0001558370-22-008360.txt : 20220512 0001558370-22-008360.hdr.sgml : 20220512 20220511173556 ACCESSION NUMBER: 0001558370-22-008360 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 59 CONFORMED PERIOD OF REPORT: 20220331 FILED AS OF DATE: 20220512 DATE AS OF CHANGE: 20220511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DarioHealth Corp. CENTRAL INDEX KEY: 0001533998 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 452973162 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-37704 FILM NUMBER: 22914910 BUSINESS ADDRESS: STREET 1: 18 W 18TH ST., 5TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10011 BUSINESS PHONE: 646.665.4667 MAIL ADDRESS: STREET 1: 18 W 18TH ST., 5TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10011 FORMER COMPANY: FORMER CONFORMED NAME: LabStyle Innovations Corp. DATE OF NAME CHANGE: 20111101 10-Q 1 drio-20220331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to

Commission File No. 001-37704

DarioHealth Corp.

(Exact name of registrant as specified in its charter)

Delaware

45-2973162

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification No.)

18 W. 18th St.

 

New York, New York

10011

(Address of Principal Executive Offices)

(Zip Code)

(972)-4 770-6377

(Registrant’s telephone number, including area code)

n/a

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol(s)

    

Name of exchange on which registered

Common Stock, par value $0.0001 per share

 

DRIO

 

The Nasdaq Capital Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No 

As of May 9, 2022, the registrant had 21,986,598 shares of common stock outstanding.

When used in this quarterly report, the terms “DarioHealth,” “the Company,” “we,” “our,” and “us” refer to DarioHealth Corp., a Delaware corporation, our subsidiaries LabStyle Innovation Ltd. and Upright Technologies Ltd., each of which are Israeli companies, and Upright Technologies Inc. and PsyInnovations Inc., each a Delaware company. “Dario” is registered as a trademark in the United States, Israel, China, Canada, Hong Kong, South Africa, Japan, Costa Rica and Panama. “DarioHealth” is registered as a trademark in the United States and Israel.

DarioHealth Corp.

Quarterly Report on Form 10-Q

TABLE OF CONTENTS

    

Page

Cautionary Note Regarding Forward-Looking Statements

3

PART 1- FINANCIAL INFORMATION

Item 1.

Interim Consolidated Financial Statements (unaudited)

F-1

Interim Consolidated Balance Sheets

F-2 – F-3

Interim Consolidated Statements of Comprehensive Loss

F-4

Interim Statements of Stockholders’ Equity

F-5 – F- 6

Interim Consolidated Statements of Cash Flows

F-7

Notes to Interim Consolidated Financial Statements

F-8 – F-18

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

4

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

10

Item 4.

Control and Procedures

10

PART II- OTHER INFORMATION

11

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

11

Item 6.

Exhibits

11

SIGNATURES

12

2

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain information set forth in this Quarterly Report on Form 10-Q, including in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein may address or relate to future events and expectations and as such constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting our business, including many assumptions regarding future events. Such forward-looking statements include statements regarding, among other things:

our current and future capital requirements and our ability to satisfy our capital needs through financing transactions or otherwise;
our product launches and market penetration plans;
the execution of agreements with various providers for our solution;
our ability to maintain our relationships with key partners, including Sanofi U.S. Services Inc. (“Sanofi”) ;
our ability to complete required clinical trials of our product and obtain clearance or approval from the United States Food and Drug Administration (the “FDA”), or other regulatory agencies in different jurisdictions;
our ability to maintain or protect the validity of our U.S. and other patents and other intellectual property;
our ability to retain key executive members;
our ability to internally develop new inventions and intellectual property;
the impact of the COVID-19 pandemic on our manufacturing, sales, business plan and the global economy;
interpretations of current laws and the passages of future laws; and
acceptance of our business model by investors.

Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “would,” “could,” “scheduled,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors. These statements may be found under the section of our Annual Report on Form 10-K for the year ended December 31, 2021 (filed on March 22, 2022) entitled “Risk Factors” as well as in our other public filings.

