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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2024
OR
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☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-41250
DIH HOLDING US, INC.
(Exact Name of Registrant as Specified in its Charter)
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Delaware |
98-1624542 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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77 Accord Park Drive; Suite D-1 Norwell, MA |
02061 |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: 877-944-2200
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
Class A Common Stock |
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DHAI |
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The Nasdaq Stock Market LLC |
Warrants |
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DHAIW |
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The Nasdaq Stock 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, 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.
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Large accelerated filer |
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☐ |
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Accelerated filer |
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☐ |
Non-accelerated filer |
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☒ |
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Smaller reporting company |
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☒ |
Emerging growth company |
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☒ |
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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 ☒
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☒
The number of shares of Registrant’s Common Stock outstanding as of July 31, 2024 was 40,544,935
Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements within the meaning of the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management and involve risks and uncertainties. Forward-looking statements include statements regarding our plans, strategies, objectives, expectations and intentions, which are subject to change at any time at our discretion. Forward-looking statements include our assessment from time to time of our competitive position, the industry environment, potential growth opportunities, the effects of regulation and events outside of our control, such as natural disasters, wars or health epidemics. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions.
Forward-looking statements are merely predictions and therefore inherently subject to uncertainties and other factors which could cause the actual results to differ materially from the forward-looking statement. These uncertainties and other factors include, among other things:
•unexpected technical and marketing difficulties inherent in major research and product development efforts;
•our ability to remain a market innovator, to create new market opportunities, and/or to expand into new markets;
•the potential need for changes in our long-term strategy in response to future developments;
•our ability to attract and retain skilled employees;
•our ability to raise sufficient capital to support our operations and fund our growth initiatives;
•unexpected changes in significant operating expenses, including components and raw materials;
•any disruptions or threatened disruptions to our relations with our resellers, suppliers, customers and employees, including shortages in components for our products;
•changes in the supply, demand and/or prices for our products;
•the complexities and uncertainty of obtaining and conducting international business, including export compliance and other reporting and compliance requirements;
•the impact of potential security and cyber threats or the risk of unauthorized access to our, our customers’ and/or our suppliers’ information and systems;
•changes in the regulatory environment and the consequences to our financial position, business and reputation that could result from failing to comply with such regulatory requirements;
•our ability to continue to successfully integrate acquired companies into our operations, including the ability to timely and sufficiently integrate international operations into our ongoing business and compliance programs;
•failure to develop new products or integrate new technology into current products;
•unfavorable results in legal proceedings to which we may be subject;
•failure to establish and maintain effective internal control over financial reporting; and
•general economic and business conditions in the United States and elsewhere in the world, including the impact of inflation.
You should refer to Part I, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q together with the Risk Factors disclosed in our Annual Report on Form 10-K for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of the risks, uncertainties and assumptions described under “Risk Factors” and elsewhere, we cannot assure you that the forward-looking statements in this Quarterly Report on Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame or at all.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to new information, actual results or changes in our expectations, except as required by law.
The forward-looking statements contained in this report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
DIH HOLDING US, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (in thousands, except share and per share data)
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As of June 30, 2024 |
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As of March 31, 2024 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
2,749 |
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$ |
3,225 |
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Accounts receivable, net of allowances of $631 and $667, respectively |
|
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5,690 |
|
|
|
5,197 |
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Inventories, net |
|
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9,014 |
|
|
|
7,830 |
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Due from related party |
|
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5,728 |
|
|
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5,688 |
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Other current assets |
|
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6,194 |
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5,116 |
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Total current assets |
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29,375 |
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27,056 |
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Property, and equipment, net |
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664 |
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530 |
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Capitalized software, net |
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2,052 |
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2,131 |
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Other intangible assets, net |
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380 |
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380 |
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Operating lease, right-of-use assets, net |
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4,388 |
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4,466 |
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Other tax assets |
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417 |
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267 |
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Other assets |
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933 |
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|
|
905 |
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Total assets |
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$ |
38,209 |
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$ |
35,735 |
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Liabilities and Deficit |
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Current liabilities: |
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Accounts payable |
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$ |
5,368 |
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$ |
4,305 |
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Employee compensation |
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3,991 |
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|
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2,664 |
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Due to related party |
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9,790 |
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10,192 |
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Current portion of deferred revenue |
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6,350 |
|
|
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5,211 |
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Manufacturing warranty obligation |
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549 |
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513 |
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Current portion of long-term operating lease |
|
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1,509 |
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|
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1,572 |
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Current maturities of convertible debt |
