What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-28 compared with 2023-03-09 · 119 added, 100 removed, 183 unchanged (54% of the section changed)

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On July 28, 2016, we changed our name to DarioHealth Corp.

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

We began our sales in the direct-to-

consumer space, solving first for what we deemed the most difficult problems:

how to engage users and support behavior change to improve clinical outcomes in diabetes.

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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, musculoskeletal (“MSK”) and behavioral health, which conditions will also be powered by our AI-driven behavior change platform.

We also subsequently acquired Upright, PsyInnovations, Physimax Technology, and most recently Twill, to further our platform.

Presently, we have deployed solutions for diabetes, hypertension, pre-diabetes, MSK and behavioral health, which conditions will also be powered by our AI-driven behavior change platform.

We are currently delivering our solutions to providers, employers, health plans and pharmaceutical companies.

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 as well.

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 activities:

● 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 chronic conditions 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 Platform;

● 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.

We continue to achieve key benchmarks as we rapidly scale our B2B2C model, including more than 100 total signed contracts as of today.

We believe we have a unique and defensible position in the market thanks to our unique solution origin in consumer markets.

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”).

The agreement was consummated on February 1, 2021, and Upright now operates as our wholly owned subsidiary.

As part of the acquisition, we issued the Selling Shareholders 1,687,612 shares of our common stock and agreed to assume options to purchase up to 100,193 shares of our 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, Mr.

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 – Employment Agreements.” On November 25, 2021, Mr.

Oded Cohen was relieved from his role as General Manager of MSK and he was reassigned to serve as Senior Vice President of Strategy M&A and MSK of the Company .

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.

We, along with TWILL Merger Sub, Inc.

(“Merger Sub”), Twill and Bilal Khan, solely in his capacity as the representatives of Twill’s stockholders and other equity holders, entered into an Agreement and Plan of Merger (the “Merger Agreement”), dated February 15, 2024 (the “Closing Date”).

Pursuant to the provisions of the Merger Agreement, on the Closing Date, (i) Merger Sub was merged with and into Twill (the “Merger”), the separate corporate existence of Merger Sub ceased and Twill continued as the surviving company and a wholly owned subsidiary of the Company, (ii) we paid to Twill’s debt holders and equity holders aggregate consideration (“Merger Consideration”) of (A) $10.0 million in cash, (B) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 10,000,400 shares (the “Warrant Shares”) of our common stock issuable to a trust (the “Trust”) formed for the benefit of certain equity and debt holders of Twill, issuable in 4 equal tranches, (C) stock options to purchase up to 2,963,459 shares of common stock issued to employees of Twill as an inducement to their employment with us, issued outside of our equity compensation plans, pursuant to Nasdaq Rule 5635(c)(4), with an exercise price of $2.55 per share, and (D) a combination of warrants and restricted stock units (“RSUs”) to acquire up to 1,766,508 shares of common stock issued to certain outgoing board members, consultants and outgoing officers of Twill (all of such RSUs and warrants being subject to the approval of the Company’s stockholders, pursuant to Nasdaq Rule 5635), and (iii) the parties to the Merger Agreement consummated the transactions contemplated thereby.

The Merger Agreement contains various customary representations, warranties and covenants.

As a result of the Merger, Twill will operate as our wholly owned subsidiary.

The Pre-Funded Warrants are subject to a non-waivable 19.99% ownership blocker and the issuance of any shares of common stock underlying such warrants that are in excess of such amount shall be subject to the approval of our stockholders.

In addition, the Company, the Trust and WhiteHawk Capital Partner LP (the “Beneficiary”), have executed a Lock Up/Leak Out Agreement (the “Leak Out Agreement”), pursuant to which until such time as the Trust receives $10,600,000 in aggregate net proceeds (the “Leak Out Period”), (i) the Trust shall only be allowed to sell such Warrant Shares at a rate of up to 10% of the average daily trading volume of the common stock in a manner which will not negatively affect the share price, (ii) all such sales shall be conducted pursuant to Rule 144 and (iii) that the Beneficiary shall not cause the Trust to engage in any short selling of such Warrant Shares during the Leak-Out Period.

The Company has agreed to seek stockholder approval within 135 days following the closing of the Merger to permit the full exercise of the Pre-Funded Warrants (the “Warrant Vote”).

In addition, we entered into voting agreements with certain existing

stockholders to vote in favor of the Warrant Vote.

