and individuals everywhere. |
d. | The Company has incurred net losses since its inception. As of March 31, 2024, the Company has incurred recurring losses and negative cash flows since inception and has an accumulated deficit of $ |
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 2: - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited interim consolidated financial statements as of March 31, 2024, 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 March 31, 2024, and the Company’s consolidated results of operations and the Company’s consolidated cash flows for the three months ended March 31, 2024. Results for the three months ended March 31, 2024, are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. 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, 2023.
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.
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, 2023 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:
March 31, | March 31, | ||||||
| 2024 |
| 2023 | ||||
Unaudited | Unaudited | ||||||
Cash, and cash equivalents as reported on the balance sheets | $ | |
| $ | | ||
Short-term restricted bank deposits | |
| | ||||
Cash, restricted cash, cash equivalents, and restricted cash and cash equivalents as reported in the statements of cash flows | $ | |
| $ | |
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 (Cont.)
c. Business and Asset Acquisitions
When the Company acquires a business, the purchase price is allocated to the tangible and identifiable intangible assets, net of liabilities assumed. Any residual purchase price is recorded as goodwill. The allocation of the purchase price requires management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, especially with respect to intangible assets. These estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate weighted-average cost of capital. These estimates are inherently uncertain and unpredictable. During the measurement period, which may be up to one year from the acquisition date, adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s consolidated statements of operations.
The Company accounts for a transaction as an asset acquisition when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, or otherwise does not meet the definition of a business. Asset acquisition-related costs are capitalized as part of the asset or assets acquired.
d. Revenue recognition
The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from contracts with customers,” (“ASC 606”) when (or as) it satisfies performance obligations by transferring promised hardware or services to its customers in an amount that reflects the consideration the Company expects to receive. The Company applies the following five steps: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. For contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation based on the relative standalone selling price (“SSP”) for each performance obligation. The Company uses judgment in determining the SSP for its performance obligations. To determine SSP, the Company maximizes the use of observable standalone sales and observable 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.
The Company’s payment terms are generally
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.)
Consumers revenue
The Company considers customer and distributor purchase orders to be contracts with a customer. For each contract, the Company considers the promise to transfer tangible hardware and/or services, each of which are distinct, and accounted for as separate 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 hardware is recognized when control of the hardware is transferred to the customer (i.e., when the Company’s performance obligation is satisfied), which typically occurs at shipment. The revenues from fixed-price services are recognized ratably over the contract period.
Commercial revenue – B2B2C
The Company provides a mobile and web-based digital therapeutics health management programs to employers 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 contract. These solutions integrate access to the Company’s web-based platform, and clinical and data services to provide an overall health management solution. The promises to transfer these goods and services are not separately identifiable and is considered a single continuous service comprised of a series of distinct services recognized over time that are substantially the same and have the same pattern of transfer (i.e., distinct days of service). Revenues related to the Company's newly acquired Twill platform are recognized over time, since the customer simultaneously receives and consumes the benefits provided by the Company’s performance.
To the extent the transaction price includes variable consideration, revenue is recognized using the variable consideration allocation exception, or, if the allocation exception is not met, the Company recognizes revenue ratably based on estimates of the variable consideration to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. When the variable consideration allocation exception is met, the Company recognizes revenue each month using either on a per engaged member per month (PEMPM) or a per employee per month (PEPM) basis. Contracts typically have a duration of more than one year.
Since the acquisition of Twill (note 4), the Company also provides professional services and ad serving services related to the Twill platform. Revenues related to professional services are recognized over time, since the customer simultaneously receives and consumes the benefits provided by the Company’s performance. The Company generally recognizes revenues for professional services using an input method, based on labor hours consumed, which the Company believes best depicts the transfer of the services to the customer. Revenues related to ad serving services are recognized when impressions are delivered. The Company recognizes revenue from the display of ads in the contracted period in which the impressions are delivered. Impressions are considered delivered when an ad is displayed.
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 result 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.
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.)
The Company follows the guidance provided in ASC 606 for determining whether it is a principal (i.e., report revenues on a gross basis) or an agent (i.e., report revenues on a net basis) in arrangements with customers that involve another party that contributes to providing specified services to a customer, based on whether the Company controls the specified good or service.
Commercial revenue - Strategic partnerships
The Company has also entered into contracts (Note 5) with a preferred partner and a health plan provider in which the Company provides data license, development and implementation services.
e. Concentrations of credit risk:
Financial instruments that potentially subject the Company to credit risks 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 that 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.
Balance at | Balance at | |||||||||||
beginning of period | Additions | Deduction | end of period | |||||||||
Three months ended March 31, 2024 | ||||||||||||
Allowance for credit losses | $ | | $ | |
| $ | — |
| $ | | ||
Year ended December 31, 2023 | ||||||||||||
Allowance for credit losses | $ | | $ | | $ | — | $ | |
The Company has no off-balance-sheet concentration of credit risk.
