What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2022-03-22 compared with 2021-03-09 · 78 added, 623 removed, 32 unchanged (96% of the section changed)

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is

quoted on the Nasdaq Capital Market under the symbol “DRIO”.

Our warrants to purchase common stock are quoted on the

Nasdaq Capital Market under the symbol “DRIOW”.

Our common stock is quoted on the Nasdaq Capital Market under the symbol “DRIO”.

Our warrants to purchase common stock are quoted on the Nasdaq Capital Market under the symbol “DRIOW”.

Record Holders

As of March 5, 2021,

we had 289 stockholders of record of our common stock.

We have never paid

any cash dividends on our common stock.

We anticipate that we will retain funds and future earnings to support operations and to

finance the growth and development of our business.

As of March 17, 2022, we had 380 stockholders of record of our common stock.

We have never paid any cash dividends on our common stock.

We anticipate that we will retain funds and future earnings to support operations and to finance the growth and development of our business.

Therefore, we do not expect to pay cash dividends in the foreseeable future.

Any future determination to pay dividends will be at the discretion of our Board of Directors and will depend on our financial

condition, results of operations, capital requirements and other factors that our Board of Directors deems relevant.

the terms of any future debt or credit financings may preclude us from paying dividends.

Securities Authorized for Issuance Under

Equity Compensation Plans as of December 31, 2020:

The following table

provides information as of December 31, 2020, with respect to options outstanding under the Company’s Amended and Restated

2012 Equity Incentive Plan (the “2012 Equity Incentive Plan”) and the Company’s other equity compensation arrangements.

Plan category

Any future determination to pay dividends will be at the discretion of our Board of Directors and will depend on our financial condition, results of operations, capital requirements and other factors that our Board of Directors deems relevant.

In addition, the terms of any future debt or credit financings may preclude us from paying dividends.

Securities Authorized for Issuance Under Equity Compensation Plans as of December 31, 2021:

The following table provides information as of December 31, 2021, with respect to options outstanding under the Company’s Amended and Restated 2012 Equity Incentive Plan (the “2012 Equity Incentive Plan”), the Company’s 2020 Equity Incentive Plan (the “2020 Equity Incentive Plan”), and the Company’s other equity compensation arrangements.

Number of securities

to be issued upon

outstanding options,

warrants and rights

Weighted-average

exercise price of

warrants and rights

Number of securities

outstanding options,

remaining available

Plan category

Forfeited shares (8)

warrants and rights

for future issuance

6 unchanged sentences

Equity compensation plans not approved by security holders (6)

In March 2013, our Board adopted a non-employee director’s remuneration policy.

On May 2014, our Board approved the grant of non-plan options to the Company’s Scientific Advisory Board (“SAB”).

Equity compensation plans not approved by security holders (7)

(1) In March 2013, our Board adopted a non-employee director’s remuneration policy.

(2) On May 2014, our Board approved the grant of non-plan options to the Company’s Scientific Advisory Board (“SAB”).

These options have an exercise price of $2,502.00 vest in 4 quarterly installments in arrears, have a cashless exercise feature and a ten-year term.

In September 2015, our Board approved the grant of non-plan options to our Board members and members of our SAB.

These options have an exercise price of $115.20 per share, one-third vesting immediately and the balance vest over 8 quarterly installments, have a cashless exercise feature and a six-year term.

In December 2015, our Board approved the grant of non-plan options to a member of the SAB.

The options to the SAB member have an exercise price of $140.40 per share, and vest over a three-year period.

One third vest after one year and the balance vest over 8 quarterly installments after the first anniversary;

these options have a cashless exercise feature and a six-year term.

(3) In January 2020, our Board approved the grant of non-plan options as a material inducement for employment, in accordance with Nasdaq Listing Rule 5635(c)(4), to our newly hired President and General Manager for North America.

7 unchanged sentences

22,500 options will commence vesting every calendar year for the next four years, commencing in 2021, and only if certain performance milestones were met in the immediately preceding year.

In March 2020, our Board approved the grant of non-plan options as a material inducement for employment, in accordance with Nasdaq Listing Rule 5635(c)(4), to our newly hired Chief Medical Officer.

The options have an exercise price of $5.75 per share, and vest over a three-year period.

One third vests after one year and the balance vests over eight quarterly installments after the first anniversary;

22,500 of these options have expired on January 1, 2021 as the performance milestones were not met.

(4) In March 2020, our Board approved the grant of certain non-plan options as a material inducement for employment, in accordance with Nasdaq Listing Rule 5635(c)(4), to our newly hired Chief Medical Officer.

The options have an exercise price of $5.75 per share, and vest over a three-year period with one third vesting after one year and the balance vesting over eight quarterly installments after the first anniversary;

these options have a cashless exercise feature and a six-year term.

January 23, 2012, our Board of Directors and a majority of the holders of our then outstanding shares of our common

stock adopted our 2012 Equity Incentive Plan (which includes both U.S.