We have agreed to call a stockholder meeting each fiscal quarter thereafter to the extent the Warrant Vote is not approved by the Company’s stockholders.

Pursuant to the terms of the Merger Agreement, we also agreed to appoint a new member to our board of directors, nominated by Twill equity holders and subject to such nominee being acceptable to us, within 90 days following the closing of the Merger.

Such appointment right shall continue until the earlier of 540 days following the closing of the Merger, or the date which the Trust exercises its third tranche of Pre-Funded Warrants.

In addition, we executed certain consulting agreements (the “Consulting Agreements”) with Ofer Leidner and Bilal Khan, each former officers of Twill.

Pursuant to the terms of the Consulting Agreements, we agreed to retain the services of Messrs.

Leidner and Khan for a period of at least 14 months and 6 months respectively, in exchange for monthly consulting fees of $35,416 and $35,417, respectively.

In addition, the Company agreed to issue to Mr.

Leidner warrants to purchase up to 1,032,946 shares of common stock, of which 717,946 are subject to time vesting and 315,000 are subject to certain performance-based metrics, and to issue to Mr.

Khan 350,000 fully vested RSUs which shall be vest subject to stockholder approval.

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

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.

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S.

Our fiscal year ends December 31.

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The revenues from fixed-price services are recognized ratably over the contract period and the costs associated with these contracts are recognized as incurred.

Commercial revenue

Commercial revenue - B2B2C

We provide mobile and web-based digital therapeutics health management programs to employers and health plans for their employees or covered individuals including live clinical coaching, content, automated journeys, hardware, and life-style coaching, currently supporting diabetes, prediabetes and obesity, hypertension, behavioral health (BH) and musculoskeletal health (MSK).

At contract inception, we assess the type of services being provided and assesses the performance obligations in the contract.

At contract inception, we assess the type of services being provided and assess the performance obligations in the contract.

Revenue is recognized either on a per engaged member per month (PEMPM) or a per employee per month (PEPM) basis.

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The price is determined during contract negotiations with customers.

Contracts typically have a duration of more than one year.

Certain of our contracts include client performance guarantees and a portion of the fees in those contracts are subject to performance-based metrics such as clinical outcomes or minimum member utilization rate.

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Refund to a customer that results from performance levels that were not met by the end of the measurement period are adjusted to the transaction price, and therefore estimated at the outset of the arrangement.

Commercial revenue - Strategic partnerships

The Company has also entered into contracts with a preferred partner and a health plan provider in which the Company provides data license, development and implementation services.

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.

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Revenues for the year ended December 31, 2023, amounted to $20,352,000 compared to $27,656,000 during the year ended December 31, 2022.

The increase in revenues for the year ended December 31, 2022, compared to the year ended December 31, 2021, is due to an increase in revenues from sales through our commercial channel .

Revenues generated during the year ended December 31, 2022 were derived mainly from the sale of services to our strategic partners and commercial customers located in the United States.

The decrease in revenues for the year ended December 31, 2023, compared to the year ended December 31, 2022, is due to a decrease in revenues from sales to consumers and our strategic partnerships .

Revenues generated during the year ended December 31, 2023, were derived from the sale of services to our strategic partners, commercial customers and consumers located mainly in the United States.

Cost of Revenues

During the years ended December 31, 2023 and 2022, we recorded costs related to revenues in the amount of $14,368,000 and $18,001,000, respectively.

The increase in cost of revenues was in part due to higher costs related to amortization of acquired technology in the amount of $4,357,000 and $4,106,000 as a result of the acquisitions during 2021 and 2022.

The decrease in cost of revenues was due to the decrease in revenues.

Cost of revenues excluding amortization of acquired technology during the year ended December 31, 2023 and 2022, was $10,370,000 and $1 4 , 012 ,000, respectively.

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

Gross profit for the year ended December 31, 2023, amounted to $5,984,000 (29.4% of revenues) compared to $9,655,000 (34.9% of revenues) for the year ended December 31, 2022.

The increase in gross profit as a percentage of revenue for the year ended December 31, 2022, compared to the year ended December 31, 2021, is due to the increase in revenues derived from sales through our commercial channels.

The decrease in gross profit as a percentage of revenue for the year ended December 31, 2023, compared to the year ended December 31, 2022, is due to the decrease in revenues derived from sales through our strategic partnerships.