In light of these risks and uncertainties, and especially given the start-up nature of our business, there can be no assurance that the forward-looking statements contained herein will in fact occur. Readers should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

3

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF MARCH 31, 2022

UNAUDITED

INDEX

Page

Interim Consolidated Balance Sheets

    

F-2 – F-3

Interim Consolidated Statements of Comprehensive Loss

F-4

Interim Statements of Stockholders’ Equity

F-5 – F- 6

Interim Consolidated Statements of Cash Flows

F-7

Notes to Interim Consolidated Financial Statements

F-8 – F-18

F-1

Table of Contents

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

March 31, 

December 31, 

    

2022

    

2021

Unaudited

 

  

ASSETS

CURRENT ASSETS:

 

  

 

  

Cash and cash equivalents

$

55,558

$

35,808

Short-term restricted bank deposits

 

190

 

192

Trade receivables

 

4,574

 

1,310

Inventories

 

7,783

 

6,228

Other accounts receivable and prepaid expenses

 

3,271

 

2,067

Total current assets

 

71,376

 

45,605

NON-CURRENT ASSETS:

 

 

Deposits

7

20

Operating lease right of use assets

 

280

 

287

Long-term assets

16

57

Property and equipment, net

698

702

Intangible assets, net

13,314

12,460

Goodwill

41,640

41,640

Total non-current assets

55,955

55,166

Total assets

$

127,331

$

100,771

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

F-2

Table of Contents

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED BALANCE SHEETS

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

March 31, 

December 31, 

    

2022

    

2021

Unaudited

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

CURRENT LIABILITIES:

 

  

 

  

Trade payables

$

4,228

$

5,109

Deferred revenues

 

1,093

 

1,195

Operating lease liabilities

212

266

Other accounts payable and accrued expenses

 

7,192

 

7,806

Earn-out liability

373

825

Total current liabilities

 

13,098

 

15,201

NON-CURRENT LIABILITIES

Operating lease liabilities

 

48

 

21

Total non-current liabilities

48

21

STOCKHOLDERS’ EQUITY

 

 

Common stock of $0.0001 par value - Authorized: 160,000,000 shares at March 31, 2022 (unaudited) and December 31, 2021; Issued and Outstanding: 22,070,963 and 16,573,420 shares at March 31, 2022 (unaudited) and December 31, 2021, respectively

 

2

 

2

Preferred stock of $0.0001 par value - Authorized: 5,000,000 shares at March 31, 2022 (unaudited) and December 31, 2021; Issued and Outstanding: 10,897 and 11,927 shares at March 31, 2022 (unaudited) and December 31, 2021, respectively

 

*) -

 

*) -

Additional paid-in capital

 

352,564

 

307,561

Accumulated deficit

 

(238,381)

 

(222,014)

Total stockholders’ equity

 

114,185

 

85,549

Total liabilities and stockholders’ equity

$

127,331

$

100,771

*) -  Represents an amount lower than $1

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

F-3

Table of Contents

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

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

Three months ended

March 31, 

    

2022

    

2021

Unaudited

Revenues

$

8,059

$

3,595

Cost of revenues (excluding amortization and inventories step-up shown separately below)

 

3,142

 

1,988

Amortization of acquired intangible assets and inventories step-up

932

526

Gross profit

 

3,985

 

1,081

Operating expenses:

 

 

Research and development

$

5,927

$

2,655

Sales and marketing

 

9,535

 

7,132

General and administrative

 

4,395

 

5,621

Total operating expenses

 

19,857

 

15,408

Operating loss

 

15,872

 

14,327

Total financial expenses, net

 

44

 

639

Net loss

$

15,916

$

14,966

Deemed dividend

$

451

$

544

Net loss attributable to holders of common stock

$

16,367

$

15,510

Net loss per share:

 

 

Basic and diluted loss per share

$

0.74

$

0.92

Weighted average number of common stock used in computing basic and diluted net loss per share

 

19,624,079

 

14,025,921

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

F-4

Table of Contents

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

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’

Number

Amount

Number

Amount

capital

deficit

equity

Balance as of December 31, 2021(audited)

    

16,573,420

    

$

2

    

11,927

    

$

*)-

    

$

307,561

    

$

(222,014)

    

$

85,549

Exercise of warrants

 

81,221

 

*)-

 

-

 

-

 

-

 

-

 

-

Issuance of common stock to directors and employees

 

24,191

 

*)-

 

-

 

-

 

161

 

-

 

161

Issuance of common stock to consultants and service provider

 

4,983

 

*)-

 

-

 

-

 

113

 

-

 

113

Conversion of preferred stock to common stock

 

316,052

 

*)-

 

(1,030)

 

*)-

 

-

 

-

 

*)-

Deemed dividend related to issuance of preferred stock

 

-

 

-

 

-

 

-

 

451

 

(451)

 

-

Issuance of warrants to service providers

 

-

 

-

 

-

 

-

 

1,301

 

-

 

1,301

Stock-based compensation

 

139,982

 

*)-

 

-

 

-

 

3,768

 

-

 

3,768

Issuance of common stock and pre-funded warrants, net of issuance cost

 

4,674,454

 

*)-

 

-

 

-

 

38,023

 

-

 

38,023

Issuance of Common Stock, net of issuance cost upon Acquisition of Physimax Technologies Ltd.

