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 8, 2023, 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, 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 | |||
PART 1- FINANCIAL INFORMATION | |||
F-1 | |||
F-2 – F-3 | |||
F-4 | |||
F-5 | |||
F-6 | |||
F-7 – F-28 | |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 4 | ||
11 | |||
12 | |||
12 | |||
12 | |||
13 | |||
14 | |||
2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information set forth in this Quarterly Report on Form 10-Q, including in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein may address or relate to future events and expectations and as such constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting our business, including many assumptions regarding future events. Such forward-looking statements include statements regarding, among other things:
| ● | our current and future capital requirements and our ability to satisfy our capital needs through financing transactions or otherwise; |
| ● | our 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, 2022 (filed on March 9, 2022) entitled “Risk Factors” as well as in our other public filings.
In light of these risks and uncertainties, and especially given the start-up nature of our business, there can be no assurance that the forward-looking statements contained herein will in fact occur. Readers should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
3
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2023
UNAUDITED
INDEX
Page | ||
| F-2 – F-3 | |
F-4 | ||
F-5 | ||
F-6 | ||
F-7 – F-28 |
F-1
INTERIM CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
March 31, | December 31, | |||||
| 2023 |
| 2022 | |||
Unaudited |
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| ||||
ASSETS | ||||||
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CURRENT ASSETS: |
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Cash and cash equivalents | $ | | $ | | ||
Short-term investments | | - | ||||
Short-term restricted bank deposits |
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Trade receivables |
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Inventories |
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Other accounts receivable and prepaid expenses |
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Total current assets |
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NON-CURRENT ASSETS: |
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Deposits | | | ||||
Operating lease right of use assets |
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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, | |||||
| 2023 |
| 2022 | |||
Unaudited | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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| ||||
CURRENT LIABILITIES: |
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Trade payables | $ | | $ | | ||
Deferred revenues |
| |
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Operating lease liabilities | | | ||||
Other accounts payable and accrued expenses |
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Loan, current | | | ||||
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Total current liabilities |
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NON-CURRENT LIABILITIES | ||||||
Operating lease liabilities |
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Long-term loan | | | ||||
Warrant liability |
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Other long-term liabilities |
| |
| — | ||
Total non-current liabilities | | | ||||
STOCKHOLDERS’ EQUITY |
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| ||
Common stock of $ |
| |
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Preferred stock of $ |
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Additional paid-in capital |
| |
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Accumulated deficit |
| ( |
| ( | ||
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Total stockholders’ equity |
| |
| | ||
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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, | ||||||
| 2023 |
| 2022 | |||
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, net |
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Net loss | $ | | $ | | ||
Other comprehensive loss: |
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Deemed dividend | $ | - | $ | | ||
Net loss attributable to shareholders | $ | | $ | | ||
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Net loss per share: |
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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, 2023 | Number | Amount | Number | Amount | capital | deficit | equity | ||||||||||||
Balance as of December 31, 2022(audited) |
| |
| $ | |
| |
| $ | *)- |
| $ | |
| $ | ( |
| $ | |
Conversion of preferred stock to common stock |
| |
| *)- |
| ( |
| *)- |
| — |
| — |
| *)- | |||||
Issuance of warrants to service providers |
| — |
| — |
| — |
| — |
| |
| — |
| | |||||
Stock-based compensation |
| |
| *)- |
| — |
| — |
| |
| — |
| | |||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||
Balance as of March 31, 2023 (unaudited) |
| | $ | |
| | $ | *)- | $ | | $ | ( | $ | | |||||
Additional | Total | ||||||||||||||||||
Common Stock | Preferred Stock | paid-in | Accumulated | stockholders’ | |||||||||||||||
Three Months Ended March 31, 2022 | Number | Amount | Number | Amount | capital | deficit | equity | ||||||||||||
Balance as of December 31, 2021(audited) |
| |
| $ | |
| |
| $ | *)- |
| $ | |
| $ | ( |
| $ | |
Exercise of warrants |
| |
| *)- |
| — |
| — |
| — |
| — |
| *)- | |||||
Conversion of preferred stock to common stock |
| |
| *)- |
| ( |
| — |
| — |
| — |
| *)- | |||||
Deemed dividend related to issuance of preferred stock |
| — |
| — |
| — |
| — |
| |
| ( |
| — | |||||
Issuance of warrants to service providers |
| — |
| — |
| — |
| — |
| |
| — |
| | |||||
Stock-based compensation |
| |
| *)- |
| — |
| — |
| |
| — |
| | |||||
Issuance of common stock and pre-funded warrants, net of issuance cost |