Gross profit for the year ended December 31, 2023, excluding amortization of acquired technology were $10,370,000 (51.0% of revenues) compared to $14,012,000 (50.7% of revenues) during the year ended December 31, 2022.

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Our research and development expenses increased by $599,000 to $20,248,000 for the year ended December 31, 2023, compared to $19,649, 000 for the year ended December 31, 2022.

This increase was mainly due to the increase in our research and development activities during the year ended December 31, 2022.

This increase was mainly due to the increase in our payroll expenses during the year ended December 31, 2023.

Our research and development expenses, excluding stock-based compensation and depreciation, for the year ended December 31, 2023, were $16,367,000 compared to $15,995,000 for the year ended December 31, 2022, an increase of $372,000.

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

(i) our solutions including our Dario Smart Diabetes Management Solution, DarioEngage platform, Dario Move solution and our digital behavioral health solution, (ii) labor contractors and engineering expenses, (iii) depreciation and maintenance fees related to equipment and software tools used in research and development, (iv) clinical trials performed in the United States to satisfy the FDA product approval requirements and (v) facilities expenses associated with and allocated to research and development activities.

(i) our solutions including our Dario Smart Diabetes Management Solution,

DarioEngage platform, Dario Move solution and our digital behavioral health solution, (ii) labor contractors and engineering expenses, (iii) depreciation and maintenance fees related to equipment and software tools used in research and development, (iv) clinical trials performed in the United States to satisfy the FDA product approval requirements and (v) facilities expenses associated with and allocated to research and development activities.

Sales and Marketing

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General and Administrative Expenses

Our general and administrative expenses decreased by $7,039,000 to $16,493,000 for the year ended December 31, 2022 compared to $23,532,000 for the year ended December 31, 2021.

The decrease was mainly due to a decrease in our stock-based compensation, investor relations and the costs related with the acquisitions performed during the year ended December 31, 2021.

Our general and administrative expenses, excluding stock-based compensation, acquisition costs and depreciation, for the year ended December 31, 2022 were $9,803,000 compared to $8,150,000 for the year ended December 31, 2021, an increase of $1,653,000.

This increase was due to an increase in payroll, insurance, consulting services, legal and accounting expenses and investor relations expenses.

Our general and administrative expenses increased by $1,647,000 to $18,140,000 for the year ended December 31, 2023, compared to $16,493,000 for the year ended December 31, 2022.

The increase was mainly due to an increase in our stock-based compensation, during the year ended December 31, 2023.

Our general and administrative expenses, excluding stock-based compensation, acquisition costs and depreciation, for the year ended December 31, 2023, were $8, 663 ,000 compared to $9,803,000 for the year ended December 31, 2022, a decrease of $1, 140 ,000.

This decrease was due to a decrease in, insurance, consulting services, 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 expenses.

Finance income (expenses), net

Our finance expenses, net, increased by $5,144,000 to $5,379,000 for the year ended December 31, 2022 compared to $235,000 financing expenses for the year ended December 31, 2021.

The changes in our financial expenses were mainly due to the long-term loan we have received.

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

Finance expenses, net

Our finance expenses, net, decreased by $2,205,000 to $3,174,000 for the year ended December 31, 2023, compared to $5,379,000 financing expenses for the year ended December 31, 2022.

The changes in our financial expenses were mainly due to the remeasurement of our long term loan and interest income received.

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

Income tax expenses were $64,000 for the year ended December 31, 2023, as compared to $4,000 for the year ended December 31, 2022.

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Net loss for the year ended December 31, 2022, was $62,193,000.

The decrease from 2021 was mainly due to the increase in our gross profit and the decrease in our operating expenses.

The decrease from 2022 was mainly due to the decrease in our operating and financing expenses.

Net operating loss carryforwards

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During 2018 - 2023, we generated additional $37,379,000 of net operating losses carryforwards which are not subject to the annual limitation described above.

Our Israeli subsidiary, Labstyle, have accumulated net operating losses for Israeli income tax purposes as of December 31, 2022 in the amount of approximately $15 0 , 228 ,000.

Our Israeli subsidiary, Labstyle, accumulated net operating losses for Israeli income tax purposes as of December 31, 2023, in the amount of approximately $189,653,000.

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

In accordance with U.S.

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 be realized.

The valuation allowance should be sufficient to reduce the deferred tax asset to the amount which is more likely than not to be realized.