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1,461 |
|
|
|
— |
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Advance payments from customers |
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9,272 |
|
|
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10,562 |
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Accrued expenses and other current liabilities |
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9,950 |
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|
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9,935 |
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Total current liabilities |
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48,240 |
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|
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44,954 |
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Convertible debt, net of current maturities |
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1,177 |
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|
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— |
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Notes payable - related party |
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10,722 |
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11,457 |
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Non-current deferred revenues |
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4,747 |
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4,670 |
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Long-term operating lease |
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2,925 |
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|
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2,917 |
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Deferred tax liabilities |
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89 |
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|
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112 |
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Other non-current liabilities |
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4,304 |
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4,171 |
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Total liabilities |
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$ |
72,204 |
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$ |
68,281 |
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Commitments and contingencies (Note 16) |
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Deficit: |
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Preferred stock, $0.00001 par value; 10,000,000 shares authorized; no shares issued and outstanding at June 30, 2024 and March 31, 2024 |
|
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— |
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— |
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Common stock, $0.0001 par value; 100,000,000 shares authorized; 34,544,935 shares issued and outstanding at June 30, 2024 and March 31, 2024 |
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3 |
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3 |
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Additional paid-in-capital |
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3,685 |
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2,613 |
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Accumulated deficit |
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(35,826 |
) |
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(35,212 |
) |
Accumulated other comprehensive income (loss) |
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(1,857 |
) |
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50 |
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Total deficit |
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$ |
(33,995 |
) |
|
$ |
(32,546 |
) |
Total liabilities and deficit |
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$ |
38,209 |
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|
$ |
35,735 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
DIH HOLDING US, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) (in thousands, except per share data)
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For the Three Months Ended June 30, |
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2024 |
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2023 |
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Revenue |
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$ |
16,187 |
|
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$ |
13,045 |
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Cost of sales |
|
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7,521 |
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7,648 |
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Gross profit |
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8,666 |
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|
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5,397 |
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Operating expenses: |
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Selling, general, and administrative expense |
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8,676 |
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5,837 |
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Research and development |
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1,644 |
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|
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1,438 |
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Total operating expenses |
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10,320 |
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|
7,275 |
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Operating loss |
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|
(1,654 |
) |
|
|
(1,878 |
) |
Other income (expense): |
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|
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Interest income (expense) |
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(135 |
) |
|
|
(120 |
) |
Other income (expense), net |
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1,898 |
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|
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(689 |
) |
Total other income (expense) |
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1,763 |
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|
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(809 |
) |
Income (loss) before income taxes |
|
|
109 |
|
|
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(2,687 |
) |
Income tax expense |
|
|
723 |
|
|
|
226 |
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Net loss |
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$ |
(614 |
) |
|
$ |
(2,913 |
) |
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|
|
|
|
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Net loss per share, basic and diluted |
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$ |
(0.02 |
) |
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$ |
(0.12 |
) |
Weighted average common shares outstanding, basic and diluted |
|
|
34,545 |
|
|
|
25,000 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
DIH HOLDING US, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED) (in thousands)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
|
2024 |
|
2023 |
|
Net loss |
|
$ |
(614 |
) |
|
$ |
(2,913 |
) |
Other comprehensive (loss) income, net of tax |
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax of $0 and $0 |
|
|
(1,388 |
) |
|
|
841 |
|
Pension liability adjustments, net of tax of $0 and $0 |
|
|
(291 |
) |
|
|
(420 |
) |
Other comprehensive (loss) income |
|
|
(1,679 |
) |
|
|
421 |
|
Comprehensive loss |
|
$ |
(2,293 |
) |
|
$ |
(2,492 |
) |
See accompanying notes to the condensed consolidated financial statements.
DIH HOLDING US, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(UNAUDITED) (in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
Shares(1) |
|
Amount |
|
Additional Paid-In Capital |
|
Accumulated Deficit |
|
Accumulated Other Comprehensive Income (Loss) |
|
Total Equity (Deficit) |
|
Balance, March 31, 2023 |
|
25,000,000 |
|
$ |
2 |
|
$ |
(1,898 |
) |
$ |
(26,769 |
) |
$ |
(289 |
) |
$ |
(28,954 |
) |
Net loss |
|
— |
|
|
— |
|
|
— |
|
|
(2,913 |
) |
|
— |
|
|
(2,913 |
) |
Other comprehensive loss, net of tax |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
421 |
|
|
421 |
|
Balance, June 30, 2023 |
|
25,000,000 |
|
$ |
2 |
|
$ |
(1,898 |
) |
$ |
(29,682 |
) |
$ |
132 |
|
$ |
(31,446 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Amount |
|
Additional Paid-In Capital |
|
Accumulated Deficit |
|
Accumulated Other Comprehensive Income (Loss) |
|
Total Equity (Deficit) |
|
Balance, March 31, 2024 |
|
34,544,935 |
|
$ |
3 |
|
$ |
2,613 |
|
$ |
(35,212 |
) |
$ |
50 |
|
$ |
(32,546 |
) |
Net loss |
|
— |
|
|
— |
|
|
— |
|
|
(614 |
) |
|
— |
|
|
(614 |
) |
Transaction relates to reverse recapitalization |
|
— |
|
|
— |
|
|
710 |
|
|
— |
|
|
— |
|
|
710 |
|
Issuance of warrants |
|
— |
|
|
— |
|
|
362 |
|
|
— |
|
|
— |
|
|
362 |
|
Other comprehensive income, net of tax |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,907 |
) |
|
(1,907 |
) |
Balance, June 30, 2024 |
|
34,544,935 |
|
$ |
3 |
|
$ |
3,685 |
|
$ |
(35,826 |
) |
$ |
(1,857 |
) |
$ |
(33,995 |
) |
(1). All outstanding share and per-share amounts have been restated to reflect the reverse recapitalization as established in the Business Combination Agreement as described in Note 1.
The accompanying notes are an integral part of these condensed consolidated financial statements.
