DARIOHEALTH CORP. Readers are advised to review the following discussion and analysis of our
financial condition and results of operations together with our consolidated
financial statements and related notes thereto included elsewhere in this
Quarterly Report on Form 10-Q and the consolidated financial statements and
related notes thereto in our Annual Report on Form 10-K for the year ended
The following financial data in this narrative are expressed in thousands, except for stock and stock data or as otherwise noted.
We are revolutionizing how people with chronic conditions manage their health through the innovation of a new category of digital health: Digital Therapeutics as a Service (DTaaS). We believe that our innovative approach to digital therapeutics disrupts the traditional provider-centered system of health care delivery by offering user-centric care that is continuous, customized and multi-condition. Our solutions combine the power of technologies and behavior science to make better health accessible, affordable, and easy for all by solving for what people need, when and where they want it, with hyper-personalized care that is always connected - to services, devices, and people - and delivered continuously. This is how we deliver meaningful and sustainable results that result in measurable value for all stakeholders, supporting the full transformation of health care into a more effective and affordable ecosystem.
We began as a direct-to-consumer digital therapeutics company, solving first for the problem of how to engage users and support behavior change to improve clinical outcomes in diabetes. In the last two years, we made two strategic shifts to transform our business: first, we significantly expanded commercial growth opportunities by adding a business-to-business product (B2B) and a commercial team alongside the legacy direct-to-consumer channel. In addition, we began targeting three traditional health business verticals - health plans, employers, and provider groups. As a result, we believe that our new B2B business now leverages our consumer-centric capabilities as a competitive advantage.
Second, we transitioned from a single condition platform to a multi-condition platform, creating a robust suite of solutions to address the five most commonly co-occurring and expensive chronic conditions, which are also representative of some of the most sought-after digital health solutions: diabetes, hypertension, pre-diabetes/weight management, musculoskeletal and behavioral health. After building weight loss and hypertension management into the legacy diabetes platform, we made three acquisitions in order to expand into musculoskeletal and behavioral health.
Our acquisition of
We believe a key success factor is our ability to integrate multiple chronic
conditions into a single digital therapeutics' platform, the "
According to our management's estimates, based on our current cash on hand and further based on our budget and the assumption that initial commercial sales will commence during our anticipated timeframes, we believe that we will have sufficient resources to continue our activities through 2023.
Since we might be unable to generate sufficient revenue or cash flow to fund our operations for the foreseeable future, we will need to seek additional equity or debt financing to provide the capital required to maintain or expand our
4
Table of Contents
operations. We may also need additional funding for developing products and services, increasing our sales and marketing capabilities, and promoting brand identity, as well as for working capital requirements and other operating and general corporate purposes. Moreover, the regulatory compliance arising out of being a publicly registered company has dramatically increased our costs.
Except as otherwise disclosed herein, we currently do not have any arrangements or credit facilities in place as a source of funds, and there can be no assurance that we will be able to raise sufficient additional capital on acceptable terms, or at all. If such financing is not available on satisfactory terms, or is not available at all, we may be required to delay, scale back or eliminate the development of business opportunities and our operations and financial condition may be materially adversely affected.
If we raise additional capital by issuing equity securities, the percentage ownership of our existing stockholders may be reduced, and accordingly these stockholders may experience substantial dilution. We may also issue equity securities that provide for rights, preferences and privileges senior to those of our common stock. Given our need for cash and that equity raising is the most common type of fundraising for companies like ours, the risk of dilution is particularly significant for stockholders of our company.
Debt financing, if obtained, may involve agreements that include liens on our assets, covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, could increase our expenses and require that our assets be provided as a security for such debt. Debt financing would also be required to be repaid regardless of our operating results.
If we raise additional funds through collaborations and licensing arrangements, we may be required to relinquish some rights to our technologies or candidate products, or to grant licenses on terms that are not favorable to us.
Funding from any source may be unavailable to us on acceptable terms, or at all. If we do not have sufficient capital to fund our operations and expenses, we may not be able to achieve or maintain competitiveness, which could lead to the failure of our business and the loss of your investment.