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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.

GAAP) audited 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.

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Depreciation expense

Inventory step up amortization

Amortization of acquired technology and brand

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Liquidity and Capital Resources

Our primary source of liquidity is cash generated from equity offerings, implanting a debt facility and from cash flows from our operations.

We believe our current level of cash and short-term financing capabilities along with future cash flows from operations are sufficient to meet the needs of the business.

Under ASC Subtopic 205-40, Presentation of Financial Statements—Going Concern (“ASC 205-40”), we have the responsibility to evaluate whether conditions and/or events raise substantial doubt about our ability to meet our future financial obligations as they become due within one year after the date that the financial statements are issued.

The following conditions raised substantial doubt about our ability to continue as a going concern:

a history of net losses, net operating cash outflows, significant cash payments for interest on our loan facility and a requirement in our loan facility that we must maintain a minimum of $10 million in liquidity at all times to not be in default of the loan facility.

We have approved a plan, to improve our available cash balances, liquidity and cash flows generated from operations.

In that regard, we are prepared to implement the following actions as required by business and market conditions:

reducing non-essential expenses to conserve cash and improve our liquidity position, deferral and reprioritization of certain research and development programs that would involve reduced program spend and total compensation reductions for senior executives to strengthen liquidity and to preserve key research and development, commercial and functional roles.

We believe that these plans alleviate the substantial doubt about the entity’s ability to continue as a going concern for at least twelve months from the date that the accompanying financial statements included elsewhere in this annual report were issued.

Going concern matters are more fully discussed in Note 1e, Basis of Presentation and Summary of Significant Accounting Policies.

The Company has incurred net losses since its inception.

As of December 31, 2023, The Company has incurred recurring losses and negative cash flows since inception and has an accumulated deficit of $349,361 as of December 31, 2023.

For the year ended December 31, 2023, the Company used approximately $30,379 of cash in operations.

Management believes the Company has sufficient funds to support its operation for at least a period of twelve months from the date of the issuance of these consolidated financial statements.

The Company expect to incur future net losses and our transition to profitability is dependent upon, among other things, the successful development and commercialization of the Company’s products and the achievement of a level of revenues adequate to support the cost structure.

Until the Company achieves profitability or generates positive cash flows, it will continue to be dependent on raising additional funds.

The Company intends to fund its future operations through cash on hand, additional private and/or public offerings of debt or equity securities or a combination of the foregoing.

There are no assurances, however, that the Company will be able to obtain an adequate level of financial resources that are required for the long-term development and commercialization of its product offerings.

As of December 31, 2023, we had approximately $36,797,000 in cash and cash equivalents compared to $49,357,000 at December 31, 2022.

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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 $244,392,000 and a credit facility of $25,564,000 as of December 31, 2023.

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 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

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.

On October 22, 2021, we entered into a Sales Agreement (“Sales Agreement”) with Cowen and Company, LLC (“Cowen”), pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up

to $50,000,000 from time to time through Cowen.

Upon entering into the Sales Agreement, we filed a new shelf registration statement on Form S-3, which was declared effective by the SEC on November 12, 2021.

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The aggregate gross proceeds were approximately $40,000,000.

On June 9, 2022, we entered into a Credit Agreement (the “Credit Agreement”), with OrbiMed Royalty and Credit Opportunities III, LP, as the lender (the “Lender”).

The Credit Agreement provides for a five-year senior secured credit facility in an aggregate principal amount of up to $50 million (the “Loan Facility”), of which $25 million was made available on the closing date (the “Initial Commitment Amount”) and up to $25 million will be made available on or prior to June 30, 2023, subject to certain revenue requirements (the “Delayed Draw Commitment Amount”).

On June 9, 2022, we closed on the Initial Commitment Amount, less certain fees and expenses payable to or on behalf of the Lender.

All obligations under the Credit Agreement are guaranteed by all of our wholly owned subsidiaries other than Dario Health Services Private Limited.

All obligations under the Credit Agreement, and the guarantees of those obligations, are secured by substantially all of our and each guarantor's assets.

If, until the maturity date of the Loan Facility, our net revenue does not equal or exceed the applicable amount for such period as set forth in the Credit Agreement, then we shall repay in equal monthly installments the outstanding principal amount of the Loan Facility, together with a repayment premium and other fees.

