DarioHealth Corp. - Quarter Report: 2021 September (Form 10-Q)

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 September 30, 2021

☐	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.)


142 W. 57th St., 8th Floor
New York, New York	10019
(Address of Principal Executive Offices)	(Zip Code)

(646) 665-4667

(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 November 12, 2021, the registrant had 16,575,633 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.

Table of Contents

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 – F- 8

	Notes to Interim Consolidated Financial Statements	F-9 – F-21

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	11

Item 4.	Control and Procedures	12

PART II- OTHER INFORMATION		13

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	13

Item 6.	Exhibits	13

SIGNATURES		14

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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;

●

the expected timing of the enrollment, and receipt of revenue, from our agreements with various employers and health plan customers;

●

our launch and market penetration plans;

●

the expected execution of agreements with various providers for our solution;

●

our ability to manufacture, market and generate sales of our medical devices, including Dario Blood Glucose monitor, Dario Blood Pressure monitor and Dario Weight Scale;

●

our ability to commercialize our membership programs, including our per member per month program for people with diabetes and hypertension, and our Business to Business to Consumer (“B2B2C”) services;

●

our ability to develop, launch and commercialize Dario Loop;

●

our ability to maintain our relationships with key partners;

●

our ability to complete required clinical trials of our product and obtain clearance or approval from the United States Food and Drug Administration (the “FDA”) or other regulatory agencies in different jurisdictions;

●

our ability to maintain or protect the validity of our U.S. and other patents and other intellectual property;

●

our ability to retain key executive members;

●

our ability to internally develop new inventions and intellectual property;

●

interpretations of current laws and the passages of future laws;

●

our expectations regarding the impact of the COVID-19 pandemic on our business and operations; and

●

acceptance of our business model by investors.

Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “would,” “could,” “scheduled,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors. These statements may be found under the section of our Annual Report on Form 10-K for the year ended December 31, 2020 (filed on March 9, 2021) entitled “Risk Factors” as well as in our other public filings.

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

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DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2021

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 – F-8

Notes to Interim Consolidated Financial Statements		F-9 – F-21

F-1

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DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands


	September 30,		December 31,
	2021		2020
	Unaudited
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	51,331	$	28,590
Short-term restricted bank deposits		251		187
Trade receivables		2,106		124
Inventories		4,058		2,293
Other accounts receivable and prepaid expenses		1,481		2,934

Total current assets		59,227		34,128

NON-CURRENT ASSETS:
Deposits		20		20
Operation lease right of use assets		361		498
Long-term assets		57		185
Property and equipment, net		713		576
Intangible assets, net		17,409		-
Goodwill		39,399		-

Total non-current assets		57,959		1,279

Total assets	$	117,186	$	35,407

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

F-2

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DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED BALANCE SHEETS

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


	September 30,		December 31,
	2021		2020
	Unaudited
LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
Trade payables	$	3,990	$	2,480
Deferred revenues		1,213		1,224
Operating lease liabilities		293		310
Other accounts payable and accrued expenses		7,185		3,020

Total current liabilities		12,681		7,034

OPERATING LEASE LIABILITIES		66		222

STOCKHOLDERS’ EQUITY
Common Stock of $0.0001 par value - Authorized: 160,000,000 shares at September 30, 2021 (unaudited) and December 31, 2020; Issued and Outstanding: 16,509,344 and 8,119,493 shares at September 30, 2021 (unaudited) and December 31, 2020, respectively		*) -		*) -
Preferred Stock of $0.0001 par value - Authorized: 5,000,000 shares at September 30, 2021 (unaudited) and December 31, 2020; Issued and Outstanding: 12,097 and 15,823 shares at September 30, 2021 (unaudited) and December 31, 2020, respectively		*) -		*) -
Additional paid-in capital		304,382		171,399
Accumulated deficit		(199,943)		(143,248)

Total stockholders’ equity		104,439		28,151

Total liabilities and stockholders’ equity	$	117,186	$	35,407

*) Represents an amount lower than $1

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

F-3

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DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

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


	Three months ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020

	Unaudited				Unaudited
Revenues	$	5,629	$	2,042	$	14,485	$	5,496
Cost of revenues		3,097		1,493		7,746		3,532
Amortization of acquired intangible assets and inventories step-up		1,706		-		3,324		-

Gross profit		826		549		3,415		1,964

Operating expenses:
Research and development	$	5,506	$	954	$	11,903	$	3,010
Sales and marketing		10,696		3,635		27,476		10,334
General and administrative		7,123		2,562		18,865		9,459

Total operating expenses		23,325		7,151		58,244		22,803

Operating loss		(22,499)		(6,602)		(54,829)		(20,839)

Total financial (income) expenses, net		(55)		(52)		346		(391)

Net loss	$	(22,444)	$	(6,550)	$	(55,175)	$	(20,448)

Deemed dividend	$	488	$	930	$	1,520	$	2,991

Net loss attributable to holders of Common Stock	$	(22,932)	$	(7,480)	$	(56,695)	$	(23,439)

Net loss per share:

Basic and diluted net loss per share	$	(1.18)	$	(0.71)	$	(2.98)	$	(2.95)
Weighted average number of Common Stock used in computing basic and diluted net loss per share		16,473,449		7,328,420		16,202,541		4,856,115

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

F-4

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DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIM STATEMENTS OF STOCKHOLDERS’ EQUITY

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


							Additional				Total
	Common Stock			Preferred Stock			paid-in		Accumulated		stockholders’
	Number	Amount		Number	Amount		capital		deficit		equity
Balance as of January 1, 2021	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 consultants and service provider	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

Payment for executives and directors under Stock for Salary Program	1,754		*)-	-		-		27		-		`
Exercise of options	6,772		*)-	-		-		55		-		55
Exercise of placement agent warrants	18,486		*)-	-		-		-		-		-
Exercise of warrants	232		*)-	-		-		-		-		-
Issuance of common stock to consultants and service provider	72,754		*)-	-		-		889		-		889
Conversion of preferred stock to common stock	64,369		*)-	(278)		*)-		-		-		-
Deemed dividend related to issuance of preferred stock	-		-	-		-		488		(488)		-
Issuance of warrants to service providers	-		-	-		-		1,951		-		1,951
Stock-based compensation	(500)		*)-	-		-		2,595		-		2,595
Issuance of common stock upon acquisition of PsyInnovations Inc.(dba WayForward)	768,124		*)-	-		-		18,094		-		18,094
Net loss	-		-	-		-		-		(17,765)		(17,765)

Balance as of June 30, 2021 (unaudited)	16,330,842	$	*)-	12,122	$	*)-	$	295,124	$	(177,011)	$	118,113

Payment for executives and directors under Stock for Salary Program	1,791		*)-	-		-		34		-		34
Issuance of Common Stock to Directors and Employees	18,885		*)-	-		-		303				303
Issuance of common stock to consultants and service provider	112,332		*)-	-		-		1,705		-		1,705
Conversion of preferred stock to common stock	8,100		*)-	(25)		*)-		-		-		-
Deemed dividend related to issuance of preferred stock	-		-	-		-		488		(488)		-
Issuance of warrants to service providers	-		-	-		-		2,121		-		2,121
Stock-based compensation	37,394		*)-	-		-		4,607		-		4,607
Net loss	-		-	-		-		-		(22,444)		(22,444)

Balance as of September 30, 2021 (unaudited)	16,509,344	$	*)-	12,097	$	*)-	$	304,382	$	(199,943)	$	104,439

*) Represents an amount lower than $1.