Recent Developments
Employer Contracts and Health Providers
In
In
In
Presentation of New Studies
In
More than two thirds of people living with Type 2 diabetes also report high blood pressure, and the bi-directional impacts are well-documented. Our research provides new data to support the co-management of these conditions in a single solution. The study examined a group of users with diabetes, and stage 1 and above hypertension, to understand the impact of using a single solution on both conditions, and results showed significant improvements for both hypertension and diabetes after six months: (i) two thirds of users improved their systolic blood pressure by 13 mmHg and diastolic by
5
Table of Contents
8 mmHg, (ii) 38.7% lowered their hypertension by one stage and (iii) a subgroup of users with high-risk Type 2 diabetes reduced average blood glucose readings by 15%. The research demonstrates that our integrated approach to managing chronic conditions in one solution offers significant benefits for users with co-occurring conditions.
Diabetes is closely linked with stress and symptoms of depression, and conversely, the presence of depression can lead to poor outcomes in people living with diabetes. We examined the outcomes of users living with high-risk diabetes and self-reported stress and/or depression and found that users reduced their average blood glucose by 13% after one year. This study indicates that our holistic support focused on behavior change can positively impact outcomes for users living with diabetes and depression and/or stress.
A third study examined the impact on blood sugar readings in users with high-risk Type 2 diabetes across ethnicities as reported in our app: White, Black, Latino or Asian. The research found that average blood glucose readings were significantly reduced by 14% for White users and 15% for Black, Latino and Asian users. The evidence demonstrates the ability of our solution to improve self-care across diverse populations.
OrbiMed Credit Facility
On
On the Closing Date, and with respect to the Initial Commitment Amount only, the
Company agreed to issue the Lender a warrant to purchase up to 226,586 shares of
its common stock at an exercise price of
On the Closing Date, we also executed a Registration Rights Agreement with the
Lender pursuant to we agreed to file a registration statement with the
WayForward Amendment
As part of the acquisition of WayForward on
Results of Operations
Comparison of the three and six months ended
Revenues
Revenues for the three and six months ended
6
Table of Contents
Cost of Revenues
During the three and six months ended
Cost of revenues consist mainly of cost of device production, employees' salaries and related overhead costs, depreciation of production line and related cost of equipment used in production, amortization of technologies, hosting costs, shipping and handling costs and inventory write-downs.
Gross Profit
Gross profit for the three and six months ended
Research and Development Expenses
Our research and development expenses increased by
Research and development expenses consist mainly of payroll expenses to
employees involved in research and development activities, expenses related to:
(i) our solutions including our Dario Smart Diabetes Management Solution,
DarioEngage platform,
Sales and Marketing Expenses
Our sales and marketing expenses decreased by
7
Table of Contents
Sales and marketing expenses consist mainly of payroll expenses, online marketing campaigns of our service offering, and other costs associated with sales and marketing activities, as well as trade show expenses, customer support expenses and marketing consultants and subcontractors.
General and Administrative Expenses
Our general and administrative expenses decreased by
Our general and administrative expenses consist mainly of payroll and stock-based compensation expenses for management, employees, directors and consultants, legal fees, directors' and officers' insurance, patent registration, expenses related to investor relations, as well as our office rent and related expenses.
Financial Expenses, net
Our financial expenses, net for the three months ended
Financial expenses, net primarily consists of credit facility interest expense, debt issuance costs, interest income from cash balances, bank charges, lease liability and foreign currency translation differences.
Net loss
Net loss increased by
The increase in net loss for the three and six months ended
The factors described above resulted in net loss attributable to common
stockholders for the three and six months ended
Non-GAAP Financial Measures
To supplement our unaudited condensed consolidated financial statements
presented in accordance with accounting principles generally accepted in
8
Table of Contents
Such NGFM are presented with the intent of providing greater transparency of information used by us in our financial performance analysis and operational decision-making. Additionally, we believe these NGFM provide meaningful information to assist investors, shareholders, and other readers of our unaudited condensed consolidated financial statements, in making comparisons to our historical financial results, and analyzing the underlying financial results of our operations. The NGFM are provided to enhance readers' overall understanding of our current financial results and to provide further information to enhance the comparability of results between the current year period and the prior year period.