DIH HOLDING US, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (in thousands)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
|
2024 |
|
|
2023 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
Net loss |
|
$ |
(614 |
) |
|
$ |
(2,913 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
|
91 |
|
|
|
79 |
|
Provision for credit losses |
|
|
(36 |
) |
|
|
(432 |
) |
Allowance for inventory obsolescence |
|
|
(13 |
) |
|
|
693 |
|
Pension contributions |
|
|
(150 |
) |
|
|
(150 |
) |
Pension expense |
|
|
77 |
|
|
|
66 |
|
Foreign exchange (gain) loss |
|
|
(1,899 |
) |
|
|
689 |
|
Noncash lease expense |
|
|
422 |
|
|
|
375 |
|
Noncash interest expense |
|
|
— |
|
|
|
7 |
|
Deferred and other noncash income tax (income) expense |
|
|
(166 |
) |
|
|
4 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
Accounts receivable |
|
|
(489 |
) |
|
|
705 |
|
Inventories |
|
|
(1,468 |
) |
|
|
(1,332 |
) |
Due from related parties |
|
|
(108 |
) |
|
|
1,522 |
|
Due to related parties |
|
|
(584 |
) |
|
|
(649 |
) |
Other assets |
|
|
(872 |
) |
|
|
(398 |
) |
Operating lease liabilities |
|
|
(425 |
) |
|
|
(518 |
) |
Accounts payable |
|
|
1,508 |
|
|
|
36 |
|
Employee compensation |
|
|
1,388 |
|
|
|
(160 |
) |
Other liabilities |
|
|
— |
|
|
|
189 |
|
Deferred revenue |
|
|
1,411 |
|
|
|
209 |
|
Manufacturing warranty obligation |
|
|
50 |
|
|
|
71 |
|
Advance payments from customers |
|
|
(1,136 |
) |
|
|
2,229 |
|
Accrued expense and other current liabilities |
|
|
1,003 |
|
|
|
(797 |
) |
Net cash used in operating activities |
|
|
(2,010 |
) |
|
|
(475 |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(235 |
) |
|
|
(15 |
) |
Net cash used in investing activities |
|
|
(235 |
) |
|
|
(15 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
Proceeds from issuance of convertible debt, net of issuance costs |
|
|
2,509 |
|
|
|
— |
|
Payments on related party notes payable |
|
|
(735 |
) |
|
|
(1,936 |
) |
Net cash provided by (used in) financing activities |
|
|
1,774 |
|
|
|
(1,936 |
) |
Effect of currency translation on cash and cash equivalents |
|
|
(5 |
) |
|
|
13 |
|
Net increase in cash, and cash equivalents, and restricted cash |
|
|
(476 |
) |
|
|
(2,413 |
) |
Cash, and cash equivalents - beginning of period |
|
|
3,225 |
|
|
|
3,175 |
|
Cash, and cash equivalents - end of period |
|
$ |
2,749 |
|
|
$ |
762 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
Interest paid |
|
$ |
135 |
|
|
$ |
113 |
|
Income tax paid |
|
$ |
— |
|
|
$ |
— |
|
Supplemental disclosure of non-cash investing and financing activity: |
|
|
|
|
|
|
Accounts payable settled upon reverse recapitalization |
|
$ |
710 |
|
|
$ |
— |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
DIH HOLDING US, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (in thousands, except share and per share data)
1.Business and Organization
Description of Business
DIH Holding US, Inc., a Delaware corporation and its consolidated subsidiaries are referred to in this Form 10-Q as "we," “our,” “us,” the “Company,” or “DIH.” DIH is a global provider of advanced robotic devices used in physical rehabilitation, which incorporate visual stimulation in an interactive manner to enable clinical research and intensive functional rehabilitation and training in patients with walking impairments, reduced balance and/or impaired arm and hand functions. The Company’s fiscal year ends on March 31.
Merger / Business Combination with Aurora Tech Acquisition Corp.
On February 7, 2024 (the "Closing Date"), ATAK, Aurora Technology Merger Sub (“Merger Sub”) and DIH Holding US, Inc., a Nevada corporation (“Legacy DIH” or "DIH Nevada") consummated a previously announced business combination pursuant to a business agreement dated as of February 26, 2023 (as amended, supplemented or otherwise modified from time to time, the “Business Combination Agreement,” and the transactions contemplated thereby, the “Business Combination”) following the receipt of the required approval by ATAK’s and DIH Nevada’s shareholders and the fulfillment or waiver of other customary closing conditions. Legacy DIH historically existed and functioned as part of the business of DIH Technology Ltd. (“DIH Cayman”). Upon the closing of the Business Combination, the Company owns 100% of DIH Nevada, which owns 100% of DIH US Corp. DIH US Corp owns five commercial entities located in the USA, Chile, Slovenia, Germany, and Singapore. Additionally, the Company owns 100% of Hocoma Medical GmbH, which contains the net operating assets used in the manufacturing process of the company's products. These assets were transferred from Hocoma AG, as of July 1, 2021. The intelectual property ("IP") of Hocoma AG was transferred to the commercial entity located in the USA. The legal entities of Hocoma AG and Motekforce Link BV and its subsidiaries ("Motek Group") remained with DIH Cayman and were excluded from the condensed Consolidated Financial Statements. The Company agreed to use its best efforts to complete the reorganization as defined in the Business Combination Agreement as soon as possible thereafter. The reorganization has not been completed as of the date these financial statements were issued.
On February 8, 2024, the Company entered into a subscription agreement with OrbiMed, an existing shareholder of DIH Cayman. Pursuant to the agreement, the Company will issue 150,000 shares of Common Stock at a purchase price of $10.00 per share for aggregate purchase price of $1.5 million together with warrants to purchase an additional 300,000 shares of DIH Common Stock with an exercise price of $10.00. The transaction has not closed as of the date the financial statements were issued.
Liquidity and Capital Resources
As of June 30, 2024, the Company had $2.7 million in cash and cash equivalents. The Company’s sources of liquidity have been predominantly from proceeds received from product sales and services provided. The Company’s sources of liquidity have enabled the Company to expand the installation base and grow its market share.
The Company’s net losses began in 2020 and continued through the three months ended June 30, 2024. The Company’s historical operating losses resulted in an accumulated deficit of $35.8 million as of June 30, 2024. Operating losses were mainly driven by decreased sales during the COVID-19 pandemic due to social distancing measures that affected demand for rehabilitation services, increased expenditures in connection with its implementation of a new financial system (Oracle) and increased compliance costs associated with the European Union Medical Device Regulation (EU MDR). Additionally, DIH had elevated costs related to efforts of adopting to public company standards. During the three months ended June 30, 2024, the Company had negative cash flows from operating activities and negative operating results. The Company continues to take steps to streamline its organization and cost structure as well as improve future revenue growth.