As of March 31, 2024, the Company's major customers accounted for
f. Recently issued Accounting Pronouncements
(i) | In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280), “Improvements to Reportable Segment Disclosures,” which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. In addition, it provides new segment disclosure requirements for entities with a single reportable segment. The guidance will be effective for the Company for annual periods beginning January 1, 2024 and for interim periods beginning January 1, 2025. Early adoption is permitted. The Company is currently evaluating the impact on its financial statement disclosures. |
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 2: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
(ii) | In December 2023, the FASB issued ASU 2023-09, “Income Taxes” (“Topic 740”), Improvements to Income Tax Disclosures, which requires disaggregated information about the effective tax rate reconciliation as well as information on income taxes paid. The guidance will be effective for the Company for annual periods beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the impact on its financial statement disclosures. |
NOTE 3: - INVENTORIES
March 31, | December 31, | |||||
2024 | 2023 | |||||
Unaudited | ||||||
Raw materials |
| $ | |
| $ | |
Finished products |
| |
| | ||
|
| |||||
$ | | $ | |
During the three-month period ended March 31, 2024, and the year ended December 31, 2023, total inventory write-down expenses amounted to $
NOTE 4 – ACQUISITIONS
Acquisition of Twill
On February 15, 2024 (the “Closing Date”), the Company completed the merger and the associated acquisition of all issued and outstanding shares of Twill for an aggregate consideration of (A) $
The acquisition of Twill advances our strategy to evolve from a point solution to a comprehensive multi condition platform. Twill brings a global, digital-first approach to improving mental and physical health through its personalized and connected care services. These services include evidence-based programs, supportive communities, human-led coaching, and therapy, which are accessible globally in 10 languages and cover over 18 million lives. Utilized by enterprises, health plans, pharmaceutical companies, and individuals around the world. With the integration of Twill, the Company believes it can achieve multiple advantages as well as synergies in multiple fronts like its product offering, commercial channels, improved clients and member experience.
F-12
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
NOTE 4 – ACQUISITIONS (Cont.)
Preliminary purchase price allocation:
Under business combination accounting principles, the total purchase price was allocated to Twill’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. A portion of the acquisition price was recorded as goodwill due to the synergies with Twill and is not expected to be deductible for tax purposes.
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:
| |||
Cash and cash equivalents | $ | | |
Short-term restricted bank deposits | | ||
Trade receivables | | ||
Other accounts receivable and prepaid expenses | | ||
Property and equipment, net | | ||
Operating lease right of use assets | | ||
Acquisition-related intangibles | | ||
Other assets | | ||
Tangible assets acquired | | ||
Trade payables | | ||
Other accounts payable and accrued expenses | | ||
Deferred revenues | | ||
Operating lease liabilities | | ||
Deferred tax liability | | ||
Liabilities assumed | | ||
Fair value of net assets acquired | | ||
Goodwill | | ||
Total purchase consideration | $ | |
Following are details of the purchase consideration allocated to acquired intangible assets:
Fair value | Amortization | |||||||
Unaudited | period (Years) | |||||||
Technology (1) | $ | | 8 | |||||
Customer relationship healthcare (2) | | 12 | ||||||
Total identified intangible assets acquired | $ | |
(1) | The technology has been calculated through the Income Approach, in particular the Relief from Royalty method. |
(2) | The fair value of Twill’s customer relationships has been calculated using the MPEEM method. |
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 – ACQUISITIONS (Cont.)
Amount | |||
Unaudited | |||
Number of shares of common stock issuable upon the exercise of the consideration warrants. | | ||
Value of each warrant issues | $ | | |
Total consideration warrant shares | | ||
Cash consideration | | ||
Total purchase price | $ | |
The interim consolidated statement of comprehensive loss includes the following revenue and net loss attributable to Twill in 2024:
| |||
2024 | |||
Unaudited | |||
Revenues | $ | | |
Net loss | $ | |
The Company recognized $
Supplemental unaudited Pro forma Information
The following table sets forth a summary of the unaudited pro forma results of the Company as if the acquisition of Twill, which closed in February 2024, had taken place had Twill been acquired as of January 1, 2023.
Three months ended | Three months ended | |||||
March 31, | March 31, | |||||
2024 | 2023 | |||||
Total revenue |
| $ | |
| $ | |
Net loss | $ | | $ | |
|
The unaudited pro forma financial information presented is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the Twill acquisition was completed at the beginning of 2023 and are not indicative of the future operating results of the combined company. The pro forma results include adjustments related to purchase accounting, primarily amortization of acquisition-related intangible assets and expense from assumed stock-based compensation awards. The pro forma results also include income from revaluation of the pre-funded warrants issued as part of the consideration for the acquisition of Twill, as these warrants are classified as a liability under GAAP.
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: - 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 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 aggregate consideration under the contract is up to $
Since the contract consideration includes variable consideration, as of March 31, 2024, 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.
In 2022, the first development plan was approved and completed. The Company concluded that the first development plan should be accounted for as a separate contract. As such, for the year ended December 31, 2022, the Company recognized $
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 which includes development services performance obligations, satisfied over time, based on labor hours. As such, for the three months ended March 31, 2023, the Company recognized $
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. For the three months ended March 31, 2024 and 2023 the Company recognized $
The Company's measures the progress of the development services performance obligations using an input method, based on labor hours consumed as the Company believes that this method best depicts the transfer of services to the customer.
