DarioHealth Corp

NOTE 1:- GENERAL

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.

DarioHealth’s digital therapeutic platform has been designed with a ‘user-first’ strategy, focusing on the user’s needs first and foremost, and user experience and satisfaction. User satisfaction is constantly measured and drives, all company processes, including our technology design.

The Company hasone reporting unit andone operating segment.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements are prepared according to United States generally accepted accounting principles (“U.S. GAAP”).

The preparation of the consolidated financial statements and related disclosures in conformity with U.S. GAAP requires the Company’s management to make judgments, assumptions and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material.

These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements including other accounts receivable and prepaid expenses and other accounts payable and accrued expenses, and the reported amounts of revenue, cost of revenues and operational expenses during the reporting period. Actual results could differ from those estimates.

The functional currency of the Company and its subsidiaries is the U.S dollar.

The Company’s revenues and financing activities are incurred in U.S. dollars. Although a portion of LabStyle expenses is denominated in New Israeli Shekels (“NIS”) (mainly cost of personnel), a substantial portion of its expenses is denominated in dollars. Accordingly, the Company’s management believes that the currency of the primary economic environment in which the Company and its subsidiaries operate is the dollar; thus, the dollar is the functional currency of the Company. Transactions and balances denominated in dollars are presented at their original amounts. Monetary accounts denominated in currencies other than the dollar are re-measured into dollars in accordance with ASC 830, “Foreign Currency Matters”. All transaction gains and losses of the re-measurement of monetary balance sheet items are reflected in the consolidated statements of comprehensive loss as financial income or expenses, as appropriate.

The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany accounts and transactions have been eliminated upon consolidation.

Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assessing performance. The Company defines the term “chief operating decision maker” to be its Chief Executive Officer. The Company’s Chief Executive Officer reviews the financial information presented onconsolidated basis for purposes of allocating resources and evaluating its financial performance. Accordingly, the Company has determined that it operates as a single reportable segment.

The Company considers all highly liquid investments, which are readily convertible to cash with a maturity of three months or less at the date of acquisition, to be cash equivalents.

Short-term restricted bank deposits are restricted deposits with maturities of up to one year and are pledged in favor of the bank as a security for the bank guaranties issued to the landlords of the Company’s offices and credit card payments. The short-term restricted bank deposits are denominated in NIS and USD and bear interest at an average rate of 5.2% and 0.61% as of December 31, 2023 and 2022, respectively. The short-term restricted bank deposits are presented at their cost, including accrued interest.

As of December 31, 2023, and 2022, the Company had a short-term restricted bank deposit which are used as collateral for rent and gratuity in the amount of $229 and $113, respectively.

As of December 31, 2023, and 2022, the Company had short-term restricted bank deposits which are used as collateral for credit payments in amounts of $63 and $52, respectively.

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:

The Company records trade receivables for amounts invoiced and yet unbilled invoices. The Company’s expected loss allowance methodology for trade receivables is based upon its assessment of various factors, including historical experience, the age of the trade receivable balances, credit quality of its customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from customers. The estimated credit loss allowance is recorded as general and administrative expenses on the Company's Consolidated Statements of Comprehensive Loss. As of December 31, 2023, and 2022, credit loss allowance was immaterial.

h. Inventories:

Inventories are stated at the lower of cost or net realized value. Cost is determined on a first in first out (“FIFO”) basis. Inventory write-downs are provided to cover technological obsolescence, excess inventories and discontinued products. Inventory write-downs represent the difference between the cost of the inventory and net realizable value. Inventory write-downs are charged to the cost of revenues when a new lower cost basis is established. Subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

Work-in-process is immaterial, given the typically short manufacturing cycle, and therefore is disclosed in conjunction with raw materials.

Total write-downs during the years ended December 31, 2023, and 2022 amounted to $121 and $88, respectively.

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets at the following annual rates:

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. For the years ended December 31, 2023, and 2022, no impairment was recorded.

The Company recognizes revenue in accordance with ASC 606, “Revenue from contracts with customers,” when (or as) it satisfies performance obligations by transferring promised products 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.

The Company applied the practical expedient in ASC 606 and did not evaluate payment terms of one year or less for the existence of a significant financing component.

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 hardware and services. 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.

Consumers revenue

The Company considers customer and distributor purchase orders to be contracts with a customer. For each contract, the Company considers the promise to transfer tangible products and/or services, each of which are distinct, to be the identified 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 products is recognized when control of the product 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 mobile and web-based digital therapeutics health management programs to employers and health plans for their employees or covered individuals. Such programs include among others, 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 is considered a single continuous service comprised of a series of distinct services that are substantially the same and have the same pattern of transfer (i.e., distinct days of service). These services are consumed as they are received, and the Company recognizes revenue each month using the variable consideration allocation exception. Revenue is recognized either on a per engaged member per month (PEMPM) or a per employee per month (PEPM) basis.

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.