The Company’s revenue has increased by 24.1%, from $13,045 to $16,187, for the three months ended June 30, 2023 and 2024, respectively. The Company plans to continue to fund its growth through cash flows from operations and future debt and equity financing. The Company believes that its current cash and cash equivalents, together with cash provided by operating activities will provide adequate liquidity through one year from the date that these condensed consolidated financial statements are issued.
The Company has three notes payable to a related party which are included in "Notes payable - related party". Each note is due on June 30, 2026 with an interest rate of 1.25% as further discussed in Note 13 to the Condensed Consolidated Financial Statements. The Company has made periodic payments on the principal and interests on the notes payable historically.
The Company’s future liquidity needs may vary materially from those currently planned and will depend on many factors, including the more aggressive and expansive growth plan, or for any unforeseen reductions in demand.
2.Summary of Significant Accounting Policies
Basis of Presentation
On February 7, 2024, the Company consummated the Business Combination and became a publicly-traded company and its financial statements are now presented on a consolidated basis. Prior to the Business Combination, the Company's historical financial statements were prepared on a combined basis derived from DIH Cayman in the registration statement.
In connection with the Closing of the Business Combination and in accordance with the terms of the Business Combination Agreement, ATAK agreed to waive the closing condition that the reorganization be completed prior to Closing. The Company has recast historical financial statements filed in the registration statements to exclude assets, liabilities and results of operations of entities that are not controlled by the Company as of June 30, 2024. Control exists when the Company has the power, directly and indirectly, to govern the financial and operating policies of an entity and be exposed to the variable returns from its activities. The financial statements for all periods presented, including historical periods prior to February 7, 2024, are now referred to as “Consolidated financial statements" and have been prepared in conformity with U.S. GAAP.
While the Company’s businesses have historically functioned together with the other businesses controlled by DIH Cayman, the Company’s businesses are largely isolated and not dependent on corporate or other support functions. DIH Cayman did not have significant corporate or operational activity and does not have shared services that it provides to its subsidiaries. The Company considered allocations from the DIH Cayman and its subsidiaries but they are insignificant because of the organizational structure such that the Company has been operating on a standalone basis historically.
As of June 30, 2024 and March 31, 2024, DIH Cayman remains the largest shareholder of the Company and continues to own 100% interest in DIH International (“DIH Hong Kong”). In the three months ended June 30, 2023, legacy DIH and DIH Hong Kong were wholly owned subsidiaries of DIH Cayman. Transactions with DIH Cayman, DIH Hong Kong and its subsidiaries are disclosed as related party transactions in Note 13.
The condensed consolidated financial statements (the “financial statements”) have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring adjustments, considered necessary for a fair presentation of the Company’s financial position and operating results have been included. All intercompany balances and transactions within the Company have been eliminated in the financial statements. Operating results for the three months ended June 30, 2024 and 2023 are not necessarily indicative of the results that may be expected for the fiscal year as a whole. The March 31, 2024 period presented on the Condensed Consolidated Balance Sheet was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The following tables are presented in thousands of U.S. dollars unless otherwise stated. These condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended March 31, 2024.
Foreign Currency Reporting
The functional currency for the Company’s non-U.S. subsidiaries is their local currency. The assets and liabilities of foreign subsidiaries are translated into U.S. dollars using the exchange rate in effect as of the balance sheet date. Revenues and expenses are translated at the average exchange rates for each respective reporting period. Adjustments resulting from translating local currency financial statements into U.S. dollars are reflected in accumulated other comprehensive loss in equity (deficit).
Transactions denominated in currencies other than the functional currency are remeasured based on the exchange rates at the time of the transaction. Foreign currency gains and losses arising primarily from changes in exchange rates on foreign currency denominated intercompany transactions and balances between foreign locations are recorded in the condensed consolidated statements of operations. Realized and unrealized gains (losses) resulting from transactions conducted in foreign currencies for the three months ended June 30, 2024 and 2023 were $1,899 and $(689), respectively.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates made by management in connection with the preparation of the accompanying condensed consolidated financial statements include the useful lives of long-lived assets, inventory valuations, the allocation of transaction price among various performance obligations, valuation of securities, the allowance for credit losses, the fair value of financial assets, liabilities, actuarial valuation of pensions and realizability of deferred income tax asset or liabilities. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk primarily consists of cash and cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents with highly-rated financial institutions and limits the amount of credit exposure to any one entity. We believe we do not have any significant credit risk on our cash and cash equivalents. For accounts receivable, the Company is exposed to credit risk in the event of nonpayment by customers which is limited to the amounts recorded on the condensed consolidated balance sheets. The risk associated with this concentration is mitigated by prepayment arrangements and our ongoing credit-review procedures and letters of credit or payment prior to shipment.
Major customers are defined as those individually comprising more than 10% of our trade accounts receivable or revenues. As of June 30, 2024, one customer represented 11.8% of total trade accounts receivables. As of March 31, 2024, no customer comprised more than 10% of total trade accounts receivables. For the three months ended June 30, 2024, three customers each comprised 15.1%, 11.9% and 11.0% of total revenue, respectively. For the three months ended June 30, 2023, one customer comprised 17.4% of total revenue.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is either not an emerging growth company or an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Accounting Pronouncements Recently Adopted
In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP and simplifies the diluted earnings per share (“EPS”) calculation in certain areas. Under the new guidance there will be no separate accounting for embedded conversion features. It removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception. The amendments in this update are effective for the Company on April 1, 2024. The Company has adopted ASU 2020-06 using the modified retrospective transition method to account for the convertible debt issued on June 7, 2024.