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

F-5

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DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIM STATEMENTS OF STOCKHOLDERS’ EQUITY

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


							Additional				Total
	Common Stock			Preferred Stock			paid-in		Accumulated		shareholders'
	Number	Amount		Number	Amount		capital		deficit		equity
Balance as of January 1, 2020	2,235,649	$	*)-	21,375	$	*)-	$	129,039	$	(110,145)	$	18,894

Payment for executives and directors under Stock for Salary Program	47,074		*)-	-		-		274		-		274
Issuance of common stock to directors and employees	654,246		*)-	-		-		4,076		-		4,076
Issuance of common stock to consultants and service provider	66,905		*)-	-		-		360		-		360
Conversion of preferred stock to common stock	2,160		*)-	(12)		*)-		-		-		*)-
Deemed dividend related to warrant exchange	97,536		*)-	-		-		376		(376)		*)-
Deemed dividend related to issuance of preferred stock	-		-	-		-		899		(899)		-
Issuance of warrants to service providers	-		-	-		-		1,131		-		1,131
Stock-based compensation	-		-	-		-		583		-		583
Net loss	-		-	-		-		-		(9,892)		(9,892)

Balance as of March 31, 2020 (unaudited)	3,103,570	$	*)-	21,363	$	*)-	$	136,738	$	(121,312)	$	15,426

Payment for executives and directors under Stock for Salary Program	37,504		*)-	-		-		141		-		141
Issuance of common stock to directors and employees	4,638		*)-	-		-		17		-		17
Issuance of common stock to consultants and service provider	36,249		*)-	-		-		180		-		180
Conversion of preferred stock to common stock	917,130		*)-	(3,965)		*)-		-		-		-
Deemed dividend related to issuance of preferred stock	-		-	-		-		786		(786)		-
Issuance of warrants to service providers	-		-	-		-		150		-		150
Stock-based compensation	-		-	-		-		318		-		318
Net loss	-		-	-		-		-		(4,006)		(4,006)

Balance as of June 30, 2020 (unaudited)	4,099,091	$	*)-	17,398	$	*)-	$	138,330	$	(126,104)	$	12,226

Payment for executives and directors under Stock for Salary Program	38,771		*)-	-		-		193		-		193
Exercise of Agent Warrants	144,053		*)-	-		-		-		-		-
Exercise of repriced Warrants	88,889		*)-	-		-		1,088		-		1,088
Issuance of Common Stock to directors and employees	52,936		*)-	-		-		670		-		670
Issuance of Common Stock to consultants and service provider	58,458		*)-	-		-		531		-		531
Conversion of Preferred Stock to Common Stock	345,577		*)-	( )		*)-		-		-		-
Deemed dividend related to warrants exchange	63,781		*)-	-		-		223		(223)		-
Deemed dividend related to issuance of Preferred Stock	-		-	-		-		707		(707)		-
Issuance of Warrants to service providers	-		-	-		-		90		-		90
Issuance of Common Stock, net of issuance cost	3,000,752		*)-	-		-		26,460		-		26,460
Stock-based compensation	-		-	-		-		326		-		326
Net loss	-		-	-		-		-		(6,550)		(6,550)

Balance as of September 30, 2020 (unaudited)	7,892,308	$	*)-	15,879	$	*)-	$	168,618	$	(133,584)	$	35,034

*) Represents an amount lower than $1.

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

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DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands


	Nine months ended
	September 30,
	2021		2020

	Unaudited
Cash flows from operating activities:
Net loss	$	(55,175)	$	(20,448)
Adjustments required to reconcile net loss to net cash used in operating activities:
Stock-based compensation, common stock, and stock instead of cash compensation to directors, employees, consultants, and service providers		18,670		8,988
Depreciation		202		140
Change in operating lease right of use assets		137		224
Amortization of acquired inventories step-up		985		-
Amortization of acquired intangible assets		2,396		-
Decrease (increase) in trade receivables		(1,125)		129
Decrease (increase) in other accounts receivable, prepaid expense and long-term assets		221		(338)
Decrease (increase) in inventories		96		(158)
Increase in trade payables		-		343
Increase (decrease) in other accounts payable and accrued expenses		(1,368)		311
Increase (decrease) in deferred revenues		(139)		62
Change in operating lease liabilities		(173)		(229)

Net cash used in operating activities		(35,273)		(10,976)

Cash flows from investing activities:
Investment in deposit		(2)		(4)
Purchase of property and equipment		(193)		(69)
Cash paid as part of PsyInnovations Inc. (dba WayForward) acquisition		(5,023)		-
Loans repaid as part of Upright Technologies Ltd. acquisition		(3,016)		-
Cash acquired as part of Upright Technologies Ltd. acquisition		544		-

Net cash used in investing activities		(7,690)		(73)

Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs		64,877		27,548
Proceeds from exercise of warrants		633		-
Proceeds from exercise of options		256		-

Net cash provided by financing activities		65,766		27,548

Increase in cash, cash equivalents and short-term restricted bank deposits		22,803		16,499
Cash, cash equivalents and short-term restricted bank deposits at beginning of period		28,725		20,535

Cash, cash equivalents and short-term restricted bank deposits at end of period	$	51,528	$	37,034

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DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont.)

U.S. dollars in thousands

Schedule A- Acquisition of Upright Technologies Ltd:
Estimated net fair value of assets acquired and liabilities assumed at the date of acquisition was as follows:
Working capital, net (excluding cash and cash equivalents)	$	(2,171)	$	-
Equipment and other assets		142		-
Intangible assets		9,600		-
Goodwill		25,334		-
Loan of Upright Technologies Ltd		(4,516)		-
Issuance of common stock to Upright Technologies Ltd. shareholders		(28,933)		-

Cash acquired as part of Upright Technologies Ltd. acquisition	$	(544)	$	-

Schedule B- Acquisition of PsyInnovations Inc. (dba WayForward):
Estimated net fair value of assets acquired and liabilities assumed at the date of acquisition was as follows:
Working capital, net (excluding cash and cash equivalents)	$	(901)	$	-
Equipment and other assets		4		-
Intangible assets		10,205		-
Goodwill		14,065		-
Liability to PsyInnovations Inc. (dba WayForward) previous shareholders		(256)
Issuance and expected issuance of common stock to PsyInnovations Inc. (dba WayForward) shareholders		(18,094)		-

Cash paid as part of PsyInnovations Inc. (dba WayForward) acquisition	$	5,023	$	-

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

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

DarioHealth is a leading Global Digital Therapeutics (DTx) company revolutionizing the way people with chronic conditions manage their health. By delivering personalized evidence-based interventions that are driven by precision data analytics, high quality software, and personalized coaching, DarioHealth has developed a novel approach that empowers individuals to adjust their lifestyle in a unique and holistic way.

DarioHealth’s cross-functional team operates at the intersection of life sciences, behavioral science, and software technology to deliver seamlessly integrated and highly engaging digital therapeutics interventions. Being one of the highest rated diabetes solutions, its user-centric approach is loved by tens of thousands of customers around the globe. DarioHealth is rapidly expanding its solutions for additional chronic conditions such as hypertension and moving into new geographic markets.

DarioHealth’s digital therapeutic platform has been designed with a ‘user-first’ strategy, focusing on the user’s needs first and foremost, and user experience and satisfaction. User satisfaction is constantly measured and drives, all company processes, including our technology design.

DarioHealth has one reporting unit and one segment.

The Company’s wholly owned subsidiary, LabStyle Innovation Ltd. (the “Subsidiary”), was incorporated and commenced operations on September 14, 2011 in Israel. Its principal business activity is to hold the Company’s intellectual property and to perform research and development, manufacturing, marketing, and other business activities.

On January 26, 2021, the Company entered into a share purchase agreement (the “Share Purchase Agreement”) pursuant to which the Company, through the Subsidiary, acquired all of the outstanding securities of Upright Technologies Ltd. and its wholly owned subsidiary Upright Technologies Inc. (“Upright”). Upright is a leading digital musculoskeletal (“MSK”) health company focused on preventing and treating the most common MSK conditions through behavioral science, biofeedback, coaching, and wearable tech. See note (4a).