Commercial revenue - Strategic partnerships

The Company has also entered into contracts (Note 6) with a preferred partner and a health plan provider in which the Company provides data license, development and implementation services.

Cost of revenues is comprised of the cost of production, data center costs, shipping and handling inventory, hosting services, personnel and related overhead costs, depreciation of production line and related equipment costs, amortization of costs to fulfill a contract and inventory write-downs.

Financial instruments that potentially subject the Company to credit risk 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.

As of December 31, 2023, the Company's major customer accounted for 66.5% of the Company's accounts receivable balance.

For the year ended December 31, 2023 and December 31, 2022, the Company's major customer accounted for 29.9% and 39.8%, respectively, of the Company's revenue in the period.

The Company accounts for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). This guidance prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to amounts that are more likely than not to be realized.

ASC 740 contains a two-step approach to recognizing and measuring a liability for uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate

settlement. As of December 31, 2023, and 2022, no liability for unrecognized tax benefits was recorded.

Research and development costs are charged to the consolidated statements of comprehensive loss, as incurred.

The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation - Stock Compensation” (“ASC 718”), which requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s consolidated statement of comprehensive loss.

The Company recognizes compensation expenses for the value of its awards granted based on the straight-line method over the requisite service period of each of the awards, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The Company estimates the fair value of stock options granted using the Black-Scholes-Merton option-pricing model. The option-pricing model requires a number of assumptions, of which the most significant are the expected stock price volatility and the expected option term. Expected volatility was calculated based upon historical volatility of the Company. The expected option term represents the period that the Company’s stock options are expected to be outstanding and is determined based on the simplified method until sufficient historical exercise data will support using expected life assumptions. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. The Company has historically not paid dividends and has no foreseeable plans to pay dividends.

The Company applies ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”). Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent from the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

The hierarchy is broken down into three levels based on the inputs as follows:

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 unobservable in the market, the determination of fair value requires more judgment, and the fair value 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 Loan Facility, and warrants liability were measured at fair value using Level 3 unobservable inputs (see note 8).

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance. The assessment considers whether the warrants are freestanding financial instruments, meet the definition of a liability under ASC 480, and meet all of the requirements for equity classification, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent reporting period end date while the warrants are outstanding. Warrants that meet all the criteria for equity classification, are required to be recorded as a component of additional paid-in capital. Warrants that do not meet all the criteria for equity classification, are required to be recorded as liabilities at their initial fair value on the date of issuance and remeasured to fair value at each balance sheet date thereafter. The liability-classified warrants are recorded under non-current liabilities. Changes in the estimated fair value of the warrants are recognized in “Financial expenses, net” in the consolidated statements of operations.

The Company computes net loss per share using the two-class method required for participating securities. The two-class method requires income available to common stockholders for the period to be allocated between shares of Common Stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. The Company's Convertible Preferred shares would be entitled to dividends that would be distributed to the holders of Common Stock, based on the conversion ratio, assuming conversion of all Convertible Preferred shares into shares of Common Stock.

The Company’s basic net loss per share is calculated by dividing net loss attributable to common and preferred stockholders by the weighted-average number of shares, without consideration of potentially dilutive securities. The diluted net loss per share is calculated by giving effect to all potentially dilutive securities outstanding for the period using the treasury share method or the if-converted method based on the nature of such securities. Diluted net loss per share is the same as basic net loss per share in periods when the effects of potentially dilutive shares of Common Stock are anti-dilutive.

Since inception date, all Ltd. employees who are entitled to receive severance pay in accordance with the applicable law in Israel, have been included under section 14 of the Israeli Severance Compensation Law (“Section 14”). Under this section, they are entitled only to monthly deposits, at a rate of 8.33% of their monthly salary, made by the employer on their behalf with insurance companies. Payments in accordance with Section 14 release Ltd. from any future severance payments in respect of those employees. Payments under Section 14 are not recorded as an asset in the Company’s balance sheet.

Severance pay expense for the year ended December 31, 2023 and 2022 amounted to $947 and $1,136, respectively.

The Company has a 401(k) defined contribution plan covering certain employees in the U.S. All eligible employees may elect to contribute up to $22.5 per year (for certain employees over 50 years of age the maximum contribution is $30 per year), of their annual compensation to the plan through salary deferrals, subject to Internal Revenue Service limits.

The Company accounts for its contingent liabilities in accordance with ASC 450 “Contingencies”. A provision is recorded when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. With respect to legal matters, provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. As of December 31, 2023, and 2022, the Company is not a party to any litigation that could have a material adverse effect on the Company’s business, financial position, results of operations or cash flows. Legal costs incurred in connection with loss contingencies are expensed as incurred.

Lessee accounting:

The Company determines if an arrangement is a lease and the classification of that lease at inception based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefits from the use of the asset throughout the period, and (3) whether the Company has a right to direct the use of the asset. The Company elected to not recognize a lease liability or right-of-use (“ROU”) asset for leases with a term of twelve months or less. The Company also elected the practical expedient to not separate lease and non-lease components for its leases.

