Lifeward Ltd. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and the related notes included elsewhere in this annual report. This discussion contains forward-looking statements that are based on our management’s current expectations, estimates and projections for our business, which are subject to a number of risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “Special Note Regarding Forward-Looking Statements and “Part I. Item 1A. Risk Factors.” Overview We are a medical device company that is designing, developing, and commercializing innovative technologies that enable mobility and wellness in rehabilitation and daily life for individuals with neurological conditions. Our initial product offerings were the ReWalk Personal and ReWalk Rehabilitation Exoskeleton devices for individuals with spinal cord injury (“SCI Products”). These devices are robotic exoskeletons that are designed for individuals with paraplegia that use our patented tilt-sensor technology and an onboard computer and motion sensors to drive motorized legs that power movement. These SCI Products allow individuals with spinal cord injury the ability to stand and walk again during everyday activities at home or in the community. We have sought to expand our product offerings beyond the SCI Products through internal development and distribution agreements. We have developed our ReStore Exo-Suit device, which we began commercializing in June 2019. The ReStore is a powered, lightweight soft exo-suit intended for use during the rehabilitation of individuals with lower limb disabilities due to stroke. During the second quarter of 2020, we finalized and moved to implement two separate agreements to distribute additional product lines in the United States. We are the exclusive distributor of the MYOLYN MyoCycle FES Pro cycles to U.S. rehabilitation clinics and for the MyoCycle Home cycles available to US veterans through the U.S. Department of Veterans Affairs (“VA”) hospitals. In the second quarter of 2020, we also became the exclusive distributor of the MediTouch Tutor movement biofeedback systems in the United States; however, due to unsatisfactory sales performance of the MediTouch product lines, we terminated this agreement as of January 31, 2023. We refer to the MediTouch and MyoCycle devices as our “Distributed Products.” We will continue to evaluate other products for distribution or acquisition that can broaden our product offerings further to help individuals with neurological injury and disability. We are in the research stage of ReBoot, a personal soft exo-suit for home and community use by individuals post-stroke, and we are currently evaluating the reimbursement landscape and the potential clinical impact of this device. This product would be a complementary product to ReStore as it provides active assistance to the ankle during plantar flexion and dorsiflexion for gait and mobility improvement in the home environment, and it received Breakthrough Device Designation from the U.S. Food and Drug Administration (“FDA”) in November 2021. Further investment in the development path of the ReBoot has been temporarily paused in 2023 pending further determination about the clinical and commercial opportunity of this device. Our principal markets are the United States and Europe. In Europe, we have a direct sales operation in Germany and work with distribution partners in certain other major countries. We have offices in Marlborough, Massachusetts, Berlin, Germany and Yokneam, Israel, from where we operate our business. We have in the past generated and expect to generate in the future revenue from a combination of third-party payors (including private and government payors) and self-pay individuals. While a broad uniform policy of coverage and reimbursement by third-party commercial payors currently does not exist in the United States for exoskeleton technologies such as the ReWalk Personal Exoskeleton, we are pursuing various paths of reimbursement and support fundraising efforts by institutions and clinics, such as the VA policy that was issued in December 2015 for the evaluation, training, and procurement of ReWalk Personal exoskeleton systems for all qualifying veterans suffering from spinal cord injury (“SCI”) across the United States. 55 We have also been pursuing updates with the Centers for Medicare and Medicaid Services (“CMS”), to clarify the Medicare coverage category (i.e., benefit category) applicable for personal exoskeletons. In 2021, the National Spinal Cord Injury Statistical Center (“NSCISC”) reported the Medicare and Medicaid are the primary payors for approximately 56% of the spinal cord injury population which are at least five years post their injury date. In July 2020, following a successful submission and hearing process, a code was issued for ReWalk Personal Exoskeleton (effective October 1, 2020), which may be used for purposes of claim submission to Medicare, Medicaid, and other payors. We are currently seeking a nationwide Medicare benefit category determination from CMS to designate the relevant Medicare benefit category. CMS has stated that, until a nationwide benefit category determination is issued, coverage and payment can be adjudicated on a case-by-case basis by the Medicare Administrative contractors (“MACs”). In Germany, we continue to make progress toward achieving coverage from the various government, private and worker’s compensation payors for our SCI products. In September 2017, each of German insurer BARMER GEK (“BARMER”) and national social accident insurance provider Deutsche Gesetzliche Unfallversicherung (“DGUV”), indicated that they will provide coverage to users who meet certain inclusion and exclusion criteria. In February 2018, the head office of German Statutory Health Insurance (“SHI”) Spitzenverband (“GKV”) confirmed their decision to list the ReWalk Personal Exoskeleton system in the German Medical Device Directory. This decision means that ReWalk is listed among all medical devices for compensation, which SHI providers can procure for any approved beneficiary on a case-by-case basis. During the year 2020 and 2021, we announced several new agreements with German SHIs, including TK and DAK Gesundheit, as well as the first German Private Health Insurer (“PHI”), which outline the process of obtaining our devices for eligible insured patients. We are also currently working with several additional SHIs on securing a formal operating contract that will establish the process of obtaining a ReWalk Personal Exoskeleton for their beneficiaries within their