We shall repay amounts outstanding under the Loan Facility in full immediately upon an acceleration as a result of an event of default as set forth in the Credit Agreement, together with a repayment premium and other fees.

During the term of the Loan Facility, interest payable in cash by us shall accrue on any outstanding balance due under the Loan Facility at a rate per annum equal to the higher of (x) the adjusted SOFR rate (which is the forward-looking term rate for a one-month tenor based on the secured overnight financing rate administered by the CME Group Benchmark Administration Limited) and (y) 0.50% plus, in either case, 9.50%.

On June 9, 2022, we entered into a Credit Agreement (the “Credit Agreement”), with OrbiMed Royalty and Credit Opportunities III, LP (“Orbimed”), as the lender for a five-year senior secured credit facility in an aggregate principal amount of up to $50 million (the “Loan Facility”), of which $25 million was made available on the closing date and up to $25 million was to be made available on or prior to June 30, 2023, subject to certain revenue requirements.

On May 1, 2023, we entered into a Loan and Security Agreement, and Supplement thereto (the “LSA”), with our subsidiary, PsyInnovations, collectively as the borrowers (the “Borrowers”) and Avenue Venture Opportunities Fund II, L.P.

and Avenue Venture Opportunities Fund, L.P., collectively as the lenders (the “Avenue Lenders”).

The LSA provides for a four-year secured credit facility in an aggregate principal amount of up to $40 million (the “Loan Facility”), of which $30 million was made available on the closing date (the “Initial Tranche”) and up to $10 million (the “Discretionary Tranche”) may be made available on the later of July 1, 2023, or the date the Lender approves the issuance of the Discretionary Tranche.

On May 1, 2023, the Borrowers closed on the Initial Tranche, less certain fees and expenses payable to or on behalf of the Avenue Lenders.

As a result of the execution of the LSA and the funding of the Initial Tranche, we satisfied our prior Credit Agreement we previously executed with OrbiMed, on June 9, 2022, and terminated the Credit Agreement with Orbimed.

All obligations under the LSA are guaranteed by our wholly owned subsidiary, Labstyle.

All obligations under the LSA, and the guarantees of those obligations, are secured by substantially all of our, PsyInnovations’ and the guarantor's assets.

Subject to certain milestones set forth in the LSA, the Borrowers shall make monthly payments to the Avenue Lenders of the interest at the then effective rate.

If the Borrowers fail to meet the milestones set forth in the LSA, the Borrowers shall make monthly principal installments in advance in an amount sufficient to fully amortize the Loan.

The Borrowers shall repay amounts outstanding under the Loan Facility in full immediately upon an acceleration as a result of an event of default as set forth in the LSA.

During the term of the Loan Facility, interest payable in cash by the Borrowers shall accrue on any outstanding balance due under the Loan Facility at a rate per annum equal to the higher of (x) the sum of four one-half percent (4.50%) plus the prime rate as published in the Wall Street Journal and (y) twelve and one-half percent (12.50%).

During an event of default, any outstanding amount under the Loan Facility will bear interest at a rate of 5.00% in excess of the otherwise applicable rate of interest.

We agreed to pay certain fees with respect to the Loan Facility, including an upfront fee, an unused fee on the undrawn portion of the Loan Facility, an administration fee, a repayment premium and an exit fee, as well as certain other fees and expenses of the Lender.

We also agreed to issue the Lender, with respect to the Initial Commitment Amount only, a warrant (to purchase up to 226,586 shares of our common stock, at an exercise price of $6.62 per share, which shall have a term of 7 years from the issuance date.

The Warrant contains customary share adjustment provisions, as well as weighted average price protection in certain circumstances but in no event will the exercise price of the Warrant be adjusted to a price less than $4.00 per share.

In the event we are eligible to draw the Delayed Draw Commitment Amount, we agreed to issue the Lender an additional warrant, with a term of 7 years from the issuance date, to purchase up to 6% of the Delayed Draw Commitment Amount based on a 10 day volume weighted average price of our common stock (the “Volume Weighted Average Price”) with an exercise price equal to the Volume Weighted Average Price.

Pursuant to the terms of the Credit Agreement, and based on our net revenues for the fiscal year ended December 31, 2022, we started repayment of the outstanding principal amount of the Initial Commitment Amount of $25 million issued as part of the Loan Facility, together with a repayment premium and other fees in monthly installments of up to $518,500 beginning as of January 31, 2023, and continuing through the maturity date, or June 9, 2027.