| |
| *)- |
| — |
| — |
| |
| — |
| | |||||
Issuance of common stock, net of issuance cost upon Acquisition of Physimax Technologies Ltd. |
| |
| *)- |
| — |
| — |
| |
| — |
| | |||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||
Balance as of March 31, 2022 (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, | ||||||
| 2023 |
| 2022 | |||
Unaudited | ||||||
Cash flows from operating activities: | ||||||
Net loss | $ | ( | $ | ( | ||
Adjustments required to reconcile net loss to net cash used in operating activities: |
|
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Stock-based compensation, common stock, and payment in stock to directors, employees, consultants, and service providers |
| |
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Depreciation |
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Change in operating lease right of use assets |
| |
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Amortization of acquired intangible assets |
| |
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Decrease (increase) in trade receivables |
| |
| ( | ||
Increase in other accounts receivable, prepaid expense and long-term assets |
| ( |
| ( | ||
Decrease (increase) in inventories |
| |
| ( | ||
Decrease in trade payables |
| ( |
| ( | ||
Decrease in other accounts payable and accrued expenses |
| ( |
| ( | ||
Decrease in deferred revenues |
| ( |
| ( | ||
Change in operating lease liabilities |
| ( |
| ( | ||
Remeasurement of earn-out |
| - |
| ( | ||
Non-Cash financial income |
| ( |
| - | ||
|
| |||||
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 | | - | ||||
Cash paid as part of Upright Technologies Ltd. acquisition | - | ( | ||||
Net cash used in investing activities |
| ( |
| ( | ||
|
| |||||
Cash flows from financing activities: |
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| ||||
Proceeds from issuance of common stock and prefunded warrants (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: |
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|
|
| ||
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”) was incorporated in 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 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 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. | Financial instruments that potentially subject the Company to credit risk primarily consist of cash and cash equivalents, short-term deposits, restricted deposits, short-term investments and trade receivables. For cash and cash equivalents, the Company is exposed to credit risks in the event of default by the financial institutions to the extent of the amounts recorded on the accompanying consolidated balance sheets exceed federally insured limits. The Company places its cash and cash equivalents and short-term deposits with financial institutions with high-quality credit ratings and has not experienced any losses in such accounts. |
For trade receivables, the Company is exposed to credit risk in the event of non-payment by customers to the extent of the amounts recorded on the accompanying consolidated balance sheets.
As of March 31, 2023, the Company's two major customers accounted for
The Company's two major customers accounted for
| d. | On January 26, 2021, the Company entered into a 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. |
F-7
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
NOTE 1: - GENERAL (Cont.)
| e. | 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 that developed the WayForward behavioral digital health platform with artificial intelligence enabled screening to triage and navigate members to specific interventions, digital cognitive behavioral therapy, self-directed care, expert coaching and access to in-person and telehealth provider visits. |
| f. | During the three months ended March 31, 2023, the Company incurred operating losses and negative cash flows from operating activities amounting to $ |
NOTE 2: - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited interim consolidated financial statements as of March 31, 2023, have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair presentation of the Company’s consolidated financial position as of March 31, 2023, and the Company’s consolidated results of operations and the Company’s consolidated cash flows for the three months ended March 31, 2023. Results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
Use of Estimates
Preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and judgments that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical information and on various other assumptions that we believe are reasonable under the circumstances. These estimates are based on management's knowledge about current events and expectations about actions we may undertake in the future. Actual results could differ materially from those estimates.
F-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.)
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, 2022 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, | |||||
| 2023 |
| 2022 | |||
Unaudited | Unaudited | |||||
Cash, and cash equivalents as reported on the balance sheets | $ | |
| $ | | |
Short-term restricted bank deposits, as reported on the balance sheets | |
| | |||
Cash, restricted cash, cash equivalents, and restricted cash and cash equivalents as reported in the statements of cash flows | $ | |
| $ | | |
c. Short-term investments:
The Company's short-term investments consist of investments in a fund with readily determinable fair value. The Company's investment is carried at fair value, with changes in fair value recognized in the Statements of Comprehensive Loss.
d. Revenue recognition
The Company recognizes revenue in accordance with ASC 606, “Revenue from contracts with customers,” when (or as) it satisfies performance obligations by transferring promised products or services to its customers in an amount that reflects the consideration the Company 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.