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets are initially measured at amounts, which represents the discounted present value of the lease payments over the lease, plus any initial direct costs incurred. The ROU assets are reviewed for impairment. The lease liability is initially measured at lease commencement date based on the discounted present value of the lease payments over the lease term. The implicit rate within the operating leases is generally not determinable; therefore, the Company uses the Incremental Borrowing Rate (“IBR”) based on the information available at commencement date in determining the present value of lease payments. The Company’s IBR is estimated to approximate the interest rate on similar terms and payments and in economic environments where the leased asset is located.

Certain leases include options to extend or terminate the lease. An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain that the Company will exercise that option. An option to terminate is considered unless it is reasonably certain that the Company will not exercise the option. See also Note 9.

The Company applies the provisions of ASC 805, “Business Combination” and allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets.

Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.

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 direct costs are capitalized as part of the asset or assets acquired.

Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired. Under ASC 350, "Intangible - Goodwill and Other" ("ASC 350"), goodwill is not amortized, but rather is subject to an annual impairment test.

ASC 350 allows an entity to first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. If the qualitative assessment does not result in a more likely than not indication of impairment, no further impairment testing is required. If the Company elects not to use this option, or if the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the Company prepares a quantitative analysis to determine whether the carrying value of a reporting unit exceeds its estimated fair value. If the carrying value of a reporting unit would exceed its estimated fair value, the Company would have recognized an impairment of goodwill for the amount of this excess.

For the years ended December 31, 2023 and 2022, no impairment of goodwill has been recorded.

NOTE 3:- OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

NOTE 4:-** ACQUISITIONS**

Technology Purchase of Physimax Technologies Ltd.

On March 31, 2022 (the “Acquisition Date”), the Company completed the acquisition, through its subsidiary LabStyle, of a technology from Physimax Technologies Ltd (“Physimax Technology”). The Company considered this transaction as an asset acquisition.

The consideration transferred included the issuance of 256,660 shares of its common stock subjected to certain terms of lock-up periods valued at $1,186, a cash payment of $500, of which $400 was paid during the fourth quarter of 2021, and the remaining during the second quarter of 2022, The total consideration transferred in the acquisition of Physimax Technology was $1,686. In addition, the Company incurred acquisition-related costs in an amount of $131.

NOTE 4:-** ACQUISITIONS (Cont.)**

Purchase price allocation:

Under asset acquisition accounting principles, the total purchase price was allocated to Physimax Technology as set forth below.

NOTE 5:- INVENTORIES

Inventory consists of the following:

NOTE 6:- REVENUE

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.

NOTE 6: - REVENUES (Cont.)

Since the contract consideration includes variable consideration, as of December 31, 2023, 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 year ended December 31, 2022, the Company recognized $1,506 in revenues, and for the year ended December 31, 2023, the Company recognized $2,494 in revenues for the completion of the second development plan.

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 determined that this method under ASC 606 best measures progress towards satisfying the performance obligation and faithfully depicts the transfer of goods and services. For the year ended December 31, 2023, the Company recognized$2,098 in revenues, with additional revenues from the third development plan of$602 expected to be recognized by the end of June 2024.

In July 2023, the Company entered into an amended and restated strategic agreement with the preferred partner. Pursuant to the amendment, the parties adjusted certain pre-agreed economic parameters, including revenue share adjustments and to allow to expedite certain development milestones agreed upon in the parties’ initial agreement.

Agreement with National Health Plan

On October 1, 2021, the Company entered into a Master Service Agreement (“MSA”) and into a SOW ("October SOW") with a national health plan (“Health Plan”). Pursuant to the October SOW, the Company will provide the Health Plan access to 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.

On August 2022, the Company entered into an additional SOW (“August SOW”) with the Health Plan according to which, the Company will provide implementation service 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:

NOTE 6:- REVENUE (Cont.)

The August SOWincludes 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 years ended December 31, 2023, and December 31, 2022 the Company recognized revenues of $962 and $1,778 respectively for the completion of the August SOW.

Revenue Source:

The following tables represent the Company total revenues for the year ended December 31, 2023 and 2022 disaggregated by revenue source:

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 all remaining performance obligations to be satisfied in less than a year.

The following table presents the significant changes in the deferred revenue balance during the year ended December 31, 2023:

Costs to fulfill a contract

The Company defers costs incurred 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 contract are recorded in other accounts receivable and prepaid expenses and long-term assets.

NOTE 6:- REVENUE (Cont.)