system. Additionally, to date, several private insurers in the United States and Europe are providing reimbursement for ReWalk in certain cases. Components of Our Statements of Operations Revenue We currently rely, and in the future will rely, on sales and rentals of our ReWalk Personal and ReWalk Rehabilitation Exoskeleton devices, and sales of our ReStore exo-suit device, additional Distributed Products such as the MyoCycle, and related extended service contracts for the SCI Products. Our revenue is generated from a combination of third-party payors, including private and government employers, institutions, and self-payors. Payments for our products by third party payors have been made primarily through case-by-case determinations. Third-party payors include, without limitation, private insurance plans and managed care programs, government programs including the VA, and worker’s compensation payments. We expect that third-party payors will be an increasingly important source of revenue in the future as we seek to clarify the Medicare coverage category (i.e., benefit category) applicable for personal exoskeletons. In December 2015, the VA issued a national policy for the evaluation, training, and procurement of ReWalk Personal exoskeleton systems for all qualifying veterans across the United States. The VA policy is the first national coverage policy in the United States for qualifying individuals who have suffered spinal cord injury. ReWalk Personal and ReWalk Rehabilitation systems are generally covered by a five-year warranty from the date of purchase, which is included in the purchase price. The warranty covers all elements of the systems, including the batteries, other than normal wear and tear. Our ReStore device is sold with a two-year warranty. Warranties for our Distributed Products warranty range between one year to ten years depending on the specific product and part. Cost of Revenue and Gross Profit Cost of revenue consists primarily of systems purchased from our outsourced manufacturer, Sanmina. Cost of revenue also includes internal costs such as salaries and related personnel costs including non-cash share-based compensation, manufacturing and inventory management, training and inspection, warranty and service activities, freight costs, and reserves for excess and obsolete inventory, when necessary. The cost of revenue also includes royalties and expenses related to royalty-bearing research and development grants. Our gross profit and gross margin (defined as gross profit as a percentage of revenue) are influenced by a number of factors, including primarily the volume and price of our products sold, fluctuations in the mix of products sold, and variability in our cost of revenue. We expect gross profit and gross margin will expand in the future as we increase our revenue volumes and realize operating efficiencies associated with greater scale which will reduce the cost of revenue as a percentage of revenue. 56 Operating Expenses Research and Development Expenses, Net Research and development expenses, net consist primarily of salaries and related personnel costs including share-based compensation, supplies, materials, and consulting expenses associated with to product design and development, clinical studies, regulatory submissions, patent costs, sponsored research and other related activities. We expense all research and development expenses as they are incurred. Research and development expenses are presented net of the amount of any grants we receive for research and development in the period in which we receive the grant. We previously received grants and other funding from the Israel Innovation Authority, (formerly known as the Office of the Chief Scientist) (“IIA”). Certain of those grants require us to pay royalties on sales of certain systems, which are recorded as cost of revenue. We may receive additional funding from these entities or others in the future. See “Grants and Other Funding” below. Sales and Marketing Expenses Our sales and marketing expenses consist primarily of salaries and related personnel costs including share-based compensation for sales, sales support, marketing, and reimbursement related activities, travel, marketing, advertisement, tradeshows and conferences, lobbying, and public relations activities. General and Administrative Expenses Our general and administrative expenses consist primarily of salaries and related personnel costs including share-based compensation for our administrative, finance, and general management personnel, professional services, and insurance. Financial Expenses (Income), Net Financial income and expenses consist of bank commissions, foreign exchange gains and losses, interest earned on investments in short term deposits, interest expenses related to the Loan Agreement (as defined below) with Kreos (as defined below). Interest income consists of interest earned on our cash and cash equivalent balances. Interest expense consists of interest accrued on, and certain other costs with respect to any indebtedness. Foreign currency exchange changes reflect gains or losses related to transactions denominated in currencies other than the U.S. dollar. On December 30, 2015, we entered into a Loan Agreement (the “Loan Agreement”) with Kreos Capital V (Expert Fund) Limited (“Kreos”) pursuant to which Kreos extended a line of credit to us in the amount of $20.0 million. In connection with the Loan Agreement, we issued to Kreos a warrant to purchase up to 4,771 of our ordinary shares at an exercise price of $241.00 as we drew down $12.0 million under the Loan Agreement, which amount was increased to 6,679 ordinary shares upon an additional drawdown of $8.0 million. On June 9, 2017, $3.0 million of the outstanding principal amount was extended by an additional three years with the same interest rate and became subject to repayment in accordance with, and subject to the terms of a secured convertible promissory note (the “Kreos Convertible Note”). On November 20, 2018, we agreed to repay $3.6 million to Kreos in satisfaction of all outstanding indebtedness under the Kreos Convertible Note and other related payments, including prepayment costs and end of loan payments and Kreos agreed to terminate the Kreos Convertible Note. We repaid Kreos the $3.6 million by issuing to Kreos 192,000 units (each unit consisting of one ordinary share and one warrant to purchase one ordinary share) and 288,000 pre-funded units (each pre-funded unit consisting of one pre-funded warrant to purchase one ordinary share and one warrant to purchase one ordinary share) at the a public offering price of $0.30 and $0.29, respectively, for an aggregate price of $3.6 million (including the aggregate exercise price for the ordinary shares to be received upon exercise of the pre-funded warrants, assuming Kreos exercises all of the pre-funded warrants it purchased as part of our public offering. We and Kreos also agreed to revise the principal and the repayment schedule under the Kreos Loan Agreement. Additionally, we entered into the Kreos Warrant Amendment with Kreos, which amended the exercise price of the warrant to purchase 6,679 ordinary shares currently held by Kreos from $241.00 to $7.50. On December 29, 2020, we repaid in full the remaining loan principal amount to Kreos including the end of loan payments, and by that discharged all of our obligations to Kreos. 