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 products and/or services, each of which are distinct, to be the identified performance obligations. In determining the transaction price, the Company evaluates whether the price is subject to rebates and adjustments to determine the net consideration to which the Company expects to receive. As the Company’s standard payment terms are less than one year, the contracts have no significant financing component. The Company allocates the transaction price to each distinct performance obligation based on their relative standalone selling price. Revenue from tangible products is recognized when control of the product 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 and the costs associated with these contracts are recognized as incurred.
Commercial revenue
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 that are substantially the same and have the same pattern of transfer (i.e., distinct days of service). These services are consumed as they are received, and the Company recognizes revenue each month using the variable consideration allocation. Revenue is recognized either on a per engaged member per month (PEMPM) or a per employee per month (PEPM) basis. Contracts typically have a duration of more than one year.
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 rate. The Company includes in the transaction price some or all of an amount of variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Refunds to a customer that results from performance levels that were not met by the end of the measurement period are adjusted to the transaction price, and therefore estimated at the outset of the arrangement.
The Company has also entered into contracts (Note 5) with a preferred partner and a health plan provider in which the Company provides data license, development and implementation services.
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.)
e. 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. 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.
f. . Recently Adopted Accounting Pronouncements
| (i) | In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses, with an effective date for the first quarter of fiscal year 2020. 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. The Company adopted the standard effective as of January 1, 2023, and the adoption of this standard did not have an impact on the Company's consolidated financial statements. |
| (ii) | In August 2020, the FASB issued ASU 2020-06, “Debt - Debt with Conversion and Other Options (subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (subtopic 815-40),” The new standard reduces the number of accounting models in ASC 470-20 that require separate accounting for non-bifurcated embedded conversion features. As a result, convertible instruments will no longer be subject to the cash conversion features model or to the beneficial conversion features model and be accounted for as a single unit of account as long as no other features require bifurcation and recognition as derivatives The Company adopted ASU 2020-06, effective January 1, 2023, using the modified retrospective method. The prior period consolidated financial statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods. The adoption of this standard did not have a material impact on the Company's interim condensed consolidated financial statements. |
F-11
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
NOTE 3: – ACQUISITIONS
Prior Acquisitions
Technology Purchase of Physimax Technologies Ltd.
On
The consideration transferred included
Purchase price allocation:
Under asset acquisition accounting principles, the total purchase price was allocated to Physimax Technology as set forth below.
| ||||||
Amortization | ||||||
period (Years) | ||||||
Technology | $ | | ||||
NOTE 4: - INVENTORIES
March 31, | December 31, | |||||
2023 | 2022 | |||||
Unaudited | ||||||
Raw materials |
| $ | |
| $ | |
Finished products |
| |
| | ||
|
| |||||
$ | | $ | | |||
During the three-month period ended March 31, 2023, and the year ended December 31, 2022, total inventory write-down expenses amounted to $
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 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, 2023, the Company excluded the variable payments from the transaction price since it is not probable that a significant reversal in the amount of cumulative revenue recognized will occur when the uncertainty associated with the variable consideration is resolve.
During 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 year ended December 31, 2022, the Company recognized $
Agreement with National Health Plan
On October 1, 2021, the Company entered into a Master Service Agreement (“MSA”) and into a statement of work (“SOW”, and such SOW, the “October SOW”) with a national health plan (“Health Plan”). Pursuant to the October SOW, the Company will provide the Health Plan access to 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 (“August SOW”) with the Health Plan according to which the Company will provide implementation service and shall develop additional features to be included in the platform.
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 5: - REVENUES (Cont.)
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 $
For the year ended December 31, 2022, the Company recognized revenues of $
Revenue Source:
The following tables represent the Company’s total revenues for the three months ended March 31, 2023, and 2022 disaggregated by revenue source:
Three months ended | ||||||
March 31, | ||||||
|
| 2023 |
| 2022 | ||
| Unaudited | |||||
Commercial |
| $ | |
| $ | |
Consumers | | | ||||
| $ | |
| $ | | |
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.