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 December 31, 2023, consisted of the following:

Costs to fulfill a contract were as follows:

NOTE 7:- DEBT

Loan Facility

On May 1, 2023, the Company refinanced its existing $25,000 credit facility with a new $30,000 credit facility in the LSA by and between Borrowers and the Avenue Lenders. The LSA provides for afour-year secured credit facility in an aggregate principal amount of up to $40,000, of which $30,000 was made available on the closing date and up to $10,000 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. The Borrowers will pay certain fees with respect to the Avenue 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 the closing date, and with respect to the Initial Tranche only, the Company agreed to issue for each Avenue Lender a warrant (the “Warrant”) to purchase up to 292,442 shares of the Company’s common stock, at an exercise price of $3.334 per share (also see note 20f), which shall have a term offive years from the issuance date. The Warrant contains customary share adjustment provisions, as well as adjustments to the number of shares issuable upon exercise of the Warrant and the exercise price in the event of a bona fide equity raise prior to September 30, 2023, at a price less than the then current exercise price. As of December 31, 2023, the customary share adjustment provisions and adjustments related to a bona fide equity raise prior to September 30, 2023, remain unchanged.

The Avenue Lenders have the right, at any time while the Avenue Loan Facility is outstanding, to convert an amount of 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 price per share equal to 120% of the then effective exercise price of the Avenue Warrant(Also see note 20f). On the closing date, and with respect to the Initial Tranche only, the Company agreed to issue each Avenue Lender the Avenue Warrant to purchase up to 292,442 shares of the Company’s common stock, at an exercise price of $3.334 per share, which shall have a term offive years from the issuance date.

The Company concluded that Avenue Loan and the Avenue Warrants are freestanding financial instruments since these instruments are legally detachable and separately exercisable. The Company has concluded that the warrants meet 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 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 Loan at fair value in the amount of $28,215 and the remaining amount of $1,389 was allocated to the warrants.

During the year ended December 31, 2023 and 2022, the Company recognized $187 of remeasurement income related to the Initial Commitment Amount, which was included as part of financial expenses in the Company's statements comprehensive loss. During the year ended December 31, 2023, the Company did not recognize any instrument specific credit risk fair value adjustment.

NOTE 7: - DEBT (Cont.)

Warrant Liability

On June 9, 2022 (the closing date of the Orbimed Loan), the Company agreed to issue Orbimed a warrant (the “Orbimed Warrant”) to purchase up to 226,586 shares of the Company’s common stock, at an exercise price of$5.79 per share, which shall have a term of 7 years from 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$4.00 per share.

The Company has concluded that the warrants are 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.

NOTE 8:- FAIR VALUE MEASUREMENTS

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 Avenue Loan Facility (as defined herein), and warrant liability were measured at fair value using Level 3 unobservable inputs until the payoff date of May 1, 2023. Subsequently, a new loan agreement (Note 7) was obtained, and both the new loan and the warrant liability were measured at fair value.

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:

Loan Facilities

On June 9, 2022, the Company entered into a Credit Agreement (the “Credit Agreement”), by and between the Company, as borrower, and OrbiMed Royalty and Credit Opportunities III, LP, as the lender (the “Orbimed Lender”). The Credit Agreement provides for afive-year senior secured credit facility in an aggregate principal amount of up to $50,000 (the “Orbimed Loan”), of which $25,000 was made available on the closing date (the “Initial Commitment Amount”) and up to $25,000 was available on or prior to June 30, 2023, subject to certain revenue requirements (the “Delayed Draw Commitment Amount”). On June 9, 2022, the Company closed on the Initial Commitment Amount, less certain fees and expenses payable to or on behalf of the Orbimed Lender. The company did not draw the Delayed Draw Commitment Amount.

NOTE 8:- FAIR VALUE MEASUREMENTS (Cont.)

On May 1, 2023, the Company entered into a Loan and Security Agreement, and Supplement thereto (the “LSA”), by and between the Company and its subsidiary PsyInnovations Inc. (“PsyInnovations”), collectively as the borrowers (the “Borrowers”) and Avenue Venture Opportunities Fund II, L.P. and Avenue Venture Opportunities Fund, L.P., collectively as the lenders (the “Avenue Lenders”) (Note 6). Upon the initial closing of the LSA, the Company repaid the Orbimed Loan to the Orbimed Lender. The LSA provides for afour-year secured credit facility in an aggregate principal amount of up to $40,000 (the “Avenue Loan Facility”), of which $30,000 was 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

The fair value of the Avenue Loan Facility is recognized in connection with the Company’s LSA with respect to the Initial Commitment Amount only (Note 7). 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 fair value of the Avenue Loan Facility, which is reported within non-current liabilities (Maturity Date - May 1, 2027) on the consolidated balance sheets, is estimated by the Company at each reporting date based onsignificant inputs that are generally determined based on relative value analyses.

The Avenue Loan Facility 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 December 31, 2023, 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 year ended December 31, 2023, the change in the fair value of the loan was recorded in earnings since the Company concluded that those were not related to instrument-specific credit risk was required.

