Business context and reporting period
This is LabStyle Innovations Corp.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2015. The company was developing and commercializing Dario, a mobile diabetes-management system combining a glucose meter, disposables, software and related services. The filing identifies the issuer as LabStyle Innovations Corp.; “DarioHealth Corp.” is not the name shown on the filing cover.
Financial results and position
Amounts below are in U.S. dollars in thousands, except per-share data and percentages.
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $175 | $0 | $242 | $0 |
| Gross loss | $235 | $605 | $465 | $1,026 |
| Operating loss | $1,512 | $3,603 | $3,289 | $6,271 |
| Net loss | $2,004 | $3,254 | $3,642 | $6,238 |
| Net loss attributable to common stockholders | $2,158 | $3,254 | $3,796 | $6,238 |
| Basic loss per share | $(0.07) | $(0.14) | $(0.15) | $(0.28) |
Gross margin was negative: approximately -134% in Q2 2015 and -192% for the first half, reflecting costs of revenue and manufacturing ramp-up exceeding early sales. The common-stockholder loss includes a $154 deemed dividend related to a warrant-exercise inducement in 2015.
- Cash and liquidity: Cash and equivalents were $981 at June 30, 2015, down from $1,453 at December 31, 2014. Current assets were $1,611 and current liabilities $1,546. Management estimated available resources would fund planned activity only into October 2015.
- Cash flow, first half: $2,832 used in operations, $49 used in investing, and $2,409 provided by financing; cash declined by $472.
- Liabilities and equity: Current liabilities were $1,546. The balance sheet also reported $4,379 of warrant-related liabilities and $2,357 of convertible preferred shares; stockholders’ deficiency was $5,777. The filing text does not provide a clear amount of conventional interest-bearing debt.
Material changes versus comparable periods
Revenue began in 2015, compared with none in the first half of 2014, primarily from Dario device and disposable sales and services to Maccabi Healthcare. First-half net loss fell 42% and operating loss fell about 48%, mainly as research and development, sales and marketing, and general and administrative costs declined. Cash used in operations also decreased from $4,418 to $2,832. These improvements were partly offset by $353 of net financial expense for the first half of 2015, versus $33 of net financial income in 2014, largely due to warrant fair-value remeasurement.
Outlook, risks and unusual items
- Management said substantial doubt existed about the company’s ability to continue as a going concern, citing operating losses, negative operating cash flow, and the need for additional capital. It warned that funding might not be available on acceptable terms or at all.
- After quarter-end, the company completed a July private placement and an August follow-on issuance. The filing reports approximately $1,543 gross proceeds in total and $1,371 net proceeds after issuance costs for the placement described in the subsequent-event disclosures.
- The company planned to expand commercial launch, production, marketing and distribution, continue product development, and pursue regulatory clearances. FDA review remained ongoing: the company had received additional comments and was addressing remaining issues. Management anticipated U.S. clearance in the next few months, but gave no assurance of timing or success.
- Key risks include raising capital, meeting sales targets, scaling manufacturing and commercialization, obtaining FDA and other regulatory approvals, maintaining partners, and protecting intellectual property. The company also recorded $106 of inventory write-offs in the first half of 2015.
- Management stated that disclosure controls and procedures were effective at a reasonable-assurance level as of June 30, 2015, and reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the reporting issuer and its relationship, if any, to the “DarioHealth Corp.” name in the request; this filing is for LabStyle Innovations Corp.
- Review cash runway assumptions, subsequent financing proceeds and costs, and whether additional funding was obtained after the disclosed placements.
- Track Dario sales, gross margins, inventory requirements, and the ability to convert distributor shipments into collected revenue.
- Check the status and outcome of FDA review and other required regulatory clearances.
- Assess dilution and potential share issuance from outstanding warrants, preferred shares, and equity compensation arrangements.