 

256,660

 

*)-

 

-

 

-

 

1,186

 

-

 

1,186

Net loss

 

-

 

-

 

-

 

-

 

-

 

(15,916)

 

(15,916)

-

Balance as of March 31, 2022 (unaudited)

 

22,070,963

$

2

 

10,897

$

*)-

$

352,564

$

(238,381)

$

114,185

*)  Represents an amount lower than $1.

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

F-5

Table of Contents

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

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

shareholders'

Number

Amount

Number

Amount

capital

deficit

equity

Balance as of December 31, 2020 (audited)

    

8,119,493

    

$

*)-

    

15,823

    

$

*)-

    

$

171,399

    

$

(143,248)

    

$

28,151

Payment for executives and directors under Stock for Salary Program

 

5,579

 

*)-

 

-

 

-

 

72

 

-

 

72

Exercise of options

 

33,773

 

*)-

 

-

 

-

 

201

 

-

 

201

Exercise of placement agent warrants

 

92,575

 

*)-

 

-

 

-

 

 

-

 

*)-

Exercise of warrants

219,760

*)-

633

633

Issuance of common stock to directors and employees

102,667

*)-

1,484

1,484

Conversion of preferred stock to common stock

802,061

*)-

(3,423)

*)-

*)-

Deemed dividend related to issuance of preferred stock

544

(544)

Issuance of warrants to service providers

 

 

 

 

 

846

 

-

 

846

Stock-based compensation

 

1,056,643

 

*)-

 

-

 

-

 

2,036

 

 

2,036

Issuance of common stock, net of issuance cost

 

3,278,688

 

*)-

 

-

 

-

 

64,877

 

 

64,877

Issuance of common stock upon acquisition of Upright Technologies Ltd.

 

1,687,612

 

*)-

 

-

 

-

 

28,933

 

-

 

28,933

Net loss

 

-

 

-

 

-

 

-

 

 

(14,966)

 

(14,966)

Balance as of March 31, 2021 (unaudited)

 

15,398,851

$

*)-

 

12,400

$

*)-

$

271,025

$

(158,758)

$

112,267

*)   Represents an amount lower than $1.

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

F-6

Table of Contents

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

Three months ended

March 31, 

    

2022

    

2021

Unaudited

Cash flows from operating activities:

Net loss

$

(15,916)

$

(14,966)

Adjustments required to reconcile net loss to net cash used in operating activities:

 

 

Stock-based compensation, common stock, and payment in stock to directors, employees, consultants, and service providers

 

5,343

 

4,438

Depreciation

 

70

 

64

Change in operating lease right of use assets

 

7

 

6

Amortization of acquired inventories step-up

 

-

 

151

Amortization of acquired intangible assets

 

963

 

375

Decrease (increase) in trade receivables

 

(3,264)

 

318

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

 

(1,550)

 

207

Increase in inventories

 

(1,555)

 

(32)

Increase in trade payables

 

(890)

 

(544)

Decrease in other accounts payable and accrued expenses

 

(721)

 

(609)

Increase (decrease) in deferred revenues

 

(102)

 

93

Change in operating lease liabilities

 

(27)

 

(33)

Remeasurement of earn-out

 

(452)

 

-

Net cash used in operating activities

 

(18,094)

 

(10,532)

Cash flows from investing activities:

 

  

 

  

Purchase of property and equipment

 

(66)

 

(68)

Cash paid as part of Upright Technologies Ltd. acquisition

-

(2,472)

Intangible assets purchases incurred, Physimax Technologies LTD.