On May 15, 2021, the Company entered into an agreement and plan of merger (the “Agreement and Plan of Merger”) pursuant to which the Company, through its fully owned subsidiary WF Merger Sub, Inc. (“Merger Sub”) merged with PsyInnovations Inc. (“WayForward”), pursuant to which the Merger Sub was the surviving company. PsyInnovations Inc. (dba WayForward) is a mental health company who develops the WayForward behavioral digital health platform with artificial intelligence (AI) enabled screening to triage and navigate members to specific interventions, digital cognitive behavioral therapy (CBT), self-directed care, expert coaching and access to in-person and telehealth provider visits. See note (4b).

During the nine months ended September 30, 2021, the Company incurred operating losses and negative cash flows from operating activities amounting to $54,829 and $35,273, respectively. On September 30, 2021, we had $51,331 in available cash and cash equivalent. Management believes that the Company’s cash on hand is sufficient to meet its 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. 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 1: - GENERAL (Cont.)

In December 2015, the United States Food and Drug Administration granted the Subsidiary 510(k) clearance for the Dario Blood Glucose Monitoring System, including its components, the Dario Blood Glucose Meter, Dario Blood Glucose Test Strips, Dario Glucose Control Solutions and the Dario app on the Apple IOS 6.1 platform and higher.

On March 4, 2016, the Company’s Common Stock, par value $0.0001 per share (the “Common Stock”) and warrants to purchase shares of Common Stock were approved for listing on the Nasdaq Capital Market under the symbols “DRIO” and “DRIOW,” respectively. Our listed warrants expired in March 2021 and ceased trading on the Nasdaq Capital Market as a result.

The Company has been carefully monitoring the COVID-19 pandemic and its impact on its business. In that regard, the Company has continued to sell its Dario^TM Blood Sugar Monitor and has not experienced disruptions in its supply chains. With respect to the Company’s DTx platform, it has observed that some of its business-to-business prospective partners have been addressing their business needs as a result of the COVID-19 pandemic, which has resulted in a slowdown of negotiations and discussions with some of these potential partners. In addition, the Company has also seen an increase in interest from other business-to-business prospective partners in its DTx platform, as certain parties are seeking tele-health products. The Company expects the significance of the COVID-19 pandemic, including the extent of its effect on the Company’s financial and operational results, to be dictated by, among other things, its duration, the success of efforts to contain it and the impact of actions taken in response. While the Company is not able at this time to estimate the impact of the COVID-19 pandemic on its financial and operational results, it could be material.

NOTE 2: - SIGNIFICANT ACCOUNTING POLICIES

a. The significant accounting policies applied in the audited annual consolidated financial statements of the Company as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 are applied consistently in these unaudited interim consolidated financial statements.

b. Short-term restricted bank deposits:

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


	September 30,		September 30,
	2021		2020
	Unaudited		Unaudited
Cash, and cash equivalents as reported on the balance sheets	$	51,331	$	36,907
Short-term restricted bank deposits, as reported on the balance sheets		197		127

Cash, restricted cash, cash equivalents and short-term restricted bank deposits as reported in the statements of cash flows	$	51,528	$	37,034

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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.)

c. Recently issued accounting pronouncements, not yet adopted:

In June 2016, the Financial Accounting Standards Board (“FASB”) issued 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 timelier recognition of losses. Topic 326 will be effective on the Company beginning on January 1, 2023. The Company is currently evaluating the impact of this new standard on its financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 removes from U.S. GAAP the liability and equity separation model for convertible instruments with a cash conversion feature and a beneficial conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. Similarly, the embedded conversion feature will no longer be amortized into income as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share. ASU 2020-06 is effective for the Company for fiscal years beginning after December 15, 2023, with early adoption permitted for fiscal years beginning after December 15, 2020 and can be adopted on either a fully retrospective or modified retrospective basis. The Company is currently evaluating the impact of this new standard on its financial statements.

NOTE 3: - UNAUDITED INTERIM FINANCIAL STATEMENTS

The accompanying unaudited interim consolidated financial statements as of September 30, 2021, have been prepared in accordance with U.S. generally accepted accounting principles and standards of the Public Company Accounting Oversight Board for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, the unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair presentation of the Company’s consolidated financial position as of September 30, 2021, and the Company’s consolidated results of operations and the Company’s consolidated cash flows for the nine months ended September 30, 2021. Results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. 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, 2020.

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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 4 – ACQUISITIONS

Acquisition of Upright

On January 26, 2021 (the “Acquisition Date”), the Company entered into the Share Purchase Agreement with Upright’s shareholders pursuant to which the Company, through the Subsidiary, acquired 100% of the ordinary shares of Upright.

Pursuant to the terms of the Share Purchase Agreement, the acquisition closed on February 1, 2021. The consideration payable in connection with the Agreement was capped at $31,000 and in any event, is subject to certain indemnity provisions, and took into account certain working capital excess generated, among other matters, by a convertible bridge loan in the amount of $1,500 previously disbursed by the Company to Upright, which was converted into one ordinary share of Upright at the closing. The Company agreed to bear certain liabilities of Upright, which were reduced from the aggregate consideration, in an estimated amount of $3,700.

The preliminary estimated fair value of consideration transferred on the Acquisition Date was comprised of (i) share consideration to owners of Upright for approximately 1,490,154 shares of the Company’s Common Stock (ii) and approximately 37,857 employees’ options to purchase shares of the Company’s Common Stock on account of Upright’s vested options valued at a total of $28,933.

In addition, 62,371 restricted stock units are being held in escrow for future vested stock options valued at $969, and 113,576 restricted shares of Common Stock are being held in escrow issuable to Upright Founder upon the completion of a holdback service period of 18 months (“Holdback restricted stock units”), valued at $2,751. In addition, the Company incurred acquisition-related costs in a total amount of $378. Acquisition-related costs include legal and accounting services.

A portion of the share consideration, consisting of 24,266 shares of Common Stock, was issued under the Company’s Amended and Restated 2012 Equity Incentive Plan as amended (the “2012 Plan”), and the 2020 Equity Incentive Plan (the “2020 Plan”).

Purchase price allocation:

Under business combination accounting principles, the total purchase price was allocated to Upright’s net tangible and intangible assets based on their estimated fair values as set forth below. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill.

The allocation of the purchase price to the assets acquired and liabilities assumed based on management’s estimate of fair values at the date of acquisition as follows:


	September 30,
	2021		Amortization
	Unaudited		period (Years)
Tangible assets acquired	$	1,427
Inventory *)		2,845
Liabilities assumed		(10,273)
Net liabilities assumed		(6,001)

Technology		9,600		4
Goodwill		25,334		Infinite
Total purchase price	$	28,933

*) Including step-up in inventory fair value of $1,140

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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 4 – ACQUISITIONS (Cont.)

Acquisition of Upright (Cont.)

The table below summarizes the value of the total consideration given in the transaction:


	Amount
	Unaudited
Shares issued to owners	$	28,221
Shares issued for vested options		712
Preliminary purchase price	$	28,933

Acquisition of WayForward

On June 7, 2021, the Company through the Merger Sub, completed the acquisition of WayForward through the merger of WayForward into Merger Sub., which changed its name to PsyInnovations, Inc. in connection with the merger (collectively, the “Merger”). Under the Agreement and Plan of Merger, dated as of May 15, 2021, the Company paid, aggregate consideration (“Merger Consideration”) of (A) $5,750 in cash and (B) up to $21,250 equal to 768,124 in shares of Common Stock, (C) Up to $5,000 equal to 237,076 in shares of Common Stock structured as an earn-out payable in shares of Common Stock if behavioral health revenues from the Company exceed a certain threshold in 2022, subject to customary working capital and other adjustments as of the closing of the Merger (the "Closing"). The Company will pay $3,000 of the Merger Consideration, consisting of $2,750 equal up to 130,397 in shares of Common Stock and up to $250 in cash, after a minimum of eighteen (18) months to secure indemnification obligations. In addition, the Company incurred acquisition-related costs in a total amount of $502. Acquisition-related costs include legal and accounting services.