(5) In June 2021, our Board approved the grant of certain non-plan options as a material inducement for employment, in accordance with Nasdaq Listing Rule 5635(c)(4), to our newly hired Head of Behavioral Health.

The options have an exercise price of $20.53 per share.

60,000 options are time based and vest over a three-year period in twelve equal quarterly installments from the grant date;

these options have a cashless exercise feature and a ten-year term.

An additional 15,000 options are performance based, and have vested in full during 2021.

(6) In July 2021, our Board approved the grant of certain non-plan options as a material inducement for employment, in accordance with Nasdaq Listing Rule 5635(c)(4), to our newly hired Special Vice President of Market Access.

The options have an exercise price of $18.62 per share, and vest over a three-year period with one third vesting after one year and the balance vesting over eight quarterly installments after the first anniversary;

these options have a cashless exercise feature and a ten-year term.

(7) In November 2021, our Board approved the grant of certain non-plan options, issued as a material inducement for employment, in accordance with Nasdaq Listing Rule 5635(c)(4), to our newly hired Chief Commercial Officer.

The options have an exercise price of $16.70 per share.

80,000 options are time based and vest over a three-year period with one third vesting after one year and the balance vesting over eight quarterly installments after the first anniversary;

these options have a cashless exercise feature and a ten-year term.

An additional 60,000 options are performance based, and vest over a three-year period in three annual installments subject to reaching annual revenue thresholds during each of the 2022, 2023 and 2024 fiscal years.

(8) 12,616 restricted shares of common stock issued to employees of the company were forfeited, as they were not vested upon certain employee departures.

On January 23, 2012, our Board of Directors and a majority of the holders of our then outstanding shares of our common stock adopted our 2012 Equity Incentive Plan (which includes both U.S.

and Israeli sub-plans).

On January 23, 2012, an

Israeli sub-plan was adopted under our 2012 Equity Incentive Plan, which sets forth the terms for the grant of stock awards

to Israeli employees or Israeli non-employees.

The sub-plan was adopted in accordance with the amended sections 102 and

3(i) of Israel’s Income Tax Ordinance.

The sub-plan is part of the 2012 Equity Incentive Plan and subject to the

same terms and conditions.

On September 26, 2016 and November 30, 2016, respectively, our Board of Directors and

stockholders approved an amendment to the 2012 Equity Incentive Plan increasing the number of shares of common stock

available under the plan to 1,873,000 as well as amended the 2012 Equity Incentive Plan to permit grants of shares of common

On February 2, 2017 and March 9, 2017, respectively, our Board of Directors and stockholders approved an

amendment to the 2012 Equity Incentive Plan increasing the number of shares of common stock available under the plan to

On October 9, 2017 and December 4, 2017, respectively, our Board of Directors and stockholders approved

an amendment to the 2012 Equity Incentive Plan increasing the number of shares of common stock available under the plan to

On March 26, 2018 and May 18, 2018, respectively, our Board of Directors and stockholders approved an

amendment to the 2012 Equity Incentive Plan increasing the number of shares of common stock available under the plan to

On October 7, 2018 and November 29, 2018, respectively, our Board of Directors and stockholders approved

an amendment to the 2012 Equity Incentive Plan increasing the number of shares of common stock available under the plan to

On September 3, 2019 and November 6, 2019, respectively, our Board of Directors and stockholders

approved an amendment to the 2012 Equity Incentive Plan increasing the number of shares of common stock available under the

plan to 618,650 on a post reverse stock split basis.

On December 26, 2019 and February 5, 2020, respectively, our

Board of Directors and stockholders approved an amendment to the 2012 Equity Incentive Plan increasing the number of shares

of common stock available under the plan to 1,968,650.

Following the amendments to the 2012 Equity Incentive Plan, as of

March 1, 2021, there are 115 shares of Common Stock reserved for issuance thereunder.

On September 2, 2020 and

October 14, 2020, respectively, our Board of Directors and stockholders approved and adopted the Company’s 2020

Equity Incentive Plan (the “2020 Equity Incentive Plan”), reserving for issuance a pool of 900,000 shares of the

Company’s common stock under the plan.

On January 1, 2021 the number of shares of common stock available under the

plan increased to 1,828,890 according to the terms thereof.

As of March 1, 2021, there are 633,171 shares of Common Stock

reserved for issuance thereunder.

The Company’s officers and directors are among the persons

eligible to receive awards under the 2020 Equity Incentive Plan in accordance with the terms and conditions thereunder.

The purpose of both

our 2012 and 2020 Equity Incentive Plans is to attract and retain directors, officers, consultants, advisors and employees whose

services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons in

our development and financial achievements.

Each of the 2012 and 2020 Equity Incentive Plans will be administered by the Compensation

Committee of our Board of Directors or by the full board, which may determine, among other things, the (a) terms and conditions

of any option or stock purchase right granted, including the exercise price and the vesting schedule, (b) persons who are

to receive options and stock purchase rights and (c) the number of shares to be subject to each option and stock purchase

The 2012 and 2020 Equity Incentive Plans will each provide for the grant of (i) ”incentive”

options (qualified

under section 422 of the Internal Revenue Code of 1986, as amended) to employees of our company and (ii) non-qualified options

to directors and consultants of our company.