We believe the NGFM provide useful information by isolating certain expenses,
gains, and losses, which are not necessarily indicative of our operating
financial results and business outlook. In this regard, the presentation of the
NGFM herein below, is to help the reader of our unaudited condensed consolidated
financial statements to understand the effects of the non-cash impact on our
(
A reconciliation to the most directly comparable
Three Months Ended June 30,
(in thousands)
2022 2021 $ Change
Net Loss Reconciliation
Net loss - as reported $ (18,028) $ (17,765) $ (263)
Adjustments
Depreciation expense 84 69 15
Inventory step up amortization - 372 (372)
Amortization of acquired technology and brand 1,125 731 394
Other financial expenses (income), net 672 (238) 910
Income Tax 1 - 1
EBITDA (16,146) (16,831) 685
Acquisition costs - 502 (502)
Earn-out remeasurement 1,391 - 1,391
Stock-based compensation expenses 3,629 5,462 (1,833)
Non-GAAP adjusted loss $ (11,126) $ (10,867) $ (259)
9
Table of Contents
Six Months Ended June 30,
(in thousands)
2022 2021 $ Change
Net Loss Reconciliation
Net loss - as reported $ (33,944) $ (32,731) $ (1,213)
Adjustments
Depreciation expense 154 133 21
Inventory step up amortization - 523 (523)
Amortization of acquired technology and brand 2,088 1,106 982
Other financial expenses, net 716 401 315
Income Tax 1 - 1
EBITDA (30,985) (30,568) (417)
Acquisition costs - 880 (880)
Earn-out remeasurement 939 - 939
Stock-based compensation expenses 8,972 9,900 (928)
Non-GAAP adjusted loss $ (21,074) $ (19,788) $ (1,286) Liquidity and Capital Resources (amounts in thousands except for share and share amounts)
As of
We have experienced cumulative losses of
Since inception, we have financed our operations primarily through private
placements and public offerings of our common stock, warrants to purchase shares
of our common stock, the exercise of existing warrants and options, and credit
facility, receiving aggregate net proceeds totaling
On
On
On
10
Table of Contents
On
Management believes that the proceeds from the recent private placement and the Loan Facility, combined with our cash on hand are sufficient to meet our obligations as they come due for at least a period of twelve months from the date of the issuance of these unaudited condensed consolidated financial statements. As a result, we have resolved to remove the going concern note from its financial statements. There are no assurances, however, that we will be able to obtain an adequate level of financial resources that are required for the long-term development and commercialization of our product offering.
As such, we have a significant present need for capital. If we are unable to scale up our commercial launch of our products or meet our commercial sales targets (or if we are unable to generate any revenue at all), and if we are unable to obtain additional capital resources in the near term, we may be unable to continue activities absent material alterations in our business plans and our business might fail.
Additionally, readers are advised that available resources may be consumed more rapidly than currently anticipated, resulting in the need for additional funding sooner than expected. Should this occur, we will need to seek additional capital earlier than anticipated in order to fund (1) further development and, if needed (2) our efforts to obtain regulatory clearances or approvals necessary to be able to commercially launch Dario, DarioEngage and Dario Intelligence, (3) expenses which will be required in order to expand manufacturing of our products, (4) sales and marketing efforts and (5) general working capital. Such funding may be unavailable to us on acceptable terms, or at all. Our failure to obtain such funding when needed could create a negative impact on our stock price or could potentially lead to the failure of our company. This would particularly be the case if we are unable to commercially distribute our products and services in the jurisdictions and in the timeframes, we expect.
Cash Flows (dollar amounts in thousands)
The following table sets forth selected cash flow information for the periods
indicated:
June 30,
2022 2021
$ $Cash used in operating activities: (29,209,000) (22,838,000) Cash used in investing activities:
(340,000) (7,593,000)
Cash provided by financing activities: 61,675,000 65,766,000
32,126,000 35,335,000
11
Table of Contents
Net cash used in operating activities
Net cash used in operating activities was
Net cash used in investing activities
Net cash used for investing activities was
Net cash provided by financing activities
Net cash provided by financing activities was
Click or tap here to enter text.
© Edgar Online, source