Warrant Liability

The fair value of the warrant liability is recognized in connection with the Company’s Credit Agreement with the Orbimed Lender and with respect to the Initial Commitment Amount only (Note 8). The fair value of the 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 warrant liability, which is reported within non-current liabilities on the consolidated balance sheets, 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 fair value of the warrant liability was estimated using a Monte-Carlo simulation valuation technique, with the following significant unobservable inputs (Level 3):

NOTE 8:- FAIR VALUE MEASUREMENTS (Cont.)

The following tables present the summary of the changes in the fair value of our Level 3 financial instruments:

NOTE 9:- LEASES

The Company has entered into various non-cancelable operating lease agreements for certain of its offices and car leases. The Company's leases have original lease periods expiring between 2024 and 2028. Many leases include one or more options to renew. The Company does not assume renewals in determination of the lease term unless the renewals are deemed to be reasonably certain at lease commencement. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants, the Company elected to not recognize a lease liability and a ROU asset for lease with a term of twelve months or less.

The components of lease costs, lease term and discount rate are as follows:

NOTE 9:- LEASES

The following is a schedule, by years, of maturities of lease liabilities as of December 31, 2023:

Supplemental cash flow information related to leases are as follows:

NOTE 10:- PROPERTY AND EQUIPMENT, NET

Composition of assets, grouped by major classification, is as follows:

NOTE 10:- PROPERTY AND EQUIPMENT, NET

Depreciation expenses for the year ended December 31, 2023 and 2022 amounted to $392 and $356, respectively.

During 2023 the Company recorded a reduction of $81 to the cost and accumulated depreciation of fully depreciated computers equipment no longer in use.

NOTE 11:- OTHER INTANGIBLE ASSETS**,** NET

NOTE 12:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

NOTE 13:- 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 participated 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 US 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, prior to its acquisition by the Company, received $1,011 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 December 31, 2023.

During the Year ended December 31,2023 and December 31, 2022 the company recorded IIA royalties related to the acquisition of Physimax Technology in amount of $1 and $120, respectively.

NOTE 14:- LONG-LIVED ASSETS

As of December 31, 2023, substantially all of the Company long live assets are located in Israel.

NOTE 15:- TAXES ON INCOME

The Company and its subsidiaries are separately taxed under the domestic tax laws of the country of incorporation of each entity.

Tax Reform

On December 22, 2017, the U.S. Tax Cuts and Jobs Act of 2017 (the “TCJA”) was signed into law. The TCJA makes broad and complex changes to the Internal Revenue Code of 1986 (the “Code”) that may impact the Company’s provision for income taxes. The changes include, but are not limited to:

Net Operating Losses- Before the TCJA, taxable losses generated in the U.S. were able to be carried back for two years or carried forward for 20 years to offset prior/future year taxable income. TCJA changes the rule, and allows losses generated after 2017 (i.e. starting in 2018) to be carried forward indefinitely, but only to offset 80% of future year income. Carryback losses are no longer allowed.

In response to the COVID-19 pandemic, the U.S. passed the Coronavirus Aid, Relief, and Economic Security Act (CARES) in March 2020. The CARES Act changed the treatment of net operating losses (“NOLS”) generated in tax years 2018, 2019 and 2020. Losses generated in these years are able to be carried backward for 5 years, and carried forward indefinitely, without the 80% limitation.

Tax rates applicable to Labstyle and Upright:

The Corporate tax rate in Israel in 2022 and 2023 was 23%.

Net operating loss carryforward:

Labstyle has accumulated net operating losses for Israeli income tax purposes as of December 31, 2023, in the amount of approximately $189,653. The net operating losses may be carried forward and offset against taxable income in the future for an indefinite period.

As of December 31, 2023, the Company and WayForward had a U.S. federal net operating loss carryforward of approximately $36,786 and $8,084, of which $7,120 and $371, respectively, were generated from tax years 2011-2017 and can be carried forward and offset against taxable income and that expires during the years 2031 to 2037. Under Sections 382 and 383 of the IRC, utilization of the U.S. loss carryforward may be subject to substantial annual limitation due to the “change in ownership” provisions of the Code and similar state provisions. The annual limitations may result in the expiration of losses before utilization. Since the Company has not yet utilized the losses to offset income, no study has been performed to assess the potential limitations, but when relevant, a study will be performed.

The remaining NOLs of the Company and WayForward are approximately $29,666 and $7,713, were generated in years 2018-2022, and are subject to the TCJA, which modified the rules regarding utilization of NOLs. NOLs generated after December 31, 2017, can only be used to offset 80% of taxable income with an indefinite carryforward period for unused carryforwards (i.e., they should not expire). Utilization of the federal and state net operating losses and credits may be subject to a substantial annual limitation due to an additional ownership change. The annual limitation may result in the expiration of net operating losses and credits before utilization and in the event, the Company has a change of ownership, utilization of the carryforwards could be restricted.

As discussed above, under the CARES Act, the losses from 2018-2023 are excluded from the limitation and can be carried forward indefinitely to offset 100% of future net income.