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 (Cont.)
The following table presents the significant changes in the deferred revenue balance during the three months ended March 31, 2023:
Balance, beginning of the period |
| $ | |
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 defer costs incurred to fulfill contracts that: (1) relate directly to the contract; (2) are expected to generate resources that will be used to satisfy our performance obligation under the contract; and (3) are expected to be recovered through revenue generated under the contract. Contract fulfillment costs are expensed as we satisfy our performance obligations and recorded in cost of revenue.
Costs to fulfill a contract are recorded to other accounts receivable and prepaid expenses and long term assets.
Costs to fulfill a contract consist of (1) deferred consumer hardware cost incurred in connection with delivery of services that are deferred. (2) deferred costs incurred, related to future performance obligations which are capitalized.
Costs to fulfill a contract as of March 31, 2023, and December 31, 2022 consisted of the following:
March 31, | December 31, | |||||
2023 | 2022 | |||||
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, 2022 | $ | | |
Additions | | ||
Cost of revenue recognized | ( | ||
Ending balance as of March 31, 2023 | |
F-15
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
NOTE 6: - 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 Loan Facility (as defined herein), and warrant liability were measured at fair value using Level 3 unobservable inputs until the resolution date of March 31, 2023.
F-16
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
NOTE 6: - FAIR VALUE MEASUREMENTS (Cont.)
The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values:
| March 31, 2023 | ||||||||||||
Unaudited | |||||||||||||
| Fair Value |
| Level 1 | Level 2 | Level 3 | ||||||||
|
| (in thousands) | |||||||||||
Financial Assets: |
|
| |||||||||||
Short-term investments | $ |
| $ | | $ | — | $ | ||||||
Total Financial Assets | $ | $ | | $ | — | $ | |||||||
|
| ||||||||||||
Financial Liabilities: |
|
| |||||||||||
Long Term Loan |
| — | — | ||||||||||
Warrant liability |
| — | — | ||||||||||
Total Financial Liabilities | $ | $ | — | $ | — | $ | |||||||
December 31, 2022 | |||||||||||||
Fair Value |
| Level 1 | Level 2 | Level 3 | |||||||||
| (in thousands) | ||||||||||||
Financial Liabilities: |
|
| |||||||||||
Long Term Loan |
| — | — | ||||||||||
Warrant liability |
| $ |
| — | — | ||||||||
Total Financial Liabilities |
| $ |
| $ | — | $ | — | $ | |||||
Loan Facility
On June 9, 2022, the Company entered into a Credit Agreement (the “Credit Agreement”), by and between the Company, as borrower, and OrbiMed Royalty and Credit Opportunities III, LP, as the lender (the “Lender”). The Credit Agreement provides for a five-year senior secured credit facility in an aggregate principal amount of up to $
The fair value of the Loan Facility is recognized in connection with the Company’s Credit Agreement with respect to the Initial Commitment Amount only (Note 7). The fair value of the Loan Facility was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The fair value of the Loan, which is reported within non-current liabilities and current liabilities (Maturity Date - June 9, 2027) on the consolidated balance sheets, is estimated by the Company at each reporting date based on significant inputs that are generally determined based on relative value analyses.
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 6: - FAIR VALUE MEASUREMENTS (Cont.)
The Loan incorporates comparisons to instruments with similar covenants, collateral, and risk profiles and was obtained using a discounted cash flow technique. On the date of Loan origination, or June 9, 2022, the discount rate was arrived at by calibrating the loan amount of $
Warrant Liability
The fair value of the warrant liability is recognized in connection with the Company’s Loan agreement with the Lender and with respect to the Initial Commitment Amount only (Note 7). The fair value of the warrant liability was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The fair value of the warrant liability, which is reported within non-current liabilities on the consolidated balance sheets, is estimated by the Company based on the Monte-Carlo simulation valuation technique, in order to predict the probability of different outcomes that rely on repeated random variables.