In addition, our Board of Directors has authorized the appointment of IBI Capital

Compensation and Trusts (2004) Ltd.

On January 23, 2012, an Israeli sub-plan was adopted under our 2012 Equity Incentive Plan, which sets forth the terms for the grant of stock awards to Israeli employees or Israeli non-employees.

The sub-plan was adopted in accordance with the amended sections 102 and 3(i) of Israel’s Income Tax Ordinance.

The sub-plan is part of the 2012 Equity Incentive Plan and subject to the same terms and conditions.

On September 26, 2016 and November 30, 2016, respectively, our Board of Directors and stockholders approved an amendment to the 2012 Equity Incentive Plan increasing the number of shares of common stock available under the plan to 1,873,000 as well as amended the 2012 Equity Incentive Plan to permit grants of shares of common stock.

On February 2, 2017 and March 9, 2017, respectively, our Board of Directors and stockholders approved an amendment to the 2012 Equity Incentive Plan increasing the number of shares of common stock available under the plan to 2,373,000.

On October 9, 2017 and December 4, 2017, respectively, our Board of Directors and stockholders

approved an amendment to the 2012 Equity Incentive Plan increasing the number of shares of common stock available under the plan to 3,873,000.

On March 26, 2018 and May 18, 2018, respectively, our Board of Directors and stockholders approved an amendment to the 2012 Equity Incentive Plan increasing the number of shares of common stock available under the plan to 5,373,000.

On October 7, 2018 and November 29, 2018, respectively, our Board of Directors and stockholders approved an amendment to the 2012 Equity Incentive Plan increasing the number of shares of common stock available under the plan to 7,873,000.

On September 3, 2019 and November 6, 2019, respectively, our Board of Directors and stockholders approved an amendment to the 2012 Equity Incentive Plan increasing the number of shares of common stock available under the plan to 618,650 on a post reverse stock split basis.

On December 26, 2019 and February 5, 2020, respectively, our Board of Directors and stockholders approved an amendment to the 2012 Equity Incentive Plan increasing the number of shares of common stock available under the plan to 1,968,650.

The 2012 Equity Incentive Plan expired on January 23, 2022.

On September 2, 2020 and October 14, 2020, respectively, our Board of Directors and stockholders approved and adopted the Company’s 2020 Equity Incentive Plan (the “2020 Equity Incentive Plan”), reserving for issuance a pool of 900,000 shares of the Company’s common stock under the plan.

On January 1, 2021 the number of shares of common stock available under the plan increased to 1,828,890 according to the terms thereof.

On June 7, 2021 the number of shares of common stock available under the plan increased to 2,528,890 according to the terms thereof.

On January 1, 2022 the number of shares of common stock available under the plan increased to 3,868,514 according to the terms thereof.

As of March 17, 2022, there are 1,426,244 shares of Common Stock reserved for issuance thereunder.

The Company’s officers and directors are among the persons eligible to receive awards under the 2020 Equity Incentive Plan in accordance with the terms and conditions thereunder.

The purpose of both our 2012 and 2020 Equity Incentive Plans is to attract and retain directors, officers, consultants, advisors and employees whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons in our development and financial achievements.

Each of the 2012 and 2020 Equity Incentive Plans will be administered by the Compensation Committee of our Board of Directors or by the full board, which may determine, among other things, the (a) terms and conditions of any option or stock purchase right granted, including the exercise price and the vesting schedule, (b) persons who are to receive options and stock purchase rights and (c) the number of shares to be subject to each option and stock purchase right.

The 2012 and 2020 Equity Incentive Plans will each provide for the grant of (i) ”incentive” options (qualified under section 422 of the Internal Revenue Code of 1986, as amended) to employees of our company and (ii) non-qualified options to directors and consultants of our company.

In addition, our Board of Directors has authorized the appointment of IBI Capital Compensation and Trusts (2004) Ltd.

to act as a trustee for grants of options under the Israeli sub-plan to Israeli residents.

In connection with

the administration of our 2012 and 2020 Equity Incentive Plans, our Compensation Committee will:

which employees and other persons will be granted awards under our 2012 and 2020 Equity Incentive Plans;

the awards to those selected to participate;

the exercise price for options;

any limitations, restrictions and conditions upon any awards, including the vesting conditions of awards.

Our Compensation Committee

In connection with the administration of our 2012 and 2020 Equity Incentive Plans, our Compensation Committee will:

● determine which employees and other persons will be granted awards under our 2012 and 2020 Equity Incentive Plans;

● grant the awards to those selected to participate;

● determine the exercise price for options;

● prescribe any limitations, restrictions and conditions upon any awards, including the vesting conditions of awards.

Our Compensation Committee will:

(i) interpret our 2012 and 2020 Equity Incentive Plans;

and (ii) make all other determinations and take all other

action that may be necessary or advisable to implement and administer our 2012 and 2020 Equity Incentive Plans.