Purchase price allocation:

Under business combination accounting principles, the total purchase price was allocated to WayForward’s net tangible and intangible assets based on their estimated fair values as set forth below. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill.

The allocation of the purchase price to the assets acquired and liabilities assumed based on management’s estimate of fair values at the date of acquisition as follows:


	September30,
	2021		Amortization
	Unaudited		period (years)
Tangible assets acquired	$	398
Liabilities assumed		(1,157)
Net liabilities assumed		(759)

Technology		9,666		4
Brand		539		3
Goodwill		14,065		Infinite
Total purchase price	$	23,511

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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 4 – ACQUISITIONS (Cont.)

Acquisition of WayForward (Cont.)

The table below summarizes the value of the total consideration given in the transaction:


	Amount
	Unaudited
Shares issued and expected to be issued to owners	$	14,272
Cash consideration		5,417
Earn-out consideration		3,822
Preliminary purchase price		23,511

In accordance with Accounting Standards Codification (ASC) 805 “Business Combinations” the measurement period for the acquisition of Upright and WayForward is for one year during which the Company may reevaluate the assets acquired, liabilities assumed and the goodwill resulting from the transaction as well as the change in amortization as a result of changes in the provisional amounts as if the accounting had been completed at the Acquisition Date. Our purchase price allocation was made using our best estimates of fair value, which are dependent upon certain valuation and other analyses that are not yet final.

Pro forma results

The following table sets forth a summary of the unaudited pro forma results of the Company as if the acquisition of Upright and WayForward, which closed in February and June 2021, respectively, had taken place on the first day of the period presented. These combined results are not necessarily indicative of the results that may have been achieved had Upright and WayForward been acquired as of the first day of the period presented.


	Nine months ended
	September 30,
	2021
Total revenue	$	15,927
Total expenses		77,551
Preferred stock Deemed dividend		1,520
Net loss attributable to holders of common stock		(63,144)

Basic and diluted net loss per share	$	(3.21)

NOTE 5: - INVENTORIES


	September 30,		December 31,
	2021		2020
	Unaudited
Raw materials	$	1,117	$	377
Finished products		2,941		1,916

	$	4,058	$	2,293

During the nine-month period ended September 30, 2021, and the year ended December 31, 2020, total inventory write-off expenses amounted to $91 and $99, respectively.

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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: - REVENUES

The following tables represent the Company’s total revenues for the three and nine months ended September 30, 2021 and 2020 by revenue type:


	Three months ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020

	Unaudited				Unaudited
Hardware and consumable products	$	4,853	$	1,556	$	12,613	$	4,052
Service (*)		776		486		1,872		1,444

		5,629		2,042	$	14,485	$	5,496

(*) Software application and remote monitoring services

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

The following table presents the significant changes in the deferred revenue balance during the nine months ended September 30, 2021:


Balance, beginning of the period	$	1,224
New performance obligations		2,617
Reclassification to revenue as a result of satisfying performance obligations		(2,628)
Balance, end of the period	$	1,213

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 7: - COMMITMENTS AND CONTINGENT LIABILITIES

From time to time the Company is involved in claims and legal proceedings. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss.

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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

During the nine-month period ended September 30, 2021, the Company’s Compensation Committee (the “Compensation Committee”) of the Board of Directors approved an aggregate of 9,124 shares of Common Stock to certain officers and employees of the Company as consideration for a reduction in, or waiver, of cash salary, or fees owed to such individuals and the grant of 5,000 restricted shares of Common Stock to employee. 12,370 shares were issued under the Company’s 2012 Plan and 1,754 shares were issued under the 2020 Plan.

During the nine months ended September 30, 2021, the Board of Directors approved the grant of an aggregate of 18,885 shares of Common Stock, as well as the grant of 99,074 options to purchase Common Stock to officers, employees, and consultants of Upright, at exercise prices between $0.01 to $24.48 per share. The stock options vest over a period of four years or less commencing on the respective original grant dates. The options have a ten-year term. The shares and options were issued under the Company’s 2020 Plan.

During the nine months ended September 30, 2021, the Board of Directors approved the grant of 275,340 unregistered shares of Common Stock to certain consultants and service providers of the Company, of which 7,500 were issued under the 2012 Plan.

During the nine months ended September 30, 2021, the Company’s Compensation Committee approved the grant of an aggregate of 1,088,537 restricted shares of Common Stock, subject to time vesting to directors, officers, employees and consultants of the Company, as well as the grant of 701,499 options to purchase Common Stock, and 10,000 performance-based options to purchase Common Stock to officers, employees and consultants of the Company, at exercise prices between $12.84 and $25.84 per share. The time vesting restricted shares and stock options vest over a period of three years commencing on the respective grant dates. The options have a ten-year term and were issued under the 2020 Plan.

In April 2020, the Compensation Committee approved a monthly grant of shares of Common Stock equal up to between $12.00 to $16.00 of restricted shares to certain service providers per month, to be granted monthly during the period that the certain consulting agreement remains in effect.

During the nine months ended September 30, 2021, a total of 7,913 restricted unregistered shares of Common Stock were issued to certain service providers under this approval.

In April 2020, the Audit and Compensation Committee of the Board of Directors approved monthly grants of 1,500 shares of Common Stock, of which 639 shares are to be issued to a board member granted monthly during the twelve month period that the certain consulting agreement with said service providers is in effect.

During the nine months ended September 30, 2021, a total of 4,500 shares of Common Stock were issued under the said approval of which 1,857 shares were issued to a board member and 2,643 shares were issued to certain service providers under the 2012 and 2020 Plans.

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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.)

In May 2021, the Compensation Committee of the Board of Directors approved an inducement grant of a non-qualified stock option award to purchase 60,000 shares of the Company’s Common Stock, as well as an additional inducement grant consisting of a non-qualified performance-based stock option award to purchase an additional 15,000 shares of the Company’s Common Stock outside of the Company’s 2020 Plan, pursuant to Nasdaq Listing Rule 5635(c)(4),in connection with the employment of one employee as part of the acquisition of WayForward (see note 4), the options were granted on June 7, 2021 as part of the closing of the Merger.

In July 2021, the Compensation Committee of the Board of Directors approved the grant of a non-qualified stock option award to purchase 20,000 shares of the Company’s Common Stock outside of the Company’s existing equity incentive plans, pursuant to Nasdaq Listing Rule 5635(c)(4), in connection with the employment of its Special Vice President of Market Access.

In January and September 2021, pursuant to the terms of the 2020 Plan as approved by the Company’s stockholders, the number of shares authorized for issuance under the 2020 Plan increased by 1,628,890 shares, from 900,000 to 2,528,890.

In May 2020, the Compensation Committee of the Board of Directors authorized the Company to issue warrants to purchase 60,000 shares of Common Stock vesting over a 12 month period, to certain consultants. The warrants exercise price is $6.39 per share. During the nine months ended September 30, 2021, the Company recorded warrants compensation expense for service provider in the amount of $18.

In February 2021, the Board of Directors authorized the Company to issue warrants to purchase up to 400,000, shares of Common Stock, to certain consultant of the Company, at a purchase price of $25.00. As such, the Company recorded a warrant compensation expense for service providers in the amount of $4,046.

In April 2021, the Compensation Committee authorized the Company to issue warrants to purchase 30,000 shares of Common Stock, to a certain consultant of the Company, with an exercise price of $30.00 per share, and warrants to purchase 12,500 shares of Common Stock with an exercise price of $18.57 per share. As such, the Company recorded a warrant compensation expense for service providers in the amount of $387.

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. As such, the Company recorded a warrant compensation expense for service providers in the amount of $273.

In September 2021, the Compensation Committee authorized the Company to issue warrants to purchase 25,000 shares of Common Stock, to certain consultant of the Company, with an exercise price of $13.88 per share. As such, the Company recorded a warrant compensation expense for service providers in the amount of $194.

During the nine months ended September 30, 2021 certain Company warrants holders have exercised warrants into 219,992 shares for total proceeds of $633.