(115)

-

Net cash used in investing activities

 

(181)

 

(2,540)

Cash flows from financing activities:

 

 

Proceeds from issuance of common stock and prefunded warrants (net of issuance costs)

 

38,023

 

64,877

Proceeds from exercise of warrants

 

-

 

633

Proceeds from exercise of options

 

-

 

201

Net cash provided by financing activities

 

38,023

 

65,711

Increase in cash, cash equivalents and restricted cash and cash equivalents

 

19,748

 

52,639

Cash, cash equivalents and restricted cash and cash equivalents at beginning of period

 

35,948

 

28,725

Cash, cash equivalents and restricted cash and cash equivalents at end of period

$

55,696

$

81,364

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

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DARIOHEALTH CORP. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 1:  -   GENERAL

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

DarioHealth is a Global Digital Therapeutics (DTx) company changing the way people with chronic conditions manage their health. By delivering personalized evidence-based interventions that are driven by precision data analytics, software, and personalized coaching, DarioHealth has developed an approach that empowers 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 diabetes solution, its user-centric approach is used by tens of thousands of customers around the globe. DarioHealth is rapidly expanding its solutions for additional chronic conditions such as hypertension 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.

The Company operates as a unit and one operating segment.

b.The Company has a wholly owned subsidiary, LabStyle Innovation Ltd. (“LabStyle”), which was incorporated and commenced operations on September 14, 2011 in Israel. Its principal business activity is to hold the Company’s intellectual property and to perform research and development, manufacturing, marketing and other business activities.
c.On January 26, 2021, the Company entered into a share purchase agreement (the “Share Purchase Agreement”) pursuant to which the Company, through LabStyle, acquired all of the outstanding securities of Upright Technologies Ltd. and its wholly owned subsidiary Upright Technologies Inc. (“Upright”). Upright is a 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 pursuant to which the Company, through its wholly owned subsidiary WF Merger Sub, Inc. (“Merger Sub”), merged with PsyInnovations Inc. (“WayForward”), pursuant to which the Merger Sub was the surviving company. 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 three months ended March 31, 2022, the Company incurred operating losses and negative cash flows from operating activities amounting to $15,872 and $18,094, respectively. On March 31, 2022, we had $55,558 in available cash and cash equivalent. Management believes that our cash on hand is 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 consolidated financial statements. There are no assurances, however, that the Company will be able to obtain an adequate level of financial resources that are required for the long-term development and commercialization of its product offering.

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DARIOHEALTH CORP. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 2: -   SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

Use of Estimates

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

Significant Accounting Policies

a.    The significant accounting policies applied in the audited annual consolidated financial statements of the Company as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 are applied consistently in these unaudited interim consolidated financial statements.

b.    Short-term restricted bank deposits:

The following table provides a reconciliation of the cash balances reported on the balance sheets and the cash, cash equivalents and short-term restricted bank deposits balances reported in the statements of cash flows:

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DARIOHEALTH CORP. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 2: -   SIGNIFICANT ACCOUNTING POLICIES (Cont.)

March 31, 

March 31, 

    

2022

    

2021

Unaudited

Unaudited

Cash, and cash equivalents as reported on the balance sheets

$

55,558

 

$

81,171

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

138

 

193

Cash, restricted cash, cash equivalents and restricted cash and cash equivalents as reported in the statements of cash flows

$

55,696

 

$

81,364

c.   Business and Asset Acquisitions

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

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

d.    Recently issued accounting pronouncements, not yet adopted:

1.

In September 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. For tradeand other receivables, held-to-maturity debt securities, loans, and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. The guidance also requires increased disclosures. For the Company, the amendments in the update were originally effective for

fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In November 2019, the FASB issued ASU No. 2019-10 which delayed the effective date of ASU 2016-13 for smaller reporting companies (as defined by the U.S. Securities and Exchange Commission) and other non-SEC reporting entities to fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods. Early adoption is permitted. The Company is currently assessing the impact the guidance will have on its consolidated financial statements.

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DARIOHEALTH CORP. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 2: -   SIGNIFICANT ACCOUNTING POLICIES (Cont.)

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

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

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

NOTE 3: – ACQUISITIONS

 

Technology Purchase of Physimax Technologies Ltd.

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

The consideration transferred included the issuance of  256,660 shares of Common Stock subjected to certain terms of lock-up periods valued at $1,186, a cash payment of $500, of which $400 was paid during the fourth quarter of 2021, and the remaining to be paid on the second quarter of 2022, The total consideration transferred in the acquisition of Physimax Technology was $1,686.

In addition, the Company capitalized acquisition-related costs in an aggregate amount of $131. The acquisition-related costs include legal and accounting services.

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DARIOHEALTH CORP. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3: – ACQUISITIONS (Cont.)