The 2012 and 2020 Equity

Incentive Plans each provide that in the event of a change of control event, the Compensation Committee or our Board of Directors

shall have the discretion to determine whether and to what extent to accelerate the vesting, exercise or payment of an award.

In addition, our Board

of Directors may amend our 2012 or 2020 Equity Incentive Plan at any time.

However, without stockholder approval, our 2012 or 2020

Equity Incentive Plan may not be amended in a manner that would:

the number of shares that may be issued under such Equity Incentive Plan;

modify the requirements for eligibility for participation in such Equity Incentive Plan;

increase the benefits to participants provided by such Equity Incentive Plan;

disqualify such Equity Incentive Plan for coverage under Rule 16b-3 promulgated under the Exchange Act.

Awards previously granted

under our 2012 or 2020 Equity Incentive Plans may not be impaired or affected by any amendment of such without the consent of the

affected grantees.

and (ii) make all other determinations and take all other action that may be necessary or advisable to implement and administer our 2012 and 2020 Equity Incentive Plans.

The 2012 and 2020 Equity Incentive Plans each provide that in the event of a change of control event, the Compensation Committee or our Board of Directors shall have the discretion to determine whether and to what extent to accelerate the vesting, exercise or payment of an award.

In addition, our Board of Directors may amend our 2012 or 2020 Equity Incentive Plan at any time.

However, without stockholder approval, our 2012 or 2020 Equity Incentive Plan may not be amended in a manner that would:

● increase the number of shares that may be issued under such Equity Incentive Plan;

● materially modify the requirements for eligibility for participation in such Equity Incentive Plan;

● materially increase the benefits to participants provided by such Equity Incentive Plan;

● otherwise disqualify such Equity Incentive Plan for coverage under Rule 16b-3 promulgated under the Exchange Act.

Awards previously granted under our 2012 or 2020 Equity Incentive Plans may not be impaired or affected by any amendment of such without the consent of the affected grantees.

Option Exercises

To date, no options

have been exercised by our directors or officers.

Unregistered Sales of Equity Securities

and Use of Proceeds

During the fourth quarter

of 2020, we issued an aggregate 79,368 shares of our common stock to certain of our service providers as compensation 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.

Selected Financial Data

Not applicable.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

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 the related notes and other financial information included elsewhere in this Annual Report.

information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with

respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties.

“Cautionary Note Regarding Forward-Looking Statements”.

You should review the “Risk Factors”

this Annual Report 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.

We are a leading global

DTx company revolutionizing the way people manage their health across the chronic condition spectrum to live a better and healthier

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 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 AI-driven dynamic personalization and behavioral science at scale.

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

We began our sales in the direct-to-consumer space, solving first for what we deemed the most difficult problems:

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, we now offer solutions for musculoskeletal (“MSK”) conditions.

We intend to deploy behavioral health and other

condition solutions in 2021, which conditions will also be powered by our AI-driven behavior change platform.

We are currently

delivering B2B2C solutions for providers, employers, and pharmaceutical companies, and we plan to develop a full-risk health plan

business across a range of customer product lines in 2021.

We commenced a commercial

launch of our free application in the United Kingdom in late 2013 and commenced an initial soft launch of the full Dario solution

(including the app and the Dario Blood Glucose Monitoring System) in selected jurisdictions in March 2014.

We continued to

scale up launch during 2014 in the United Kingdom, the Netherlands and New Zealand, and during 2015 in Australia, Israel and

Canada, with the goal of collecting customer feedback to refine our longer-term roll-out strategy.

We are consistently adding new

additional features and functionality in making Dario the new standard of care in diabetes data management.

Through our Israeli

subsidiary, Labstyle, and its subsidiary Upright, our plan of operations is to continue the development of our

software and hardware offerings and related technology.

During 2015, we successfully launched the Dario Smart Diabetes Management

Solution according to plan and are currently expanding the launch to other jurisdictions.

In 2016, we established our direct-to-consumer

model in the U.S.

to achieve higher and faster penetration into the market during the launch phase.

We have invested in a robust

digital marketing department with in-house platforms, experienced personnel and robust infrastructures to support expected growth

of users and online subscribers in this market.

During the third quarter of 2016 we expanded these efforts to include Australia

In 2017, we expanded our direct-to-consumer marketing efforts in the United Kingdom in cooperation with our local distributor

and launched similar marketing efforts in Germany.

In support of these goals, we intend to utilize our funds for the following

ramp up of mass production, marketing and distribution and sales efforts related to the Dario Smart Diabetes Management Solution and the DarioEngage platform;

develop our customer support and telemarketing services in order to support the expect growth of our revenues and the increase of user, and service provider who will use our platform to better serve people with diabetes and improve their clinical outcome;

continued product and software development, and related activities (including costs associated with application development and data storage capabilities as well as any necessary design modifications to the various elements of the Dario Smart Diabetes Management Solution, the DarioEngage platform and the Dario Loop tools and capabilities);

continued work on registration of our patents worldwide;

Regulatory and quality assurance matters;

professional fees associated with being a publicly reporting company;

general and administrative matters.

On January 26,

2021, Dario, Labstyle, Upright Technologies Ltd., an Israeli limited company, Vertex C (C.I.) Fund L.P.

(in its capacity as the representative of the Selling Shareholders), and all holders of Upright’s outstanding securities

(the “Selling Shareholders”), entered into a share purchase agreement (the “Upright Agreement”) pursuant

to which Dario, through Labstyle, acquired all of the outstanding securities of Upright.

The agreement was consummated on February 1,

2021, and Upright now operates as a wholly owned subsidiary of the Company.

As part of the acquisition, Dario issued the Selling

Shareholders 1,687,612 shares of the Company’s common stock, and agreed to assume options to purchase up to 100,193 shares

of the Company’s common stock, subject to certain escrow and indemnity provisions contained in the Upright Agreement (in

the aggregate, the “Consideration Shares”).

In addition, the shares issued are subject to the terms of a lock-up agreement,

pursuant to which the Selling Shareholders (subject to certain exceptions) have agreed to restrict their ability to transfer their

shares as follows:

(i) shares representing 20% of their respective Consideration Shares will be restricted from transfer for

a period of one hundred and eighty (180) days from the date of the closing of the acquisition (the “Closing Date”),

(ii) shares representing 30% of their respective Consideration Shares will be restricted from transfer for a period of two

hundred and seventy (270) days from the Closing Date, (iii) shares representing 30% of their respective Consideration Shares

will be restricted from transfer for a period of three hundred and sixty (360) days from the Closing Date and (iv) shares

representing 20% of their respective Consideration Shares will be restricted from transfer for a period of four hundred and fifty

(450) days from the Closing Date.

The Company has also agreed to file a registration statement covering the resale of the shares

within ninety (90) days following the Closing Date.

In addition, 30% of the Consideration Shares issuable to Upright’s founder,

Oded Cohen, shall be held in a specific holdback retention mechanism, of which 50% shall be released at the lapse of twelve

(12) months of retention following the Closing Date, and the balance of 50% shall be released at the lapse of eighteen (18) months

of retention following the Closing Date.

On February 1,

2021, the Company, through Labstyle, has also agreed to enter into an employment agreement with Mr.

Cohen, pursuant to which

he will serve as General Manager of MSK.

In consideration for Mr.

Cohen’s duties, he will be entitled to (a) a

monthly salary of NIS 63,000, (b) an annual bonus of up to four times his monthly salary, and (c) up to 220,980 shares

of restricted stock of the Company, subject to meeting certain key performance metrics.

See “Management –

Agreements.”

Readers are cautioned

that, according to our management’s estimates, based on our budget and the initial launch of our commercial sales, we believe

that we will have sufficient resources to continue our activity only into June 2021 without raising additional capital.

includes an amount of anticipated inflows from sales of Dario through direct sales in the United States and through distribution

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 ramp up revenues), 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.

Critical Accounting Policies

Our consolidated financial

statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the

United States (“U.S.

GAAP”).

Our fiscal year ends December 31.

This Management’s

Discussion and Analysis of Financial Condition and Results of Operations discuss our consolidated financial statements, which have

been prepared in accordance with U.S.

The preparation of these consolidated financial statements requires making estimates

and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities

at the date of the consolidated financial statements, as well as the reported revenues and expenses for the reporting periods.

On an ongoing basis, we evaluate such estimates and judgments.

We base our estimates on historical experience and on various other

factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about

the carrying value of assets and liabilities that are not readily apparent from other sources.

Actual results may differ (perhaps

significantly) from these estimates under different assumptions or conditions.

While all the accounting

policies impact the consolidated financial statements, certain policies may be viewed to be critical.

Our management believes that

the accounting policies which involve more significant judgments and estimates used in the preparation of our consolidated financial

statements, include revenue recognition, inventories, liability related to certain warrants, and accounting for production lines

and its related useful life and impairment.

Revenue Recognition

We derive our revenue

principally from:

sale of our products, device-specific disposables test strip cartridges, lancets and our Dario Blood Glucose Monitoring System through distributors or directly to end users;

revenue from providing Remote Patient Monitoring services to healthcare providers through the DarioEngage platform;

revenue from ongoing membership programs, providing our users personalized diabetes management programs, including lifestyle changes, healthy eating, advanced tracking and live coaching.

Revenue is recognized

under the five-step methodology in accordance with Accounting Standards Codification (“ASC”) - ASC 606, which requires

us to identify the contract with the customer, identify the performance obligations in the contract, determine the transaction

price, allocate the transaction price to the performance obligations identified, and recognize revenue when (or as) each performance

obligation is satisfied.

Revenue from product

sales is recognized in the period in which the products are provided to customers.

Revenues are recognized when control of the

promised products is transferred to customers, in an amount that reflects the consideration to which we expect to receive from

Revenues from ongoing

membership programs and Remote Patient Monitoring services are recognized for each individual performance obligation when delivery

has occurred, by fulfillment of product and service to costumer.

Our revenues are recognized in the period in which services and

related products are provided to customers and are recorded either at a point in time for the sale of products, or over the fixed

service period for membership.

The fee paid in upfront, fixed or determinable, the allocation of the transaction price to each

performance obligations product and service based on the best estimate of selling price which is established considering several

internal factors including, but not limited to, historical sales, pricing practices and geographies in which we offer our products.

Inventory write-down

is measured as the difference between the cost of the inventory and net realized value based upon assumptions about future demand,

and is charged to the cost of sales.

At the point of the loss recognition, a new, lower-cost basis for that inventory is established,

and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

If there were to be

a sudden and significant decrease in demand for our products or if there were a higher incidence of inventory obsolescence because

of rapidly changing technology and customer requirements, we could be required to increase our inventory write-downs and our gross

margin could be adversely affected.

Inventory and supply chain management remain areas of focus as we balance the need to maintain

supply chain flexibility, to help ensure competitive lead times with the risk of inventory obsolescence.

During the year ended

December 31, 2020, total inventory write-downs expenses amounted to $99,000.

Production Lines

Capitalization

We capitalize direct incremental costs of third-party manufacturers related to the equipment in our production

We cease construction cost capitalization relating to our production lines once they are ready for its intended use and

held available for occupancy.

All renovations and betterments that extend the economic useful lives of assets and/or improve the

performance of the production lines are capitalized.

Lives of Assets .

We are required to make subjective assessments as to the useful lives of our production lines for purposes

of determining the amount of depreciation to record on an annual basis with respect to our construction of the production lines.

These assessments have a direct impact on our net income (loss).

Production lines are usually depreciated on a straight-line basis

over a period of up to seven years, except any renovations and betterments which are depreciated over the remaining life of the

production lines.

of production lines.

We are required to review our production lines for impairment in accordance with ASC 360,

“Property, Plant and Equipment,”

whenever events or changes in circumstances indicate that the carrying amount of an

asset may not be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of

an asset to the future undiscounted cash flows expected to be generated by the assets.

If such assets are considered to be impaired,

the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of

Results of Operations

Comparison of the Year Ended December 31,

2020 to Year Ended December 31, 2019

Revenues for the year

ended December 31, 2020 amounted to $7,576,000, compared to $7,559,000 during the year ended December 31, 2019.

Revenues generated

during the year ended December 31, 2020 were derived mainly from the sales of the Dario Blood Glucose Monitoring System, through

direct sales to consumers located mainly in the United States through our on-line store and through distributors, and from the

offering of our membership services to our customers located mainly in the United States.

Cost of Revenues

During the years ended

December 31, 2020 and 2019, we recorded costs related to revenues in the amount of $5,063,000 and $4,962,000, respectively.

The increase in cost of revenues was mainly due to higher costs related to shipping products to our customers.

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, shipping and handling costs and inventory write-downs.

Research and Development

Our research and development

expenses increased by $741,000 to $4,433,000 for the year ended December 31, 2020 compared to $3,692,000 for the year ended

December 31, 2019.

This increase was mainly due to increase in salaries and stock-based compensation, partially offset by

a decrease of other research and development costs relating primarily to product development.

Our research and development expenses,

excluding stock-based compensation and depreciation, for the year ended December 31, 2020, were $3,584,000 compared to $3,432,000

for the year ended December 31, 2019, an increase of $152,000.

This increase was due to an increase in salaries and related

Research and development

expenses consist mainly of payroll expenses to employees involved in research and development activities, expenses related to our

Dario Smart Diabetes Management Solution, expenses related to the development of our DarioEngage platform, labor contractors and

engineering expenses, depreciation and maintenance fees related to equipment and software tools used in research and development,

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

Our sales and marketing

expenses increased by $4,100,000 to $15,227,000 for the year ended December 31, 2020 compared to $11,127,000 for the year

ended December 31, 2019.

This increase was mainly due to the increase in salaries and stock-based compensation.

and marketing expenses, excluding stock-based compensation and depreciation, for the year ended December 31, 2020 were $12,452,000

compared to $10,790,000 for the year ended December 31, 2019, an increase of $1,662,000.

This increase was due to an increase

in salaries and related expenses, as a result of hiring our sales and marketing team in the U.S.

to lead the penetration into the

B2B2C market.

Sales and marketing

expenses consist mainly of payroll expenses, trade show expenses, customer support expenses and on-line marketing campaigns.

General and Administrative

Our general and administrative

expenses increased by $7,273,000 to $12,756,000 for the year ended December 31, 2020 compared to $5,483,000 for the year ended

December 31, 2019.

The increase was mainly due to an increase in stock-based compensation.

Our general and administrative

expenses, excluding stock-based compensation and depreciation, for the year ended December 31, 2020 were $5,239,000 compared

to $3,753,000 for the year ended December 31, 2019, an increase of $1,486,000.