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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.)

In November and December 2019, the Company entered into subscription agreements for a sale of an aggregate of 21,375 shares of newly designated Series A, A-1, A-2, A-3 and A-4 Convertible Preferred Stock (collectively, the “Series A Convertible Preferred Stock”), at a purchase price of $1,000 per share, for aggregate gross proceeds of $21,375 ($18,689 net of issuance expenses). The initial conversion price for the Series A, A-1, A-2, A-3 and A-4 Convertible Preferred Stock was $4.05, $4.05, $4.28, $4.98 and $5.90, respectively, and the total amount of Common Stock issuable upon conversion of all classes of the Series A Convertible Preferred Stock is up to 4,960,281 shares of Common Stock.

During the nine months ended September 30, 2021 3,726 of certain Series A Convertible Preferred Stock were converted into 874,530 shares of Common Stock.

Pursuant to the placement agency agreement executed by and between the Company and the registered broker dealer retained to act as the Company’s exclusive placement agent (the “Placement Agent”) for the offering of the Series A Preferred Stock, the Company paid the Placement Agent an aggregate cash fee of $1,788, a non-accountable expense allowance of $641 and was required to issue to the Placement Agent or its designees warrants to purchase 719,243 shares of Common Stock at an exercise price ranging from $4.05 to $5.90 per share (the “Placement Agent Warrants”). The Placement Agent Warrants are exercisable for a period of five years from the date of the final closing of the Series A Preferred Stock Offering.

During the nine months ended September 30, 2021, 144,425 Placement Agent Warrants that were issued in December 2020 were exercised into 111,061 shares of Common Stock.

The Series A Convertible Preferred Stock will automatically convert into shares of Common Stock, subject to certain beneficial ownership limitations, on the earliest to occur of (i) upon the approval of the holders at least 50.1% of the outstanding shares of Series A Convertible Preferred with respect to the Series A Convertible Preferred Stock; or (ii) the 36-month anniversary of each of the date the Series A Convertible Preferred Stock was issued (each, the “Series A Effective Date”). The holders of Series A Preferred Stock will also be entitled dividends payable as follows: (i) a number of shares of Common Stock equal to ten percent (10%) of the number of shares of Common Stock issuable upon conversion of the Series A Convertible Preferred Stock then held by such holder on the 12-month anniversary of the Series A Effective Date, (ii) a number of shares of Common Stock equal to fifteen percent (15%) of the number of shares of Common Stock issuable upon conversion of the Series A Convertible Preferred then held by such holder on the 24-month anniversary of the Series A Effective Date, and (iii) a number of shares of Common Stock equal to twenty percent (20%) of the shares of Common Stock issuable upon conversion of the Series A Convertible Preferred Stock then held by such holder on the 36-month anniversary of the Series A Effective Date. The Company accounted for the dividend as deemed dividend, during the nine months ended September 30, 2021 a total amount of $1,520 was recorded.

On February 1, 2021, the Company entered into securities purchase agreements with institutional accredited investors relating to an offering with respect to the sale of an aggregate of 3,278,688 shares of Common Stock, at a purchase price of $21.35 per share. The aggregate gross proceeds were approximately $70,000 ($64,877, net of issuance expenses).

During the nine months ended September 30, 2021, options were exercised into 40,545 shares of Common Stock, with aggregate gross proceeds of approximately $256.

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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.)

Stock based compensation:

Transactions related to the grant of options to employees, directors, and non-employees under the above plans during the nine-months period ended September 30, 2021, were as follows:


			Weighted
		Weighted	average
		average	remaining	Aggregate
		exercise	contractual	Intrinsic
	Number of	price	life	value
	options	$	Years	$

Options outstanding at beginning of period	973,575	17.56	4.99	5,510
Options granted	905,573	20.28	-	-
Options exercised	(40,545)	6.32	-	-
Options expired	(46,900)	49.33	-	-
Options forfeited	(52,195)	16.93	-	-

Options outstanding at end of period	1,739,508	18.40	6.87	4,518

Options vested and expected to vest at end of period	1,647,018	18.51	6.84	4,324

Exercisable at end of period	372,630	32.41	4.65	4,070

Transactions related to the grant of restricted shares to employees, directors, and non-employees under the above plans during the nine-months period ended September 30, 2021, were as follows:


								Number of
								Restricted shares

Restricted shares outstanding at beginning of period								-
Restricted shares granted								1,096,743
Restricted shares forfeited								(3,206)

Restricted shares outstanding at end of period								1,093,537

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 third quarter of 2021 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2021. This amount is impacted by the changes in the fair market value of the Common Stock.

As of September 30, 2021, the total amount of unrecognized stock-based compensation expense was approximately $28,459 which will be recognized over a weighted average period of 1.2 years.

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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.)

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
	September 30,
	2021					2020

Volatility	93.34	%	-	96.01	%	94.00	%	‑	99.89	%
Risk-free interest rate	0.01	%	-	0.01	%	0.19	%	‑	0.25	%
Dividend yield	-			-	%				-	%
Expected life (years)	5.25		-	5.88		3.5		‑	4.5

The total compensation cost related to all of the Company’s stock-based awards recognized during the nine-month period ended September 30, 2021, and 2020 was comprised as follows:


	Nine months ended
	September 30,
	2021		2020

	Unaudited
Cost of revenues	$	63	$	24
Research and development		2,480		591
Sales and marketing		4,007		2,267
General and administrative		12,120		6,106

Total stock-based compensation expenses	$	18,670	$	8,988

NOTE 9: - FINANCIAL EXPENSES (INCOME), NET


	Nine months ended
	September 30,
	2021		2020

	Unaudited
Bank charges	$	60	$	42
Foreign currency adjustments (income) losses, net		322		(382)
Interest income		(36)		(51)

Total financial (income) losses, net	$	346	$	(391)

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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 10: - SUBSEQUENT EVENTS

In October 2021, the Compensation Committee of the Board of Directors approved a grant of 41,074 restricted shares of Common Stock to certain consultants and service providers.

In October 2021, the Compensation Committee of the Board of Directors approved a grant of 10,500 shares of Common Stock to certain employees, which were issued under the 2020 Plan. In addition, the Compensation Committee approved the grant of options to purchase up to 58,500 shares of Common Stock at exercise prices of $12.23 and $12.77 per share.

In April 2020, the Compensation Committee approved a monthly grant of shares of Common Stock, equal to up to $16.00 per share, of restricted shares to a certain service provider per month, to be granted monthly during the period that the certain consulting agreement remains in effect. During the third quarter of 2021, the Company issued a total of 2,139 restricted shares of Common Stock to that certain service provider.

In October 2021, the Compensation Committee approved the grant of 1,810 shares of Common Stock to officers and employees of the Company as consideration for a reduction in or waiver of cash salary owed to such individuals. The shares of Common Stock were issued under the Company’s 2012 Plan.

In October 2021, the Compensation Committee authorized the Company to issue warrants to purchase 40,000 shares of Common Stock, to certain consultants of the Company, with an exercise price of $25.10 per share.

On November 9, 2021, the Compensation Committee of the Board of Directors approved the grant of a non-qualified stock option award to purchase 140,000 shares of the Company’s Common Stock outside of the Company’s existing equity incentive plans, pursuant to Nasdaq Listing Rule 5635(c)(4), in connection with the employment of a Chief Commercial Officer.

In November 2021, certain Series A Convertible Preferred Stockholders converted 50 shares of various classes of the Company’s Series A Convertible Preferred Stock into 12,346 shares of Common Stock.

F-21

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Readers are advised to review the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2020. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements”. You should review the “Risk Factors” section of our Annual Report for the fiscal year ended December 31, 2020 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

The following financial data in this narrative are expressed in thousands, except for stock and stock data or as otherwise noted.