57 For further discussion of the Loan Agreement with Kreos, see “-Liquidity and Capital Resources” below and also Note 6 to our audited consolidated financial statements below. Taxes on Income As of December 31, 2022, we had not yet generated taxable income in Israel. As of that date, our net operating loss carry forwards for Israeli tax purposes amounted to approximately $220.9 million. After we utilize our net operating loss carryforwards, we are eligible for certain tax benefits in Israel under the Law for the Encouragement of Capital Investments, 1959. Our benefit period currently ends ten years after the year in which we first have taxable income in Israel provided that the benefit period will not extend beyond 2024. Our taxable income generated outside of Israel will be subject to the regular corporate tax rate in the applicable jurisdictions. As a result, our effective tax rate will be a function of the relative proportion of our taxable income that is generated in those locations compared to our overall net income. Grants and Other Funding Israel Innovation Authority (formerly known as the Office of the Chief Scientist) From our inception through December 31, 2022, we have received a total of $2.3 million in funding from the IIA, $1.6 million of which are royalty-bearing grants, $400 thousand were received in consideration for an investment in our preferred shares while $309 thousand was received without future obligation. Of the royalty-bearing grants received, we have paid royalties to the IIA in the total amount of $110 thousand. The agreements with IIA require us to pay royalties at a rate of 3% on sales of certain systems and related services up to the total amount of funding received for the development of these systems, linked to the dollar, and bearing interest at an annual rate of LIBOR applicable to dollar deposits. If we transfer IIA-supported technology or know-how outside of Israel, we will be liable for additional payments to IIA depending upon the value of the transferred technology or know-how, the amount of IIA support, the time of completion of the IIA-supported research project and other factors. As of December 31, 2022, the aggregate contingent liability to the IIA was $1.6 million. For more information, see “Part I, Item 1A. Risk Factors-We have received Israeli government grants for certain of our research and development activities and we may receive additional grants in the future. The terms of those grants restrict our ability to manufacture products or transfer technologies outside of Israel and we may be required to pay penalties in such cases or upon the sale of our company.” Results of Operations Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Revenue Our revenue for 2022 and 2021 were as follows (dollars in thousands, except unit amounts) Years Ended December 31, 2022 2021 Personal unit revenue $ 4,762 $ 4,820 Rehabilitation unit revenue $ 749 $ 1,146 Revenue $ 5,511 $ 5,966 Personal unit revenue consists of ReWalk Personal Exoskeleton and Distributed Products sale, rental, service, and warranty revenue for individual use. Rehabilitation unit revenue consist of ReStore, Distributed Products and SCI Products sale, rental, service, and warranty revenue to clinics and hospitals for treating patients with relevant medical conditions or for usage by medical academic centers. Revenue was $5.5 million, a decrease of $0.5 million, or 8%, during 2022 as compared to 2021. The decrease was driven primarily by lower rehabilitation units sold in the United States due to a one time multiple-unit shipment to a medical academic center in 2021, partially offset by a higher number of distributed products units sold in the U.S. Additionally, we experienced an adverse impact to revenue from currency due to an erosion of the euro-dollar exchange rate. In the future we expect our growth to be driven by sales of our ReWalk Personal device through expansion of coverage and reimbursement by commercial and government third-party payors, as well as sales of Distributed Products and the ReStore device to rehabilitation clinics and personal users. 58 Gross Profit Our gross profit for 2022 and 2021 were as follows (in thousands): Years Ended December 31, 2022 2021 Gross profit $ 1,905 $ 2,903 Gross profit was $1.9 million, or 35% of revenue, for 2022, as compared to a gross profit of $2.9 million, or 49% of revenue for 2021. Our gross profit declined because of a higher inventory reserve of ReStore finished goods and raw materials due to the obsolescence of electronic components. Gross profit decrease is also attributable to a decreased volume of ReWalk Personal Exoskeleton sales, increase of production costs and freight expense. We expect gross profit and gross margin will increase in the future as we increase our revenue volumes and realize operating efficiencies associated with greater scale which will reduce the cost of revenue as a percentage of revenue. Improvements may be partially offset by the lower margins we currently expect from ReStore and our Distributed Products as well as due to an increase in material costs. Research and Development Expense, Net Our research and development expense, net for 2022 and 2021 was as follows (in thousands): Years Ended December 31, 2022 2021 Research and development expense, net $ 4,031 $ 2,939 Research and development expense was $4.0 million in 2022, an increase of $1.1 million, or 37%, during 2022 as compared to 2021. The increase is attributable to increased personnel and personnel related expenses and subcontractors’ expenses primarily due to development projects offset partially with grant received from the IIA. We intend to focus our research and development expenses mainly on our current products