Purchase price allocation:

 

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

    

Amortization

period (Years)

Technology

$

1,817

4

NOTE 4: -   INVENTORIES

March 31, 

December 31, 

2022

2021

Unaudited

Raw materials

    

$

927

    

$

714

Finished products

 

6,857

 

5,514

$

7,783

$

6,228

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

NOTE 5: -   REVENUES

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

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

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

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DARIOHEALTH CORP. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 5: -   REVENUES (Cont.)

The following tables represent the Company’s total revenues for the three months ended March 31, 2022, and 2021 disaggregated by revenue source:

March 31, 

    

2022

    

2021

Unaudited

Commercial

 

$

4,549

 

$

53

Consumers

3,510

3,542

 

$

8,059

 

$

3,595

The Company recognizes contract liabilities, or deferred revenues, when it receives advance payments from customers before performance obligations primarily related services have been performed. Advance payments are received at the beginning of the service period and the related deferred revenues are reclassified to revenue ratably over the service period. The balance of deferred revenues approximates the aggregate amount of the transaction price allocated to the unsatisfied performance obligations at the end of reporting period.

The following table presents the significant changes in the deferred revenue balance during the three months ended March 31, 2022:

Balance, beginning of the period

 

$

1,195

New performance obligations

608

Reclassification to revenue as a result of satisfying performance obligations

(710)

Balance, end of the period

 

$

1,093

Because all performance obligations in the Company’s contracts with customers relate to contracts with a duration of less than one year, the Company has elected to apply the optional exemption and is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.

NOTE 6: -   FAIR VALUE MEASUREMENTS

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

 

Level 1- 

 

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

Level 2-

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

Level 3

 

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

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DARIOHEALTH CORP. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 6: -   FAIR VALUE MEASUREMENTS (Cont.)

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

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

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

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

  

March 31, 2022

Unaudited

  

Fair Value

  

Level 1

Level 2

Level 3

  

  

(in thousands)

Financial Liabilities:

  

  

Earn out liability

  

$

373

  

$

—  

$

—  

$

373

December 31, 2021

Fair Value

  

Level 1

Level 2

Level 3

  

(in thousands)

Financial Liabilities:

  

  

Earn out liability

  

$

825

  

$

—  

$

—  

$

825

 

NOTE 7: -   COMMITMENTS AND CONTINGENT LIABILITIES

a.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.

b.Royalties:

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

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DARIOHEALTH CORP. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 8: -   STOCKHOLDERS’ EQUITY

 

a.On January 4, 2022, out of the pre-funded warrants that were issued in May 2019, 81,233 were exercised on a cashless basis into 81,221 shares of Common Stock. As of March 31, 2022 the Company’s total outstanding prefunded warrants amounted to 1,769,794.
b.On February 28, 2022, the Company entered into securities purchase agreements with institutional accredited investors relating to an offering with respect to the sale of an aggregate of 4,674,454 shares of the Company’s Common Stock, and pre-funded warrants to purchase an aggregate of 667,559 shares of Common Stock at an exercise price of $0.0001 per share, at a purchase price of $7.49 per share (or share equivalent). The aggregate gross proceeds were approximately $40,000 ($38,023, net of issuance expenses).
c.On March 9, 2022, the Company’s Compensation Committee of the Board of Directors approved the grant of 24,191 shares of Common Stock to employees of the Company, and the grant of 149,550 restricted shares of Common Stock to employees and consultants. The shares vest over a period of three years commencing on the respective grant dates. The Compensation Committee also approved the grant of options to purchase up to 396,050 shares of Common Stock to employees and a consultant of the Company, at exercise prices between $6.67 and $8.10 per share. The stock options vest over a three-year period commencing on the respective grant dates. The options have a ten-year term and were issued under the 2020 Plan.
d.In April 2020, the Compensation Committee of the Board of Directors approved a monthly grant of shares of the Company’s Common Stock equal up to $16 of restricted shares per month to a certain service provider, to be granted monthly during the period that the certain consulting agreement remains in effect. During the first quarter of 2022, the Company issued a total of 4,983 restricted shares of Common Stock to the certain service provider.
e.In February 2021, the Board of Directors authorized the Company to issue warrants to purchase up to 400,000, shares of Common Stock, to a certain consultant of the Company, at a purchase price of $25.00. During the three-month ended March 31, 2022, the Company recorded compensation expense for this certain service provider in the amount of $863.

f.In July 2021, the Compensation Committee authorized the Company to issue warrants to purchase 30,000 shares of Common Stock, to certain consultants of the Company, with an exercise price of $23.30 per share, and warrants to purchase 83,948 shares of Common Stock with an exercise price of $16.06 per share. Of these warrants, warrants to purchase 35,000 shares of Common Stock shall vest over a 48-month period and warrants to purchase 48,948 shares of Common Stock are subjected to certain performance terms. During the three-month ended March 31, 2022 the Company recorded compensation expense for this certain service provider in the amount of $11.
g.In October and December 2021, the Compensation Committee authorized the Company to issue 8,000 shares which shall vest over a six-month period, and warrants to purchase up to 40,000, and 208,000 shares of Common Stock, respectively, to certain consultants of the Company, at a purchase price of $25.10 and $13.60, respectively. During the three-month ended March 31, 2022, the Company recorded compensation expense for those certain service providers in the amount of $427
h.During the three-month ended March 31, 2022, certain series A Convertible Preferred Stockholders converted 1,030 shares of various classes of the Company’s A Convertible Preferred stock into 254,322 shares of Common Stock.

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DARIOHEALTH CORP. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 8: - STOCKHOLDERS' EQUITY (Cont.)

i.During the three-month ended March 31, 2022, 61,730 shares of Common Stock were issued as dividend to certain Series A Convertible Preferred stockholders upon conversion of such shares.
j.Stock based compensation:

On January 23, 2012, the Company’s Amended and Restated 2012 Equity Incentive Plan (the “2012 Plan”) was adopted by the Board of Directors of the Company and approved by a majority of the Company’s stockholders, under which options to purchase shares of Common Stock have been reserved. Under the 2012 Plan, options to purchase shares of Common Stock may be granted to employees and non-employees of the Company or any affiliate, each option granted can be exercised to one share of Common Stock. The 2012 Plan has expired.

On October 14, 2020, the Company’s stockholders approved the 2020 Equity Incentive Plan (the “2020 Plan”) and the immediate reservation of 900,000 shares under the 2020 Plan for the remainder of the 2020 fiscal year. Under the 2020 Plan, options to purchase shares of Common Stock may be granted to employees and non-employees of the Company or any affiliate, each option granted can be exercised to one share of Common Stock.

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

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

    

    

    

    

Weighted

    

Weighted

average

average

remaining

Aggregate

exercise

contractual

Intrinsic

Number of

price

life

value

options

$

Years

$

Options outstanding at beginning of period

 

1,878,168

18.13

6.96

3,861

Options granted

 

396,050

7.41

Options exercised

 

Options expired

 

(70,711)

9.44

Options forfeited

 

(78,391)

15.82

Options outstanding at end of period

 

2,125,116

17.04

7.35

179

Options vested and expected to vest at end of period

 

1,942,997

16.20

7.03

178

Exercisable at end of period

 

728,983

21.68

5.50

176

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company’s closing stock price on the last day of the first quarter of 2022 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 March 31, 2022. This amount is impacted by the changes in the fair market value of the Common Stock.

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DARIOHEALTH CORP. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 8: - STOCKHOLDERS' EQUITY (Cont.)

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

Number of

Restricted shares

Restricted shares outstanding at beginning of period

 

1,094,637

Restricted shares granted

 

149,550

Restricted shares forfeited

 

(9,568)

Restricted shares outstanding at end of period

 

1,234,619

As of March 31, 2022, the total amount of unrecognized stock-based compensation expense was approximately $25,395 which will be recognized over a weighted average period of 1.2 years.

The following table presents the assumptions used to estimate the fair values of the options granted to employees, directors, and non-employees in the period presented:

Three months ended

 

March 31, 

 

    

2022

2021

 

Unaudited

Volatility

91.11-91.40

%

94.73-111.82

%

Risk-free interest rate

1.89

%  

0.11-0.96

%

Dividend yield

0

%

0

%

Expected life (years)

5.81-5.88

2.09-5.88

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

Three months ended

March 31, 

    

2022

    

2021

Unaudited

Cost of revenues

$

23

$

13

Research and development

 

1,488

 

414

Sales and marketing

 

1,651

 

1,035

General and administrative

 

2,181

 

2,976

Total stock-based compensation expenses

$

5,343

$

4,438

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DARIOHEALTH CORP. AND ITS SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 9: -   FINANCIAL EXPENSES (INCOME), NET

Three months ended

March 31, 

    

2022

    

2021

Unaudited

Bank charges

$

26

$

43

Foreign currency adjustments expenses, net

 

22

 

605

Interest income