The fair value of the warrant liability was estimated using a Monte-Carlo simulation valuation technique, with the following significant unobservable inputs (Level 3):
March 31, | December 31, | |||||||
2023 | 2022 | |||||||
Stock price | $ |
| $ | |||||
Exercise price | ||||||||
Expected term (in years) | ||||||||
Volatility | ||||||||
Dividend rate | - | - | ||||||
Risk-free interest rate | ||||||||
The following tables present the summary of the changes in the fair value of our Level 3 financial instruments:
Three months ended | ||||||
March 31, 2023 | ||||||
Long-Term Loan | Warrant Liability | |||||
Balance as of January 1, 2023 | $ | | $ | | ||
Principal payments on long-term loan | ( | — | ||||
Change in fair value | ( | ( | ||||
Balance as of March 31, 2023 | $ | | $ | | ||
F-18
DARIOHEALTH CORP. AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
U.S. dollars in thousands (except stock and stock data)
NOTE 7: - DEBT
Loan Facility
On June 9, 2022, the Company entered into the Credit Agreement with the Lender. The Credit Agreement provides for a
All obligations under the Credit Agreement are guaranteed by all of the Company’s wholly owned subsidiaries other than Dario Health Services Private Limited. All obligations under the Credit Agreement, and the guarantees of those obligations, are secured by substantially all of the Company's and each guarantor's assets by a Pledge and Security Agreement, dated June 9, 2022 (the “Pledge and Security Agreement”). The Credit Agreement contains a revenue covenant effective to the maturity date, of which if the Company’s net revenue does not equal or exceed the applicable amount for such period as set in the Credit Agreement, then the Company shall repay in equal monthly installments the outstanding principal amount of the Loan Facility. The Company shall repay amounts outstanding under the Loan Facility in full immediately upon an acceleration as a result of an event of default as set forth in the Credit Agreement.
During the term of the Loan Facility, interest payable in cash by the Company shall accrue on any outstanding balance due under the Loan Facility at a rate per annum equal to the higher of (x) the adjusted SOFR rate (which is the forward-looking term rate for a one-month tenor based on the secured overnight financing rate administered by the CME Group Benchmark Administration Limited) and (y)
During an event of default, any outstanding amount under the Loan Facility will bear interest at a rate of
The Credit Agreement contains customary events of default, including with respect to non-payment of principal, interest, fees or other amounts; material inaccuracy of a representation or warranty; failure to perform or observe covenants; bankruptcy and insolvency events; material monetary judgment defaults; impairment of any material definitive loan documentation; other material adverse effects; key person events and change of control.
Each of the Credit Agreement and a Pledge and Security Agreement also contain a number of customary representations, warranties and covenants that, among other things, will limit or restrict the ability of the Company and its subsidiaries to (subject to certain qualifications and exceptions): create liens and encumbrances; incur additional indebtedness; merge, dissolve, liquidate or consolidate; make acquisitions, investments, advances or loans; dispose of or transfer assets; pay dividends or make other payments in respect of their capital stock;
amend certain material documents; redeem or repurchase certain debt; engage in certain transactions with affiliates; and enter into certain restrictive agreements. In addition, the Company will be required to maintain at least $
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 7: - DEBT (Cont.)
On the closing date of the Credit Agreement, and with respect to the Initial Commitment Amount only, the Company agreed to issue the Lender a warrant (the “Warrant”) to purchase up to
The Company concluded that the Credit Agreement includes three legally detachable and separately exercisable freestanding financial instruments: the Initial Commitment Amount, the warrants, and the right to receive the Delayed Draw Commitment Amount, which we refer to as the "Financial Commitment Asset" or "FCA".
The Company has concluded that the warrants are not indexed to the Company's own stock and should be recorded as a liability measured at fair value with changes in fair value recognized in earnings.
The Company has also concluded that the FCA is not indexed to the Company's own stock and should be recorded as an asset, measured at fair value with changes in fair value recognized in earnings. During the year ended December 31, 2022, the FCA expired and was derecognized.
The Company elected to account for the Initial Commitment Amount under the fair value option in accordance with ASC 825, “Financial Instruments.” Under the fair value option, changes in fair value are recorded in earnings except for fair value adjustments related to instrument specific credit risk, which are recorded as other comprehensive income or loss.
During the three months ended March 31, 2023, the Company recognized $
Pursuant to the terms of the Credit Agreement the Company started repayment of the outstanding principal amount of the Initial Commitment Amount of $