maintenance and improvement as well as in support of the FDA submission for clearance of the stair walking capability of the ReWalk 6.0 and in support of the FDA submission for clearance of the ReWalk 7.0 next generation model. Sales and Marketing Expenses Our sales and marketing expense for 2022 and 2021 was as follows (in thousands): Years Ended December 31, 2022 2021 Sales and marketing expense $ 9,842 $ 6,993 Sales and marketing expense was $9.8 million in 2022, an increase of $2.8 million, or 41%, during 2022 as compared to 2021. The increase was driven by higher consulting expenses related to CMS reimbursement progress, an increase in tradeshow and travel expenses since Covid-19 restrictions are being lifted and personnel and personnel-related expenses. In the near term our sales and marketing expense are expected to be driven by our efforts expand the reimbursement coverage of our ReWalk Personal device and to support our current commercial product activities. General and Administrative Expense Our general and administrative expense for 2022 and 2021 was as follows (in thousands): Years Ended December 31, 2022 2021 General and administrative $ 7,134 $ 5,626 General and administrative expense was $7.1 million, an increase of $1.5 million, or 27%, during 2022 as compared to 2021. The increase was mainly driven by increased professional services expenses related to the 2022 proxy process, partially offset by a decrease in insurance costs. 59 Financial Expenses (income), Net Our financial expense, net for 2022 and 2021 was as follows (in thousands): Years Ended December 31, 2022 2021 Financial expense (income), net $ * ) $ (13 ) Financial expense (income), net, decreased by $13 thousand during 2022 as compared to 2021. The decrease is mainly due to exchange rate fluctuations. *) Represents an amount lower than $1. Income Tax Our income tax for 2022 and 2021 was as follows (in thousands): Years Ended December 31, 2022 2021 Taxes on income $ 467 $ 94 Income tax increased by $373 thousand during 2022 as compared to 2021 due to the application of a valuation allowance to our deferred tax assets. Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 A discussion of changes in our results of operations in 2022 compared to 2021 has been omitted from this annual report on Form 10-K but may be found in “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 24, 2022, which is available free of charge on the SEC's website at www.sec.gov and at www.rewalk.com, and is incorporated by reference herein. Critical Accounting Policies Our consolidated financial statements are prepared in accordance with United States generally accepted accounting principles. The preparation of our financial statements requires us to make estimates, judgments and assumptions that can affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We base our estimates, judgments and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known. Besides the estimates identified above that are considered critical, we make many other accounting estimates in preparing our financial statements and related disclosures. See Note 2 to our audited consolidated financial statements presented elsewhere in this annual report for a description of the significant accounting policies that we used to prepare our consolidated financial statements. The critical accounting policies that were impacted by the estimates, judgments and assumptions used in the preparation of our consolidated financial statements are discussed below. 60 Revenue Recognition Our revenue is recognized in accordance with ASC Topic 606 when obligations under the terms of a contract with our customer are satisfied; generally, this occurs with the transfer of control of our products or services. Revenue is measured as the amount of consideration to which we expect to be entitled in exchange for transferring products or providing services. To achieve this core principle, the Company applies the following five steps: 1. Identify the contract with a customer 2. Identify the performance obligations in the contract 3. Determine the transaction price 4. Allocate the transaction price to performance obligations in the contract 5. Recognize revenue when or as the Company satisfies a performance obligation Provisions are made at the time of revenue recognition for any applicable warranty cost expected to be incurred. The timing for revenue recognition among the various products and customers is dependent upon satisfaction of such criteria and generally varies from either shipment or delivery to the customer depending on the specific shipping terms of a given transaction, as stipulated in the agreement with each customer. Other than pricing terms which may differ due to the different volumes of purchases between distributors and end-users, there are no material differences in the terms and arrangements involving direct and indirect customers. Our products sold through agreements with distributors are non-exchangeable, non-refundable, non-returnable and without any rights of price protection or stock rotation. Accordingly, we consider all the distributors as end-users. The Company generally does not grant a right of return for its products. In rare circumstances the Company provides a right of return of its products. In those cases, the Company records reductions to revenue for expected future product returns based on the Company’s historical experience and estimates. For the majority of sales of Rehabilitation systems, we include insignificant training and consider the elements in the arrangement to be a single performance obligation. In accordance with ASC 606, we have concluded that the training is essential to the functionality of our systems. Therefore, we recognize revenue for the system and training only after delivery, in accordance with the agreement delivery terms, to the customer and after the training has been completed, once all other revenue recognition criteria have been met. For sales of Personal systems to end users, and for sales of Personal or Rehabilitation systems to third party distributors, we do not provide training to the end user as this training is completed by the rehabilitation centers or by the distributor that have previously completed the ReWalk Training program. Warranties are classified as either assurance type or service type warranty. A warranty is considered an assurance type warranty if it provides the consumer with assurance that the product will function as intended for a limited period of time. SCI Products include a five-year warranty. The