Deferred income taxes:

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows:

The deferred tax balances included in the consolidated financial statements as of December 31, 2023, are calculated according to the tax rates that were in effect as of the reporting date and do not take into account the potential effects of the changes in the tax rate.

The net change in the total valuation allowance for the year ended December 31, 2023, was an increase of$5,798 and is mainly relates to increase in deferred taxes on net operating loss for which a full valuation allowance was recorded. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences and tax loss carryforward are deductible. Management considers the projected taxable income and tax-planning strategies in making this assessment. In consideration of the Company’s accumulated losses and the uncertainty of its ability to utilize its deferred tax assets in the future, management currently believes that it is more likely than not that the Company will not realize all of its deferred tax assets and accordingly recorded a valuation allowance to offset the deferred tax assets.

NOTE 16:- STOCKHOLDERS’ EQUITY

On July 11, 2023, out of the pre-funded warrants that were issued in July 2020 and February 2022,86,985 were exercised on a cashless basis into 86,983 shares of common stock.

The Series A Preferred Stock automatically converted into shares of Common Stock, on the 36-month anniversary of the Series A Effective Date. During the year ended December 31, 2022, the Company accounted for the dividend as a deemed dividend in a total amount of $1,580.

Pursuant to the Placement Agency Agreement (the “Placement Agency Agreement”) executed by and between the Company and the registered broker dealer retained to act as the Company’s exclusive placement agent (the “Placement Agent”) for the offering of the Series A Preferred Stock, the Company paid the Placement Agent an aggregate cash fee of $1,788, non-accountable expense allowance of $641 and was required to issue to the Placement Agent or its designees warrants to purchase 719,243 shares of Common Stock at an exercise price ranging from $4.05 to $5.90 per share (the “Placement Agent Warrants”). The Placement Agent Warrants are exercisable for a period offive years from the date of the final closing of the Series A Preferred Stock Offering.

As of December 31, 2023, out of the Placement Agent Warrants that were issued in December 2019 and July 2020,451,226 were exercised into 333,077 shares of Common Stock.

On September 20, 2022, the Board of Directors authorized the Company to enter into an exchange agreement with a certain preferred stockholder to exchange 885 shares of the Company’s Series A-1 Preferred Stock for 308,711 shares of the Company’s common stock. During the year ended 31, 2022, the investor exchanged those certain shares. The Company has accounted for the exchange as a modification and recorded the increase in fair value as a deemed dividend in the amount of $62.

During the year ended December 31, 2022 a total of 1,130 of certain Series A Convertible Preferred Stock, were converted into 339,417 shares of Common Stock, including issuance of dividend shares.

In November, to December 2022 and January 2023,6,355 Series A Preferred Stock automatically converted into 2,133,904 shares of Common Stock after completing 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.

On May 1, 2023, the Company entered into agreements with certain holders of 3,557 of the Company’s Series A-1 Preferred Stock pursuant to a subscription agreement dated November 27, 2019, which are convertible to 1,273,498 shares of common stock. In consideration for deferring the conversion of the Series A-1 Convertible Preferred Stock, the Company agreed to issue additional shares of common stock upon the deferred conversion of the Series A-1 Convertible Preferred Stock as follows:63,676 shares, in the aggregate, if not converted for at least one quarter,127,350 shares, in the aggregate, if not converted for at least two quarters,191,026 shares, in the aggregate, if not converted for at least three quarters,254,700 shares, in the aggregate, if not converted for at least four quarters and 382,050 shares, in the aggregate, if not converted for at least five quarters.

The Company has concluded that the Series A-1 preferred shares modification should be accounted for as an extinguishment transaction and recorded the increase in fair value as a deemed dividend in the amount of $984.

During the year ended December 31, 2023, the Company accounted for the dividend shares of common stock upon the deferred conversion of the Series A-1 Convertible Preferred Stock as a deemed dividend in a total amount of $618.

The Preferred Stock will automatically convert into shares of common stock, on the 15-month anniversary of the issuance date. The holders of Preferred Stock will also be entitled dividends payable as follows: (i) a number of shares of common stock equal tofive percent (5.0%) 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 offour (4) quarters from the closing date, and (ii) a number of shares of common stock equal toten percent (10%) 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. The Series B-2 Preferred Stock dividend is subject to receipt of the approval of the Company’s shareholders. The Preferred Stock has been accounted for as an equity instrument.

During the year ended December 31, 2023, the Company accounted for the dividend shares of common stock upon the dividend shares earned by Series B Preferred Stock as a deemed dividend in a total amount of $2,482.

NOTE 16:- STOCKHOLDERS’ EQUITY (Cont.

On January 23, 2012, the Company’s 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 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.

On February 5, 2020, the Company’s stockholders approved an amendment to the 2012 Plan to increase the number of shares authorized for issuance under the 2012 Plan by 1,350,000 shares, from 618,650 to 1,968,650.

On October 14, 2020, the Company’s stockholders approved the 2020 Equity incentive Plan (the “2020 Plan”) and the immediate reservation of 900,000 shares under this Plan for the remainder of the 2020 fiscal year. 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.