We are a leading global Digital Therapeutics (“DTx”) company revolutionizing the way people manage their health across the chronic condition spectrum to live a better and healthier life. Our mission is to transform how affected individuals manage their health and chronic conditions by empowering our customers to easily manage their conditions and take steps to improve their overall health. Most chronic conditions are driven by personal behaviors and the individual actions that are or are not taken. We believe that changing these behaviors can dramatically improve our customers’ overall health and substantially reduce unnecessary health spending. However, behavioral change and habit formation are difficult, especially in managing chronic disease and related conditions. Our digital therapeutics endeavor to produce lasting behavior changes in our customers by applying a novel combination of artificial intelligence (“AI”)-driven dynamic personalization and behavioral science at scale. This allows us to engage and support our customers, and offer them a complete virtual care solution, ideally resulting in improved health outcomes and reduced total cost of care.

Our principal operating subsidiary, LabStyle Innovation Ltd., is an Israeli company with its headquarters in Caesarea, Israel. We were formed on August 11, 2011, as a Delaware corporation with the name LabStyle Innovations Corp. On July 28, 2016, we changed our name to DarioHealth Corp. We began our sales in the direct-to-consumer space, solving first for what we deemed the most difficult problems: how to engage users and support behavior change to improve clinical outcomes in diabetes. Our most developed AI tools leverage the direct-to-consumer experience from over 150,000 members to drive superior engagement and outcomes. In early 2020, we broadened our solutions to include other medical conditions in addition to diabetes, and to serve business customers who seek to improve the health of their stakeholders. Presently, we have deployed solutions for diabetes, hypertension, and pre-diabetes, and through our acquisition of Upright Technologies Ltd. (“Upright”), we now offer solutions for musculoskeletal (“MSK”) conditions. We are currently delivering B2B2C solutions for providers, employers, and pharmaceutical companies, and we plan to develop a full-risk health plan business, which we expect will provide our AI driven, remote patient monitoring (“RPM”) and coaching for a variety of chronic conditions, across a range of customer product lines in 2021.

Upright, which we acquired on February 1, 2021, is a leading digital MSK health company focused on preventing and treating the most common MSK conditions through behavioral science, biofeedback, coaching, and wearable tech. Upright has over 90,000 active users and its clinically validated solution is recommended by more than 500 clinics worldwide.

On June 7, 2021, we acquired to PsyInnovations, Inc. (“WayForward”), a behavioral digital health platform with AI-enabled screening to triage and navigate members to specific interventions, digital cognitive behavioral therapy (“CBT”), self-directed care, coaching and access to in-person and telehealth provider visits.

We offer a customized, user-centric, modular platform integrating digital therapeutics, coaching, devices, and care providers. Our suite of offerings includes Dario Tools, which are devices that integrate with applications on a user’s smartphone, DarioEngage, a population health management platform (“DarioEngage”), and the Dario Loop, our AI-driven journey engine.

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In addition, we have continued to carefully monitor the COVID-19 pandemic and its impact on our business. In that regard, we have continued to sell our Dario^TM Blood Sugar Monitor and have not experienced disruptions in our supply chains. With respect to our DTx platform, we have observed that some of our business-to-business prospective partners have been addressing their business needs as a result of the COVID-19 pandemic, which has resulted in a slowdown of negotiations and discussions with some of these potential partners. In addition, we have also seen an increase in interest from other business-to-business prospective partners in our DTx platform, as certain parties are seeking tele-health products.

We expect the significance of the COVID-19 pandemic, including the extent of its effect on our financial and operational results, to be dictated by, among other things, its duration, the success of efforts to contain it and the impact of actions taken in response. While we are not able at this time to estimate the impact of the COVID-19 pandemic on our financial and operational results, it could be material.

Management believes that the proceeds from the recent subscription agreement combined with our cash on hand are sufficient to meet our obligations as they come due for at least a period of twelve months from the date of the issuance of these unaudited condensed consolidated financial statements. As a result, the Company has resolved to remove the going concern note from its financial statements. There are no assurances, however, that the Company will be able to obtain an adequate level of financial resources that are required for the long-term development and commercialization of its product offering.

Recent Developments

People One Health

In August 2021, we announced that our digital behavioral health solution was selected by regional primary care provider PeopleOne Health to be the digital behavioral health solution of choice for patients beginning in September 2021.

Employer Contracts

In September 2021, we announced that our digital behavioral health solution was selected by a casino resort company in California, which is expected to contribute revenue beginning in the fourth quarter of 2021. In addition, in September 2021, we also announced that we entered into an agreement to provide our suite of digital therapeutics for diabetes, hypertension and pre-diabetes to a Northeast regional employer, which is expected to contribute revenue beginning in the first quarter of 2022.

Agreement with Leading National Health Plan

In October 2021, we announced that we entered into an agreement with one of the largest U.S. national health plans to offer its self-insured employer customers the Dario digital behavioral health solution as part of its behavioral health offering. Initial members are expected on the platform in the fourth fiscal quarter of 2021, with additional rollout anticipated over the course of 2022. Dario will be paid a monthly fee for members that have access to the platform. We believe that the agreement has the potential to generate millions of dollars in annual revenue.

Agreement with U.S. National Employer

In October 2021, we announced that we entered into a contract with a U.S. national employer for our full multi-condition suite of chronic condition management solutions, including diabetes, pre-diabetes, hypertension, musculoskeletal, behavioral health, and digital employee assistance programs. Enrollment of our multi-condition suite of chronic condition management solutions is expected to begin in the first quarter of 2022, consistent with the employer’s benefit year.

Virgin Pulse Network

In October 2021, we announced that we partnered with Virgin Pulse, the leading global provider of digital and live health and wellbeing solutions, making our next-gen digital therapeutic and health solutions available for contract through Virgin Pulse to employers and health plans worldwide.

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RPM Contracts

In November 2021, we announced that we entered into contracts with two prominent regional providers in Hawaii and Georgia for our RPM services.

Agreement with Leading National Benefits Administrative Platform

In November 2021, we announced that we entered into a new strategic partnership with a leading national benefits administrative platform to provide our full suite of integrated digital therapeutic and health solutions to a wide range of employers, beginning in January of 2022.

Critical Accounting Policies

Please see Note 2 of Part I, Item 1 of this Quarterly Report on Form 10-Q for the summary of significant accounting policies. In addition, reference is made to Part I, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation of our Annual Report on Form 10-K for the year ended December 31, 2020 (filed on March 9, 2021) with respect to our Critical Accounting Policies. There have been no other material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2020.

Results of Operations

Comparison of the three and nine months ended September 30, 2021 and 2020 (dollar amounts in thousands)

Revenues

Revenues for the three and nine months ended September 30, 2021, amounted to $5,629 and $14,485, respectively, compared to revenues of $2,042 and $5,496 during the three and nine months ended September 30, 2020, representing an increase of 176% and 164% respectively. The increase in revenues for the three and nine months ended September 30, 2021, compared to the three and nine months ended September 30, 2020, is due to an increase in our direct to consumer (“D2C”) sales in the nine months ended September 30, 2021, and from the consolidation of Upright and WayForward revenues. The proforma revenues for the nine months ended September 30, 2021, assuming that the closing of the acquisition of Upright and WayForward would have taken place on the first day of the 2021 fiscal year would have amounted to $15,927.

Revenues were derived mainly from the sales of Dario’s products and our membership offering through D2C acquisitions located mainly in the United States and Australia, through our on-line store and through distributors. Revenues also include the consolidated revenues of Upright and WayForward for the periods of February 2, 2021, and June 8, 2021 respectively, through September 30, 2021.

Cost of Revenues

During the three and nine months ended September 30, 2021, we recorded cost of revenues in the amount of $4,803 and $11,070 respectively, compared to costs related to revenues of $1,493 and $3,532 during the three and nine months ended September 30, 2020, representing an increase of 222% and 213% respectively. The increase in cost of revenues in the three and nine months ended September 30, 2021, compared to the three and nine months ended September 30, 2020, are mainly a result of the increase in the sales of our products and the amortization of inventory step up and acquired technology in the amount of $1,706 and $3,324 respectively as a result of the acquisition of Upright and WayForward.