first two years are considered as an assurance type warranty and the additional period is considered an extended service arrangement, which is a service type warranty. A service type warranty is either sold with a unit or separately for a unit for which the warranty has expired. A service type warranty is accounted as a separate performance obligation and revenue is recognized ratably over the life of the warranty. The ReStore device is sold with a two-year warranty which is considered as assurance type warranty. The Distributed Products are sold with assurance type warranty ranging from between one year to ten years, depending on the specific product and part. The Company also offers a rent-to-purchase option for its ReWalk Personal device. Those transactions provide potential customers the option to use the device for a short term, after which they can choose whether to purchase it. In such cases we recognize revenue ratably according to the agreed rental monthly fee. For units placed, we transfer control and recognize a sale when title has passed to our customer and rental revenue ratably according to the agreed rental monthly fee. Each unit placed is considered an independent, unbundled performance obligation. Share-Based Compensation – Option and Restricted Stock Units (“RSUs”) Valuations We account for share-based compensation in accordance with ASC No. 718, “Compensation-Stock Compensation.” ASC No. 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an Option-Pricing Model, or OPM. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in our consolidated statements of operations. We selected the Black-Scholes-Merton option pricing model as the most appropriate method for determining the estimated fair value of options. The resulting cost of an equity incentive award is recognized as an expense over the requisite service period of the award, which is usually the vesting period. We recognize compensation expense over the vesting period using the straight-line method and classify these amounts in the consolidated financial statements based on the department to which the related employee reports. 61 The determination of the grant date fair value of options using the Black-Scholes-Merton option pricing model is affected by estimates and assumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of the options, share option exercise and cancellation behaviors, risk-free interest rates and expected dividends, which are estimated as follows: Risk-free Interest Rate. The risk-free interest rate is based on the yield from U.S. Treasury zero-coupon bonds with a term equivalent to the contractual life of the options. Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero. Expected Volatility. Expected volatility is calculated based on actual historical stock price movements over the most recent periods ending on the grant date, equal to the expected term of the options, or based on certain peer companies that the Company considered to be comparable, in case there is no sufficient trading volume to rely on market volatility. Expected Term . The expected term of options granted represents the period of time that options granted are expected to be outstanding and is determined based on the simplified method in accordance with ASC No. 718-10-S99-1 (SAB No. 110), as adequate historical experience is not available to provide a reasonable estimate. ASC No. 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The fair value of RSUs granted is determined based on the price of the Company’s ordinary shares on the date of grant. Income Taxes As part of the process of preparing our consolidated financial statements, we are required to estimate our taxes in each of the jurisdictions in which we operate. We account for income taxes in accordance with ASC Topic 740, “Income Taxes,” or ASC Topic 740. ASC Topic 740 prescribes the use of an asset and liability method whereby deferred tax asset and liability account balances are determined based on the difference between book value and the tax bases of assets and liabilities and carryforward tax losses. Deferred taxes are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. We exercise judgment and provide a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value if it is more likely than not that some portion or all of the deferred tax asset will not be realized. We have established a full valuation allowance with respect to our deferred tax assets. ASU 2015-17, “Balance Sheet Classification of Deferred Taxes” provides presentation requirements to classify deferred tax assets and liabilities, along with any related valuation allowance, are classified as non-current on the balance sheet. We account for uncertain tax positions in accordance with ASC 740 and recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Accordingly, we report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest and penalties, if any, related to unrecognized tax benefits in tax expense. 62 Recently Issued and Adopted Accounting Pronouncements A discussion of recent accounting pronouncements is included in Note 2w, New Accounting Pronouncements to our consolidated financial statements in this annual report. Liquidity and Capital Resources Sources of Liquidity and Outlook Since inception, we have funded our operations primarily through the sale of our equity securities and convertible notes to investors in private placements, the sale of our equity securities in public offerings, cash exercises of outstanding warrants and the incurrence of bank debt. For the full year ended December 31, 2022, the Company incurred a consolidated net loss of $19.6 million and has an accumulated deficit in the total amount of $213.8 million. Our cash and cash equivalent on December 31, 2022, totaled $67.9 million. The Company’s negative operating cash flow for the full year ended December 31, 2022, was $17.9 million. The Company has sufficient funds to support its operation for more than 12 months following the approval of our consolidated financial statements for the fiscal year ended December 31, 2022. We expect to incur future net losses and our transition to profitability is dependent upon, among other things, the successful development and commercialization of our products and product candidates, the achievement of a level of revenue adequate to support our cost structure. Until we achieve profitability or generate positive cash flows, we will continue to need to raise additional cash. We intend to fund future operations through cash on hand, additional private and/or public offerings of debt or equity securities, cash exercises of outstanding warrants or a combination of the foregoing. In addition, we may seek additional capital through arrangements with strategic partners or from other sources and we will continue to address our cost structure. Notwithstanding, there can be no assurance that we will be able to raise additional funds or achieve or sustain profitability or positive cash flows from operations. Our anticipated primary uses of cash are funding (i) sales, marketing, and promotion activities related to market development for our ReWalk Personal and ReWalk Rehabilitation Exoskeleton devices and other product lines added through distribution agreements; (ii) payor education activities to establish or broaden coverage by third-party payors and CMS for our ReWalk Personal Exoskeleton device; (iii) development of our lightweight exo-suit technology for potential home personal health utilization for multiple indications and future generation designs for our exoskeleton device; (iv) routine product updates; (v) general corporate purposes, including working capital needs; (vi) share repurchase programs; and (vii) potential acquisitions of businesses. Our future cash requirements will depend on many factors, including our rate of revenue growth, the expansion of our sales and marketing activities, the timing and extent of our spending on research and development efforts and international expansion. If our current estimates of revenue, expenses or capital or liquidity requirements change or are inaccurate, we may seek to sell additional equity or debt securities, arrange for additional bank debt financing, or refinance our indebtedness. There can be no assurance that we will be able to raise such funds on acceptable terms. Loan Agreement with Kreos and Related Warrant to Purchase Ordinary Shares Loan Agreement On December 30, 2015, we entered into the Loan Agreement with Kreos pursuant to which Kreos extended a line of credit to us in the amount of $20.0 million, which was subsequently amended on June 9, 2017 whereby $3.0 million of the outstanding principal under the Loan Agreement became subject to repayment pursuant to the senior secured Kreos Convertible Note issued on that date. On November 20, 2018 we and Kreos entered into the Second Amendment to the Loan Agreement, in which we repaid Kreos the $3.6 million other related payments, including prepayment costs and end of loan payments, terminating the Kreos Note, by issuing to Kreos 192,000 units and 288,000 pre-funded units as part of an underwritten public offering at the public offering prices, and the parties agreed to revise the principal and the repayment schedule under the Kreos Loan. On December 29, 2020, we repaid in full the remaining loan principal amount to Kreos including end of loan payments and by that discharged all of its obligation to Kreos Accordingly, as of December 31, 2020 the outstanding principal amount under the Kreos Loan Agreement was zero. Warrant to Purchase Ordinary Shares Pursuant to the terms of the Loan Agreement, on January 4, 2016, we issued to Kreos a warrant to purchase up to 4,771 of our ordinary shares at an exercise price of $241.0 per share, increased to 6,679 ordinary shares on December 28, 2016. Subject to the terms of the warrant, the warrant is exercisable, in whole or in part, at any time prior to the earlier of (i) December 30, 2025, or (ii) immediately prior to the consummation of a merger, consolidation, or reorganization of us with or into, or the sale or license of all or substantially all our assets or shares to, any other entity or person, other than a wholly-owned subsidiary of us, excluding any transaction in which our shareholders prior to the transaction will hold more than 50% of the voting and economic rights of the surviving entity after the transaction. On June 5, 2019 and June 6, 2019, we entered into warrant exercise agreements with certain institutional investors of warrants to purchase our ordinary shares, pursuant to which, Kreos agreed to exercise in cash their November 2018 warrants at the then-effective exercise price of $7.50 per share. Under the exercise agreements, we also agreed to issue to Kreos new warrants to purchase up to 480,000 ordinary shares at an exercise price of $7.50 per share with an exercise period of five years. Additionally, Kreos and we entered into the Kreos Warrant Amendment, which amended the exercise price of the warrant to purchase 6,679 ordinary shares currently held by Kreos from $241 to $7.5. 63 Paycheck Protection Program Loan Agreement On April 21, 2020, ReWalk Robotics Inc (“RRI”) entered into a Note agreement evidencing an unsecured loan in the amount of $392 thousand under the PPP as part of the CARES Act enacted on March 27, 2020. The Note provides for an interest rate of 1.00% per year and matures two years after the date of initial disbursement. Beginning on the seventh month following the date of initial disbursement, RRI is required to make 18 monthly payments of principal and interest. The Note may be used for payroll costs, costs related to certain group health care benefits and insurance premiums, rent payments, utility payments, mortgage interest payments and interest payments on any other debt obligation that were incurred before February 15, 2020. Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loan granted under the PPP, with such forgiveness to be determined, subject to limitations, based on the use of the loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. The terms of any forgiveness may also be subject to further requirements in any regulations and guidelines the Small Business Administration may adopt. On September 29, 2020, the Company submitted an application for loan forgiveness and on November 6, 2020 the Company received confirmation of its PPP Note forgiveness. For more information see Note 10 to our consolidated financial statements set forth in “Part II. Item 8. Financial Statements and Supplementary Data” of this annual report. Equity Raises Use of Form S-3 Beginning with the filing of our Form 10-K on February 17, 2017, we were subject to limitations under the applicable rules of Form S-3, which constrained our ability to secure capital with respect to public offerings pursuant to our effective Form S-3. These rules limit the size of primary securities offerings conducted by issuers with a public float of less than $75 million to no more than one-third of their public float in any 12-month period. At the time of filing our annual report for the year ended December 31, 2022, on February 23, 2023, we were subject to these limitations, because our public float did not reach at least $75 million in the 60 days preceding the filing of this annual report. We will continue to be subject to these limitations for the remainder of the 2023 fiscal year and until the earlier of such time as our public float reaches at least $75 million or when we file our next annual report for the year ended December 31, 2023, at which time we will be required to re-test our status under these rules. If our public float is below $75 million as of the filing of our next annual report on Form 10-K, or at the time we file a new Form S-3, we will continue to be subject to these limitations, until the date that our public float again reaches $75 million. These limitations do not apply to secondary offerings for the resale of our ordinary shares or other securities by selling shareholders or to the issuance of ordinary shares upon conversion by holders of convertible securities, such as warrants. We have registered up to $100 million of ordinary shares warrants and/or debt securities and certain other outstanding securities with registration rights on our registration statement on Form S-3, which was declared effective by the SEC in May 2022. 64 Equity Offerings and Warrant Exercises On February 10, 2020, the Company closed a “best efforts” public offering whereby the Company issued an aggregate of 5,600,000 of common units and pre-funded units at a public offering price of $1.25 per common unit and $1.249 per pre-funded unit. As part of the public offering, the Company entered into a securities purchase agreement with certain institutional purchasers. Each common unit consisted of one ordinary share, par value NIS 0.25 per share, and one common warrant to purchase one ordinary share. Each pre-funded unit consisted of one pre-funded warrant to purchase one ordinary share and one common warrant. Additionally, the Company issued warrants to purchase up to 336,000 ordinary shares, with an exercise price of $1.5625 per share, to representatives of H.C. Wainwright as compensation for its role as the placement agent in the Company’s February 2020 offering. As of December 31, 2020, all pre-funded warrants to purchase ordinary shares had been exercised and 1,831,500 common warrants to purchase ordinary shares had been exercised. On July 6, 2020, the Company entered into a purchase agreement with certain institutional investors for the issuance and sale of 4,938,278 ordinary shares, par value NIS 0.25 per share, at $1.8225 per ordinary share and warrants to purchase up to 2,469,139 ordinary shares with an exercise price of $1.76 per share, exercisable from July 6, 2020, until January 6, 2026. Additionally, the Company issued warrants to purchase up to 296,297 ordinary shares, with an exercise price of $2.2781 per share, exercisable from July 6, 2020, until July 2, 2025, to certain representatives of H.C. Wainwright as compensation for its role as the placement agent in our July 2020 registered direct offering. On December 3, 2020, the Company entered into a private placement with certain institutional investors for the issuance and sale of 5,579,776 ordinary shares, par value NIS 0.25 per share, at $1.43375 per ordinary shares and warrants to purchase up to 4,184,832 ordinary shares with exercise price of $1.34 per share, exercisable from December 8, 2020 until June 8, 2026. Additionally, the Company issued warrants to purchase up to 334,787 ordinary shares, with an exercise price of $1.7922 per share, exercisable from December 8, 2020, until June 8, 2026, to certain representatives of H.C. Wainwright as compensation for its role as the placement agent in our December 2020 private placement. On February 19, 2021, the Company entered into a purchase agreement with certain institutional and other accredited investors for the issuance and sale of 10,921,502 ordinary shares, par value NIS 0.25 per share at $3.6625 per ordinary share and warrants to purchase up to an aggregate of 5,460,751 ordinary shares with an exercise price of $3.6 per share, exercisable from February 19, 2021, until August 26, 2026. Additionally, the Company issued warrants to purchase up to 655,290 ordinary shares, with an exercise price of $4.578125 per share, exercisable from February 19, 2021, until August 26, 2026, to certain representatives of H.C. Wainwright as compensation for its role as the placement agent in our February 2021 private placement offering. On September 27, 2021, we signed a purchase agreement with certain institutional investors for the issuance and sale of 15,403,014 ordinary shares, pre-funded warrants to purchase up to an aggregate of 610,504 ordinary shares and ordinary warrants to purchase up to an aggregate of 8,006,759 ordinary shares at an exercise price of $2.00 per share. The pre-funded warrants have an exercise price of $0.001 per ordinary share and are immediately exercisable and can be exercised at any time after their original issuance until such pre-funded warrants are exercised in full. Each ordinary share was sold at an offering price of $2.035 and each pre-funded warrant was sold at an offering price of $2.034 (equal to the purchase price per ordinary share minus the exercise price of the pre-funded warrant). The offering of the ordinary shares, the pre-funded warrants and the ordinary shares that are issuable from time to time upon exercise of the pre-funded warrants was made pursuant to our shelf registration statement on Form S-3 initially filed with the SEC on May 9, 2019, and declared effective by the SEC on May 23, 2019, and the ordinary warrants were issued in a concurrent private placement. The ordinary warrants are exercisable at any time and from time to time, in whole or in part, following the date of issuance and ending five and one-half years from the date of issuance. All of the pre-funded warrants were exercised in full on September 27, 2021, and the offering closed on September 29, 2021. Additionally, we issued warrants to purchase up to 960,811 ordinary shares, with an exercise price of $2.5438 per share, exercisable from September 27, 2021, until September 27, 2026, to certain representatives of H.C. Wainwright as compensation for its role as the placement agent in our September 2021 private placement offering. As of December 31, 2022, we received a total of 9,814,754 outstanding warrants exercises with exercise prices ranging from $1.25 to $1.79 were exercised, for total gross proceeds of approximately $13.8 million. During the twelve months that ended December 31, 2022, no warrants were exercised. 