During 2021, pursuant to the terms of the 2020 Plan as approved by the Company’s stockholders, the number of shares authorized for issuance under the 2020 Plan increased by 1,628,890 shares, from 900,000 to 2,528,890.

In January 2022, 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 1,339,624 shares, from 2,528,890 to 3,868,514.

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.

On May 1, 2023, the Company repaid its existing $25,000 credit facility to the Orbimed Lender with a new $30,000 credit facility in the LSA, by and between the Company and the Avenue Lenders. On the closing date, and with respect to the Initial Tranche only, the Company agreed to issue each Avenue Lender the Avenue Warrant to purchase up to 292,442 shares of the Company’s common stock, at an exercise price of $3.334 per share, which shall have a term offive years from the issuance date. The Company accounted the Avenue Warrants as equity instruments and recorded it in fair value as of May 1, 2023, using the relative fair value method in the amount of $1,389. (See also note 20f(

In December 2021, the Compensation Committee authorized the Company to issue warrants to purchase up to 8,000 shares of Common Stock, to certain consultants of the Company, at a purchase price of $13.60. As such, during the year ended December 31, 2023 and 2022 the Company recorded compensation expense for service providers in the amount of $28 and $29, respectively.

In May 2022 and June 2022, the Compensation Committee authorized the Company to grant warrants to purchase up to 70,000, and 175,000 shares (of which warrants to purchase 87,500 shares have expired) of the Company’s common stock which shall vest over 12 months and 24-month periods, respectively, to certain consultants of the Company, with an exercise price of $6.45 and $7.20, respectively. As such, during the year ended December 31, 2023 and 2022 the Company recorded compensation expense for service providers in the amount of $263 and $375, respectively

In December 2022, the Compensation Committee authorized the Company to issue warrants to purchase up to 500,000, shares of Common Stock, to a certain consultant of the Company, at a purchase price of $5.00. In November 2023, the Compensation Committee approved a reduction in the exercise price of said warrants to an exercise price of $1.08 per share, subject to the performance of additional services. The Company has accounted for the change as a modification and recorded increase in warrants fair value. As such, during the year ended December 31, 2023 and 2022 the Company recorded compensation expense for a certain consultant in the amount of $1,502 and $29, respectively.

In January 2023, the Compensation Committee approved the grant of warrants to purchase up to 280,000 shares of common stock, with an exercise price of $5.20, per share to certain consultants. The warrants are exercisable into common stock on or before December 31, 2026. During the year ended December 31, 2023, the Company recorded compensation expenses for certain consultants in the amount of $650.

In January 2023, the Compensation Committee approved a reduction in the exercise price of warrants to purchase up to 350,000 shares of common stock issued to certain consultants in the past at exercise prices between $7.50 to $30.00 per share, to an exercise price of $5.20 per share, subject to the performance of additional services. The Company has accounted for the change as a modification and recorded the increase in fair value as compensation expense for those certain consultants in the amount of $960.

On July 25, 2023, the Compensation Committee approved the grant of warrants to purchase up to 40,000 shares of common stock, with an exercise price of $3.46, per share to a certain consultant, the stock options vests over athree-year period. The warrants are exercisable into common stock on or before December 31, 2026. During the year ended December 31, 2023, the Company recorded compensation expenses for this certain consultant in the amount of $29.

The table below summarizes the outstanding warrants as of December 31, 2023:

In April 2020, the Compensation Committee of the Board of Directors approved a monthly grant of shares of the Company’s Common Stock equal to $18.00 of restricted shares to certain service providers per month, to be granted monthly during the period that the certain consulting agreement remains in effect. During the years ended December 31, 2023 and 2022, a total of 69,180 and 32,926 restricted unregistered shares of Common Stock, respectively, were issued to certain service provider under this approval the Company recorded compensation expense in the amount of $181 and $172, respectively

On April 23, 2022, the Company released 56,788 holdback shares of the Company’s common stock to a certain employee of the Company. The holdback release was part of a separation agreement with the employee, pursuant to which the Company waived the lock-up period.

On June 8, 2022, the Compensation Committee authorized the Company to redeem 17,957 shares of restricted stock held by a certain officer, in compliance with Rule 16b-3 promulgated by the SEC, the redemption is part of previously granted 91,652 and 20,000 shares of restricted stock granted in January and July 2021, in exchange for the aggregate redemption price equal to the withholding tax obligation in the amount of $170.

On December 15, 2022, the Compensation Committee authorized the Company to issue 30,000 shares, to a certain consultant of the Company. As such, during the year ended December 31, 2022 the Company recorded compensation expense for service providers in the amount of $106.

During the year ended December 31, 2022, the Company’s Compensation Committee of the Board of Directors approved the grant of 29,755 shares of the Company’s common stock to employees of the Company, and the grant of 1,268,050 restricted shares of the Company’s common stock to employees and consultants. The shares vest over a period ofthree years commencing on the respective grant dates. The Compensation Committee also approved the grant of options to purchase up to 1,009,550 shares of the Company’s common stock to employees and a consultant of the Company, at exercise prices between $4.30 and $8.10 per share. The stock options vest over athree-year period commencing on the respective grant dates. The options have aten-year term and were issued under the 2020 Equity Incentive Plan, as amended (the “2020 Plan”).

In January 2023 and March 2023, the Compensation Committee approved the grant of a non-qualified stock option awards to purchase 200,000 shares of the Company’s common stock, as well as an additional non-qualified performance-based stock option award to purchase an additional 180,000 shares of the Company’s common stock outside of the Company’s 2020 Plan, pursuant to Nasdaq Listing Rule 5635(c)(4), in connection with the employment of its Senior Vice President of Growth and its Chief Product Officer.

In January 2023 and April 2023, the Board of Directors approved the acceleration of the unvested portion of 42,500 restricted shares of the Company’s common stock to a certain employee of the Company. The share acceleration was part of a separation agreement with the employee. The Company has accounted for the acceleration as a type-3 modification and recorded compensation expenses in the amount of $153.

During the year ended December 31, 2023, the Company’s Compensation Committee approved the grant of 927,100 restricted shares of the Company’s common stock to employees and consultants of which 537,100 are under the Company’s 2020 Equity Incentive Plan, as amended (“2020 Plan”). Out of the restricted shares granted,235,000 restricted shares will vest immediately,30,000 restricted shares will vest over a period ofsix months, and the remaining 662,100 restricted shares will vest over a period betweentwo tofour years commencing on the respective grant dates. The Compensation Committee also approved the grant of options to purchase up to 833,900 shares of common stock for employees and consultants of the Company, at exercise prices between $3.69 and $4.48 per share. Stock options to purchase 528,900 shares of common stock vest over athree-year period commencing on the respective grant dates, and options to purchase 305,000 shares of common stock are performance-based. The options have aten-year term and were issued under the 2020 Plan.

Transactions related to the grant of options to employees, directors and non-employees under the above plans and non-plan options during the year ended December 31, 2023 were as follows:

Weighted average grant date fair value of options granted during the year ended December 31, 2023 and 2022 is $2.14 and $4.43, respectively.

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 fiscal 2023 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 December 31, 2023. This amount is impacted by the changes in the fair market value of the Common Stock

Transactions related to restricted shares granted\forfeited during the year ended December 31, 2023 were as follows

The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model.

The assumptions used are determined as follows:

Volatility. The expected volatility was derived from the historical volatilities of the Company’s stock price over a period equivalent to the expected term of the stock option grants.

Expected Term. The expected term represents the period that the stock-based awards are expected to be outstanding. When establishing the expected term assumption, the Company utilizes historical data.

Risk-Free Interest Rate. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with terms similar to the expected term on the options.

Dividend Yield. The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and therefore, it used an expected dividend yield of zero.

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

As of December 31, 2023, the total unrecognized estimated compensation cost related to non-vested stock options and restricted shares granted prior to that date was $9,407, which is expected to be recognized over a weighted average period of approximately 0.82 year.

The total compensation cost related to all the Company’s equity-based awards, recognized during year ended December 31, 2023 and 2022 were comprised as follows:

NOTE 17:- SELECTED STATEMENTS OF OPERATIONS DATA

Financial losses, net:

**NOTE 18: -**BASIC AND DILUTED NET LOSS PER COMMON STOCK

We compute 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 was 12,188,189 and 5,744,428 for the year ended December 31, 2023 and 2022, respectively.

The following table sets forth the computation of the Company’s basic net loss per common and preferred stock:

For the year ended December 31, 2022 the** **basic and diluted net loss per share of Preferred A, A-1, A-2, A-3 and A-4 was 590.97,599.21,524.32,381.15 and 286.94 respectively.

NOTE 19:- SUBSEQUENT EVENTS

In addition, the Company executed certain consulting agreements (the “Consulting Agreements”) with Ofer Leidner and Bilal Khan, each former officers of Twill. Pursuant to the terms of the Consulting Agreements, the Company agreed to retain their services. Leidner and Khan for a period of at least 14 months and 6 months respectively, in exchange for monthly consulting fees of $35,416 and $35,417, respectively. In addition, the Company agreed to issue to Mr. Leidner warrants to purchase up to 1,032,946 shares of Common Stock, of which 717,946 are subject to time vesting and 315,000 are subject to certain performance-based metrics, and to issue to Mr. Khan 350,000 fully vested RSUs which shall be vest subject to stockholder approval.

NOTE 19:- SUBSEQUENT EVENTS** **(Cont.)

In addition, the Avenue Amendment provides (i) that the Company 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 lenders, subject to Nasdaq rules, to convert up totwo million of the principal amount of its loan to the Company at a conversion price of $4.0001 per share.