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 5: - REVENUES (Cont.)
Agreement with National Health Plan
On October 1, 2021, the Company entered into a Master Service Agreement (the “MSA”) and 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 contract contained a single performance obligation – to provide access to the Company’s platform. The consideration in the contract was based entirely on customer usage.
On August 2022, the Company entered into an additional SOW (the “August SOW”) with the Health Plan according to which the Company will provide implementation services and shall develop additional features to be included in the platform.
The Company concluded that the August SOW should be accounted for as a separate contract. The Company has concluded that the August SOW contained two performance obligations as follows:
(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 $
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 $
For the three months ended March 31, 2023, the Company recognized revenues of $
Revenue Source:
The following tables represent the Company’s total revenues for the three months ended March 31, 2024, and 2023 disaggregated by revenue source:
Three months ended | ||||||
March 31, | ||||||
|
| 2024 |
| 2023 | ||
| Unaudited | |||||
Commercial - Business-to-Business-to-Consumer (“B2B2C”) |
| $ | |
| $ | |
Commercial - Strategic partnerships | | | ||||
Consumers | | | ||||
| $ | |
| $ | |
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 5: - REVENUES (Cont.)
Deferred Revenue
The Company recognizes contract liabilities, or deferred revenues, when it receives advance payments from customers prior to the satisfaction of the 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 Company expects to recognize approximately $
The following table presents the significant changes in the deferred revenue balance during the three months ended March 31, 2024:
Balance, beginning of the period |
| $ | |
Additions through Acquisition of Twill | | ||
New performance obligations | | ||
Reclassification to revenue as a result of satisfying performance obligations | ( | ||
Balance, end of the period |
| $ | |
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-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: - REVENUES (Cont.)
Costs to fulfill a contract as of March 31, 2024, and December 31, 2023, consisted of the following:
March 31, | December 31, | |||||
2024 | 2023 | |||||
Unaudited | ||||||
Costs to fulfill a contract, current | $ | |
| $ | | |
Costs to fulfill a contract, noncurrent |
| |
| | ||
|
| |||||
Total costs to fulfill a contract | $ | | $ | |
Costs to fulfill a contract were as follows:
Costs to | |||
fulfill a contract | |||
Beginning balance as of December 31, 2023 | $ | | |
Additions | | ||
Cost of revenue recognized | ( | ||
Ending balance as of March 31, 2024 (unaudited) | |
NOTE 6: - DEBT
Loan Facility
On May 1, 2023, the Company refinanced its existing $
During the term of the Avenue Loan Facility, interest payable in cash by the Borrowers shall accrue on any outstanding balance due under the Avenue Loan Facility at a rate per annum equal to the higher of (x) the sum of four one-half percent (
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 6: - DEBT (Cont.)
The Avenue Lenders have the right, at any time while the Avenue Loan Facility is outstanding, to convert an amount of up to $
The Company concluded that Avenue Loan Facility and the Warrant are freestanding financial instruments since these instruments are legally detachable and separately exercisable. The Company has concluded that the Warrant meets all the conditions to be classified as equity pursuant to ASC 480 and ASC 815-40. In addition, the Company elected to account for the Avenue 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. As such, the proceeds were first allocated to the Avenue Loan Facility at fair value in the amount of $
During the three-month period ended March 31, 2024, the Company recognized $
NOTE 7: - WARRANT LIABILITY
Orbimed Warrants
On June 9, 2022 (the closing date of the Orbimed Loan, which was repaid in May 2023), the Company agreed to issue Orbimed a warrant (the “Orbimed Warrant”) to purchase up to
The Company has concluded that the Orbimed Warrant is 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. During the three-month period ended March 31, 2024, and 2023, the Company recognized $
Pre-funded warrants
On February 15, 2024, as part of the acquisition of Twill (See note 4) the Company issued Pre-Funded Warrants to purchase up to
The Company has classified the pre-funded as liability pursuant to ASC 815-40 since the Pre-Funded Warrants do not meet the equity classification conditions. Accordingly, the Company measured the Pre-Funded Warrants at their fair value. The warrants liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statement of comprehensive loss. During the three-month period ended March 31, 2024, the Company recognized $
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: - FAIR VALUE MEASUREMENTS
Under U.S. GAAP, fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants and requires that assets and liabilities carried at fair value are classified and disclosed in the following three categories:
Level 1 - | Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. |
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 3 - | Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
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.
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 Orbimed loan facility (as defined herein) was measured at fair value using Level 3 unobservable inputs until the payoff date of May 1, 2023. The Orbimed Warrant liability was measured at fair value using Level 3 unobservable inputs. In addition, the Avenue Loan Facility is also measured at fair value using level 3 inputs.
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 8: - FAIR VALUE MEASUREMENTS (Cont.)
The following tables present information about the Company’s financial liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values:
| March 31, 2024 | ||||||||||||
Unaudited | |||||||||||||
| Fair Value |
| Level 1 | Level 2 | Level 3 | ||||||||
|
| (in thousands) | |||||||||||
Financial liabilities: |
|
| |||||||||||
Long term loan |
| — | — |