Recent Accounting Pronouncements Not Yet Adopted
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. Update No. 2023-07 requires disclosure, on an annual and interim basis, of significant segment expenses that are regularly provided to the Chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss in addition to disclosure of amounts for other segment items and a description of its composition. Update No. 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We are currently evaluating the impact of adopting ASU 2023-07.
In December 2023, the FASB issued ASU No. 2023-09 (“ASU 2023-09”), Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 addresses investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This update also includes certain other amendments to improve the effectiveness of income tax disclosures. The provisions of ASU 2023-09 are effective for annual periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2023-09.
The Company's revenues are derived from the sales of medical rehabilitation devices and technology services. The Company's primary customers include healthcare systems, clinics, third-party healthcare providers, distributors, and other institutions, including governmental healthcare programs and group purchasing organizations.
Disaggregation of Revenue
The Company disaggregates its revenue with customers by category and by geographic region based on customer location, see Note 4 for further information. The following represents the net revenue for the three months ended June 30, 2024 and 2023, based on revenue category:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
|
2024 |
|
|
2023 |
|
Devices |
|
$ |
12,283 |
|
|
$ |
10,443 |
|
Services |
|
|
3,542 |
|
|
|
2,375 |
|
Other |
|
|
362 |
|
|
|
227 |
|
Total revenue, net |
|
$ |
16,187 |
|
|
$ |
13,045 |
|
The revenue that is recognized at a point in time was primarily related to the revenues from devices and the revenue that is recognized over time was related to revenue from service contracts. Other revenue primarily relates to freight and packaging on devices and recognized at a point in time.
Deferred Revenue and Remaining Performance Obligations
Deferred revenue as of June 30, 2024 and March 31, 2024 was $11,097 and $9,881, respectively. During the three months ended June 30, 2024 and 2023, the Company recognized $1,886 and $2,940 of revenue that was included in deferred revenue as of March 31, 2024 and March 31, 2023, respectively. Remaining performance obligations include goods and services that have not yet been delivered or provided under existing, noncancelable contracts with minimum purchase commitments. As of June 30, 2024 and March 31, 2024, the aggregate amount of the contracted revenue allocated to unsatisfied performance obligations with an original duration of one year or more was approximately $4,747 and $4,670, respectively. As of June 30, 2024, the Company expects to recognize revenue on the majority of these remaining performance obligations over the next 2 years.
Advance Payments From Customers
The Company receives advance payments related to customers from their orders to support the operation of the company in the production of the goods. The Company recognizes these prepayments as a liability under “Advance payments from customers” on the condensed consolidated balance sheets when they are received. Revenue associated with the advance payments is recognized when performance obligation is fulfilled. Advance payments from customers was $9.3 million and $10.6 million as of June 30, 2024 and March 31, 2024, respectively.
4.Geographical Information
The following represents revenue attributed to geographic regions based on customer location:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
|
2024 |
|
|
2023 |
|
Europe, Middle East and Africa (“EMEA”) |
|
$ |
10,212 |
|
|
$ |
6,633 |
|
Americas |
|
|
4,605 |
|
|
|
2,984 |
|
Asia Pacific (“APAC”) |
|
|
1,370 |
|
|
|
3,428 |
|
Total revenue |
|
$ |
16,187 |
|
|
$ |
13,045 |
|
Long-lived assets shown below include property and equipment, net. The following represents long-lived assets where they are physically located:
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2024 |
|
|
As of March 31, 2024 |
|
EMEA |
|
$ |
448 |
|
|
$ |
276 |
|
Americas |
|
|
171 |
|
|
|
206 |
|
APAC |
|
|
45 |
|
|
|
48 |
|
Total property and equipment, net |
|
$ |
664 |
|
|
$ |
530 |
|
Basic loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted loss per share is computed based on the sum of the weighted average number of common shares and dilutive common shares outstanding during the period. In connection with the Business Combination as described in Note 1 - Business and Organization, the Company issued earnout shares which are held in escrow until they are earned. The targets for the release of earnout shares are based on the volume weighted average trading prices (“VWAP”) of common shares during the earnout period. The earnout shares are excluded from the calculation of basic and diluted weighted-average number of common shares outstanding until vested. For periods prior to the Business Combination, basic and diluted loss per share was calculated based on the 25.0 million shares issued to Legacy DIH shareholders at the Closing Date.
Potential shares of common stock are excluded from the computation of diluted net loss per share if their effect would have been anti-dilutive for the periods presented or if the issuance of shares is contingent upon events that did not occur by the end of the period. Diluted loss per share for the public warrants, private placement warrants and warrants issued in connection with the convertible debt is calculated under the treasury method. Diluted loss per share for the convertible debt and earn-out shares is calculated under the if-converted method.
As of June 30, 2024, there were 34,544,935 shares of Common Stock issued and outstanding, excluding earnout shares.
Computation of basic and diluted net loss per share for the three months ended June 30, 2024 and 2023, is as follows (in thousands, except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
|
2024 |
|
|
2023 |
|
Net loss |
|
$ |
(614 |
) |
|
$ |
(2,913 |
) |
Weighted-average shares outstanding - basic and diluted |
|
|
34,544,935 |
|
|
|
25,000,000 |
|
Net loss per share – basic and diluted |
|
$ |
(0.02 |
) |
|
$ |
(0.12 |
) |
The following table outlines dilutive common share equivalents outstanding, which were excluded in the above diluted net earnings (loss) per share calculation. Beginning on the December 1, 2024, the Company will be required to redeem each month at an amount of $235.7 thousand in cash or in shares of Common Stock at the lower of i) $5.00 per share or (ii) or (ii) 90% of the average of the five lowest VWAPs for the 10 consecutive Trading Days ending on the trading day immediately prior to redemption date. The table below assumes the conversion and redemption price of $5.00 per share. See Note 12 for details.