65 Share Repurchase Program In June 2022, we announced that our Board approved a program to repurchase up to $8.0 million of our ordinary shares, par value NIS 0.25 per share, subject to receipt of Israeli court approval. In July 2022, we announced that we had received approval from an Israeli court for the share repurchase program, valid through January 20, 2023. On December 19, 2022, our board of directors approved the extension of our on-going share repurchase program, with such extension to be in the aggregate amount of up to $5.8 million. The extension was approved by an Israeli court on February 9, 2023, and will expire on the earlier of August 9, 2023, or reaching the additional $5.8 million of repurchases of our ordinary shares . Under the program, share repurchases may be made from time to time using a variety of methods, including open market transactions or in privately negotiated transactions. Such repurchases will be made in accordance with all applicable securities laws and regulations, including restrictions relating to volume, price and timing under applicable law, including Rule 10b-18 under the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”). The timing and amount of shares repurchased will be determined by our management, within guidelines to be established by the Board or a committee thereof, based on its ongoing evaluation of our capital needs, market conditions, the trading price of our ordinary shares, trading volume and other factors, subject to applicable law. For all or a portion of the authorized repurchase amount, we may enter into a plan compliant with Rule 10b5-1 under the Exchange Act that is designed to facilitate these repurchases. The repurchase program does not require us to acquire a specific number of shares and may be suspended or discontinued at any time. There can be no assurance as to the timing or number of shares of any repurchases in the future, and any such share repurchases will be funded from available working capital. As of December 31, 2022, we have repurchased approximately 2.9 million of our ordinary shares at an aggregate amount of $2.6 million under the repurchase program. Cash Flows Years Ended December 31, 2022 2021 2020 Net cash used in operating activities $ (17,891 ) $ (11,469 ) $ (12,589 ) Net cash used in investing activities (25 ) (47 ) (73 ) Net cash (used in) provided by financing activities (2,500 ) 79,512 16,724 Effect of Exchange rate changes on Cash, Cash Equivalents and Restricted Cash (79 ) — — Net cash flow $ (20,495 ) $ 67,996 $ 4,062 Year Ended December 31, 2022 to Year Ended December 31, 2021 Net Cash Used in Operating Activities Net cash used in operating activities was $17.9 million in 2022, an increase of $6.4 million as compared to 2021 mainly due to lower revenue collection, higher consulting, professional services expenses and personnel and personnel related expenses. Net Cash Used in Investing Activities Net cash used in investing activities decreased to $25 thousand in 2022 as compared to $47 thousand in 2021, primarily as a result of decreased use of cash for the purchase of property and equipment. Net Cash Provided by Financing Activities Net cash (used in) provided by financing activities was a cash use of $2.5 million in 2022, a decrease of $82 million, as compared to cash provided of $79.5 million in 2021. The decline was a result of a share repurchase plan that was initiated in the second half of 2022, while in 2021 the source of cash consisted primarily of proceeds from the issuance of common stock and warrants, as well as the exercise of warrants issued in prior years. 66 Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 A discussion of changes in our cash flows in 2021 compared to 2020 has been omitted from this annual report on Form 10-K but may be found in “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 24, 2022, which is available free of charge on the SECs website at www.sec.gov and at www.rewalk.com, and is incorporated by reference herein. Obligations and Commercial Commitments Set forth below is a summary of our contractual obligations as of December 31, 2022: Payments due by period (in dollars, in thousands ) Contractual obligations Total Less than 1 year 1-3 years Purchase obligations (1) $ 1,935 $ 1,935 $ — Collaboration Agreement and License Agreement obligations (2) 57 57 — Operating lease obligations (3) 1,006 603 403 Total $ 2,998 $ 2,595 $ 403 (1) The Company depends on one contract manufacturer, Sanmina Corporation, for both the ReStore products and the SCI Products. We place our manufacturing orders with Sanmina pursuant to purchase orders or by providing forecasts for future requirements. (2) Our Collaboration Agreement with Harvard was originally for a term of five years, commencing in May 2016, and was subsequently amended in April 2018 to extend the term by one additional year. The Collaboration Agreement concluded as of March 31, 2022. Under the Collaboration Agreement, we were required to pay in quarterly installments the funding of our joint research collaboration with Harvard, subject to a minimum funding commitment under applicable circumstances. Our License Agreement with Harvard consists of patent reimbursement expenses payments and a license upfront fee payment. There are also several milestone payments contingent upon the achievement of certain product development and commercialization milestones and royalty payments on net sales from certain patents licensed to Harvard. All product development milestones contemplated by the License Agreement have been met as of December 31, 2022; however, there are still outstanding commercialization milestones under the License Agreement that depend on us reaching certain sales amounts, some or all of which may not occur. (3) Our operating leases consist of leases for our facilities and motor vehicles. We calculated the payments due under our operating lease obligation for our Israeli office that are to be paid in NIS at a rate of exchange of NIS 3.519:$1.00, and the payments due under our operating lease obligation for our German subsidiary that are to be paid in euros at a rate of exchange of €1.00:$1.07, both of which were the applicable exchange rates as of December 31, 2022. Off-Balance Sheet Arrangements We had no off-balance sheet arrangements or guarantees of third-party obligations during the periods presented. Trend Information For information on significant known trends, please see “Part I-Item 1. “Business – Overview” in this annual report. 67