Cost of revenues consist mainly of cost of device production, employees’ salaries and related overhead costs, depreciation of production line and related cost of equipment used in production, amortization of technologies, hosting costs, shipping and handling costs and inventory write-downs.

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Gross Profit

Gross profit for the three and nine months ended September 30, 2021, amounted to $826 (14.7% of revenues) and $3,415 (23.6% of revenues) respectively compared to $549 (26.9% of revenues) and $1,964 (35.7% of revenues) during the three and nine months ended September 30, 2020. The decrease in gross profit as a percentage of revenue for the three and nine months ended September 30, 2021, compared to the three and nine months ended September 30, 2020, is mainly as a result of amortization of inventory step up and acquired technology following the acquisition of Upright and WayForward amounting to $1,706 and $3,324 respectively. Gross profit excluding these amortizations was $2,532 (45% of revenues) and $6,739 (46.5% of revenues).

Research and Development Expenses

Our research and development expenses increased by $4,552, or 477%, to $5,506 for the three months ended September 30, 2021, compared to $954 for the three months ended September 30, 2020, and increased by $8,893, or 295%, to $11,903 for the nine months ended September 30, 2021, compared to $3,010 for the nine months ended September 30, 2020. These increases were mainly due to the consolidation of Upright and WayForward during the nine months ended September 30, 2021. Our research and development expenses, excluding stock-based compensation and depreciation, for the nine months ended September 30, 2021 were $9,372 compared to $2,401 for the nine months ended September 30, 2020, an increase of $6,971.

Research and development expenses consist mainly of payroll expenses to employees involved in research and development activities, expenses related to our software application and related devices, labor contractors and engineering expenses, depreciation and maintenance fees related to equipment and software tools used in research and development, Dario’s clinical trials performed in the United States to satisfy the FDA product approval requirements and facilities expenses associated with and allocated to research and development activities.

Sales and Marketing Expenses

Our sales and marketing expenses increased by $7,061, or 194%, to $10,696 for the three months ended September 30, 2021, compared to $3,635 for the three months ended September 30, 2020, and increased by $17,142, or 166%, to $27,476 for the nine months ended September 30, 2021, compared to $10,334 for the nine months ended September 30, 2020. These increases were mainly due to increases in our stock-based compensation, payroll related, digital marketing and the consolidation of Upright and WayForward during the nine months ended September 30, 2021. Our sales and marketing expenses, excluding stock-based compensation and depreciation, for the nine months ended September 30, 2021 were $23,378 compared to $8,042 for the nine months ended September 30, 2020, an increase of $15,336.

Sales and marketing expenses consist mainly of payroll expenses, online marketing campaigns of the Dario service offering, trade show expenses, customer support expenses and marketing consultants and subcontractors.

General and Administrative Expenses

Our general and administrative expenses increased by $4,561, or 178%, to $7,123 for the three months ended September 30, 2021, compared to $2,562 for the three months ended September 30, 2020, and increased by $9,406, or 99% to $18,865 for the nine months ended September 30, 2021, compared to $9,459 for the nine months ended September 30, 2020. This increase was mainly due to increases in our stock-based compensation, investor relations, insurance expenses and the costs related with the acquisition of Upright and WayForward during the nine months ended September 30, 2021. Our general and administrative expenses, excluding stock-based compensation, acquisition related expenses and depreciation, for the nine months ended September 30, 2021 were $5,839 compared to $3,343 for the nine months ended September 30, 2020, an increase of $2,496.

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.

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Financial (Income) Expenses, net

Our financial income, net for the three months ended September 30, 2021, was $55, representing an increase of 5.7%, compared to financial income of $52 for the three months ended September 30, 2020. Our financial expenses, net for the nine months ended September 30, 2021, were $346, representing decrease of 188%, compared to financial income of $391 for the nine months ended September 30, 2020. The changes in our financial income were mainly due to foreign currency translation differences.

Financial (income) expenses, net mainly include bank charges, interest income, lease liability and foreign currency translation differences.

Net loss

Net loss increased by $15,894, or 243%, to $22,444 for the three months ended September 30, 2021, compared to a net loss of $6,550 for the three months ended September 30, 2020, and increased by $34,727, or 170%, to $55,175 for the nine months ended September 30, 2021, compared to a net loss of $20,448 for the nine months ended September 30, 2020.

The increase in net loss for the three and nine months ended September 30, 2021, compared to the three and nine months ended September 30, 2020, was mainly due to the increase in our operating expenses.

Non-GAAP Financial Measures

The factors described above resulted in net loss attributable to common stockholders for the three and nine months ended September 30, 2021, amounted to $22,444 and $55,175, respectively, compared to net loss attributable to common stockholders of $6,550 and $20,448.

To supplement our unaudited condensed consolidated financial statements presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) within this Quarterly Report on Form 10-Q, management provides certain non-GAAP financial measures (“NGFM”) of the Company’s financial results, including such amounts captioned: “net loss before interest, taxes, depreciation, and amortization” or “EBITDA”, and “Non-GAAP Adjusted Loss”, as presented herein below. Importantly, we note the NGFM measures captioned “EBITDA” and “Non-GAAP Adjusted Loss” are not recognized terms under U.S. GAAP, and as such, they are not a substitute for, considered superior to, considered separately from, nor as an alternative to, U.S. GAAP and /or the most directly comparable U.S. GAAP financial measures.

Such NGFM are presented with the intent of providing greater transparency of information used by us in our financial performance analysis and operational decision-making. Additionally, we believe these NGFM provide meaningful information to assist investors, shareholders, and other readers of our unaudited condensed consolidated financial statements, in making comparisons to our historical financial results, and analyzing the underlying financial results of our operations. The NGFM are provided to enhance readers’ overall understanding of our current financial results and to provide further information to enhance the comparability of results between the current year period and the prior year period.

We believe the NGFM provide useful information by isolating certain expenses, gains, and losses, which are not necessarily indicative of our operating financial results and business outlook. In this regard, the presentation of the NGFM herein below, is to help the reader of our unaudited condensed consolidated financial statements to understand the effects of the non-cash impact on our (U.S. GAAP) unaudited condensed consolidated statement of operations of the revaluation of the warrants and the expense related to stock-based compensation, each as discussed herein above.

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A reconciliation to the most directly comparable U.S. GAAP measure to NGFM, as discussed above, is as follows:


	Three Months Ended September 30,
	(in thousands)
	2021		2020		$ Change
Net Loss Reconciliation
Net loss - as reported	$	(22,444)	$	(6,550)	$	(15,894)

Adjustments
Depreciation and amortization expenses		1,821		48		1,773
Other financial expenses (income), net		(55)		(52)		(3)

EBITDA		(20,678)		(6,554)		(14,124)

Stock-based compensation expenses		8,770		1,810		6,960
Acquisition costs		-		-		-

Non-GAAP adjusted loss	$	(11,908)	$	(4,744)	$	(7,164)


	Nine Months Ended September 30,
	(in thousands)
	2021		2020		$ Change
Net Loss Reconciliation
Net loss - as reported	$	(55,175)	$	(20,448)	$	(34,727)

Adjustments
Depreciation and amortization expenses		3,583		140		3,443
Other financial (income) expenses, net		346		(391)		737

EBITDA		(51,246)		(20,699)		(30,547)

Stock-based compensation expenses		18,670		8,988		9,682
Acquisition costs		880		-		880

Non-GAAP adjusted loss	$	(31,696)	$	(11,711)	$	(19,985)

Liquidity and Capital Resources (amounts in thousands except for share and share amounts)

As of September 30, 2021, we had approximately $51,331 in cash and cash equivalents compared to $28,590 on December 31, 2020.