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2024 |
|
|
2023 |
|
Earnout shares |
|
|
6,000,000 |
|
|
|
— |
|
Common Stock underlying Public Warrants |
|
|
10,100,000 |
|
|
|
— |
|
Common Stock underlying Private Placement Warrants |
|
|
3,235,000 |
|
|
|
— |
|
Convertible debt (see Note 12) |
|
|
660,000 |
|
|
|
— |
|
Warrants issued with convertible debt (see Note 12) |
|
|
330,000 |
|
|
|
— |
|
Total |
|
|
20,325,000 |
|
|
|
— |
|
As of June 30, 2024 and March 31, 2024, inventories, net, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2024 |
|
|
As of March 31, 2024 |
|
Raw materials and spare parts |
|
$ |
3,996 |
|
|
$ |
3,882 |
|
Work in process |
|
|
4,585 |
|
|
|
4,769 |
|
Finished goods |
|
|
2,524 |
|
|
|
1,283 |
|
Less: reserves |
|
|
(2,091 |
) |
|
|
(2,104 |
) |
Total inventories, net |
|
$ |
9,014 |
|
|
$ |
7,830 |
|
7.Property and Equipment, Net
Property and equipment, net as of June 30, 2024 and March 31, 2024 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2024 |
|
|
As of March 31, 2024 |
|
Computer software and hardware |
|
$ |
855 |
|
|
$ |
849 |
|
Machinery and equipment |
|
|
784 |
|
|
|
807 |
|
Leasehold improvements |
|
|
1,331 |
|
|
|
1,357 |
|
Furniture and fixtures |
|
|
842 |
|
|
|
871 |
|
Vehicles |
|
|
68 |
|
|
|
70 |
|
Demonstration units |
|
|
241 |
|
|
|
222 |
|
Property and equipment |
|
|
4,121 |
|
|
|
4,176 |
|
Less: accumulated depreciation |
|
|
(3,457 |
) |
|
|
(3,646 |
) |
Property and equipment, net |
|
$ |
664 |
|
|
$ |
530 |
|
Depreciation expense totaled $91 and $79 for the three months ended June 30, 2024 and 2023, respectively.
8.Capitalized software, net and other intangible assets, net
Capitalized software, net and other intangible assets, net as of June 30, 2024 and March 31, 2024 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2024 |
|
|
As of March 31, 2024 |
|
|
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Amount |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Amount |
|
Capitalized software |
$ |
2,052 |
|
|
$ |
— |
|
|
$ |
2,052 |
|
|
$ |
2,131 |
|
|
$ |
— |
|
|
$ |
2,131 |
|
Other intangible assets |
$ |
380 |
|
|
$ |
— |
|
|
$ |
380 |
|
|
$ |
380 |
|
|
$ |
— |
|
|
$ |
380 |
|
Other intangible assets include patent and technology related intangible assets of $380 acquired from the SafeGait asset acquisition discussed in Note 2, which represented non-cash investing activities for the year ended March 31, 2023. The weighted-average useful lives of these intangible assets are 10 years.
Capitalized software, net and other intangible assets, net are subject to amortization when they are available for their intended use. For the three months ended June 30, 2024 and 2023, the Capitalized software, net and other intangible assets are not available for intended use and thus not amortized. The weighted-average useful life of capitalized software is 5 years.
Estimated annual amortization for intangible assets over the next five years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2025 |
|
|
2026 |
|
|
2027 |
|
|
2028 |
|
|
2029 |
|
Estimated annual amortization |
$ |
224 |
|
|
$ |
448 |
|
|
$ |
448 |
|
|
$ |
448 |
|
|
$ |
448 |
|
Other current assets as of June 30, 2024 and March 31, 2024 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2024 |
|
|
As of March 31, 2024 |
|
Deferred cost of sales |
|
$ |
4,234 |
|
|
$ |
3,754 |
|
Value added tax (“VAT”) receivable |
|
|
593 |
|
|
|
635 |
|
Advance payments |
|
|
715 |
|
|
|
414 |
|
Other current assets |
|
|
652 |
|
|
|
313 |
|
Total other current assets |
|
$ |
6,194 |
|
|
$ |
5,116 |
|
10.Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities as of June 30, 2024 and March 31, 2024 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2024 |
|
|
As of March 31, 2024 |
|
Taxes payable |
|
$ |
3,293 |
|
|
$ |
2,554 |
|
Other payables and current liabilities |
|
|
6,657 |
|
|
|
7,381 |
|
Total accrued expenses and other current liabilities |
|
$ |
9,950 |
|
|
$ |
9,935 |
|
11.Other Non-Current Liabilities
Other non-current liabilities as of June 30, 2024 and March 31, 2024 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2024 |
|
|
As of March 31, 2024 |
|
Provisions |
|
$ |
1,976 |
|
|
$ |
1,977 |
|
Pension liabilities |
|
|
2,328 |
|
|
|
2,194 |
|
Total other non-current liabilities |
|
$ |
4,304 |
|
|
$ |
4,171 |
|
12.Convertible Debt and Warrant
On June 6, 2024, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with the purchasers named therein (the “Purchasers”), pursuant to which the Company issued $3.3 million in principal amount of 8% Original Issue Discount Senior Secured Convertible Debentures (the “Debentures” or “Convertible Debt”). The Debentures were issued with an original issue discount of $300 thousand, resulting in gross proceeds of approximately $3 million and net proceeds of approximately $2.5 million after deducting offering expenses and $300 thousand deposited into a bank account as additional security for the Debentures. At election of the holder, the Debentures are convertible into an aggregate of 660,000 shares of the Company’s Common Stock at a conversion price of $5.00 per share, subject to adjustment in whole or in part from the issuance date. The Debentures mature on December 7, 2025, and bear interest at a rate of 8% per annum, payable monthly beginning one year from the issuance date.
The Company may provide an irrevocable election to redeem some or all of the then outstanding principal amount of the Debenture (in minimum increments of $300,000 unless the outstanding principal amount is less than $300,000) for cash. Beginning on the December 1, 2024, the Company will be required to redeem an amount of the Debentures equal to $235.7 thousand, together with all other amounts owed to the Purchaser. Such amount shall be payable in cash or in shares of Common Stock based on a conversion price equal to the lesser of (i) the then Conversion Price and (ii) 90% of the average of the five lowest VWAPs for the 10 consecutive Trading Days ending on the trading day immediately prior to redemption date.
Provided that no event of default has occurred or is continuing, and at least 33% of the principal amount of the Debentures has either previously been repaid or converted in accordance with the terms of the Debenture, the Company may elect, by notice to the holder of the Debentures, to extend the Maturity Date by six months upon the payment of six months’ interest on the then-outstanding principal amount. The monthly redemption amount is then adjusted to correspond to the extended maturity date.
The Debentures are secured by substantially all of the assets of the Company and its domestic subsidiaries, excluding certain specified assets. Additionally, the Company’s domestic subsidiaries have provided an unconditional guarantee of the Debentures.
In connection with the issuance of the Debentures, the Company also issued warrants to purchase an aggregate of 330,000 shares of common stock at an exercise price of $5.00 per share, with a five-year term.
Upon adoption of ASU 2020-06, the Company accounted for the convertible debt along with the associated conversion feature as a single liability measured at fair value to simplify the accounting for the convertible instrument. The fair value of the convertible debt was measured using a Monte Carlo simulation model. The change in fair value is presented in other comprehensive income to the extent that it is attributable to credit risk. The remaining portion of the change in fair value is recognized in other income (expense), net in the condensed consolidated results of operations.
The Company evaluated the freestanding warrants issued in connection with issuance of the convertible debt under ASC 815 and determined that they were classified as equity on our condensed consolidated balance sheets. The fair value of the warrant on the issuance date calculated using a Monte Carlo simulation model. The proceeds from the issuance of the convertible debt were allocated to the warrants using the residual method. Under this method, the Company first allocated the proceeds to the convertible debt based on its fair value measurement, and then allocated the remaining portion to the warrant. The amount was recorded to additional paid-in-capital.
The Monte Carlo simulation model required certain assumptions, including a risk-free rate of 4.89%, a credit spread of 27.4% and an estimated volatility of 57.5%, respectively. The risk-free interest rate assumption was based on U.S. treasury constant maturity yields on the issuance date with a term corresponding to the expected length of the remaining term. The credit spread was derived based on the terms and economics of the instruments and to reconcile the model values of the basket (consisting of convertible notes and warrants) with the proceeds generated from the issuance and sale of the basket in an arm’s-length transaction on the inception date. Due to the Company's limited trading history, the estimated volatility assumption was based upon the observed historical volatilities of the designated peer group and consideration of volatility haircut concepts, typical in practice in the valuation of convertible instruments. There was no dividend yield utilized in the Monte Carlo simulation model as the Company
has not paid any cash dividends. Such assumptions were applied to both the convertible debt and warrant liability as unobservable inputs. The convertible debt and warrant were considered Level 3 in the fair value hierarchy. The Company assesses the credit spread at each reporting date in valuation to determine the amount that should be recorded to other comprehensive income.
A total of $191 debt issuance costs was recorded in "Selling, general, and administrative expense" in the condensed consolidated statements of operations.
As of the issuance date, the debenture was measured at $2,638 and the warrant was measured at $362. As of June 30, 2024, the fair value approximated the issuance date fair value and no adjustments was made during the period.
13.Related Party Transactions
Parties are considered related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions.
Reorganization and Transaction with DIH Cayman and DIH Hong Kong
The Company’s businesses have historically functioned together with the other businesses controlled by DIH Cayman. DIH Cayman remains the largest shareholder of the Company and continues to own 100% interest in DIH International (“DIH Hong Kong”) as of June 30, 2024.
Subsequent to the year ended March 31, 2022, the Company did not incur significant transactions with DIH Cayman or DIH Hong Kong. The balances recorded under "Due from related party" and "Due to related party" are derived from historical transactions. The table below summarizes related party balances with DIH Hong Kong excluding Hocoma AG and Motek as of June 30, 2024 and March 31, 2024
|
|
|
|
|
|
|
|
|
|
|
June 30, 2024 |
|
|
March 31, 2024 |
|
Due from related party |
|
$ |
2,494 |
|
|
$ |
2,586 |
|
Due to related party |
|
$ |
1,376 |
|
|
$ |
1,470 |
|
Hocoma AG and share transfers
On July 1, 2021, Hocoma AG entered into a series of agreements with the Company and its subsidiaries to transfer all business aspects of development and production of mechanical and electronic devices in the fields of medical technology and biotechnology to Hocoma Medical GmbH as disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2024. In connection with the transactions, the Company incurred three related party notes payable to Hocoma AG amounting to $10.47 million, $7.80 million and $1.57 million, respectively. The three related party notes payable are referred to as "Related Party Notes". Each of the Related Party Notes Payable is due on June 30, 2026 with interest rate of 1.25%. The Company has made periodic payments on Related Party Notes payable with proceeds from its operations.
As of June 30, 2024 and March 31, 2024, the balances of Related Party Notes were $10.7 million and $11.5 million, respectively included in "Note payable - related party". The decrease resulted from the Company's payments of principal on Related Party Notes owed to Hocoma AG.
In addition to the Related Party Notes, as of June 30, 2024 and March 31, 2024, the Company recorded a related party balance of $(118) and $(267), respectively, representing cash balances owed by Hocoma AG. As part of the transfer discussed above, the Company also recorded a long-term related party receivable for $324 as of June 30, 2024 and March 31, 2024, included in "Other assets".
Motek Group
The Company has entered into a distribution agreement with the Motek Group. The agreement, which has been historically in place, appoints the Company as the exclusive distributor of Motek's advanced human movement research and rehabilitation products and services designed to support efficient functional movement therapy within specified territories. Under the distribution agreement, Motek supplies the products and services to the Company at the prices detailed in the agreement, with the Company entitled to a distributor margin. Motek provides ongoing support and assistance, including training, marketing materials, and technical documentation to the Company.
For the three months ended June 30, 2024 and 2023, the Company made purchases amounting to $2,995 and $2,769, respectively, from the Motek Group.
As part of these transactions, the Company made advance payments to Motek, included in "Due from related party," and also had trade payables, included in "Due to related party." The balances as of June 30, 2024 and March 31, 2024 are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2024 |
|
|
March 31, 2024 |
|
Due from related party |
|
$ |
3,352 |
|
|
$ |
3,367 |
|
Due to related party |
|
$ |
8,357 |
|
|
$ |
8,667 |
|
14.Employee Benefit Plans
Defined Contribution Plans
The Company sponsors a defined contribution plan in the United States. The Company’s obligation is limited to its contributions made in accordance with each plan document. Employer contributions to defined contribution plans are recognized as expense. Expenses related to the Company’s plans for the three months ended June 30, 2024 and 2023 were $40 and $32, respectively.
Defined Benefit Plans
The Company has a Swiss defined benefit plans (the “Pension Plan”) covering substantially all the employees of Hocoma Medical GmbH in Switzerland. The Pension Plan meets the benefit requirements under Swiss pension law. The Swiss plans offer retirement, disability and survivor benefits and is governed by a Pension Foundation Board. The responsibilities of this board are defined by Swiss pension law and the plan rules.
Amounts recognized in the condensed consolidated statements of operations for the three months ended June 30, 2024 and 2023, in respect of the Pension Plan were as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
|
2024 |
|
|
2023 |
|
Current service cost |
|
$ |
173 |
|
|
$ |
159 |
|
Interest cost |
|
|
51 |
|
|
|
50 |
|
Expected return on plan assets |
|
|
(98 |
) |
|
|
(69 |
) |
Actuarial loss / (gain) recognized |
|
|
(13 |
) |
|
|
(39 |
) |
Actuarial loss / (gain) recognized because of settlement |
|
|
— |
|
|
|
- |
|
Amortization of prior service credit |
|
|
(36 |
) |
|
|
(35 |
) |
Net charge to statement of operations |
|
$ |
77 |
|
|
$ |
66 |
|
For the three months ended June 30, 2024 and 2023, the Company recorded an income tax expense of $723 and $226, respectively. The effective tax rate was approximately 663% for the three months ended June 30, 2024 and (8.4%) for the three months ended June 30, 2023. The effective tax rate for the three months ended June, 2024 is higher than the statutory rate due to losses in certain jurisdictions that did not create a benefit, combined with income in others creating tax expense. The effective tax rate for the three months ended June 30 2023 was lower than the statutory tax rate due to losses the Company believes will not generate a future benefit. Those losses have a full valuation allowance. The effective tax rate for the three months ended June 30, 2024 isn’t comparable to the three months ended June 30, 2023 due to the pre-tax book income for three months ended June 30 2024 being close to break even.
The Company prepares its financial statements on a consolidated basis. Income tax expense is calculated in accordance with the local tax laws of each entity in its relevant jurisdiction on a separate company basis.
As of June 30, 2024 and June 30, 2023, the Company had unrecognized tax benefits of $3,499 and $0, respectively, which related to tax positions that, if recognized, would affect the annual effective tax rate. The company recognized accrued interest and penalties in income tax expense. As of June 30, 2024 and June 30, 2023 accrued interest and penalties totaling to $159 and $0 respectively is included in long-term liabilities. The Company has identified potential penalty exposure in relation to specific information reporting requirements in the United States. Although the Company is trying to address these issues and pursue penalty abatement, it has recorded a long-term payable for the penalties, until potential relief is granted. As of June 30, 2024 and March 31, 2024, the recorded accrual balances stand at $1,200 and $1,200, respectively.
16.Commitments and Contingencies
From time to time, the Company may be involved in lawsuits, claims, investigations, and proceedings, consisting of intellectual property, commercial, employment, and other matters, which arise in the ordinary course of business. In accordance with ASC 450, Contingencies, the Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
The Company is not presently a party to any litigation the outcome of which, it believes, if determined adversely to the Company, would individually or taken together, have a material adverse effect on the Company’s business, operating results, cash flows or financial condition. The Company has determined that the existence of a material loss is neither probable nor reasonably possible.
The Company leases office space (real estate), vehicles and office equipment under operating leases. The Company did not have any finance leases as of June 30, 2024 and March 31, 2024.
Right-of-use lease assets and lease liabilities that are reported in the Company’s condensed consolidated balance sheet as of June 30, 2024 and March 31, 2024 are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2024 |
|
|
As of March 31, 2024 |
|
Operating lease, right-of-use assets, net |
|
$ |
4,388 |
|
|
$ |
4,466 |
|
|
|
|
|
|
|
|
Current portion of long-term operating lease |
|
|
1,509 |
|
|
|
1,572 |
|
|