The Borrowers will pay certain fees with respect to the Loan Facility, including an upfront commitment fee, an administration fee and a prepayment premium, as well as certain other fees and expenses of the Avenue Lenders.

On February 15, 2024, we entered into the First Amendment to Loan and Security Agreement and Supplement (the “Avenue Amendment”) with the Avenue Lenders.

Pursuant to the Avenue Amendment, the parties agreed to include the Merger Sub and Twill as parties to our existing loan facility with the Avenue Lenders.

In addition, the Avenue Amendment provides (i) that we will seek stockholder approval to reprice the warrants issued to the lenders on May 1, 2023 to permit an amendment to the exercise price of such warrants to the “minimum price” as defined by Nasdaq rules as of the closing of the Twill Agreement and (ii) permit the Avenue Lenders, subject to Nasdaq rules, to convert up to two million of the principal amount of its loan to us at a conversion price of $4.0001 per share.

On May 1, 2023, we entered into securities purchase agreements (each, a “Series B Purchase Agreement”) with accredited investors relating to an offering and the sale of an aggregate of 6,200 shares of newly designated Series B Preferred Stock (the “Series B Preferred Stock”), an aggregate of 7,946 shares of Series B-1 Preferred Stock (the “Series B-1 Preferred Stock”), and an aggregate of 150 shares of Series B-2 Preferred Stock (the “Series B-2 Preferred Stock”) at a purchase price of $1,000 for each share of Preferred Stock.

Certain of our executive officers and directors purchased shares of Series B-2 Preferred Stock in the Offering.

On May 5, 2023, we entered into purchase agreements (the “Series B-3 Purchase Agreement” and together with the Series B Purchase Agreement, the “Purchase Agreement”) with accredited investors, relating to the Offering, to an offering and the sale of an aggregate of 1,106 shares of newly designated Series B-3 Preferred Stock (the “Series B-3 Preferred Stock” and, collectively with the Series B Preferred Stock, the Series B-1 Preferred Stock and the Series B-2 Preferred Stock, the “Preferred Stock”), at a purchase price of $1,000 for each share of Preferred Stock.

As a result of the sale of the Preferred Stock, the aggregate gross proceeds to the Company from the Offering are approximately $15.4 million.

The closing of the Series B Preferred Stock, Series B-1 Preferred Stock and Series B-2 Preferred Stock occurred on May 4, 2023, and the closing of the Series B-3 Preferred Stock occurred on May 9, 2023.

On May 1, 2023, we executed an agreement (the “Preferred Agreement”) with existing holders of our Series A-1 Convertible Preferred Stock.

Pursuant to the Preferred Agreement, we agreed to issue such holders of Series A-1 Convertible Preferred Stock up to an aggregate of an additional 382,050 shares of common stock, in addition to the 1,273,499 shares of common stock issuable upon conversion of the Series A-1 Preferred Stock, in consideration for such holders agreeing not to convert their shares of Series A-1 Convertible Preferred Stock.

Such shares of common stock are issuable on the following dates, assuming the Series A-1 Convertible Preferred Stock has not yet been converted:

(i) up to an aggregate of 63,675 shares of Common Stock before July 1, 2023, if not converted for at least one quarter, (ii) up to an aggregate of 127,350 shares of Common Stock before October 1, 2023, if not converted for at least two quarters, (iii) up to an aggregate of 191,026 shares of Common Stock before January 1, 2024, if not converted for at least three quarters, (iv) up to an aggregate of 254,700 shares of Common Stock before April 1, 2024, if not converted for at least four quarters, and (v) up to an aggregate of 382,050 shares of Common Stock before July 1, 2024, if not converted for at least five quarters.

The holders of Series A-1 Convertible Preferred Stock will not be entitled to receive any such shares if the issuance of such shares will exceed a non-waivable 19.99% ownership blocker.

On February 15, 2024, we entered into securities purchase agreements (each, a “Series C Purchase Agreement”) with accredited investors relating to an offering (the “Offering”) and the sale of an aggregate of (i) 17,307 shares of newly designated Series C Preferred Stock (the “Series C Preferred Stock”), and (ii) 4,000 shares of Series C-1 Preferred Stock (the “Series C-1 Preferred Stock”), at a purchase price of $1,000 for each share of Preferred Stock.

In addition, on February 16, 2024, the Company entered into Series C Purchase Agreements with accredited investors relating to the Offering and the sale of an aggregate of 1,115 shares of Series C-2 Preferred Stock (the “Series C-2 Preferred Stock” and together with the Series C Preferred Stock and the Series C-1 Preferred Stock, the “Series C Preferred Stock”), at a purchase price of $1,000 for each share of Preferred Stock.

As a result of the sale of the Series C Preferred Stock, the aggregate gross proceeds to the Company from the Offering were approximately $22,422,000.

The closing of the Series C Preferred Stock, Series C-1 Preferred Stock and Series C-2 Preferred Stock occurred on or before February 21, 2024.

Readers are advised that available resources may be consumed more rapidly than currently anticipated, resulting in the need for additional funding sooner than expected.

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Net cash used in operating activities was $30,379,000 for the year ended December 31, 2023, compared to $47,845,000 used in operations for the same period in 2022.

Cash used in operations increased mainly due to the decrease in our marketing activities.

Cash used in operations decreased mainly due to the decrease in our receivables and inventories, and the decrease in operating and financing expenses.

Net cash used in investing activities

Net cash used for investing activities was $547,000 for the year ended December 31, 2023, compared to cash used in investing activities of $573,000 for the year ended December 31, 2022.

Cash used in investing activities decreased mainly due to the lack of acquisition related cash required in 2022 compared to 2021.

Cash used in investing activities increased mainly due to purchase of property and equipment and investment in short-term bank deposits in 2023 compared to 2022.

Net cash provided by financing activities

Net cash provided by financing activities was $18,253,000 for the year ended December 31, 2023, compared to $61,940,000 for the year ended December 31, 2022.

During the year ended December 31, 2022, we raised net proceeds in an amount of approximately $38,288,000 through our March 2022 offering and a net proceeds in an amount of approximately $23,786,000 through our June 2022 Credit Agreement.

During the year ended December 31, 202 3 , we raised net proceeds in an amount of approximately $16,482,000 through our May 2023 offering and net proceeds in an amount of approximately $1,771,000 through the LSA with the Avenue Lenders.

Contractual Obligations

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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):

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 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.

The guidance 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.

ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the timelier recognition of losses, with an effective date for the first quarter of fiscal year 2020.

In November 2019, the FASB issued ASU No.

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

Securities and Exchange Commission) and other non-SEC reporting entities to fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods.

2019-10 which delayed the effective date of ASU 2016-13 for smaller reporting companies (as defined by the SEC) and other non- Securities and Exchange Commission (“SEC”) reporting entities to fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods.

The Company adopted the standard effective as of January 1, 2023, and the adoption of this standard did not have material impact on the Company's consolidated financial statements.

In August 2020, the FASB issued ASU 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)” (“ASC470-20”).

The new standard reduces the number of accounting models in ASC 470-20 that require separate accounting for non-bifurcated embedded conversion features.

As a result, convertible instruments will no longer be subject to the cash conversion features model or to the beneficial conversion features model and be accounted for as a single unit of account as long as no other features require bifurcation and recognition as derivatives, The Company adopted ASU 2020-06, effective January 1, 2023, using the modified retrospective method.

The prior period consolidated financial statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods.

The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, which requires companies to apply ASC 606 to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination.

This creates an exception to the general recognition and measurement principle in ASC 805.

requires companies to apply ASC 606 to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination.

For the Company, the guidance is effective for fiscal years beginning after 15 December 2022 and interim periods within those fiscal years.

The Company completed its evaluation of ASU 2021-08, which we adopted on January 1, 2023.

The adoption of ASU 2021-08 did not have a material impact on the Company’s consolidated financial statements and related disclosures.

Recently issued accounting pronouncements, not yet adopted:

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses.

In addition, it provides new segment disclosure requirements for entities with a single reportable segment.

The guidance will be effective for the Company for annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025.

Early adoption is permitted.

The Company is currently assessing the impact the guidance will have on its consolidated financial statements.

The Company is currently evaluating the impact on its financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures, which requires disaggregated information about the effective tax rate reconciliation as well as information on income taxes paid.

The guidance will be effective for the Company for annual periods beginning January 1, 2025, with early adoption permitted.

The Company is currently evaluating the impact on its financial statement disclosures

Quantitative and Qualitative Disclosure About Market Risk

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What changed 10-K

Item 7. Management’s Discussion and Analysis