This increase was due to an increase in insurance,

legal expenses and investor relations expenses.

Our general and administrative

expenses consist mainly of payroll and stock-based compensation expenses for management, employees, directors and consultants,

legal and accounting fees, patent registration, expenses related to investor relations, as well as our office rent and related

Finance income (expenses),

Our finance income,

net, increased by $489,000 to $458,000 for the year ended December 31, 2020 compared to $31,000 financing expenses for the

year ended December 31, 2019.

The increase from 2019 was mainly due to gains derives from currency translation differences.

Finance expenses include mainly bank charges, lease liability translation differences, and foreign currency translation adjustments.

Net loss for the year

ended December 31, 2020 was $29,445,000.

Net loss for the year ended December 31, 2019 was $17,736,000.

from 2019 was mainly due to the increase in our operating expenses.

Net operating loss

carryforwards

As of December 31,

2020, we had U.S.

federal net operating loss carryforwards of approximately $16,223,000, of which $7,120,000 was generated from tax

years 2011-2017 and can be carryforward and offset against taxable income and that expires during the years 2031 to 2037.

December 22, 2017, the U.S.

Tax Cuts and Jobs Act of 2017 (the “TCJA”) modified the rules regarding utilization

of net operating loss and net operating losses generated subsequent to the TCJA can only be used to offset 80% of taxable

income with an indefinite carryforward period for unused carryforwards (i.e., they should not expire).

During 2018 - 2020,

we generated additional $9,103,000 of net operating losses carryforwards which are not subject to the annual limitation described

Our Israeli subsidiary

has accumulated net operating losses for Israeli income tax purposes as of December 31, 2020 in the amount of approximately

The net operating losses may be carried forward and offset against taxable income in the future for an indefinite period.

In accordance with

GAAP, it is required that a deferred tax asset be reduced by a valuation allowance if, based on the weight of available evidence

it is more likely than not (a likelihood of more than 50 percent) that some portion or all of the deferred tax assets will not

The valuation allowance should be sufficient to reduce the deferred tax asset to the amount which is more likely than

not to be realized.

As a result, we recorded a valuation allowance with respect to our deferred tax asset.

Under Sections 382 and

383 of the Internal Revenue Code, if an ownership change occurs with respect to a “loss corporation”

(as defined in

the Internal Revenue Code), there are annual limitations on the amount of the net operating loss and other deductions which are

available to us.

The factors described

above resulted in net loss attributable to common stockholders of $33,103,000 and $20,891,000 for the year ended December 31,

2020 and 2019, respectively.

Non-GAAP Financial Measures

To supplement our consolidated

financial statements presented in accordance with U.S.

GAAP within this Annual Report on Form 10-K, management provides certain

non-GAAP financial measures (“NGFM”) of the Company’s financial results, including such amounts captioned:

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 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

consolidated financial statements to understand the effects of the non-cash impact on our (U.S.

GAAP) unaudited statement of operations

of the revaluation of the warrants and the expense related to stock-based compensation, each as discussed herein above.

A reconciliation to

the most directly comparable U.S.

GAAP measure to NGFM, as discussed above, is as follows:

Year Ended December 31,

(in thousands)

Net Loss Reconciliation

Net loss - as reported

Depreciation expense

Other financial expenses (income), net

Stock-based compensation expenses

Non-GAAP adjusted loss

Liquidity and Capital Resources

As of December 31,

2020, we had approximately $28,590,000 in cash and cash equivalents compared to $20,395,000 at December 31, 2019.

We have experienced

cumulative losses of $143,248,000 from inception (August 11, 2011) through December 31, 2020 and have a stockholders’

equity of $35,407,000 at December 31, 2020.

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.

Since inception, we

have financed our operations primarily through private placements and public offerings of our common stock and warrants to purchase

shares of our common stock, receiving aggregate net proceeds totaling $123,974,000 as of December 31, 2020.

On February 28,

2018 and March 6, 2018, we closed two concurrent private placements offerings consisting of 113,110 shares of our common

stock at $28.00 per share, 61,704 shares of our Series C Convertible Preferred Stock at $56.00 per share and warrants to

purchase up to 189,218 shares of common stock for aggregate gross proceeds of approximately $6,623,000.

On September 13,

2018 and September 26, 2018, we closed two concurrent private placements offerings consisting of 213,340 shares our common

stock at $18.00 per share, 94,513 shares of our Series D Convertible Preferred Stock at $72.00 per share and warrants to purchase

up to 473,114 shares of common stock, for aggregate gross proceeds of approximately $10,645,000.

On December 13,

2018 and December 27, 2018, we closed a private placement offering of 152,504 shares of our common stock at a purchase price

of $20.00 per share and warrants to purchase up to 152,500 shares of our common stock at $25.00 per share for aggregate gross proceeds

of approximately $3,050,000.

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 $1,000 for each share of Series A Preferred

Stock and Series A-1 Preferred Stock, for aggregate gross proceeds to the Company of $13,560,000.

The initial closing of the

offering took place on November 27, 2019.