We have experienced cumulative losses of $199,943 from inception (August 11, 2011) through September 30, 2021 and have a stockholders’ equity of $104,439 on September 30, 2021. In addition, we have not completed our efforts to establish a stable recurring source of revenues sufficient to cover our operating costs and expect to continue to generate losses for the foreseeable future. However, we believe that our sources of liquidity and capital resources will be sufficient to meet our business needs for at least the next twelve months.

Since inception, we have financed our operations primarily through private placements and public offerings of our common stock, warrants to purchase shares of our common stock, and the exercise of existing warrants and options, receiving aggregate net proceeds totaling $189,685 as of September 30, 2021.

On November 27, 2019, we entered into subscription agreements with accredited investors relating to an offering with respect to the sale of an aggregate of 8,361 shares of newly designated Series A Convertible Preferred Stock and an aggregate of 5,200 shares of newly designated Series A-1 Convertible Preferred Stock, at a purchase price of $1 for each share of Series A Preferred Stock and Series A-1 Preferred Stock, for aggregate gross proceeds to the Company of $13,561.

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The initial conversion price for the Series A and Series A-1 Convertible Preferred Stock to Common Stock is $4.05. The initial closing of the offering took place on November 27, 2019. The Series A and Series A-1 Convertible Preferred Stock issued are convertible into up to 3,349,567 shares of Common Stock. On December 3, 2019, we entered into subscription agreements with accredited investors relating to an offering and the sale of an aggregate of 1,915 shares of newly designated Series A-2 Convertible Preferred Stock, at a purchase price of $1 for each share, for aggregate gross proceeds to the Company of $1,915. The initial conversion price for the Series A-2 Convertible Preferred Stock to Common Stock is $4.28. The Series A-2 Convertible Preferred Stock issued are convertible into up to 448,110 shares of Common Stock. On December 4, 2019, we into subscription agreements with accredited investors relating to an offering and the sale of an aggregate of 3,808 shares of newly designated Series A-3 Convertible Preferred Stock, at a purchase price of $1 for each share, for aggregate gross proceeds to the Company of $3,808. The initial conversion price for the Series A-3 Convertible Preferred Stock to Common Stock is $4.98. The Series A-3 Convertible Preferred Stock issued are convertible into up to 765,408 shares of Common Stock. On December 5, 2019, we entered into subscription agreements with accredited investors relating to an offering and the sale of an aggregate of 745 shares of newly designated Series A-4 Convertible Preferred Stock, at a purchase price of $1 for each share, for aggregate gross proceeds to the Company of $745.The initial conversion price for the Series A-4 Convertible Preferred Stock to Common Stock is $5.90. The Series A-4 Convertible Preferred Stock issued are convertible into up to 126,650 shares of Common Stock. On December 19, 2019, we entered into subscription agreements with accredited investors relating to an offering and the sale of an aggregate of 1,346 shares of newly designated Series A-3 Convertible Preferred Stock, at a purchase price of $1 for each share, for aggregate gross proceeds to the Company of $1,346. The initial conversion price for the Series A-3 Convertible Preferred Stock to Common Stock is $4.98. The Series A-3 Convertible Preferred Stock issued are convertible into up to 270,546 shares of Common Stock. The total aggregate gross proceeds of the offering described above, together with gross proceeds from the closing of the offering of Series A Convertible Preferred Stock, Series A-1 Convertible Preferred Stock, Series A-2 Convertible Preferred Stock, Series A-3 Convertible Preferred Stock and Series A-4 Convertible Preferred Stock was $21,375, and the total amount of Common Stock issuable upon conversion of all the shares of Convertible Preferred Stock is up to 4,960,281 shares of Common Stock. As of November 10, 2020, certain Convertible Preferred Stockholders converted 5,552 shares of various classes of the Company’s A Preferred Stock to 1,278,695 shares of Common Stock.

On July 28, 2020, we entered into subscription agreements with accredited investors relating to an offering with respect to the sale of an aggregate of (i) 2,969,266 shares of our common stock, at a purchase price of $7.47 per Share, and (ii) pre-funded warrants to purchase 824,689 shares of common stock, at a purchase price of $7.4699 per Pre-Funded Warrant. In addition, on July 30, 2020, we entered into a subscription agreement with an accredited investor for the purchase of 31,486 shares of our common stock at a purchase price per share of $7.94 per Share. The aggregate gross proceeds were approximately $28,591.

In September 2020, we and an existing warrant holder entered into an agreement pursuant to which we agreed to lower the exercise price of certain warrants from $25.00 to $13.00 per share, issued in September 2018. As a result, the warrant holder exercised warrants to purchase 88,889 shares of our common stock resulting in aggregate e gross proceeds of approximately $1,156.

On February 1, 2021, we entered into securities purchase agreements with institutional accredited investors relating to an offering with respect to the sale of an aggregate of 3,278,688 shares of Common Stock, at a purchase price of $21.35 per share. The aggregate gross proceeds were approximately $70,000.

Management believes that the proceeds from the recent private placement combined with our cash on hand are sufficient to meet our obligations as they come due for at least a period of twelve months from the date of the issuance of these unaudited condensed consolidated financial statements. As a result, the Company has resolved to remove the going concern note from its financial statements. There are no assurances, however, that the Company will be able to obtain an adequate level of financial resources that are required for the long-term development and commercialization of its product offering.

As such, we have a significant present need for capital. If we are unable to scale up our commercial launch of Dario or meet our commercial sales targets (or if we are unable to generate any revenue at all), and if we are unable to obtain additional capital resources in the near term, we may be unable to continue activities absent material alterations in our business plans and our business might fail.

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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:


	September 30,
	2021	2020
	$	$
Cash used in operating activities:	(35,273)	(10,976)
Cash used in investing activities:	(7,690)	(73)
Cash provided by financing activities:	65,766	27,548
	22,803	16,499

Net cash used in operating activities

Net cash used in operating activities was $35,273 for the nine months ended September 30, 2021 an increase of 221% compared to $10,976 used in operations for the same period in 2020. Cash used in operations increased mainly due to the increase in our marketing activities and the consolidation of Upright and WayForward.

Net cash used in investing activities

Net cash used for investing activities was $7,690 for the nine months ended September 30, 2021, an increase of 10,434% compared to $73 for the same period in 2020. Cash used for investing activities increased mainly due to the repayment of a loan we made to Upright as well as the acquisition of WayForward and cash acquired as part of the acquisition of Upright and WayForward.

Net cash provided by financing activities

Net cash provided by financing activities was $65,766 for the nine months ended September 30, 2021 compared to $27,548 net cash provided by financing activities during the same period in 2020.

Off-Balance Sheet Arrangements

As of September 30, 2021, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company and therefore are not required to provide the information for this item of Form 10-Q.

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Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Report, our Chief Executive Officer and Chief Financial Officer, or the Certifying Officers, conducted evaluations of our disclosure controls and procedures. As defined under Sections 13a–15(e) and 15d–15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosures.

Based on their evaluation, the Certifying Officers concluded that, as of September 30, 2021, our disclosure controls and procedures were designed at a reasonable assurance level and were therefore effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Internal Controls

Readers are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our control have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

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PART II- OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the third quarter of 2021, we issued an aggregate of 104,832 shares of our common stock to certain of our service providers as compensation in lieu of cash compensation owed to them for services rendered. We claimed exemption from registration under the Securities Act of 1933, as amended, or the Securities Act, for the foregoing transactions under Section 4(a)(2) of the Securities Act.

Item 6. Exhibits.

No.		Description of Exhibit
31.1*		Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a).
31.2*		Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a).
32.1**		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350.
32.2**		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350.
101.1*		The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Loss, (iii) Statements of Changes in Stockholders’ Deficiency, (iv) Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail.
104		Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101).

*Filed herewith.

**Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: November 15, 2021		DarioHealth Corp.

	By:	/s/ Erez Raphael
		Name:	Erez Raphael
		Title:	Chief Executive Officer (Principal Executive Officer)

	By:	/s/ Zvi Ben David
		Name:	Zvi Ben David
		Title:	Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer)