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Healthcare

DarioHealth Corp.

11/07/2024 | Press release | Distributed by Public on 11/07/2024 05:07

Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended September 30, 2024

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from to

Commission File No. 001-37704

DarioHealth Corp.

(Exact name of registrant as specified in its charter)

Delaware	45-2973162
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)


322 W. 57th St. #33B
New York, New York	10019
(Address of Principal Executive Offices)	(Zip Code)

(972)-4 770-6377

(Registrant's telephone number, including area code)

n/a

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of exchange on which registered
Common Stock, par value $0.0001 per share	DRIO	The Nasdaq Capital Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

☐	Large accelerated filer	☐	Accelerated filer
☒	Non-accelerated filer	☒	Smaller reporting company
		☐	Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 5, 2024, the registrant had 34,096,355shares of common stock outstanding.

When used in this quarterly report, the terms "DarioHealth," the "Company," "we," "our," and "us" refer to DarioHealth Corp., a Delaware corporation, our subsidiaries LabStyle Innovation Ltd., an Israeli company, Twill Inc., a Delaware company, PsyInnovations Inc., a Delaware company, and DarioHealth India Services Pvt. Ltd., an Indian company. "Dario" is registered as a trademark in the United States, Israel, China, Canada, Hong Kong, South Africa, Japan, Costa Rica and Panama. "DarioHealth" is registered as a trademark in the United States and Israel.

Table of Contents

DarioHealth Corp.

Quarterly Report on Form 10-Q

TABLE OF CONTENTS

	Page

Cautionary Note Regarding Forward-Looking Statements		3

PART 1 - FINANCIAL INFORMATION

Item 1.	InterimConsolidated Financial Statements (unaudited)		F-1

InterimConsolidated Balance Sheets		F-2 - F-3

InterimConsolidated Statements of Comprehensive Loss		F-4

InterimStatements of Stockholders' Equity		F- 5 - F-6

Interim Consolidated Statements of Cash Flows		F-7

Notes to Interim Consolidated Financial Statements		F-8 - F-34

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		4

Item 4.	Control and Procedures		14

PART II - OTHER INFORMATION		15

Item 1A.	Risk Factors		15

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		17

Item5.	Other Information		18

Item 6.	Exhibits		18

SIGNATURES		19

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain information set forth in this Quarterly Report on Form 10-Q, including in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere herein may address or relate to future events and expectations and as such constitutes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting our business, including many assumptions regarding future events. Such forward-looking statements include statements regarding, among other things:

●	our current and future capital requirements and our ability to satisfy our capital needs through financing transactions or otherwise;

●	our product launches and market penetration plans;

●	the execution of agreements with various providers for our solution;

●	our ability to maintain our relationships with key partners, including Sanofi U.S. Services Inc. ("Sanofi");

●	our ability to complete required clinical trials of our product and obtain clearance or approval from the United States Food and Drug Administration (the "FDA"), or other regulatory agencies in different jurisdictions;

●	our ability to maintain or protect the validity of our U.S. and other patents and other intellectual property;

●	our ability to retain key executive members;

●	our ability to internally develop new inventions and intellectual property;

●	that our financial position raises substantial doubt about our ability to continue as a going concern;

●	interpretations of current laws and the passages of future laws; and

●	acceptance of our business model by investors.

Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words "may," "should," "would," "could," "scheduled," "expect," "anticipate," "estimate," "believe," "intend," "seek," or "project" or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors. These statements may be found under the section of our Annual Report on Form 10-K for the year ended December 31, 2023 (filed on March 28, 2024) entitled "Risk Factors" as well as in our other public filings.

In light of these risks and uncertainties, and especially given the start-up nature of our business, there can be no assurance that the forward-looking statements contained herein will in fact occur. Readers should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

Table of Contents

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF September 30, 2024

UNAUDITED

INDEX

		Page
Interim Consolidated Balance Sheets		F-2 - F-3

Interim Consolidated Statements of Comprehensive Loss		F-4

Interim Statements of Stockholders' Equity		F-5 - F-6

Interim Consolidated Statements of Cash Flows		F-7

Notes to Interim Consolidated Financial Statements		F-8 - F-34

F-1

Table of Contents

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands


	September 30,		December 31,
	2024		2023
	Unaudited
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	15,547		$	36,797
Short-term restricted bank deposits		863			292
Trade receivables, net		4,948			3,155
Inventories		4,742			5,062
Other accounts receivable and prepaid expenses		3,428			2,024

Total current assets		29,528			47,330

NON-CURRENT ASSETS:
Deposits		6			6
Operating lease right of use assets		1,306			967
Long-term assets		108			143
Property and equipment, net		1,235			899
Intangible assets, net		20,343			5,404
Goodwill		57,427			41,640

Total non-current assets		80,425			49,059

Total assets	$	109,953		$	96,389

The accompanying notes are an integral part of the unaudited interim consolidated financial statements.

F-2

Table of Contents

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands (except stock and stock data)


	September 30,		December 31,
	2024		2023
	Unaudited
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Trade payables	$	2,655		$	1,131
Deferred revenues		1,118			997
Operating lease liabilities		596			111
Other accounts payable and accrued expenses		5,807			6,300
Current maturity of long-term loan		8,670			3,954

Total current liabilities		18,846			12,493

NON-CURRENT LIABILITIES
Operating lease liabilities		1,033			885
Long-term loan		20,187			24,591
Warrant liability		11,327			240
Other long-term liabilities		49			36

Total non-current liabilities		32,596			25,752

STOCKHOLDERS' EQUITY
Common stock of $0.0001 par value - authorized: 160,000,000 shares; issuedand outstanding: 31,323,906 and 27,191,849 shares on September 30, 2024 and December 31, 2023, respectively		3			3
Preferred stock of $0.0001 par value - authorized: 5,000,000 shares; issuedand outstanding: 40,156 and 18,959 shares on September 30, 2024 and December 31, 2023, respectively		*) -			*) -
Additional paid-in capital		436,590			407,502
Accumulated deficit		(378,082)			(349,361)

Total stockholders' equity		58,511			58,144

Total liabilities and stockholders' equity	$	109,953		$	96,389

*) Represents an amount lower than $1.

The accompanying notes are an integral part of the unaudited interim consolidated financial statements.

F-3

Table of Contents

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

U.S. dollars in thousands (except stock and stock data)


	Three months ended		Nine months ended
	September 30,		September 30,
	2024		2023		2024	2023

	Unaudited		Unaudited
Revenues:
Services	$	5,604		$	1,765	$	14,424	$	11,171
Consumer hardware		1,819			1,753		5,012		5,565
Total revenues		7,423			3,518		19,436		16,736

Cost of revenues:
Services		920			599		2,845		3,701
Consumer hardware		1,282			1,203		3,786		3,902
Amortization of acquired intangible assets		1,344			1,106		3,740		3,281
Total cost of revenues		3,546			2,908		10,371		10,884

Gross profit		3,877			610		9,065		5,852

Operating expenses:
Research and development	$	5,446		$	5,665	$	18,898	$	16,052
Sales and marketing		6,733			6,363		20,775		19,163
General and administrative		3,728			4,128		15,468		12,611

Total operating expenses		15,907			16,156		55,141		47,826

Operating loss		12,030			15,546		46,076		41,974

Total financial expenses (income), net		313			186		(10,954)		3,168

Loss before taxes		12,343			15,732		35,122		45,142

Income Tax		13			-		2,007		-

Net loss	$	12,330		$	15,732	$	33,115	$	45,142

Other comprehensive loss:
Deemed dividend (contribution)	$	2,278		$	1,172	$	(4,394)	$	2,863

Net loss attributable to common shareholders	$	14,608		$	16,904	$	28,721	$	48,005

Net loss per share:

Basic and diluted loss per share of common stock	$	0.25		$	0.49	$	0.52	$	1.52
Weighted average number of common stock used in computing basic and diluted net loss per share		40,417,421			28,815,604		39,093,575		28,195,216

The accompanying notes are an integral part of the unaudited interim consolidated financial statements.

F-4

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DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIM STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)

U.S. dollars in thousands (except stock and stock data)


									Additional					Total
	Common Stock	Preferred Stock		paid-in		Accumulated		stockholders'
Three Months Ended September 30, 2024	Number	Amount		Number		Amount		capital	deficit		equity
Balance as of June 30, 2024 (unaudited)	30,024,275	$	3		40,331		$	*)-	$	431,526		$	(363,474)		$	68,055

Exercise of options	4,005		*)-		-			-		*)-			-			*)-
Extinguishment of preferred stock in connection with preferred stock modification	-		-		-			-		(408)			408			-
Deemed dividend related to issuance of preferred stock	-		-		-			-		2,686			(2,686)			-
Issuance of warrants to service providers	-		-		-			-		211			-			211
Conversion of preferred stock to common stock	359,375		*)-		(175)			*)-		-			-			*)-
Stock-based compensation	936,251		*)-		-			-		2,575			-			2,575
Net loss	-		-		-			-		-			(12,330)			(12,330)

Balance as of September 30, 2024 (unaudited)	31,323,906	$	3		40,156		$	*)-	$	436,590		$	(378,082)		$	58,511

									Additional					Total
	Common Stock	Preferred Stock		paid-in		Accumulated		stockholders'
Nine Months Ended September 30, 2024	Number	Amount		Number		Amount		capital	deficit		equity
Balance as of December 31, 2023 (audited)	27,191,849	$	3		18,959		$	*)-	$	407,502		$	(349,361)		$	58,144

Exercise of options	10,714		*)-		-			-		*)-			-			*)-
Extinguishment of preferred stock in connection with preferred stock modification	-		-		-			-		(12,194)			12,194			-
Deemed dividend related to issuance of preferred stock	-		-		-			-		7,800			(7,800)			-
Issuance of warrants to service providers	-		-		-			-		2,239			-			2,239
Stock-based compensation	2,985,158		*)-		-			-		10,967			-			10,967
Conversion of preferred stock to common stock	1,136,185		*)-		(1,225)			*)-		-			-			*)-
Issuance of preferred stock, net of issuance cost	-		-		22,422			*)-		20,206			-			20,206
Modification of warrants	-		*)-		-			-		70			-			70
Net Profit	-		-		-			-		-			(33,115)			(33,115)

Balance as of September 30, 2024 (unaudited)	31,323,906	$	3		40,156		$	*)-	$	436,590		$	(378,082)		$	58,511

*) Represents an amount lower than $1.

The accompanying notes are an integral part of the unaudited interim consolidated financial statements.

F-5

Table of Contents

DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIM STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) (Cont.)

U.S. dollars in thousands (except stock and stock data)


									Additional					Total
	Common Stock	Preferred Stock		paid-in		Accumulated		stockholders'
Three Months Ended September 30, 2023	Number	Amount		Number		Amount		capital	deficit		equity
Balance as of June 30, 2023 (unaudited)	26,784,674	$	3		18,959		$	*)-	$	395,352		$	(316,951)		$	78,404

Exercise of options	86,983		*)-		-			-		*)-			-			*)-
Deemed dividend related to issuance of preferred stock	-		-		-			-		1,172			(1,172)			-
Issuance of warrants to service providers	-		-		-			-		513			-			513
Stock-based compensation	291,200		*)-		-			-		4,646			-			4,646
Issuance of common stock and preferred stock, net of issuance cost	52,300		*)-		-			-		204			-			204
Net loss	-		-		-			-		-			(15,732)			(15,732)

Balance as of September 30, 2023 (unaudited)	27,215,157	$	3		18,959		$	*)-	$	401,887		$	(333,855)		$	68,035

									Additional					Total
	Common Stock	Preferred Stock		paid-in		Accumulated		stockholders'
Nine Months Ended September 30, 2023	Number	Amount		Number		Amount		capital	deficit		equity
Balance as of December 31, 2022 (audited)	25,724,470	$	3		3,567		$	*)-	$	365,846		$	(285,850)		$	79,999

Exercise of options	4,800		*)-		-			-		*)-			-			*)-
Exercise of warrants	86,983		*)-		-			-		*)-			-			*)-
Extinguishment of preferred stock in connection with preferred stock modification	-		-		-			-		984			(984)			-
Deemed dividend related to issuance of preferred stock	-		-		-			-		1,879			(1,879)			-
Issuance of warrants to service providers	-		-		-			-		1,738			-			1,738
Issuance of warrants related to loan agreement, net of issuance cost	-		-		-			-		1,389			-			1,389
Stock-based compensation	910,642		*)-		-			-		13,569			-			13,569
Conversion of preferred stock to common stock	3,582		*)-		(10)			-		-			-			-
Issuance of common stock and preferred stock, net of issuance cost	408,043		*)-		15,402			*)-		16,482			-			16,482
Repurchase and retirement of common stock	76,637		*)-		-			-		-			-			*)-
Net loss	-		-		-			-		-			(45,142)			(45,142)

Balance as of September 30, 2023 (unaudited)	27,215,157	$	3		18,959		$	*)-	$	401,887		$	(333,855)		$	68,035

*) Represents an amount lower than $1.

The accompanying notes are an integral part of the unaudited interim consolidated financial statements.

F-6

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DARIOHEALTH CORP. AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands


	Nine months ended
	September 30,
	2024		2023

	Unaudited
Cash flows from operating activities:
Net loss	$	(33,115)		$	(45,142)
Adjustments required to reconcile net loss to net cash used in operating activities:
Stock-based compensation		13,206			15,307
Depreciation and impairment		773			290
Disposal of property and equipment		7			-
Change in operating lease right of use assets		666			228
Amortization of acquired intangible assets		4,519			3,375
Decrease in trade receivables, net		1,536			1,883
Increase in other accounts receivable, prepaid expense and long-term assets		(894)			(324)
Decrease in inventories		320			2,485
Decrease in trade payables		(886)			(393)
Decrease in other accounts payable and accrued expenses		(3,704)			(1,182)
Decrease in deferred revenues		(621)			(636)
Change in operating lease liabilities		(791)			(196)
Change in fair value of warrant liability		(13,370)			-
Non-Cash financial expenses		432			1,267
Other		92			-

Net cash used in operating activities		(31,830)			(23,038)

Cash flows from investing activities:
Purchase of property and equipment		(117)			(501)
Purchase of short-term investments		-			(4,996)
Proceeds from redemption of short-term investments		-			5,033
Payments for business acquisitions, net of cash acquired		(8,796)			-

Net cash used in investing activities		(8,913)			(464)

Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs		-			1,614
Proceeds from issuance of preferred stock, net of issuance costs		20,206			14,868
Proceeds from borrowings on credit agreement		-			29,604
Repayment of long-term loan		-			(27,833)

Net cash provided by financing activities		20,206			18,253

Decrease in cash, cash equivalents and restricted cash and cash equivalents		(20,537)			(5,249)
Effect of exchange rate differences on cash, cash equivalents and restricted cash and cash equivalents		(50)			-
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period		36,797			49,470
Cash, cash equivalents and restricted cash and cash equivalents at end of period	$	16,210		$	44,221
Supplemental disclosure of cash flow information:
Cash paid during the period for interest on long-term loan	$	2,968		$	3,035
Non-cash activities:
Right-of-use assets obtained in exchange for lease liabilities	$	428		$	14

The accompanying notes are an integral part of the unaudited interim consolidated financial statements.

F-7

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NOTE 1: - GENERAL

a.	DarioHealth Corp. (the "Company" or "DarioHealth") was incorporated in the State of Delaware and commenced operations on August 11, 2011.

DarioHealth is a global digital therapeutics (DTx) company delivering personalized evidence-based interventions that are driven by precision data analytics, software, and personalized coaching, DarioHealth has developed an approach with the intent to empower individuals to adjust their lifestyle in holistic way.

DarioHealth's cross-functional team operates at the intersection of life sciences, behavioral science, and software technology to deliver seamlessly integrated and highly engaging digital therapeutics interventions. Our platform and suite of solutions deliver personalized and dynamic interventions driven by data analytics and one-on-one coaching for diabetes, hypertension, weight management, musculoskeletal pain, and behavioral health.

The Company has one reporting unit and one operating segment.

The Company has a wholly owned subsidiary, LabStyle Innovation Ltd. ("LabStyle"), which was incorporated and commenced operations on September 14, 2011, in Israel. Its principal business activity is to hold the Company's intellectual property and to perform research and development, manufacturing, marketing, and other business activities.

On February 15, 2024 (the "Closing Date"), the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Twill, Inc. ("Twill"), (see note 4). Pursuant to the provisions of the Merger Agreement, on the Closing Date, TWILL Merger Sub, Inc. ("Merger Sub") was merged with and into Twill, the separate corporate existence of Merger Sub ceased and Twill continued as the surviving company and a wholly owned subsidiary of the Company. Twill is a clinical grade technology company working to shorten the distance between need and care by configuring personalized digital therapeutics and care solutions at scale for the modern healthcare cloud. Twill's Intelligent Healing Platform(tm): integrates AI with empathy, making healing more personal, precise, and connected for the entire care journey. Twill deploys a full spectrum of science-backed care solutions-including digital therapeutics, coaching, community, and well-being products for pharma, health plans, enterprises, and individuals everywhere.

The Company has incurred recurring losses and negative cash flows since inception and has an accumulated deficit of $378,082. For the nine months ended September 30, 2024, the Company used approximately $31,830of cash in operations. The Company expects to incur future net losses and its 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 to fund its operations. 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.

These conditions raise substantial doubt about the Company's ability to continue as a going concern for twelve months from the date of issuance of these interim condensed consolidated financial statements. The accompanying condensed interim consolidated financial statements do not include any adjustments to reflect the possible future effects on recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

F-8

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NOTE 2: - SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited interim consolidated financial statements as of September 30, 2024, have been prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP") and applicable rules and regulations of the U.S. Securities and Exchange Commission (the "SEC") regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair presentation of the Company's consolidated financial position as of September 30, 2024, and the Company's consolidated results of operations and the Company's consolidated cash flows for the nine months ended September 30, 2024. Results for the nine months ended September 30, 2024, are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.

Use of Estimates

Preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and judgments that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical information and on various other assumptions that we believe are reasonable under the circumstances. These estimates are based on management's knowledge about current events and expectations about actions we may undertake in the future. Actual results could differ materially from those estimates.

Significant Accounting Policies

a. The significant accounting policies applied in the audited annual consolidated financial statements of the Company as disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 are applied consistently in these unaudited interim consolidated financial statements.

b. Short-term restricted bank deposits:

The following table provides a reconciliation of the cash balances reported on the balance sheets and the cash, cash equivalents, and short-term restricted bank deposits balances reported in the statements of cash flows:


	September 30,		September 30,
	2024		2023
	Unaudited		Unaudited
Cash, and cash equivalents as reported on the balance sheets	$	15,547		$	43,878
Short-term restricted bank deposits		663			343

Cash, restricted cash, cash equivalents, and restricted cash and cash equivalents as reported in the statements of cash flows	$	16,210		$	44,221

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NOTE 2: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

c. Business and Asset Acquisitions

When the Company acquires a business, the purchase price is allocated to the tangible and identifiable intangible assets, net of liabilities assumed. Any residual purchase price is recorded as goodwill. The allocation of the purchase price requires management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, especially with respect to intangible assets. These estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate weighted-average cost of capital. These estimates are inherently uncertain and unpredictable. During the measurement period, which may be up to one year from the acquisition date, adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company's consolidated statements of operations.

The Company accounts for a transaction as an asset acquisition when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, or otherwise does not meet the definition of a business. Asset acquisition-related costs are capitalized as part of the asset or assets acquired.

d. Revenue recognition

The Company recognizes revenue in accordance with Accounting Standards Codification ("ASC") 606, "Revenue from contracts with customers," ("ASC 606") when (or as) it satisfies performance obligations by transferring promised hardware or services to its customers in an amount that reflects the consideration the Company expects to receive. 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 the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. For contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation based on the relative standalone selling price ("SSP") for each performance obligation. The Company uses judgment in determining the SSP for its performance obligations. To determine SSP, the Company maximizes the use of observable standalone sales and observable data, where available. In instances where performance obligations do not have observable standalone sales, the Company may use alternative methods to estimate the standalone selling price, such as cost plus margin approach.

The Company's payment terms are generally 45 days or less. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company determines its contracts generally to not include a significant financing component since the Company's selling prices are not subjected to billing terms nor is its purpose to receive financing from its customers or to provide customers with financing. In addition, the Company elected to apply the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the Company will transfer a promised good or service to a customer and when the customer will pay for that good or service will be one year or less.

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NOTE 2: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Consumers revenue

The Company considers customer and distributor purchase orders to be contracts with customers. For each contract, the Company considers the promise to transfer tangible hardware and/or services, each of which are distinct, and accounted for as separate performance obligations. In determining the transaction price, the Company evaluates whether the price is subject to rebates and adjustments to determine the net consideration to which the Company expects to receive. Revenue from tangible hardware is recognized when control of the hardware is transferred to the customer (i.e., when the Company's performance obligation is satisfied), which typically occurs at shipment. The revenues from fixed-price services are recognized ratably over the contract period.

Commercial revenue - B2B2C

The Company provides a mobile and web-based digital therapeutics health management programs to employers and health plans for their employees or covered individuals. Such programs include live clinical coaching, content, automated journeys, hardware, and lifestyle coaching, currently supporting diabetes, prediabetes and obesity, hypertension, behavioral health (BH) and musculoskeletal health (MSK). At contract inception, the Company assesses the type of services being provided and assesses the performance obligations in the contract. These solutions integrate access to the Company's web-based platform, and clinical and data services to provide an overall health management solution. The promises to transfer these goods and services are not separately identifiable and are considered a single continuous service comprised of a series of distinct services recognized over time that are substantially the same and have the same pattern of transfer (i.e., distinct days of service). Revenues related to the Company's newly acquired Twill platform are recognized over time, since the customer simultaneously receives and consumes the benefits provided by the Company's performance.

To the extent the transaction price includes variable consideration, revenue is recognized using the variable consideration allocation exception, or, if the allocation exception is not met, the Company recognizes revenue ratably based on estimates of the variable consideration to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. When the variable consideration allocation exception is met, the Company recognizes revenue each month using either on a per engaged member per month (PEMPM) or a per employee per month (PEPM) basis.

Since the acquisition of Twill (note 4), the Company also provides professional services and ad serving services related to the Twill platform. Revenues related to professional services are recognized over time, since the customer simultaneously receives and consumes the benefits provided by the Company's performance. The Company generally recognizes revenues for professional services using an input method, based on labor hours consumed, which the Company believes best depicts the transfer of the services to the customer. Revenues related to ad serving services are recognized when impressions are delivered. The Company recognizes revenue from the display of ads in the contracted period in which the impressions are delivered. Impressions are considered delivered when an ad is displayed.

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NOTE 2: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Certain of the Company's 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 rates. The Company includes in the transaction price some or all of an amount of variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Refunds to a customer that result 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.

The Company follows the guidance provided in ASC 606 for determining whether it is a principal (i.e., report revenues on a gross basis) or an agent (i.e., report revenues on a net basis) in arrangements with customers that involve another party that contributes to providing specified services to a customer, based on whether the Company controls the specified good or service.

Commercial revenue - Strategic partnerships

The Company has also entered into contracts (Note 5) with a preferred partner and a health plan provider in which the Company provides data license, development and implementation services.

e. Concentrations of credit risk:

Financial instruments that potentially subject the Company to credit risks primarily consist of cash and cash equivalents, short-term deposits, restricted deposits, and trade receivables. For cash and cash equivalents, the Company is exposed to credit risks in the event of default by the financial institutions to the extent that amounts recorded on the accompanying consolidated balance sheets exceed federally insured limits. The Company places its cash and cash equivalents and short-term deposits with financial institutions with high-quality credit ratings and has not experienced any losses in such accounts.

For trade receivables, the Company is exposed to credit risk in the event of non-payment by customers to the extent of the amounts recorded on the accompanying consolidated balance sheets.


		Balance at						Balance at
		beginning of period		Additions		Deduction		end of period
Nine months ended September 30, 2024
Allowance for credit losses	$	163	$	148	$	(111)	$	200

Year ended December 31, 2023
Allowance for credit losses	$	23	$	140	$	-	$	163

The Company has no off-balance-sheet concentration of credit risk.

As of September 30, 2024, the Company's major customer accounted for 40.4% of the Company's accounts receivable balance. For the three and nine-month ended September 30, 2024, the Company's major customer accounted for 25.6% and 24.5% respectively, of the Company's revenue in the period.

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NOTE 2: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

f. Recently issued Accounting Pronouncements

(i)

In November 2023, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("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 evaluating the impact on its financial statement disclosures.

(ii)

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.

g. Impairment of long-lived assets

The Company's long-lived assets are reviewed for impairment in accordance with ASC 360, "Property, Plant and Equipment," whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

During the second quarter of 2024, the Company entered into a sublease for a portion of its right of use assets for a lower price than the price the Company is obligated to pay to the lessor, which prompted the Company to assess whether an impairment loss should be recorded for its right of use asset. As a result of this assessment, the Company has concluded that the right of use asset is not recoverable and that an impairment loss should be recognized. The Company used the income approach to measure the impairment loss and recorded an impairment loss of $419.

NOTE 3: - INVENTORIES


	September 30,		December 31,
	2024		2023
	Unaudited
Raw materials	$	723		$	1,015
Finished products		4,019			4,047

	$	4,742		$	5,062

During the nine-month period ended September 30, 2024, and the year ended December 31, 2023, total inventory write-down expenses amounted to $204 and $121, respectively.

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NOTE 4 - ACQUISITIONS

Acquisition of Twill

On February 15, 2024 (the "Closing Date"), the Company completed the merger and the associated acquisition of all issued and outstanding shares of Twill for an aggregate consideration of (A) $10.0 million in cash, and (B) pre-funded warrants (the "Pre-Funded Warrants") to purchase up to 10,000,400 shares (the "Warrant Shares") of Company's common stock, par value $0.0001 per share (the "Common Stock"). In addition, the Company issued stock options to purchase up to 2,963,459 shares of Common Stock and a combination of warrants and restricted stock units ("RSUs") to acquire up to 1,766,508 shares of Common Stock to certain employees and officers of Twill. The Company accounted for the stock options, warrants and RSUs separately from the acquisition. The Company incurred acquisition-related costs in a total amount of $841, which were included in general and administrative expenses in the Interim Consolidated Statements of Comprehensive loss.

The acquisition of Twill advances the Company's strategy to evolve from a point solution to a comprehensive multi condition platform. Twill brings a global, digital-first approach to improving mental and physical health through its personalized and connected care services. These services include evidence-based programs, supportive communities, human-led coaching, and therapy, which are accessible globally in 10 languages and cover over 18 million lives. Utilized by enterprises, health plans, pharmaceutical companies, and individuals around the world. With the integration of Twill, the Company believes it can achieve multiple advantages as well as synergies in multiple fronts like its product offering, commercial channels, improved clients and member experience.

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NOTE 4 - ACQUISITIONS (Cont.)

Preliminary purchase price allocation:

Pursuant to ASC 805, the total purchase price was allocated to Twill's net tangible and intangible assets based on their estimated fair values as set forth below. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill. A portion of the acquisition price was recorded as goodwill due to the synergies with Twill and is not expected to be deductible for tax purposes.

The allocation of the purchase price to the assets acquired and liabilities assumed based on management's estimate of fair values at the date of acquisition as follows:





Cash and cash equivalents	$	531
Short-term restricted bank deposits		673
Trade receivables		3,329
Other accounts receivable and prepaid expenses		475
Property and equipment, net		580
Operating lease right of use assets		995
Acquisition-related intangibles		19,435
Other assets		23
Total assets acquired		26,041
Trade payables		2,411
Other accounts payable and accrued expenses		1,223
Deferred revenues		742
Operating lease liabilities		995
Deferred tax liability		2,001
Liabilities assumed		7,372
Fair value of net assets acquired		18,669
Goodwill		15,787
Total purchase consideration	$	34,456

Following are details of the purchase consideration allocated to acquired intangible assets:


	Fair value		Amortization
	Unaudited		period (Years)
Technology ⁽¹⁾	$	5,644		7.9
Customer relationship healthcare ⁽²⁾		13,791		11.9
Total identified intangible assets acquired	$	19,435

(1)	The technology has been calculated through the Income Approach, in particular the Relief from Royalty method.

(2)	The fair value of Twill's customer relationships has been calculated using the Multi-Period excess earnings method ("MPEEM method").

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NOTE 4 - ACQUISITIONS (Cont.)


	Amount
	Unaudited
Number of shares of common stock issuable upon the exercise of the consideration warrants.		10,000,400
Value of each warrant issues	$	2.446
Total consideration warrant shares		24,456

Cash consideration		10,000
Total purchase price	$	34,456

The interim consolidated statement of comprehensive loss includes the following revenue and net loss attributable to Twill in 2024:


	Three		Nine
	months ended		months ended
	September 30, 2024		September 30, 2024
	Unaudited		Unaudited
Revenues	$	3,706		$	9,244
Net loss	$	1,737		$	4,652

The Company recognized $2,001 of a deferred tax liability which relates to the purchase price allocation fair value adjustments, other than goodwill. The Company is planning to file a consolidated tax return in the U.S. together with Twill and to utilize the benefit of the Company's loss carryforwards against the future taxable income of Twill and consequently decreased its valuation allowance in an amount equal to the deferred tax liability recognized in the business combination. The Company recognized the decrease in valuation allowance as income tax benefit.

Supplemental unaudited Pro forma Information

The following table sets forth a summary of the unaudited pro forma results of the Company as if the acquisition of Twill, which closed in February 2024, had taken place had Twill been acquired as of January 1, 2023.


	Three months ended		Nine months ended
	September 30,		September 30,
	2024		2023		2024	2023

	Unaudited		Unaudited
Total revenues	$	7,423		$	8,069	$	21,399	$	30,530
Net loss	$	10,958		$	14,746	$	41,548	$	63,340

The unaudited pro forma financial information presented is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the Twill acquisition was completed at the beginning of 2023 and are not indicative of the future operating results of the combined company. The pro forma results include adjustments related to purchase accounting, primarily amortization of acquisition-related intangible assets and stock-based compensation expenses. The pro forma results also include income from revaluation of the pre-funded warrants issued as part of the consideration for the acquisition of Twill, as these warrants are classified as a liability under GAAP.

During the nine-month period ended September 30, 2024, the Company reversed its bonus accrual liability related to Twill employees in the amount of $760 since payment of the liability was no longer probable.

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NOTE 5: - REVENUES

The Company is operating a multi-condition healthcare business, empowering individuals to manage their chronic conditions and take steps to improve their overall health. The Company generates revenue directly from individuals through a la carte offering and membership plans. The Company also contracts with enterprise business market groups to provide digital therapeutics solutions for individuals to receive access to services through the Company's commercial arrangements.

Agreement with Preferred Partner

On February 28, 2022, the Company entered into an exclusive preferred partner, co-promotion, development and license agreement for a term of five (5) years (the "Exclusive Agreement"). Pursuant to the Exclusive Agreement, the Company will provide a license to access and use certain Company data. In addition, the Company may provide development services for new products of the other party.

The aggregate consideration under the contract is up to $30 million over the initial term of the Exclusive Agreement, consisting of (i) an upfront payment, (ii) payments for development services per development plan to be agreed upon annually and (iii) certain contingent milestone payments upon meeting certain net sales and enrollment rate milestones at any time during the term of the Exclusive Agreement.

Since the contract consideration includes variable consideration, as of September 30, 2024, the Company excluded the variable payments from the transaction price since it is not probable that a significant reversal in the amount of cumulative revenue recognized will occur when the uncertainty associated with the variable consideration is resolved.

In 2022, the first development plan was approved and completed. The Company concluded that the first development plan should be accounted for as a separate contract. As such, for the year ended December 31, 2022, the Company recognized $4,000 in revenues for the completion of the first development plan.

On December 13, 2022, the second development plan was approved by the parties. The Company concluded that the second development plan should be accounted for as a separate contract which includes development services performance obligations, satisfied over time, based on labor hours. As such, for the nine months ended September 30, 2023, the Company recognized $2,494 in revenues. The second development plan was completed during the second quarter of 2023.

On June 15, 2023, the third development plan (initiated in April 2023), was approved by the parties. The Company concluded that the third development plan should be accounted for as a separate contract which includes development services performance obligations, satisfied over time, based on labor hours.

The Company's measures the progress of the development services performance obligations using an input method, based on labor hours consumed as the Company believes that this method best depicts the transfer of services to the customer.

In the second quarter of fiscal 2024, the Company provided a price concession to the preferred partner in the amount of $1,088 to resolve an outstanding dispute. As a result, the Company has recorded the price concession amount as a reduction in revenue for the nine-month period ended September 30, 2024.

Agreement with National Health Plan

On October 1, 2021, the Company entered into a Master Service Agreement (the "MSA") and a statement of work ("SOW", and such SOW, the "October SOW") with a national health plan ("Health Plan"). Pursuant to the October SOW, the Company will provide the Health Plan access to the Company's web and app-based platform for behavioral health. The Company has concluded that the contract contained a single performance obligation - to provide access to the Company's platform. The consideration in the contract was based entirely on customer usage.

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NOTE 5: - REVENUES (Cont.)

On August 2022, the Company entered into an additional SOW (the "August SOW") with the Health Plan according to which the Company will provide implementation services and shall develop additional features to be included in the platform.

The Company concluded that the August SOW should be accounted for as a separate contract. The Company has concluded that the August SOW contained two performance obligations as follows:

(i)	DigitalBehavioral Health Navigation Platform Implementation. This performance obligation includes configuration and implementation of the platform.

(ii)	Enhancementsto the Digital Behavioral Health Navigation Platform. This performance obligation includes adding additional features and capabilities to the platform.

The August SOW includes a fixed consideration in the amount of $2,650. The Company allocated the consideration between the two performance obligations based on standalone selling prices. The Company determined the standalone selling prices based on the expected cost plus a margin approach.

On February 21, 2023, the Company entered into a change order with the Health Plan according to which the Company will provide additional implementation services and shall develop additional features to be included in the platform. The change order includes a fixed consideration in the amount of $90.

For the nine months ended September 30, 2023, the Company recognized revenues of $962. The August SOW was completed during the second quarter of 2023.

Revenue Source:

The following tables represent the Company's total revenues for the three and nine months ended September 30, 2024, and 2023 disaggregated by revenue source:


	Three months ended		Nine months ended
	September 30,		September 30,
	2024		2023		2024	2023

	Unaudited		Unaudited
Commercial - Business-to-Business-to-Consumer ("B2B2C")	$	5,435		$	1,284	$	14,448	$	3,877
Commercial - Strategic partnerships		-			209		(599)		6,481
Consumers		1,988			2,025		5,587		6,378

	$	7,423		$	3,518	$	19,436	$	16,736

Deferred Revenue

The Company recognizes contract liabilities, or deferred revenues, when it receives advance payments from customers prior to the satisfaction of the Company's performance obligations. The balance of deferred revenues approximates the aggregate amount of the transaction price allocated to the unsatisfied performance obligations at the end of the reporting period. The Company expects to recognize approximately $1,045over the next 12 months and the remainderthereafter.

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NOTE 5: - REVENUES (Cont.)

The following table presents the significant changes in the deferred revenue balance during the nine months ended September 30, 2024:


Balance, beginning of the period	$	997
Additions through Acquisition of Twill		742
New performance obligations		2,623
Reclassification to revenue as a result of satisfying performance obligations		(3,244)

Balance, end of the period	$	1,118

Costs to Fulfill a Contract

The Company defers costsincurred to fulfill contracts that: (1) relate directly to the contract; (2) are expected to generate resources that will be used to satisfy the Company's performance obligations under the contract; and (3) are expected to be recovered through revenue generated under the contract. Contract fulfillment costs are expensed as the Company satisfies its performance obligations and recorded into cost of revenue.

Costs to fulfill a contractare recorded in other accounts receivable and prepaid expenses and long-term assets.

Costs to fulfill a contract consist of (1) deferred consumer hardware costs incurred in connection with the delivery of services that are deferred, and (2) deferred costs incurred, related to future performance obligations which are capitalized.

Costs to fulfill a contract as of September 30, 2024, and December 31, 2023, consisted of the following:


	September 30,		December 31,
	2024		2023
	Unaudited
Costs to fulfill a contract, current	$	235		$	238
Costs to fulfill a contract, noncurrent		53			59

Total costs to fulfill a contract	$	288		$	297

Costs to fulfill a contract were as follows:


		Costs to
		fulfill a contract

Beginning balance as of December 31, 2023	$	297
Additions		77
Cost of revenue recognized		(86)

Ending balance as of September 30, 2024 (unaudited)		288

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NOTE 6: - DEBT

Loan Facility

On May 1, 2023, the Company refinanced its existing $25,000credit facility with a new $30,000credit facility in the Loan and Security Agreement, and Supplement thereto (the "LSA" or the "Avenue Loan Facility") by and between the Company and its subsidiary PsyInnovations Inc., 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-yearsecured credit facility in an aggregate principal amount of up to $40,000, of which $30,000was made available on the closing date (the "Initial Tranche") and up to $10,000(the "Discretionary Tranche") may be made available on the later of July 1, 2023, or the date the Avenue Lenders approve 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.

During the term of the Avenue Loan Facility, interest payable in cash by the Borrowers shall accrue on any outstanding balance due under the Avenue 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 Avenue Loan Facility will bear interest at a rate of 5.00%in excess of the otherwise applicable rate of interest and the outstanding balance shall be due and payable. As part of the agreements, the Company issued a warrant (the "Warrant") to purchase up to 584,882shares of the Company's Common Stock, at an exercise price of $3.334per share, which shall have a term of five yearsfrom the issuance date.

On February 15, 2024, the Company and the Borrowers 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 the Company's existing loan facility with the lenders. In addition, the Avenue Amendment permit the lenders, subject to Nasdaq rules, to convert up to $2,000of the principal amount of its loan to the Company at a fixed conversion price of $4.001per share.

On June 25, 2024, the Company stockholders approved the Avenue Amendment and repriced the Warrants to purchase up to 584,882shares of Common Stock issued to the lenders on May 1, 2023 at an exercise price $3.334per share, to permit an amendment to the exercise price of such Warrants to $2.02which is the "minimum price" as defined by Nasdaq rules as of the closing of the Twill Agreement and (ii) permit the lenders, subject to Nasdaq rules, to convert up to $2,000of the principal amount of the outstanding Avenue Loan Facility into Borrower's unrestricted shares of the Company's Common Stock at a conversion price of $4.001.

According to the agreements, the Company is obligated to maintain at least $5,000of unrestricted cash in deposit accounts located in the United States.

The Company concluded that Avenue Loan Facility and the Warrant are freestanding financial instruments since these instruments are legally detachable and separately exercisable. The Company has concluded that the Warrant meets all the conditions to be classified as equity pursuant to ASC 480 and ASC 815-40. In addition, the Company elected to account for the Avenue Loan Facility under the fair value option in accordance with ASC 825, "Financial Instruments." Under the fair value option, changes in fair value are recorded in earnings except for fair value adjustments related to instrument specific credit risk, which are recorded as other comprehensive income or loss. As such, the proceeds were first allocated to the Avenue Loan Facility at fair value in the amount of $28,215and the remaining amount of $1,389was allocated to the Warrant.

The Company remeasurement expenses related to the Avenue Loan for the three and nine months ended September 30, 2024 were $226and $312, respectively, compared to $94of remeasurement income for the three months ended September 30, 2023 and $413of remeasurement expenses for the nine months ended September 30, 2023, which were included as part of the financial (income) expenses in the Company's statements comprehensive loss. During the three and nine-month periods ended September 30, 2024, and September 30, 2023, the Company did not recognize any instrument specific credit risk fair value adjustment.

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NOTE 6: - DEBT (Cont.)

In connection with the debt modification, the Company also modified the Avenue Warrant by reducing the exercise price of the warrants from $3.334to $2.02. The Company recognized the incremental fair value resulting from the modification through earnings in the amount of $70.

NOTE 7: - WARRANT LIABILITY

Orbimed Warrants

On June 9, 2022 (the closing date of the Orbimed Loan, which was repaid in May 2023), the Company agreed to issue Orbimed a warrant (the "Orbimed Warrant") to purchase up to 226,586shares of the Company's Common Stock, at an exercise price of $6.62 per share, which shall have a term of 7 yearsfrom the issuance date. The Orbimed 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 $4.00per share. Following the series C preferred shares issuance in February 2024, as a result of the price protection provisions, the exercise price of the warrant was adjusted to a price of $4.00.

The Company has concluded that the Orbimed Warrant is not indexed to the Company's own stock and should be recorded as a liability measured at fair value with changes in fair value recognized in earnings. The Company remeasurement income related to the Orbimed Warrant for the three and nine months ended September 30, 2024 were $27and $113, respectively, compared to $140and $386for the three and nine months ended September 30, 2023, respectively.

Pre-funded warrants

On February 15, 2024, as part of the acquisition of Twill (See note 4) the Company issued Pre-Funded Warrants to purchase up to 10,000,400shares of Company Common Stock.

The Company has classified the pre-funded as liability pursuant to ASC 815-40 since the Pre-Funded Warrants do not meet all the equity classification conditions. Accordingly, the Company measured the Pre-Funded Warrants at their fair value. The warrants liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statement of comprehensive loss. During the three and nine-month period ended September 30, 2024, the Company recognized $700and $13,257respectively, of remeasurement income related to the Pre-Funded Warrants. The estimated fair value of the Pre-Funded Warrants liabilities is determined using Level 1 inputs based on quoted prices in active markets.

NOTE 8: - FAIR VALUE MEASUREMENTS

Under U.S. GAAP, fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants and requires that assets and liabilities carried at fair value are classified and disclosed in the following three categories:

Level 1 -

Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

Level 2 -

Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3 -

Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

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NOTE 8: - FAIR VALUE MEASUREMENTS (Cont.)

The availability of observable inputs can vary from instrument to instrument and is affected by a wide variety of factors, including, for example, the type of investment, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment, and the investments are categorized as Level 3.

The carrying amounts of cash and cash equivalents, short-term restricted bank deposits, trade receivables, other accounts receivable and prepaid expenses, trade payables and other accounts payable and accrued expenses approximate their fair value due to the short-term maturity of such instruments. The Company's Orbimed loan facility (as defined herein) was measured at fair value using Level 3 unobservable inputs until the payoff date of May 1, 2023. The Orbimed Warrant liability was measured at fair value using Level 3 unobservable inputs. In addition, the Avenue Loan Facility is also measured at fair value using level 3 inputs.

The following tables present information about the Company's financial liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values:


	September 30, 2024
	Unaudited
	Fair Value		Level 1		Level 2	Level 3

			(in thousands)
Financial Assets:
U.S. Treasury notes	$	10,206		$	10,206	$	-	$	-

Total financial assets	$	10,206		$	10,206	$	-	$	-

Financial liabilities:
Long term loan		28,857			-		-		28,857
Orbimed warrant liability		127			-		-		127
Pre-funded warrant liability		11,200			11,200		-		-

Total financial liabilities	$	40,184		$	11,200	$	-	$	28,984


	December 31, 2023
	Fair Value		Level 1		Level 2	Level 3

			(in thousands)
Financial liabilities:
Long term loan		28,545			-		-		28,545
Orbimed warrant liability	$	240			-		-		240

Total financial liabilities	$	28,785		$	-	$	-	$	28,785

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NOTE 8: - FAIR VALUE MEASUREMENTS (Cont.)

Loan Facilities

The fair value of the Avenue Loan Facility was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy.The Avenue Loan Facility fair value estimate incorporates comparisons to instruments with similar covenants, collateral, and risk profiles and was obtained using a discounted cash flow technique. On the date of Avenue Loan Facility origination, or May 1, 2023, the discount rate was arrived at by calibrating the loan amount of $30 million with the fair value of the warrants of $1,413 and the loan terms interest rate equal to the greater of (i) the sum of four and one-half percent (4.50%) plus the Prime Rate, and (ii) twelve and one-half percent(12.50%). During an event of default, any outstanding amount under the Avenue Loan Facility will bear interest at a rate of 5.00% in excess of the otherwise applicable rate of interest. The fair value of the Avenue Loan Facility, as of September 30, 2024, was estimated using a discount rate of 19% which reflects the internal rate of return of the Avenue Loan Facility at closing, as of May 1, 2023. For the nine months ended September 30, 2024 and for the year ended December 31, 2023, the change in the fair value of the loan was recorded in earnings since the Company concluded that the change in fair value was not related to instrument-specific credit risk.

Orbimed warrant Liability

The fair value of the Orbimed warrant liability was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The fair value of the Orbimed warrant liability is estimated by the Company based on the Monte-Carlo simulation valuation technique, in order to predict the probability of different outcomes that rely on repeated random variables.

The following inputs were used to estimate the fair value of the Orbimed warrant liability:


		September 30,	December 31,
		2024	2023
Stock price	$	1.12	$	1.72
Exercise price		4.00		5.79
Expected term (in years)		4.69		5.44
Volatility		93.6%		96.8%
Dividend rate		-		-
Risk-free interest rate		3.66%		3.88%

The following tables present thesummary of the changes in the fair value of our financial instruments:


		Long-Term Loan		Orbimed Warrant Liability		Pre-funded warrant liability
Balance as of July 1, 2024	$	28,631	$	154	$	11,900
Change in fair value		226		(27)		(700)

Balance as of September 30, 2024	$	28,857	$	127	$	11,200


		Long-Term Loan		Orbimed Warrant Liability		Pre-funded warrant liability
Balance as of January 1, 2024	$	28,545	$	240	$	-
Issuance		-		-		24,457
Change in fair value		312		(113)		(13,257)

Balance as of September 30, 2024	$	28,857	$	127	$	11,200

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NOTE 9: - COMMITMENTS AND CONTINGENT LIABILITIES

From time to time, the Company is involved in claims and legal proceedings. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss.

Royalties

The Company has a liability to pay future royalties to the Israeli Innovation Authority (the "IIA") for participation in programs sponsored by the Israeli government for the support of research and development activities. The Company is obligated to pay royalties to the IIA, amounting to 3% of the sales of the products and other related revenues (based on the U.S. dollar) generated from such projects, up to 100% of the grants received. Royalty payment obligations also

bear interest at the LIBOR rate. The obligation to pay these royalties is contingent on actual sales of the products and in the absence of such sales, no payment is required.

In connection with specific research and development activities, Physimax Technology ("Physimax"), prior to its acquisition by the Company, received $1,012 of participation payments from the IIA. The Company's total commitment for royalties payable with respect to future sales, based on IIA participations received, net of royalties accrued or paid, totaled $932 as of September 30, 2024.

During the nine-month period ended September 30, 2024 and 2023, the Company did not record IIA royalties related to the acquisition of Physimax Technology.

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NOTE 10: - INTANGIBLE ASSETS


a. Finite-lived other intangible assets:
	September 30,		December 31,		Weighted Average
	2024		2023		Remaining Life
	Unaudited				As of September 30, 2024
Original amounts:
Technology	$	22,580		$	16,936	5.3
Brand		376			376	0.0
Customer Relationship Healthcare		13,791			-	11.3
Domains		23			-
		36,770			17,312
Accumulated amortization:
Technology		15,324			11,586
Brand		376			322
Customer Relationship Healthcare		724			-
Domains		3			-
		16,427			11,908
Other intangible assets, net	$	20,343		$	5,404


b. Amortization expenses for the nine-month period ended September 30, 2024 and for the year ended December 31, 2023 amounted to $4,519 and $4,512, respectively.

c. Estimated amortization expense:

For the year ended December 31,
Remaining of 2024	$	1,574
2025		2,827
2026		1,875
2027		1,875
2028		1,875
Thereafter		10,317
	$	20,343

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NOTE 11: - GOODWILL

The following tables set forth the changes in the carrying amount of the Company's goodwill during the nine months ended September 30, 2024 and the year ended December 31, 2023 (in thousands):


	September 30,
	2024

As of December 31, 2022	$	41,640
Additions		-
As of December 31, 2023		41,640
Additions		15,787
As of September 30, 2024	$	57,427

NOTE 12: - STOCKHOLDERS' EQUITY

a.	On January 30, 2024, out of the pre-funded warrants that were issued in July 2020, 400,017were exercised on a cashless basis into 400,000shares of Common Stock.

In January and March 2024, the Compensation Committee (the "Compensation Committee") of the Board of Directors of the Company approved the grant of 1,946,500restricted shares, subject to time vesting, to directors, officers and employees of the Company and approved the grant of 1,100,400options to purchase Common Stock, and 320,000performance-based options to purchase Common Stock to officers, employees, and consultants of the Company, at exercise prices between $1.68and $2.14per share. The time vesting restricted shares and stock options vest over various periods between twoto three yearscommencing on the respective grant dates. The options have a ten-yearterm. The restricted shares and the options were issued under the Company's 2020 Equity incentive Plan (the "2020 Plan").

c.	On February 15, 2024, the Company executed a consulting agreement with a former officer of Twill. Pursuant to the terms of the consulting agreement, the Company agreed to issue to the former officer of Twill 350,000fully vested RSUs.

On June 25, 2024, the stockholders of the Company approved the issuance of certain restricted shares and warrants of the Company, under certain consulting agreements with former officers and directors of Twill. Pursuant to the terms of the consulting agreements, the Company agreed to issue to those former officers of Twill warrants to purchase up to 1,032,946 shares of the Company's Common Stock, of which 717,946 are subject to time vesting and 315,000 are subject to certain performance-based metrics, with an exercise price of $2.55 and 383,562 fully vested RSUs.

During the three and nine-month periods ended September 30, 2024, the Company recorded share-based compensation expenses related to these service providers in the amount of $103 and $3,093, respectively. For the three and nine-month periods ended September 30, 2024, no expenses were recorded related to the performance based warrants.

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NOTE 12: - STOCKHOLDERS' EQUITY (Cont.)

In February 2024, the Company issued 17,307, 4,000and 1,115Series C, C-1 and C-2 preferred shares, respectively, at a purchase price of $1,000per preferred share. The Series C and C-1 Preferred Stock are convertible into Common Stock at $2.02per Common Stock. The Series C-2 Preferred Stock is convertible into Common Stock at $2.14per Common Stock. As a result of the sale of the preferred stock, the aggregate gross proceeds to the Company from the Offering were approximately $22,422.

In addition, the holders of preferred stock will also be entitled to dividends payable as follows: (i) a number of shares of Common Stock equal to seven and a half five percent (7.5%) of the number of shares of Common Stock issuable upon conversion of the preferred stock then held by such holder for each full quarter anniversary of holding for a total of four (4) quarters from the Closing Date, and (ii) a number of shares of Common Stock equal to fifteen percent (15%) of the number of shares of Common Stock issuable upon conversion of the preferred stock then held by such holder on the fifth full quarter from the Closing Date.

In May and September 2024, a total of 100 and 25 of certain Series C Convertible Preferred Stock were converted into 49,505 and 14,234 shares of Common Stock, respectively.

During the three and nine-month period ended September 30, 2024, the Company accounted for the dividend shares of Common Stock upon the dividend shares earned by Series C Preferred Stock as a deemed dividend in a total amount of $1,940 and $4,469, respectively.

Through November 2022, December 2022 and January 2023, 6,355Series A Preferred Stock automatically converted into 2,133,904shares of Common Stock after the completion of the 36-month anniversary of each the Series A Preferred Stock. The conversion included accumulative dividends payable available upon conversion of each Series A Preferred Stock.

In April and June 2024, a total of 700and 250of certain Series B Convertible Preferred Stock were converted into 237,323and 89,982shares of Common Stock, respectively, including the issuance of dividend shares. In addition, during the three and nine-month period ended September 30, 2024, the Company accounted for the dividend shares of Common Stock upon the dividend shares earned by Series A-1 Preferred Stock as a deemed dividend in a total amount of $97and $616, respectively.

In April 2024, the Compensation Committee approved the grant of 260,500restricted shares subject to time vesting to employees of the Company and approved the grant of options to purchase up to 564,900shares of Common Stock, to employees and consultants of the Company, at exercise prices between $1.38and $1.48per share. The time vesting restricted shares and stock options vest over various periods between twoto three yearscommencing on the respective grant dates. The options have a ten-yearterm. The restricted shares and the options were issued under the 2020 Plan.

In April 2024, the Compensation Committee approved the grant of warrants to purchase up to 1,471,250shares of Common Stock, with exercise prices between $1.43to $2.00per share, to certain consultants. The warrants are exercisable into shares of Common Stock on or before December 31, 2026. In addition, the Compensation Committee approved a reduction in the exercise price of warrants to purchase up to 700,000shares of Common Stock issued to certain consultants in the past at exercise prices between $5.20to $6.45per share, to an exercise price of $1.60per share. During the nine months ended September 30, 2024, the Company recorded stock based compensation expenses related to the repriced warrants at the amount of $332.

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NOTE 12: - STOCKHOLDERS' EQUITY (Cont.)

On June 25, 2024, following the approval of the necessary preferred holders, the Company modified the terms of the Series B and B-1 preferred stock to (i) extend the mandatory conversion period from fifteen (15) to eighteen (18) months from the original issue date and (ii) increase the percentage of dividends the holders of the preferred stock will be entitled to receive by including a dividend of ten percent (10%) for the fifth full quarter from the closing date and a dividend of twenty five percent (25%) for the sixth quarter from the closing date.

On September 11, 2024, following the approval of the necessary preferred holders, the Company modified the terms of the Series B-3 preferred stock to (i) extend the mandatory conversion period from fifteen (15) to eighteen (18) months from the original issue date and (ii) increase the percentage of dividends the holders of the preferred stock will be entitled to receive by including a dividend of ten percent (10%) for the fifth full quarter from the closing date and a dividend of twenty five percent (25%) for the sixth quarter from the closing date.

The Company concluded that the Series B, B-1 and B-3 preferred shares modification should be accounted for as an extinguishment transaction. As such, the Company recorded the modified preferred shares at their fair value and derecognized the carrying amount of the previous unmodified shares, resulting in a deemed contribution of $12,194.

During the three and nine months ended September 30, 2024, the Company accounted for the dividend shares of common stock upon the deferred conversion of the Series B, B-1, B-2, and B-3 Convertible Preferred Stock as a deemed dividend in a total amount of $649 and $2,715, respectively.

j.	As of September 30, 2024, there were 3,557shares of Series A-1 Preferred stock issuedand outstanding. The outstanding Series A-1 Preferred stock is convertible into approximately 1,655,548shares of Common Stock, including the issuance of dividend shares.

As of September 30, 2024, there were 14,302 shares of Series B, B-1, and B-3 Preferred stock issuedand outstanding. The outstanding Series B, B-1, and B-3 Preferred stock are convertible into approximately 5,575,121 shares of Common Stock, including the issuance of dividend shares.

As of September 30, 2024, there were 22,297 shares of Series C, C-1 and C-2 Preferred stock issuedand outstanding. The outstanding Series C, C-1 and C-2 Preferred stock is convertible into approximately 12,661,848 shares of Common Stock, including the issuance of dividend shares.

In May 2024, the Compensation Committee approved the grant of a non-qualified stock option to purchase up to 2,250,000shares of common stock as an inducement grant to the new Chief Commercial Officer. Out of which 500,000shares will vest over three years, with onethird of such shares vesting on June 1, 2025, and the remaining shares vesting in equal quarterly amounts during the following two years. 1,750,000of the options are performance-based and will commence vesting upon reaching certain performance goals during the fiscal years between 2024 and 2027. Each performance option will vest over a three-yearperiod commencing on the first day of the following fiscal year to which such option relates, in eightequal quarterly instalments.

In August 2024, 150Series B-2 Preferred Stock automatically converted into 57,868shares of Common Stock after the completion of the fifteen (15)-month anniversary of the Series B-2 Preferred Stock. The conversion included accumulative dividends payable available upon conversion of Series B-2 Preferred Stock.

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NOTE 12: - STOCKHOLDERS' EQUITY (Cont.)

In August 2024, the Compensation Committee approved the grant of 590,000restricted shares subject to time vesting to directors, officers and employees of the Company and approved the grant of 1,692,250options to purchase Common Stock, and 300,000performance-based options to purchase Common Stock to officers, employees, and consultants of the Company, at exercise prices between $0.93to $1.05per share. The time vesting restricted shares and stock options vest over three yearscommencing on the respective grant dates. The options have a ten-yearterm. The restricted shares and the options were issued under the Company's 2020 Plan.

In August 2024, the Compensation Committee approved the grant of 418,550restricted shares of Common Stock to certain service providers. During the three and nine months ended September 30, 2024, the Company recorded compensation expense in the amount of $354related to the issuance of these shares of common stock.

In August 2024, the Compensation Committee approved the grant of warrants to purchase up to 600,000shares of Common Stock subject to time vesting of oneto two years, with exercise prices of $0.93per share to certain consultants. 100,000warrants are exercisable into Common Stock on or before December 31, 2027, and 500,000warrants are exercisable into Common Stock on or before August 31, 2029. In addition, the Compensation Committee approved the grant performance-based warrants to purchase up to 800,000shares of Common Stock, with exercise prices of $0.93per share to certain consultants. The warrants are exercisable into Common Stock on or before August 31, 2029.

During the three and nine months ended September 30, 2024, the Company recorded stock-based compensation expenses related to the warrants at the amount of $40.

p.	On September 27, 2024, out of the pre-funded warrants that were issued in July 2020, 287,303were exercised on a cashless basis into 287,273shares of Common Stock.

q.	Stock plans:

On January 23, 2012, the Company's Amended and Restated 2012 Equity Incentive Plan (the "2012 Plan") was adopted by the Board of Directors of the Company and approved by a majority of the Company's stockholders, under which options to purchase shares of the Company's Common Stock have been reserved. Under the 2012 Plan, options to purchase shares of Common Stock may be granted to employees and non-employees of the Company or any affiliate, each option granted can be exercised to one share of Common Stock. The 2012 Plan has expired.

On October 14, 2020, the Company's stockholders approved the 2020 Plan. Under the 2020 Plan, options to purchase shares of Common Stock may be granted to employees and non-employees of the Company or any affiliate, each option granted can be exercised to one share of Common Stock.

In January 2023, pursuant to the terms of the 2020 Plan as approved by the Company's stockholders, the Company increased the number of shares authorized for issuance under the 2020 Plan by 1,994,346 shares, from 3,868,514 to 5,862,860.

In January 2024, pursuant to the terms of the 2020 Plan as approved by the Company's stockholders, the Company increased the number of shares authorized for issuance under the 2020 Plan by 2,493,764 shares, from 5,862,860 to 8,356,624.

In June 2024, pursuant to the terms of the 2020 Plan as approved by the Company's stockholders, the Company increased the number of shares authorized for issuance under the 2020 Plan by 3,000,000 shares, from 8,356,624 to 11,356,624.

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NOTE 12: - STOCKHOLDERS' EQUITY (Cont.)

Transactions related to the grant of options to employees, directors, and non-employees under the above plans and non-plan options during the nine-month period ended September30, 2024, (unaudited) were as follows:


			Weighted
		Weighted	average
		average	remaining	Aggregate
		exercise	contractual	Intrinsic
	Number of	price	life	value
	options	$	Years	$
Options outstanding at beginning of period	2,550,829	9.27	7.02	36
Options granted	9,191,009	1.72	-	-
Options exercised	(8,693)	-	-	-
Options expired	(339,735)	14.30	-	-
Options forfeited	(930,566)	3.63	-	-

Options outstanding at end of period	10,462,844	2.98	8.48	391

Options vested and expected to vest at end of period	8,359,138	2.96	8.45	270

Exercisable at end of period	3,117,845	5.96	7.15	13

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company's closing stock price on the last day of the third quarter of 2024 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2024. This amount is impacted by the changes in the fair market value of the Common Stock.

Transactions related to the grant of restricted shares to employees, directors, and non-employees under the above plans during the nine-month period ended September 30, 2024, (unaudited) were as follows:


								Number of
								Restricted shares

Restricted shares outstanding at beginning of year								2,635,926
Restricted shares granted								2,797,000
Restricted shares forfeited								(230,392)

Restricted shares outstanding at end of period								5,202,534

As of September 30, 2024, the total amount of unrecognized stock-based compensation expense was approximately $9,806 which will be recognized over a weighted average period of 1.07 years.

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NOTE 12: - STOCKHOLDERS' EQUITY (Cont.)

The following table presents the assumptions used to estimate the fair values of the options granted to employees, directors, and non-employees in the period presented:


	Nine months ended
	September 30,
	2024		2023

	Unaudited
Volatility	90.90-97.97	%	90.90-92.62	%
Risk-free interest rate	3.67-4.72	%	3.45-4.13	%
Dividend yield	0	%	0	%
Expected life (years)	5.00-5.87		5.81-5.88

The total compensation cost related to all of the Company's stock-based awards recognized during the nine-month period ended September 30, 2024, and 2023 was comprised as follows:


	Nine months ended
	September 30,
	2024		2023

	Unaudited
Cost of revenues	$	5		$	62
Research and development		2,311			3,713
Sales and marketing		4,354			5,549
General and administrative		6,536			5,983

Total stock-based compensation expenses	$	13,206		$	15,307

NOTE 13: - SELECTED STATEMENTS OF OPERATIONS DATA

Financial expenses (income), net:


	Nine months ended
	September 30,
	2024		2023

	Unaudited
Bank charges	$	74		$	88
Foreign currency adjustments expenses, net		(54)			39
Interest income		(955)			(1,398)
Revaluation of short-term investments		-			(37)
Remeasurement of long-term loan		3,281			4,354
Remeasurement of warrant liability		(13,370)			(386)
Modification of warrants		70			-
Debt issuance cost		-			508

Total Financial expenses (income), net	$	(10,954)		$	3,168

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NOTE 14: - BASIC AND DILUTED NET EARNINGS (LOSS) PER COMMON AND PREFERRED STOCK

The Company computes net loss per share of common and preferred stock using the two-class method. Basic and diluted net earnings or loss per share is computed using the weighted-average number of shares outstanding during the period. This calculation includes the total weighted average number of the Common Stock, which includes prefunded warrants.

The total number of potential common shares related to the outstanding options, warrant and preferred shares excluded from the calculations of diluted net loss per share due to their anti-dilutive effect were 35,626,011 and 34,339,047 for the three and nine months ended September 30, 2024, and for the three and nine months ended September 2023, was $12,551,707.

The following table sets forth the computation of the Company's basic net earnings (loss) per common and preferred stock:


	Three months ended
	September 30,
	2024
	Unaudited
	Common Stock		Preferred A-1		Preferred B	Preferred B-1		Preferred B-2		Preferred B-3	Preferred C		Preferred C-1		Preferred C-2
Basic loss per share
Numerator:
Allocation of undistributed loss	$	9,916,040		$	398,289	$	556,630		$	743,359	$	5,144		$	36,727	$	2,270,744	$	539,081	$	141,786

Denominator:
Number of shares used in per share computation		40,417,421			3,557		6,008			7,946		56			702		13,939		3,241		903

Basic loss per share amounts:
Distributed earnings - deemed dividends (contribution)		-			27.25		44.28			44.72		75.43			(548.65)		107.59		107.59		101.81
Undistributed loss - allocated		(0)			(111.97)		(92.64)			(93.55)		(91.78)			(52.29)		(162.91)		(166.34)		(156.95)
Basic loss per share	$	(0.25)		$	(84.73)	$	(48.36)		$	(48.83)	$	(16.35)		$	(600.94)	$	(55.32)	$	(58.75)	$	(55.13)

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NOTE 14: - BASIC AND DILUTED NET EARNINGS (LOSS) PER COMMON AND PREFERRED STOCK (Cont.)


	Nine months ended
	September 30,
	2024
	Unaudited
	Common Stock		Preferred A-1		Preferred B	Preferred B-1		Preferred B-2		Preferred B-3	Preferred C		Preferred C-1		Preferred C-2
Basic earnings (loss) per share
Numerator:
Allocation of undistributed loss	$	20,297,811		$	789,511	$	1,131,884		$	1,474,626	$	21,413		$	119,041	$	3,771,454	$	882,839	$	232,199

Denominator:
Number of shares used in per share computation		39,093,575			3,557		6,104			7,946		119			669		13,981		3,241		903

Basic earnings (loss) per share amounts:
Distributed earnings - deemed dividends (contribution)		-			173.09		(921.73)			(453.46)		208.62			(409.45)		247.21		247.41		234.36
Undistributed loss - allocated		(0.52)			(221.96)		(185.43)			(185.58)		(180.25)			(177.90)		(269.75)		(272.41)		(257.03)
Basic earnings (loss) per share	$	(0.52)		$	(48.86)	$	(1,107.15)		$	(639.04)	$	28.37		$	(587.36)	$	(22.54)	$	(24.99)	$	(22.67)

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NOTE 14: - BASIC AND DILUTED NET EARNINGS (LOSS) PER COMMON AND PREFERRED STOCK (Cont.)


	Three months ended		Nine months ended
	September 30,
	2023
	Unaudited
Basic loss per share
Numerator:
Allocation of undistributed loss	$	14,195,692		$	42,859,300

Denominator:
Number of shares used in per share computation		28,815,604			28,195,216

Basic loss per share amounts:
Distributed earnings - deemed dividends		-			-
Undistributed loss - allocated		0.49			1.52
Basic loss per share	$	0.49		$	1.52

For the three months ended September 30, 2023, the basic and diluted net earnings (loss) per share of Preferred A-1, B, B-1, B-2 and B-3 was $(57.03), $(86.70), $(86.70), $(85.87)and $(83.37) respectively.

For the nine months ended September 30, 2023, the basic and diluted net loss per share of Preferred A-1, B, B-1, B-2 and B-3 was $6.86, $(276.70), $(276.47), $(273.83), and $(265.65)respectively.

NOTE 15: - SUBSEQUENT EVENT

In November 2024, the Compensation Committee of the Board of Directors approved the grant of 10,000restricted shares subject to time vesting to employees of the Company and approved the grant of options to purchase up to 368,250shares of Common Stock, to employees and consultants of the Company, at an exercise price of $0.9475per share. The time vesting restricted shares and stock options vest over various periods between oneto three yearscommencing on the respective grant dates. The options have a ten-yearterm. The restricted shares and the options were issued under the 2020 Plan.

b.	In November 2024, the Compensation Committee approved the grant of warrants to purchase up to 469,653shares of Common Stock, with an exercise price of $0.9475per share to certain consultants. The warrants are exercisable into Common Stock on or before five yearsfrom the grant date.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Readers are advised to review the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2023. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See "Cautionary Note Regarding Forward-Looking Statements". You should review the "Risk Factors" section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

The following financial data in this narrative are expressed in thousands, except for stock and stock data or as otherwise noted.

We are revolutionizing how people with chronic conditions manage their health through the innovation of a new category of digital health: Digital Therapeutics as a Service ("DTaaS"). We believe that our innovative approach to digital therapeutics disrupts the traditional provider-centered system of healthcare delivery by offering user-centric care that is continuous, customized supportive of better overall health. Our solutions combine the power of technologies and behavior science to make better health accessible, affordable, and easy for all by solving for what people need, when and where they want it, with hyper-personalized care that is always connected - to services, devices, and people - and delivered continuously. Our solutions are proven to drive savings for health plans and employers by improving the health of their populations.

We began as a direct-to-consumer digital therapeutics company, solving first for the problem of how to engage users and support behavior change to improve clinical outcomes in diabetes. Beginning in 2020, we enacted a strategic shift to transform the business model by deploying a business-to-business-to-consumer ("B2B2C") approach, leveraging the strengths of our consumer solution platform to enable commercial growth opportunities in traditional health business channels by selling to health plans and employers.

At the same time, we expanded from a single-condition platform to a multi-condition platform, creating a robust suite of solutions to address the five most commonly co-occurring, behaviorally driven, and expensive chronic conditions, which are also representative of some of the most sought-after digital health solutions: diabetes, hypertension, pre-diabetes/weight management, musculoskeletal and behavioral health. After building weight loss and hypertension management into the legacy diabetes platform, we made three acquisitions in order to expand into musculoskeletal (MSK) and behavioral health (BH). In that regard, we acquired Upright, PsyInnovations and Physimax Technology assets to expand into the fields of MSK and BH. Our approach to integrating all solutions into one digital therapeutics platform follows the "best-of-suite" offering design principal which provides the user one place to monitor all identified chronic conditions and to deliver a seamless user experience for commonly co-occurring chronic conditions.

These two shifts led to the rapid expansion of our B2B2C business over the last two years and positioned us for success in commercial markets. We continue to achieve key benchmarks as we rapidly scale our B2B2C model, including more than 100 total signed contracts to date and the shift in our commercial pipeline where more than 50% of the contracts signed in the second half of 2022 are for multi-chronic solutions. We believe we have a unique and defensible position in the market thanks to our unique solution origin in consumer markets.

We continue to generate a significant number of clinical publications. In that regard, we have published 47 real world data studies with total of 10 generated in 2022, 10 generated in 2023, and several more planned for 2024.

We believe that we are proving the value of our solutions as enterprise business sales continue to grow. With more than 100 signed contracts to date, we have solid evidence on the key differentiators that lead to new business opportunities: a consumer-friendly approach that drives engagement; deep integration capabilities; and best-in-class clinical outcomes.

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Recent Developments

New Research Reveals How Physical Activity Mediates the Impact of Depression on Blood Glucose Levels in Individuals with Diabetes or Prediabetes

In September 2024, we announced the publication of a new study in the peer-reviewed journal Frontiers in Endocrinology. The study demonstrates the effectiveness of our cardiometabolic solution for members living with diabetes or prediabetes and depression.

Integration of Twill Behavioral Health Capabilities into Cardiometabolic Health Solution

In September 2024, we announced the integration of condition-specific communities and peer groups with personalized navigation capabilities into our cardiometabolic solution to improve outcomes-based engagement, marking a significant milestone in the integration of the Dario-Twill product offering.

Twill by Dario to Offer a Benefit for AARP Members

In October 2024, we announced a new AARP member benefit that provides members with proven digital behavioral health and well-being solutions from Twill by Dario. The new benefit is expected to launch in January of 2025 for AARP members.

Integration of Twill Capabilities Across Full Multi-Condition Platform

In October 2024, we announced the full integration of Twill's advanced behavioral health and navigation capabilities into our platform. The integration completed our effort to create one of the most comprehensive and effective end-to-end digital health solutions in the market. By unifying data across mental and physical health, we offer a more personalized and effective approach to care.

Workforce Reduction

During the second and the third quarters of 2024, as part of our effort to reduce operating expenses, we commenced a reduction in work force by 78 employees, reflecting a reduction of approximately 27% of our workforce. Following the reduction in work force, at the end implementing the work force reduction during the fourth quarter of this year we expect to have 66 employees located in Israel, 85 employees located in the United States and 77 employees located in India, and 21 employees located in the rest of the world.

Results of Operations

Comparison of the three and nine months ended September 30, 2024, and September 30, 2023 (dollar amounts in thousands)

Revenues

Revenues for the three and nine months ended September 30, 2024, amounted to $7,423 and $19,436, compared to revenues of $3,518 and $16,736, during the three and nine months ended September 30, 2023, representing an increase of 111% and 16.1%. The increase in revenues for the three and nine months ended September 30, 2024, compared to the three and nine months ended September 30, 2023, resulted from an increase in our revenues from the commercial channel. The revenues also include the consolidation of Twill Inc.'s ("Twill") revenues, as a result of its acquisition during the first quarter of 2024. The proforma revenues for the nine months ended September 30, 2024, if the closing of the acquisition of Twill would have taken place on the first day of the year would have amounted to $21,399.

Cost of Revenues

During the three and nine months ended September 30, 2024, we recorded costs related to revenues in the amount of $3,546 and $10,371, compared to costs related to revenues of $2,908and $10,884during the three and nine months ended September 30, 2023, representing an increase of 21.9% and a decrease of 4.7% respectively. The increase in cost of revenues in the three months ended September 30, 2024, compared to the three months ended September 30, 2023 was mainly a result of the increase in the sales of hardware, inventory write-off and amortization of technology related to the

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acquisition of Twill. The decrease in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, was mainly due to a reduction in payroll costs included in the cost of revenues during the period, offset by an increase in hosting costs and amortization of technology related to the acquisition of Twill.

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

Gross Profit

Gross profit for the three and nine months ended September 30, 2024, amounted to $3,877 (52.2% of revenues) and $9,065 (46.6% of revenues) compared to $610 (17.3% of revenues) and $5,852 (35% of revenues) during the three and nine months ended September 30, 2023. The increase in gross profit as a percentage of revenues for the three and nine months ended September 30, 2024, compared to the three and nine months ended September 30, 2023, resulted mainly from the increase in the revenues from the commercial channel mainly related to the acquisition of Twill.

Research and Development Expenses

Our research and development expenses decreased by $219, or 3.9%, to $5,446 for the three months ended September 30, 2024, compared to $5,665 for the three months ended September 30, 2023, and increased by $2,846, or 17.7%, to $18,898 for the nine months ended September 30, 2024, compared to $16,052 for the nine months ended September 30, 2023. The decrease for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, was mainly due to the decrease in payroll expenses and stock-based compensation, partially offset by an increase in subcontractors and consulting expenses mainly related to the acquisition of Twill. The increase for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, was mainly a result of higher payroll related expenses, software licenses and an increase in subcontractors and consulting expenses due to the consolidation of Twill, partially offset by a decrease in stock-based compensation expenses during the nine months ended September 30, 2024. Our research and development expenses, excluding stock-based compensation and depreciation, for the three and nine months ended September 30, 2024, were $4,635and $16,400compared to $4,417and $12,282for the three and nine months ended September 30, 2023, an increase of $218and $4,118respectively. The increase during the three months ended September 30, 2024, was mainly due to an increase in subcontractors and consulting services and software licenses resulting from the consolidation of Twill, partially offset by a decrease inpayroll expenses. The increase for the nine months ended September 30, 2024 was mainly due to an increase in payroll expenses, subcontractors and consulting services and software licenses resulting from the consolidation of Twill.

Research and development expenses consist mainly of employees' salaries and related overhead costs involved in research and development activities, expenses related to: (i) our solutions including our Dario Smart Diabetes Management Solution, Dario Move solution and our digital behavioral health solution, (ii) labor, stock-based compensation 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 approval requirements and (v) facilities expenses associated with and allocated to research and development activities.

Sales and Marketing Expenses

Our sales and marketing expenses increased by $370, or 5.8%, to $6,733 for the three months ended September 30, 2024, compared to $6,363 for the three months ended September 30, 2023, and increased by $1,612, or 8.4%, to $20,775 for the nine months ended September 30, 2024, compared to $19,163 for the nine months ended September 30, 2023. The increase for the three and nine months ended September 30, 2024, compared to the three and nine months ended September 30, 2023, was mainly a result of higher payroll related expenses, amortization of customer relationship, software licenses and an increase in subcontractors and consulting expenses due to the consolidation of Twill, partially offset by a decrease in stock-based compensation expenses during the three and nine months ended September 30, 2024. Our sales and marketing expenses, excluding stock-based compensation, depreciation, and amortization of acquired brand and customer relationship, for the three and nine months ended September 30, 2024, were $5,096and $15,562compared to $4,445and $13,484for the three and nine months ended September 30, 2023, an increase of $651and $2,078,

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respectively. The increase was mainly due to an increase in payroll expenses, subcontractors and consulting services and software licenses resulting from the consolidation of Twill during the three and ninemonths ended September30, 2024

Sales and marketing expenses consist mainly of employees' salaries and related overhead costs, stock-based compensation, online marketing campaigns of our service offering, trade show expenses and marketing consultants, marketing expenses and subcontractors.

General and Administrative Expenses

Our general and administrative expenses decreased by $400, or 9.7%, to $3,728 for the three months ended September 30, 2024, compared to $4,128 for the three months ended September 30, 2023, and increased by $2,857 or 22.7% to $15,468 for the ninemonths ended September30, 2024, compared to $12,611 for the ninemonths ended September30, 2023. The decrease for the three months ended September 30, 2024, compared to the three months ended September 30, 2023 was mainly due to a decrease in stock-based compensation and legal expenses partially offset by higher payroll expenses. The increase in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, was mainly due to higher payroll related expenses, stock-based compensation expenses and acquisition costs related to the consolidation of Twill during the nine months ended September 30, 2024. Our general and administrative expenses, excluding stock-based compensation, depreciation, and acquisition related costs for the three and nine months ended September 30, 2024 were $2,614and $7,757compared to $2,053and $6,521for the three and nine months ended September 30, 2023, an increase of $561and $1,236, respectively. The increase was mainly due to higher payroll expenses during the three and nine months ended September30, 2024.

Our general and administrative expenses consist mainly of employees' salaries and related overhead costs, stock-based compensation, directors' fees, legal and accounting fees, patent registration, expenses related to investor relations, as well as our office rent and related expenses.

Financial Income (Expenses), net

Our financial expenses, net for the three months ended September 30, 2024, were $313, representing an increase of $127, compared to financial expenses of $186 for the three months ended September 30, 2023. The financial income, net for the nine months ended September 30, 2024, was $10,954 representing an increase of $14,122, compared to financial expenses of $3,168 for the nine months ended September 30, 2023. The increase in our financial expenses, net in the three months ended September 30, 2024, compared to the three months ended September 30, 2023 was mainly due to lower income from interest and a decrease in the revaluation of our loan and warrant. The increase in the financial income, net for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, was due to income from revaluation of the pre-funded warrants issued as part of the consideration for the acquisition of Twill, as these warrants are classified as a liability under U.S. GAAP (as hereinafter defined).

Financial expenses, net primarily consists of credit facility interest expense, interest income from cash balances, revaluation of warrants, revaluation of short-term investments, bank charges, lease liability and foreign currency translation differences.

Income tax

Income from tax was $13 for the three months ended September 30, 2024, representing an increase of $13 as compared to $0 for the three months ended September 30, 2023. Our income tax for the nine months ended September 30, 2024, was $2,007 representing an increase of $2,007, compared to income tax of $0 for the nine months ended September 30, 2023. The increase in our income from tax was due to a change in the valuation allowance for deferred tax liability that resulted from the acquisition of Twill.

Net loss

Net loss decreased by $3,402, or 21.6%, to $12,330 for the three months ended September 30, 2024, compared to a net loss of $15,732 for the three months ended September 30, 2023, and decreased by $12,027, or 26.6%, to $33,115 for the nine months ended September 30, 2024, compared to a net loss of $45,142 for the nine months ended September

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30, 2023. The decrease in net loss for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, was mainly due to the increase in our gross profit for the three months ended September 30, 2024. The decrease in net loss for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, was mainly due to the increase in our financial income and gross profit for the nine months ended September 30, 2024.

The factors described above resulted in net loss attributable to common stockholders for the three and nine months ended September 30, 2024, amounted to $14,608 and $28,721, respectively, compared to net loss attributable to common stockholders of $16,904 and $48,005 for the three and nine months ended September 30, 2023.

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Non-GAAP Financial Measures

To supplement our unaudited condensed consolidated financial statements presented in accordance with generally accepted accounting principles in the United States ("U.S. GAAP") within this Quarterly Report on Form 10-Q, management provides certain non-GAAP financial measures ("NGFM") of the Company's financial results, including such amounts captioned: "net loss before interest, taxes, depreciation, and amortization" or "EBITDA", and "Non-GAAP Adjusted Loss", as presented herein below. Importantly, we note the NGFM measures captioned "EBITDA" and "Non-GAAP Adjusted Loss" are not recognized terms under U.S. GAAP, and as such, they are not a substitute for, considered superior to, considered separately from, nor as an alternative to, U.S. GAAP and /or the most directly comparable U.S. GAAP financial measures.

Such NGFM are presented with the intent of providing greater transparency of information used by us in our financial performance analysis and operational decision-making. Additionally, we believe these NGFM provide meaningful information to assist investors, shareholders, and other readers of our unaudited condensed consolidated financial statements, in making comparisons to our historical financial results, and analyzing the underlying financial results of our operations. The NGFM are provided to enhance readers' overall understanding of our current financial results and to provide further information to enhance the comparability of results between the current year period and the prior year period.

We believe the NGFM provide useful information by isolating certain expenses, gains, and losses, which are not necessarily indicative of our operating financial results and business outlook. In this regard, the presentation of the NGFM herein below, is to help the reader of our unaudited condensed consolidated financial statements to understand the effects of the non-cash impact on our (U.S. GAAP) unaudited condensed consolidated statement of operations of the revaluation of the warrants and the expense related to stock-based compensation, each as discussed herein above.

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A reconciliation to the most directly comparable U.S. GAAP measure to NGFM, as discussed above, is as follows:


	Three Months Ended September 30,
	(in thousands)
	2024		2023		$ Change
Net Loss Reconciliation
Net loss - as reported	$	(12,330)		$	(15,732)	$	3,402

Adjustments
Depreciation and impairment expense		125			99		26
Amortization of acquired technology and brand		2,003			1,137		866
Other financial (income) expenses, net		313			186		127
Income tax		(13)			-		(13)

EBITDA		(9,902)			(14,310)		4,408

Acquisition costs		-			-		-
Stock-based compensation expenses		2,786			5,159		(2,373)

Non-GAAP adjusted loss	$	(7,116)		$	(9,151)	$	2,035


	Nine Months Ended September 30,
	(in thousands)
	2024		2023		$ Change
Net Loss Reconciliation
Net loss - as reported	$	(33,115)		$	(45,142)	$	12,027

Adjustments
Depreciation and impairment expense		773			290		483
Amortization of acquired technology, brand and customer relationship		4,519			3,375		1,144
Other financial (income) expenses, net		(10,954)			3,168		(14,122)
Income tax		(2,007)			-		(2,007)

EBITDA		(40,784)			(38,309)		(2,475)

Acquisition costs		713			-		713
Stock-based compensation expenses		13,206			15,307		(2,101)

Non-GAAP adjusted loss	$	(26,865)		$	(23,002)	$	(3,863)

Liquidity and Capital Resources (amounts in thousands except for share and share amounts)

As of September 30, 2024, we had approximately $15,547 in cash and cash equivalents compared to $36,797 on December 31, 2023.

We have experienced cumulative losses of $378,082 since inception (August 11, 2011) through September 30, 2024, and have a stockholders' equity of $58,511 as of September 30, 2024. In addition, we have not completed our efforts to establish a stable recurring source of revenues sufficient to cover our operating costs and expect to continue to generate losses for the foreseeable future.

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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 $264,601 and a credit facility of $25,564 as of September 30, 2024.

On February 28, 2022, we entered into a securities purchase agreement with institutional investors, pursuant to which we agreed to issue and sell to the investors in a registered direct offering priced at-the-market under Nasdaq rules an aggregate of 4,674,454 shares of our common stock, par value $0.0001 per share, and pre-funded warrants to purchase an aggregate of 667,559 shares of our common stock. Each share was sold at an offering price of $7.49 per share, and each pre-funded warrant was sold at an offering price of $7.4899, for aggregate gross proceeds of approximately $40 million before deducting the offering expenses. In addition, the investors have executed lock up agreements agreeing to a lock up period of three days.

On May 1, 2023, we entered into securities purchase agreements with accredited investors relating to an offering and the sale of an aggregate of 6,200 shares of newly designated Series B Preferred Stock, an aggregate of 7,946 shares of Series B-1 Preferred Stock, and an aggregate of 150 shares of 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 securities purchase agreements with accredited investors, relating to an offering and the sale of an aggregate of 1,106 shares of newly designated Series B-3 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 us from the offering are approximately $15.4 million.

On June 25, 2024, upon obtaining the vote of a majority of the holders of the relevant classes of preferred stock, we filed a Second Amended and Restated Certificate of Designation of Preferences, Rights and Limitations of the Company's Series B Preferred Stock (the "Series B Certificate of Designation") and Second Amended and Restated Certificate of Designation of Preferences, Rights and Limitations of the Company's Series B-1 Preferred Stock, all with the Secretary of State of the State of Delaware (collectively, the "Certificates of Designation").The Certificates of Designation were amended to (i) extend the mandatory conversion period from fifteen (15) to eighteen (18) months from the original issue date and (ii) increase the percentage of dividends the holders of Series B Certificate of Designation and Series B-1 Certificate of Designation will be entitled to receive by including a dividend of ten percent (10%) for the fifth full quarter from the closing date and a dividend of twenty five percent (25%) for the sixth quarter from the closing date.

On September 11, 2024, upon obtaining the vote of a majority of the holders of the relevant class of preferred stock, we filed a Second Amended and Restated Certificate of Designation of Preferences, Rights and Limitations of the Company's Series B-3 Preferred Stock with the Secretary of State of the State of Delaware (the "Series B-3 Certificate of Designation"). The Series B-3 Certificate of Designation was amended to (i) extend the mandatory conversion period from fifteen (15) to eighteen (18) months from the original issue date and (ii) increase the percentage of dividends the holders of Series B-3 Certificate of Designation will be entitled to receive by including a dividend of ten percent (10%) for the fifth full quarter from the closing date and a dividend of twenty five percent (25%) for the sixth quarter from the closing date.

On May 1, 2023, we entered into a Loan and Security Agreement, and Supplement thereto (the "LSA"), by and between the us and our subsidiary, PsyInnovations Inc. ("PsyInnovations"), collectively as the borrowers (the "Borrowers") and the Avenue Lenders. The LSAprovides 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 may be made available on the later of July 1, 2023 or the date the AvenueLenders approve the issuance of the Discretionary Tranche. On May 1, 2023, we closed on the Initial Tranche, less certain fees and expenses payable to or on behalf of the AvenueLenders. As a result of the execution of the LSA and the funding of the Initial Tranche, the Company satisfied its prior Credit Agreement it 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,

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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. 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 $4.001 per share.

On June 25, 2024, the Company's stockholders approved the Avenue Amendment and repricing of the Warrants to purchase up to 584,882 shares of Common Stock issued to the lenders on May 1, 2023 from an exercise price $3.334 per share, to $2.02 which was the "minimum price" as defined by Nasdaq rules as of the closing of the Twill Agreement and (ii) permit the lenders, subject to Nasdaq rules, to convert up to $2,000 of the principal amount of the outstanding Avenue Loan Facility into Borrower's unrestricted shares of the Company's Common Stock at a conversion price of $4.001.

Pursuant to the LSA, the Company is obligated to maintain at least $5,000 of unrestricted cash in deposit accounts located in the United States.

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.

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

As such, we have a significant present need for capital. If we are unable to scale up our commercial launch of our products or meet our commercial sales targets (or if we are unable to generate any revenue at all), 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.

Additionally, readers are advised that available resources may be consumed more rapidly than currently anticipated, resulting in the need for additional funding sooner than expected. Should this occur, we will need to seek additional capital earlier than anticipated in order to fund (1) further development and, if needed (2) our efforts to obtain regulatory clearances or approvals necessary to be able to commercially launch Dario, Dario Engage and Dario Intelligence, (3) expenses which will be required in order to expand manufacturing of our hardware, (4) sales and marketing efforts and (5) general working capital. Such funding may be unavailable to us on acceptable terms, or at all. Our failure to obtain such funding when needed could create a negative impact on our stock price or could potentially lead to the failure of our company. This would particularly be the case if we are unable to commercially distribute our hardware and services in the jurisdictions and in the timeframes we expect.

Cash Flows (dollar amounts in thousands)

The following table sets forth selected cash flow information for the periods indicated:


	September 30,
	2024	2023
	$	$
Cash used in operating activities:	(31,830)	(23,038)
Cash used in investing activities:	(8,913)	(464)
Cash provided by financing activities:	20,206	18,253
	(20,537)	(5,249)

Net cash used in operating activities

Net cash used in operating activities was $31,830 for the nine months ended September 30, 2024, an increase of 38.2% compared to $23,038 used in operations for the same period in 2023. Cash used in operations increased mainly due to the increase in our operating expenses.

Net cash used in investing activities

Net cash used in investing activities was $8,913for the nine months ended September 30, 2024, compared to $464 net cash used in investing activities during the same period in 2023. The increase is mainly related to net fair value of assets acquired and liabilities assumed upon the acquisition of Twill during the nine months ended September 30, 2024, compared to the same period in 2023.

Net cash provided from financing activities

Net cash derived from financing activities was $20,206 for the nine months ended September 30, 2024, compared to $18,253 net cash used by financing activities during the same period in 2023. The increase is mainly due to proceeds from the issuance of preferred shares in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

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Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer (the "Certifying Officers"), conducted evaluations of our disclosure controls and procedures. As defined under Sections 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, (the "Exchange Act", the term "disclosure controls and procedures" means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including the Certifying Officers, to allow timely decisions regarding required disclosures.

Based on their evaluation, the Certifying Officers concluded that, as of September 30, 2024, our disclosure controls and procedures were designed at a reasonable assurance level and were therefore effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Internal Controls

Readers are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our control have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

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PART II - OTHER INFORMATION

Item 1A. Risk Factors.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2023, which could materially affect our business, financial condition, or future results.

There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, except as noted below.

Currently, our revenues are concentrated with a major customer, and our revenues may decrease significantly if we were to lose our major customer.

Due to our limited operating history, we have a limited customer base and have depended on a major customer for a significant portion of our revenue. As of September 30, 2024, our major customer accounted for 40.4% of our accounts receivable balance and, for the three and nine -month periods ended September 30, 2024, the customer accounted for 25.6% and 24.5%, respectively, of our revenue. If the customer were to terminate the agreement, or if we fail to adequately perform under the agreement, and if we are unable to diversify our customer base, our revenue could decline, and our results of operations could be adversely affected.

Our principal executive offices and other significant operations are located in Israel, and, therefore, our results may be adversely affected by political, economic and military instability in Israel, including the multi front war Israel is currently facing.

Our executive offices and corporate headquarters are located in Israel. In addition, most of our executive officers are residents of Israel, although the majority of our employees are located outside of Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors. On October 7, 2023, Hamas terrorists infiltrated Israel's southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets. Hamas also launched extensive rocket attacks on Israeli population and industrial centers located along Israel's border with the Gaza Strip and in other areas within the State of Israel. Following the attack, Israel's security cabinet declared war against Hamas and the Israeli military began to call-up reservists for active duty. At the same time, and because of the war declaration against Hamas, the clash between Israel and Hezbollah in Lebanon has escalated to an armed conflict, which includes daily attacks on Israel.

Furthermore, certain of our employees may be obligated to perform annual reserve duty in the Israel Defense Forces and are subject to being called up for active military duty at any time. Many Israeli citizens who have served in the army are required to perform reserve duty until they reach the age of 40 or older, depending upon the nature of their military service. None of our executive officers have been called up for active military duty.

Our commercial insurance does not cover losses that may occur as a result of events associated with war and terrorism. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained or that it will sufficiently cover our potential damages.

We believe our current cash on hand will not be sufficient to fund our projected operating requirements for a period of one year from the issuance of these interim financial statements. This raises substantial doubt about our ability to continue as a going concern.

We believe that our current cash on hand will not be sufficient to fund our projected operating requirements for a period of one year from the issuance of our interim financial statements. This raises substantial doubt about our ability to continue as a going concern and could materially limit our ability to raise additional funds through the issuance of equity or debt securities or otherwise. Further reports on our financial statements may include an explanatory paragraph with respect to our ability to continue as a going concern. If we cannot continue as a going concern, our investors may lose their

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entire investment in our securities. Until we can generate significant revenues, if ever, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminate research or development plans for, or commercialization efforts with respect to our products.

The market price of our common stock has been extremely volatile and may continue to be volatile due to numerous circumstances beyond our control.

The market price of our common stock has fluctuated, and may continue to fluctuate, widely, due to many factors, some of which may be beyond our control. These factors include, without limitation:

●	"short squeezes";

●	comments by securities analysts or other third parties, including blogs, articles, message boards and social and other media;

●	large stockholders exiting their position in our securities or an increase or decrease in the short interest in our securities;

●	actual or anticipated fluctuations in our financial and operating results;

●	changes in foreign currency exchange rates;

●	the commencement, enrollment or results of our planned or future clinical trials of our product candidates or those of our competitors;

●	the success of competitive drugs or therapies;

●	regulatory or legal developments in the United States and other countries;

●	the success of competitive products or technologies;

●	developments or disputes concerning patent applications, issued patents or other proprietary rights;

●	the recruitment or departure of key personnel;

●	the level of expenses related to our product candidates or clinical development programs;

●	litigation matters, including amounts which may or may not be recoverable pursuant to our officer and director insurance policies, regulatory actions affecting the Company and the outcome thereof;

●	the results of our efforts to discover, develop, acquire or in-license additional product candidates;

●	actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

●	disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;

●	significant lawsuits, including patent or stockholder litigation;

●	variations in our financial results or those of companies that are perceived to be similar to us;

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●	market conditions in our market sector;

●	general economic, political, and market conditions and overall fluctuations in the financial markets in the United States and abroad; and

●	investors' general perception of us and our business.

Stock markets in general and our stock price in particular have recently experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies and our company. For example, the closing sale prices of our Common Stock from January 1, 2024 through November 5, 2024, ranged from a high of $2.55 per share (on February 15, 2024) to a low of $0.78 per share (on September 4, 2024). During that time, we have not experienced any material changes in our financial condition or results of operations that would explain such price volatility or trading volume; however, we have sold equity which was dilutive to existing stockholders. These broad market fluctuations may adversely affect the trading price of our securities. Additionally, these and other external factors have caused and may continue to cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent our stockholders from readily selling their shares of our common stock and may otherwise negatively affect the liquidity of our common stock.

In addition, if the stock price of our common stock continues to trade at its current level, it may imply as a negative indicator of the valuation of our intangible assets and our goodwill, which could result in an impairment for these assets.

Nasdaq may delist our securities from trading on its exchange, which could limit investors' ability to make transactions in our securities and subject us to additional trading restrictions.

On September 16, 2024, we received a written notice from the Nasdaq Stock Market LLC ("Nasdaq") indicating that we are not in compliance with Nasdaq Listing Rule 5550(a)(2), as our closing bid price for our common stock was below $1.00 per share for the last 30 consecutive business days. Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), we have been granted a 180-calendar day compliance period, or until March 17, 2025, to regain compliance with the minimum bid price requirement. During the compliance period, our common stock will continue to be listed and traded on the Nasdaq Stock Market. To regain compliance, the closing bid price of our common stock must meet or exceed $1.00 per share for at least 10 consecutive business days during the 180-calendar day compliance period.

If we are not in compliance by March 17, 2025, we may be afforded a second 180-calendar day compliance period. To qualify for this additional time, we will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for Nasdaq with the exception of the minimum bid price requirement, and will need to provide written notice of our intention to cure the deficiency during the second compliance period. If we do not regain compliance within the allotted compliance period(s), including any extensions that may be granted by Nasdaq, Nasdaq will provide notice that our common stock will be subject to delisting.

We intend to monitor the closing bid price of our common stock between now and March 17, 2025, and will consider available options to resolve our noncompliance with the minimum bid price requirement as may be necessary. There can be no assurance that we will be able to regain compliance with the minimum bid price requirement or that we will otherwise be in compliance with other Nasdaq listing criteria.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the third quarter of 2024, we issued an aggregate of 418,550 shares of the Company's common stock to certain of our service providers as compensation in lieu of cash compensation owed to them for services rendered.

We claimed exemption from registration under the Securities Act of 1933, as amended (the "Securities Act"), for the foregoing transactions under Section 4(a)(2) of the Securities Act.

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Item 5. Other Information.

On November 4, 2024, our Compensation Committee approved amendments to certain previously issued awards of restricted Common Stock in the aggregate amount of 68,750 and 250,000, respectively, granted to Mr. Erez Raphael, our Chief Executive Officer, and Mr. Zvi Ben David, our Chief Financial Officer, in the aggregate amount of 23,750 and 125,000, respectively, on May 18, 2022 and March 6, 2024 (collectively, the "Prior Awards") to permit an immediate acceleration of the unvested portion of the Prior Awards in the event of change in control of the Company.

Item 6. Exhibits.

No.		Description of Exhibit
3.1		Second Amended and Restated Certificate of Designation of Preferences, Rights and Limitations of Series B-3 Preferred Stock of DarioHealth Corp. (incorporated by reference to Exhibit 3.1 filed with the Company's Current Report on Form 8-K filed on September 13, 2024).
31.1*		Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a).
31.2*		Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a).
32.1**		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350.
32.2**		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350.
101.1*		The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Loss, (iii) Statements of Changes in Stockholders' Deficiency, (iv) Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail.
104		Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101).

*Filed herewith.

**Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: November 7, 2024	DarioHealth Corp.

By:	/s/ Erez Raphael
Name:	Erez Raphael
Title:	Chief Executive Officer (Principal Executive Officer)

By:	/s/ Zvi Ben David
Name:	Zvi Ben David
Title:	Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer)

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