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 Preferred Stock,

at a purchase price of $1,000 per share, for aggregate gross proceeds to the Company of $1,915,000.

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 Preferred Stock, at a purchase price of $1,000 per share, for aggregate gross proceeds to the

Company of $3,808,000.

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 Preferred Stock, at a purchase price

of $1,000 per share, for aggregate gross proceeds to the Company of $745,000.

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

Preferred Stock, at a purchase price of $1,000 per share, for aggregate gross proceeds to the Company of $1,346,000.

aggregate gross proceeds of the offering described above, together with gross proceeds from the closing of the offering of Series A

Preferred Stock, Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series A-3 Preferred Stock and Series A-4

Preferred Stock was $21,375,000.

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 $28,591,000.

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 issued in September 2018, from $25.00 to $13.00 per share.

As a result, the warrant holder exercised warrants to

purchase 88,889 shares of our common stock, resulting in aggregate gross proceeds of approximately $1,156,000.

On January 26,

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 the Company’s common stock at a purchase price of $21.35 per share, for

aggregate gross proceeds of $70,000,000.

The closing of the offering was consummated on February 1, 2021.

The purchase price

per share represents the “Minimum Price”

of the Company’s Common Stock pursuant to Nasdaq Rule 5635(d) as

of the date of execution of each respective securities purchase agreement.

The Company and the investors participating in the offering

also executed a registration rights agreement pursuant to which the Company agreed to file a registration statement covering the

resale of the shares within sixty (60) days following the final closing of the offering.

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) expenses which will be required in order to expand manufacturing of our products, (3) sales

and marketing efforts and (4) 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.

The following tables

sets forth selected cash flow information for the periods indicated:

Cash used in operating activities:

(17,736,000 )

(15,725,000 )

Cash used in investing activities:

Cash provided by financing activities:

Net cash used in

operating activities

Net cash used in operating

activities was $17,736,000 for the year ended December 31, 2020 compared to $15,725,000 used in operations for the same period

Cash used in operations increased mainly due to an increase in our operating expenses.

Net cash used in

investing activities

Net cash used for

investing activities was $1,622,000 for the year ended December 31, 2020 compared to cash used in investing activities

of $113,000 for the year ended December 31, 2019.

Cash used in investing activities increased mainly due to a

convertible bridge loan extended to Upright and higher investments in fixed assets.

Net cash provided

by financing activities

Net cash provided by

financing activities was $27,548,000 for the year ended December 31, 2020 compared to $25,247,000 for the year ended December 31,

During the year ended December 31, 2020, we raised net proceeds in an amount of approximately $27,548,000 mainly through

our July 2020 offering.

Contractual Obligations

Set forth below is

a summary of our current obligations as of December 31, 2020 to make future payments due by the period indicated below, excluding

payables and accruals.

We expect to be able to meet our obligations in the ordinary course.

Operating lease obligations are for motor

vehicle and real property leases which we use in our business.

Purchasing obligations consists of outstanding purchase orders for

materials and services from our vendors.

Payments due by period

dollars thousands)

Contractual Obligations

Less than 1 year

Operating Lease Obligations

Purchasing Obligations

Total contractual cash obligations

Off-Balance Sheet Arrangements

We did not have during

the periods presented, and we do not currently have, any off-balance sheet arrangements as defined under Securities and Exchange

Commission rules.

Contingencies

We account for our

contingent liabilities in accordance with ASC 450 “Contingencies“.

A provision is recorded when it is both probable

that a liability has been incurred and the amount of the loss can be reasonably estimated.

With respect to legal

matters, provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice

of legal counsel and other information and events pertaining to a particular matter.

Currently, we are not a party to any ligation

that we believe could have a material adverse effect on our business, financial position, results of operations or cash flows.

Recently Issued and Adopted Accounting

Pronouncements

In September 2016,

the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-13,

“Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments”

2016-13”).

ASU 2016-13 changes the impairment model for most financial assets and certain other instruments.

For trade and

other receivables, held-to-maturity debt securities, loans, and other instruments, entities will be required to use a new forward-looking

“expected loss”

model that generally will result in the earlier recognition of allowances for losses.

also requires increased disclosures.

For the Company, the amendments in the update were originally effective for fiscal years beginning

after December 15, 2019, including interim periods within those fiscal years.

In November 2019, the FASB issued

2019-10 which delayed the effective date of ASU 2016-13 for smaller reporting companies (as defined by the U.S.

and Exchange Commission) and other non-SEC reporting entities to fiscal years beginning after December 15, 2022, including

interim periods within those fiscal periods.

Early adoption is permitted.

The Company is currently assessing the impact the guidance

will have on its consolidated financial statements.

Quantitative and Qualitative Disclosure About Market Risk

Not applicable.

To date, no options have been exercised by our directors or officers.

Unregistered Sales of Equity Securities and Use of Proceeds

During the fourth quarter of 2021, we issued an aggregate 55,194 shares of our common stock to certain of our service providers as compensation 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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity