The successful completion of this integration stage, previously announced, enhances the capabilities of XR environments and highlights Wearable Devices' dedication to advancing the frontier of wearable technology. By leveraging the precise gesture recognition enabled by Mudra technology, the Snapdragon Spaces™ platform will offer users a more natural and intuitive interface, thereby elevating the overall XR experience. Forward-Looking Statement Disclaimer Snapdragon and Snapdragon Spaces are trademarks or r ...

Introduction [Company Overview](index=5&type=section&id=Company%20Overview) Wearable Devices Ltd. (WLDS), an Israeli growth company, develops non-invasive neural input interfaces, commercializing its 'Mudra Band' for Apple Watch and completing its Nasdaq IPO in September 2022 - The company develops a non-invasive neural input interface as a wrist wearable band for touchless control of digital devices[20](index=20&type=chunk) - The company transitioned from R&D to commercializing its technology for both Business-to-Business (B2B) and Business-to-Consumer (B2C) products[20](index=20&type=chunk) - Its first B2C product, the 'Mudra Band,' is an Apple Watch accessory enabling touchless control of Apple ecosystem devices[20](index=20&type=chunk) - The company completed its IPO on September 15, 2022, listing ordinary shares (WLDS) and warrants (WLDSW) on the Nasdaq Capital Market[21](index=21&type=chunk) PART I [Key Information](index=7&type=section&id=ITEM%203.%20KEY%20INFORMATION.) This section outlines significant business, industry, financial, intellectual property, and operational risks, including going concern issues, reliance on unproven technology, market competition, and potential Nasdaq delisting [Risk Factors](index=7&type=section&id=D.%20Risk%20Factors.) The company faces substantial risks across business, industry, financial condition, intellectual property, and Israeli operations, including going concern issues, Nasdaq delisting risk, reliance on unproven SNC technology, supplier dependence, and geopolitical instability - The company's FY 2023 financial statements include a 'going concern' opinion, raising substantial doubt about its ability to continue operations and secure new financing[29](index=29&type=chunk)[42](index=42&type=chunk)[111](index=111&type=chunk) - The company risks Nasdaq delisting for failing to meet the minimum bid price requirement of **$1.00 per share**[42](index=42&type=chunk)[129](index=129&type=chunk) - There is no guarantee the company's Surface Nerve Conductance (SNC) technology will dominate wearable device input, facing competition from alternative methods[29](index=29&type=chunk)[38](index=38&type=chunk)[44](index=44&type=chunk) - The company relies on a limited number of suppliers and single contract manufacturers, increasing risks of supply interruptions and delays[38](index=38&type=chunk)[65](index=65&type=chunk) - Political, economic, and military instability in Israel, including the ongoing Israel-Hamas war, could adversely affect operations, fundraising, and product sales[42](index=42&type=chunk)[158](index=158&type=chunk) [Information on the Company](index=41&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY.) This section details the company's history, business operations, organizational structure, and physical assets, covering its transition to commercialization, 'Mudra' technology, B2B/B2C offerings, and growth strategy [History and Development of the Company](index=41&type=section&id=A.%20History%20and%20Development%20of%20the%20Company.) Wearable Devices Ltd., incorporated in Israel in 2014, develops non-invasive neural input interfaces, with its shares and warrants listed on Nasdaq, qualifying as an 'emerging growth company' and 'foreign private issuer' - The company was incorporated in Israel in 2014, developing a non-invasive neural input interface for digital device control via a wearable wristband[206](index=206&type=chunk) - The company is classified as an 'emerging growth company' and 'foreign private issuer', exempting it from certain U.S. SEC reporting and governance requirements[208](index=208&type=chunk)[209](index=209&type=chunk) [Business Overview](index=42&type=section&id=B.%20Business%20Overview.) The company commercializes its 'Mudra' neural interface technology via B2B and B2C strategies, including the Mudra Band for Apple Watch and development kits for AR/VR, leveraging proprietary sensors and AI for gesture control, and expanding into new markets - The company envisions the user's hand as a universal input device for touchless interaction, positioning its technology as a standard for the Metaverse[212](index=212&type=chunk) - The company commenced shipment of its first B2C product, the 'Mudra Band' for Apple Watch, and plans to launch the 'Mudra XR wristband' for smart glasses in **Q4 2024**[211](index=211&type=chunk)[253](index=253&type=chunk) - The B2B strategy involves selling the Mudra Development Kit to over **100 companies**, including **30 multinational technology firms**, aiming for licensing agreements[217](index=217&type=chunk) - The company's technology is a vertically integrated platform combining hardware, software (AI algorithms), and humanware, creating a significant competitive moat[223](index=223&type=chunk)[237](index=237&type=chunk) - The company holds **two U.S. patents** for its wrist-wearable gesture control system, with additional patent applications pending in the U.S. and China[310](index=310&type=chunk)[311](index=311&type=chunk) [Organizational Structure](index=61&type=section&id=C.%20Organizational%20Structure.) Wearable Devices Ltd. has one wholly-owned subsidiary, Mudra Wearable, Inc., incorporated in Delaware, responsible for U.S. marketing and distribution with two full-time staff - The company has a single wholly-owned subsidiary, Mudra Wearable, Inc., based in Delaware, handling U.S. marketing and distribution[328](index=328&type=chunk) [Property, Plant and Equipment](index=61&type=section&id=D.%20Property,%20Plant%20and%20Equipment.) The company's headquarters are in a leased **7,880 sq. ft.** facility in Yokne'am Illit, Israel, with its U.S. subsidiary leasing a small office in California, both considered sufficient - The company leases its main headquarters of approximately **7,880 sq. ft.** in Yokne'am Illit, Israel, with the lease expiring **January 31, 2025**[329](index=329&type=chunk) - The U.S. subsidiary leases an **80 sq. ft.** office in Redwood City, California on a month-to-month basis[330](index=330&type=chunk) [Operating and Financial Review and Prospects](index=62&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS.) This section analyzes the company's financial condition and operations, noting increased revenues to **$82 thousand** but a widened net loss to **$7.8 million** in 2023 due to higher operating expenses, and addresses going concern issues, liquidity, cash flow, and critical accounting estimates [Operating Results](index=62&type=section&id=A.%20Operating%20Results.) For the year ended December 31, 2023, revenues increased **82%** to **$82 thousand**, but operating loss grew to **$8.2 million** and net loss to **$7.8 million** due to significant increases in R&D, sales and marketing, and G&A expenses Results of Operations (Years Ended December 31) | | 2023 | 2022 | | :--- | :--- | :--- | | **Revenues** | $82 thousand | $45 thousand | | **Operating loss** | $(8,186) thousand | $(6,458) thousand | | **Net loss** | $(7,814) thousand | $(6,496) thousand | - Revenues increased by **82%** in 2023, primarily due to B2C Mudra Band sales[351](index=351&type=chunk) - R&D expenses increased by **46%** to **$3.3 million** in 2023, mainly due to higher labor, materials, and subcontractor costs for Mudra Band production[353](index=353&type=chunk) - Sales and marketing expenses increased by **47%** to **$2.0 million** in 2023, driven by higher labor costs, exhibition and travel, and advertising[354](index=354&type=chunk) - General and administrative expenses rose by **48%** to **$2.9 million** in 2023, mainly due to increased labor costs, insurance, and professional services for the public company[355](index=355&type=chunk) [Liquidity and Capital Resources](index=65&type=section&id=B.%20Liquidity%20and%20Capital%20Resources.) The company faces substantial doubt about its going concern ability due to recurring losses and negative cash flows, with an accumulated deficit of **$21.2 million** as of December 31, 2023, and existing cash expected to fund operations only through **June 2024**, alongside contingent royalty obligations to the IIA - The company has suffered recurring losses and negative cash flows, with dependency on external funding raising substantial doubt about its ability to continue as a going concern[359](index=359&type=chunk) - As of **December 31, 2023**, the company had an accumulated deficit of **$21.2 million** and expects existing cash to fund operations only through **June 2024**[361](index=361&type=chunk) Cash Flow Summary (in thousands USD) | | For the Year Ended December 31, | | :--- | :---: | :---: | | | **2023** | **2022** | | Net cash used in operating activities | $(8,434) | $(5,714) | | Net cash used in investing activities | $(4,248) | $(66) | | Net cash provided by financing activities | $3,119 | $14,879 | | **Net (decrease) increase in cash** | **$(9,563)** | **$9,099** | - The company has a contingent obligation to pay royalties to the Israel Innovation Authority (IIA) up to a principal amount of **$2.2 million** as of **December 31, 2023**, based on future sales of IIA-funded products[383](index=383&type=chunk) [Research and Development, Patents and Licenses](index=69&type=section&id=C.%20Research%20and%20development,%20patents%20and%20licenses,%20etc.) The company incurred net R&D expenses of approximately **$3.3 million** in 2023 and **$2.3 million** in 2022, primarily due to higher labor, material, and subcontractor costs for Mudra Band production, partially offset by IIA participation Net Research and Development Expenses | Year Ended December 31, | Amount (in thousands USD) | | :--- | :--- | | 2023 | $3,316 | | 2022 | $2,271 | [Trend Information](index=69&type=section&id=D.%20Trend%20information.) As of the report date, the company employs **29 full-time** and **10 part-time** staff, planning to maintain staffing and expenses in 2024 to support business development, R&D, and Mudra Band manufacturing, with a target **Q4 2024** launch for the Mudra XR wristband - The company plans to launch its new 'Mudra XR wristband' product by **Q4 2024**[390](index=390&type=chunk) - The company intends to maintain its current employee count (**29 full-time**, **10 part-time**) and expense levels through 2024 to support R&D, business development, and manufacturing[389](index=389&type=chunk) [Critical Accounting Estimates](index=69&type=section&id=E.%20Critical%20Accounting%20Estimates.) The company's critical accounting estimates involve significant management judgment, particularly in revenue recognition for multi-deliverable B2B transactions, accounting for government grants, and fair valuing share-based compensation using the Black-Scholes model - Revenue recognition requires significant judgment, especially for B2B pilot transactions and development kits with multiple performance obligations (e.g., hardware, API, support) that must be identified and allocated[392](index=392&type=chunk)[395](index=395&type=chunk)[396](index=396&type=chunk) - Share-based compensation is valued using the Black-Scholes model, requiring assumptions about expected term, volatility, dividend yield, and risk-free interest rates[398](index=398&type=chunk) - Government grants from the IIA are recognized when entitled based on costs incurred or milestones, recorded as a deduction from R&D or sales and marketing expenses[397](index=397&type=chunk) [Directors, Senior Management and Employees](index=71&type=section&id=ITEM%206.%20DIRECTORS,%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES.) This section details the company's leadership, compensation, board structure, and employees, including executive backgrounds, 2023 compensation, staggered board, committee compositions, adherence to Israeli corporate law, Nasdaq exemptions, and employee share option plans [Directors and Senior Management](index=71&type=section&id=A.%20Directors%20and%20Senior%20Management.) The company is led by co-founders Asher Dahan (CEO and Chairman) and Guy Wagner (CSO and President), with a five-member board including two independent directors, structured into three staggered classes - Asher Dahan serves as both Chief Executive Officer and Chairman of the Board, a dual role permitted for **five years** post-IPO under Israeli law[400](index=400&type=chunk) - The board of directors comprises **five members**, including co-founders Asher Dahan and Guy Wagner, and independent directors Yaacov Goldman and Ilana Lurie[399](index=399&type=chunk) [Compensation](index=74&type=section&id=B.%20Compensation.) For FY 2023, total compensation for all **11 directors and senior management** was approximately **$2.22 million**, including salaries, benefits, and share-based compensation, with employment agreements for executive officers including non-competition and confidentiality clauses Aggregate Compensation for Directors and Senior Management (2023) | Compensation Type | Amount (USD) | | :--- | :--- | | Salary, bonuses and Related Benefits | $1,687,179 | | Pension, Retirement and Other Similar Benefits | $409,577 | | Share Based Compensation | $123,303 | | **Total** | **$2,220,059** | Compensation of 5 Most Highly Compensated Officers (2023) | Executive Officer | Total Compensation (USD) | | :--- | :--- | | Alon Mualem | $327,157 | | Barry Kaplan | $304,181 | | Leeor Langer | $296,601 | | Asher Dahan | $292,283 | | Guy Wagner | $291,182 | [Board Practices](index=75&type=section&id=C.%20Board%20Practices.) The company's **five-member** board is staggered into three classes, with a combined Audit, Compensation, and Financial Statement Examination Joint Committee, following Israeli corporate law which differs from U.S. standards on director nominations and compensation, and utilizes a **2015 Share Option Plan** with **3,188,597 shares** reserved - The board of directors is staggered into **three classes**, with each class serving a **three-year term**[422](index=422&type=chunk) - The company formed a Joint Committee combining Audit, Compensation, and Financial Statement Examination functions, chaired by Yaacov Goldman[466](index=466&type=chunk) - The company adopted the **2015 Share Option Plan**, reserving up to **3,188,597 Ordinary Shares** for grants to employees, consultants, and directors[499](index=499&type=chunk) - The company provides for indemnification, insurance, and exculpation for its office holders to the fullest extent permitted by Israeli law[475](index=475&type=chunk)[479](index=479&type=chunk)[481](index=481&type=chunk) [Employees](index=89&type=section&id=D.%20Employees.) As of the report date, Wearable Devices employs **29 full-time** and **10 part-time** staff, primarily in Israel, with additional consultants and subcontractors, and is subject to Israeli labor laws despite no union representation - As of the report date, the company has **29 full-time employees**, **10 part-time employees**, and several external consultants and subcontractors[504](index=504&type=chunk) - None of the employees are union members, but the company is subject to certain Israeli labor laws and collective bargaining agreement provisions through extension orders[505](index=505&type=chunk) [Major Shareholders and Related Party Transactions](index=90&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS.) This section details beneficial ownership as of **March 13, 2024**, with co-founders Guy Wagner (**8.8%**), Asher Dahan (**6.6%**), and Leeor Langer (**6.6%**), and Alumot (**5.9%**) as major shareholders, and related party transactions primarily involving executive employment and option grants [Major Shareholders](index=90&type=section&id=A.%20Major%20Shareholders.) As of **March 13, 2024**, major shareholders include co-founders Guy Wagner (**8.8%**), Asher Dahan (**6.6%**), Leeor Langer (**6.6%**), and Alumot (**5.9%**), with all directors and senior management owning **25.4%**, and ownership percentages decreased in 2023 due to dilution Beneficial Ownership of Major Shareholders (as of March 13, 2024) | Holder | Percentage Owned | | :--- | :--- | | Guy Wagner (Co-founder, Director) | 8.8% | | Asher Dahan (Co-founder, CEO) | 6.6% | | Leeor Langer (Co-founder, CTO) | 6.6% | | Alumot | 5.9% | | All directors and senior management as a group | 25.4% | - The percentage ownership of major shareholders, including co-founders, decreased during 2023 due to dilution from warrant exercises in June and a public offering in November[514](index=514&type=chunk) [Related Party Transactions](index=92&type=section&id=B.%20Related%20Party%20Transactions.) The company's related party transactions primarily involve standard employment and compensation agreements with executive officers and directors, including salaries, bonuses, and option grants under the **2015 Share Option Plan**, with customary non-competition and confidentiality clauses - The company has entered into written employment agreements with all executive officers, including customary provisions for non-competition, confidentiality, and invention assignment[520](index=520&type=chunk) - The company has granted stock options to its officers and certain directors under its **2015 Share Option Plan**[522](index=522&type=chunk) [Financial Information](index=93&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION.) This section refers to detailed financial statements in Item 18, confirms no material legal proceedings, states the company has never paid cash dividends and does not plan to, citing Israeli law restrictions, and notes no significant changes since the financial statements date - The company has never declared or paid cash dividends and does not plan to in the foreseeable future[528](index=528&type=chunk) - Under Israeli law, dividend distributions are limited and depend on the company meeting specific earnings and solvency criteria[529](index=529&type=chunk) - The company was not subject to any material legal proceedings during the period covered by the financial statements[527](index=527&type=chunk) [The Offer and Listing](index=94&type=section&id=ITEM%209.%20THE%20OFFER%20AND%20LISTING.) The company's Ordinary Shares (WLDS) and Warrants (WLDSW) began trading on Nasdaq Capital Market on **September 13, 2022**, but received a non-compliance notice on **October 24, 2023**, for failing the **$1.00** minimum bid price, with a compliance deadline of **April 22, 2024**, and a potential **180-day** extension - The company's Ordinary Shares (WLDS) and Warrants (WLDSW) commenced trading on the Nasdaq Capital Market on **September 13, 2022**[533](index=533&type=chunk) - On **October 24, 2023**, the company was notified by Nasdaq of non-compliance with the minimum bid price requirement, as its share price was below **$1.00** for **30 consecutive business days**[535](index=535&type=chunk) - The company has until **April 22, 2024**, to regain compliance, with a possible **180-day** extension, and is considering a reverse stock split to meet the requirement[535](index=535&type=chunk)[536](index=536&type=chunk) [Additional Information](index=94&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION.) This section covers supplementary corporate information, including material contracts, exchange controls, and detailed Israeli and U.S. tax considerations, such as corporate tax rates, IIA grants, and the potential risk of Passive Foreign Investment Company (PFIC) classification for U.S. holders [Material Contracts](index=95&type=section&id=C.%20Material%20Contracts.) The company's material contracts from the past two years include a Senior Credit Facility Agreement with L.I.A. Pure Capital Ltd. from **July 2022**, its Compensation Policy, and a Form of Indemnification Agreement for officers and directors - Key material contracts include the Senior Credit Facility Agreement with L.I.A. Pure Capital Ltd., the company's Compensation Policy, and the Form of Indemnification Agreement[548](index=548&type=chunk) [Exchange Controls](index=95&type=section&id=D.%20Exchange%20Controls.) Currently, no Israeli currency control restrictions affect dividend payments or share distributions to non-residents, though legislation allows for future imposition, and non-resident ownership is unrestricted except for citizens of countries at war with Israel - No Israeli currency control restrictions currently apply to dividend payments or proceeds from share sales for non-residents, although the government retains the power to impose them[543](index=543&type=chunk) [Taxation](index=95&type=section&id=E.%20Taxation.) This subsection details tax implications for the company and shareholders, including Israel's **23%** corporate tax rate, IIA grant royalty obligations and restrictions, and the significant risk of Passive Foreign Investment Company (PFIC) classification for U.S. shareholders - The standard corporate tax rate for Israeli companies is **23%**[549](index=549&type=chunk) - The company receives grants from the Israel Innovation Authority (IIA), subjecting it to royalty payments on future revenues and restrictions on transferring manufacturing or know-how outside of Israel[553](index=553&type=chunk)[554](index=554&type=chunk)[555](index=555&type=chunk) - There is a risk the company may be classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, potentially leading to adverse tax treatment for U.S. shareholders on distributions and dispositions of shares[144](index=144&type=chunk)[588](index=588&type=chunk) - Dividends paid to non-Israeli residents are generally subject to a **25%** withholding tax, or **30%** for a 'substantial shareholder', unless reduced by an applicable tax treaty[574](index=574&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=105&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK.) The company's primary market risk is foreign currency exchange rates between the U.S. dollar and New Israeli Shekel (NIS), as most operating expenses are NIS-denominated; a hypothetical **10%** adverse change would have increased 2023 operating expenses by approximately **$580 thousand** - The company's main market risk is foreign currency exchange risk, as its revenues are in U.S. dollars while most operating expenses are in New Israeli Shekels (NIS)[608](index=608&type=chunk) - In 2023, the NIS devalued against the U.S. dollar by **3.1%**; a hypothetical **10%** adverse change in the exchange rate would have increased 2023 operating expenses by approximately **$580 thousand**[609](index=609&type=chunk) - The company partially hedged its foreign currency risk in 2023, after not hedging at all in 2022[610](index=610&type=chunk) PART II [Material Modifications to the Rights of Security Holders and Use of Proceeds](index=106&type=section&id=ITEM%2014.%20MATERIAL%20MODIFICATIONS%20TO%20THE%20RIGHTS%20OF%20SECURITY%20HOLDERS%20AND%20USE%20OF%20PROCEEDS.) The company issued **3,750,000 Ordinary Shares** and **8,625,000 Warrants** in its IPO, raising approximately **$16 million** in gross proceeds, with net proceeds used as described in the final prospectus - The company raised approximately **$16 million** in gross proceeds from its IPO through the issuance of **3,750,000 Ordinary Shares** and **8,625,000 Warrants**[618](index=618&type=chunk) [Controls and Procedures](index=106&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES.) As of **December 31, 2023**, management concluded the company's disclosure controls and internal control over financial reporting (based on COSO) were effective, with no auditor attestation report required as an emerging growth company - Management concluded that as of **December 31, 2023**, the company's disclosure controls and procedures were effective[621](index=621&type=chunk) - Based on the COSO framework, management concluded that the company's internal control over financial reporting was effective as of **December 31, 2023**[625](index=625&type=chunk) - As an emerging growth company, the company is exempt from providing an auditor's attestation report on internal control over financial reporting[626](index=626&type=chunk) [Corporate Governance and Other Disclosures](index=108&type=section&id=ITEM%2016.%20CORPORATE%20GOVERNANCE%20AND%20OTHER%20DISCLOSURES) This section covers governance and disclosures, including Mr. Goldman's designation as an audit committee financial expert, the Code of Business Ethics, **$138,500** in 2023 accountant fees, adherence to Israeli corporate governance as a foreign private issuer, and the audit committee's oversight of the cybersecurity risk management program [Audit Committee Financial Expert](index=108&type=section&id=ITEM%2016A.%20AUDIT%20COMMITTEE%20FINANCIAL%20EXPERT.) The board determined Mr. Yaacov Goldman qualifies as an 'audit committee financial expert' under SEC and Nasdaq rules, with all audit committee members being independent - The board has identified Mr. Yaacov Goldman as the audit committee financial expert[629](index=629&type=chunk) [Code of Ethics](index=108&type=section&id=ITEM%2016B.%20CODE%20OF%20ETHICS.) The company adopted a written Code of Business Ethics applicable to all directors, officers, and employees, available on its website, with amendments or waivers disclosed per SEC regulations - A Code of Business Ethics has been adopted and applies to all directors, officers, and employees[630](index=630&type=chunk) [Principal Accountant Fees and Services](index=108&type=section&id=ITEM%2016C.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES.) The company paid its principal accountant, Ziv Haft (BDO), **$138,500** in 2023 and **$112,000** in 2022, with 2023 fees primarily for audit services, all pre-approved by the audit committee Accountant Fees (in USD) | Fee Type | 2023 | 2022 | | :--- | :--- | :--- | | Audit fees | $136,000 | $100,000 | | Audit-related fees | - | $12,000 | | Tax fees | $2,500 | - | | All other fees | - | - | | **Total** | **$138,500** | **$112,000** | [Corporate Governance](index=109&type=section&id=ITEM%2016G.%20CORPORATE%20GOVERNANCE.) As a foreign private issuer, the company follows Israeli corporate governance practices instead of certain Nasdaq rules, with divergences in quorum requirements, director nominations, officer compensation approval, and shareholder approval for certain actions, all compliant with Israeli law - The company, as a foreign private issuer, follows Israeli corporate governance practices instead of certain Nasdaq rules[640](index=640&type=chunk)[641](index=641&type=chunk) - Exemptions from Nasdaq rules include director nominations, officer compensation approval, and shareholder approval requirements for certain transactions, which follow Israeli Companies Law procedures[642](index=642&type=chunk)[644](index=644&type=chunk) [Cybersecurity](index=111&type=section&id=ITEM%2016K.%20CYBERSECURITY.) The board and audit committee oversee the company's cybersecurity risk management program, which includes governance, cross-functional collaboration, technical safeguards, recovery planning, employee education, and third-party assessments, with no material cybersecurity attacks reported as of the report date - The audit committee oversees the company's cybersecurity risk management program, integrated into its overall risk management[648](index=648&type=chunk) - The cybersecurity strategy includes technical safeguards, recovery planning, regular employee training, and periodic assessments by third parties[649](index=649&type=chunk)[650](index=650&type=chunk) - As of the report date, the company states it has not experienced any cybersecurity attacks that have materially affected or are reasonably likely to affect its business, operations, or financial condition[652](index=652&type=chunk) PART III [Financial Statements](index=113&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS.) This section presents the company's audited consolidated financial statements for **FY 2023** and **2022**, prepared under U.S. GAAP, with the auditor's report including a 'Going Concern' paragraph due to recurring losses, negative cash flows, and external funding dependency, detailing assets, liabilities, equity, comprehensive loss, and cash flows - The independent auditor's report contains an explanatory paragraph expressing substantial doubt about the Company's ability to continue as a going concern due to recurring losses, negative cash flows, and dependence on external funding[670](index=670&type=chunk) Consolidated Balance Sheet Highlights (as of Dec 31, in thousands USD) | | 2023 | 2022 | | :--- | :--- | :--- | | **Total Assets** | $7,592 | $11,224 | | Cash and cash equivalents | $810 | $10,373 | | **Total Liabilities** | $2,066 | $1,244 | | **Total Shareholders' Equity** | $5,526 | $9,980 | Consolidated Statements of Comprehensive Loss (Year ended Dec 31, in thousands USD) | | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Revenues | $82 | $45 | $142 | | Operating Loss | $(8,186) | $(6,458) | $(2,669) | | **Net Loss** | **$(7,814)** | **$(6,496)** | **$(2,614)** | | Net loss per share | $(0.48) | $(0.53) | $(0.27) | - As of **December 31, 2023**, the company had an accumulated deficit of **$21.2 million**[693](index=693&type=chunk) - The company has a contingent liability to pay royalties to the Israel Innovation Authority (IIA) with a maximum principal of **$2.2 million** plus interest, contingent upon future sales of funded products[753](index=753&type=chunk)

[Full Year 2023 Financial Results and Corporate Update](index=1&type=section&id=Full%20Year%202023%20Financial%20Results%20and%20Corporate%20Update) [Corporate Update and CEO's Remarks](index=1&type=section&id=Corporate%20Update%20and%20CEO%27s%20Remarks) In 2023, Wearable Devices focused on strategic capital allocation, leading to an increased net loss due to investments in sales, marketing, and R&D. Key achievements included the first shipment of the Mudra Band for Apple Watch and establishing significant B2B partnerships, such as with Qualcomm and a major defense contractor. The company is advancing both its B2B offerings with the Mudra Developer Kit (MDK) and its B2C product, the Mudra Band, and anticipates a transformative year in 2024 with a focus on increasing production and market presence - The net loss increased in 2023 due to strategic investments in sales & marketing and research & development to support innovation and business development[3](index=3&type=chunk) - The company successfully completed the delivery of its first manufacturing batch of the B2C Mudra Band for Apple Watch to preorder customers[3](index=3&type=chunk)[5](index=5&type=chunk) - B2B partnerships are a key part of the growth strategy, highlighted by the launch of the Mudra Developer Kit (MDK) and collaboration agreements with Qualcomm and a leading global defense company[4](index=4&type=chunk) - The company is intently focused on increasing production capacity to meet the anticipated demand for the Mudra Band[5](index=5&type=chunk) [2023 and Recent Business Highlights](index=2&type=section&id=2023%20and%20Recent%20Business%20Highlights) Throughout 2023 and into early 2024, the company achieved significant operational milestones, including signing a collaboration with Qualcomm, launching the B2B Mudra Developer Kit (MDK), delivering the first batch of Mudra Bands, and expanding its U.S. presence with a Silicon Valley office, while also advancing its technology by filing a patent for pinch-to-zoom and introducing spatial depth control - Signed a collaboration agreement with Qualcomm to enhance XR experiences and received a purchase order for the MDK from a leading Japanese industrial automation company[9](index=9&type=chunk) - Successfully delivered the first manufacturing batch of the Mudra Band for Apple Watch[9](index=9&type=chunk) - Opened a new office in Silicon Valley to expand its U.S. presence and foster relationships in the tech market[9](index=9&type=chunk) - Filed a U.S. patent application for touchless pinch-to-zoom technology for AR/VR and introduced a new spatial depth control feature[9](index=9&type=chunk) [Full Year 2023 Financial Highlights](index=2&type=section&id=Full%20Year%202023%20Financial%20Highlights) For the full year 2023, Wearable Devices experienced significant growth in operating expenses, with R&D costs rising **46% to $3.3 million** and Sales & Marketing expenses increasing **47% to $2.0 million**, leading to a wider net loss of **$7.8 million** from **$6.5 million** in 2022, ending the year with **$4.9 million** in cash and deposits and **$1.0 million** in inventory to support planned B2C business growth Full Year 2023 Key Financial Metrics | Metric | FY 2023 | FY 2022 | Change | | :--- | :--- | :--- | :--- | | Research and Development Expenses | $3.3 million | ~$2.3 million | +46% | | Sales and Marketing Expenses | $2.0 million | ~$1.4 million | +47% | | Net Loss | $(7.8 million) | $(6.5 million) | Increased Loss | | Net Loss per Diluted Share | $(0.48) | $(0.53) | - | | Cash and Deposits (at Dec 31, 2023) | $4.9 million | N/A | N/A | | Inventory (at Dec 31, 2023) | $1.0 million | N/A | N/A | [Consolidated Financial Statements](index=4&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements for the year ended December 31, 2023, reflect a period of heavy investment, with total assets decreasing to **$7.6 million** from **$11.2 million** in 2022 due to a reduction in cash, a widened net loss of **$7.8 million** from **$6.5 million** in the prior year due to increased R&D and S&M spending, and an increased use of cash from operations at **$8.4 million** [Consolidated Balance Sheets](index=4&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) As of December 31, 2023, the company's total assets stood at **$7.6 million**, down from **$11.2 million** in 2022, primarily due to a significant decrease in cash and cash equivalents, while total liabilities increased to **$2.1 million** from **$1.2 million**, and inventory substantially increased to over **$1.0 million** from **$6 thousand** in 2022, reflecting the transition to production Consolidated Balance Sheet Data (in thousands USD) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | **Total Current Assets** | **$6,752** | **$10,976** | | Cash and cash equivalents | $810 | $10,373 | | Inventories | $1,032 | $6 | | **Total Assets** | **$7,592** | **$11,224** | | **Total Liabilities** | **$2,066** | **$1,244** | | **Total Shareholders' Equity** | **$5,526** | **$9,980** | [Consolidated Statements of Comprehensive Loss](index=5&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20LOSS) For the fiscal year 2023, the company generated revenues of **$82 thousand** and reported a net loss of **$7.8 million**, or **($0.48)** per share, representing a larger loss compared to the **$6.5 million** net loss, or **($0.53)** per share, in 2022, primarily driven by higher operating expenses, including a **46%** rise in R&D and a **47%** rise in sales and marketing costs Statement of Comprehensive Loss (in thousands USD, except per share amounts) | Account | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Revenues | $82 | $45 | $142 | | Research and development, net | $(3,316) | $(2,271) | $(1,411) | | Sales and marketing expenses, net | $(2,008) | $(1,370) | $(665) | | **Operating Loss** | **$(8,186)** | **$(6,458)** | **$(2,669)** | | **Net Loss** | **$(7,814)** | **$(6,496)** | **$(2,614)** | | Net loss per ordinary share, diluted | $(0.48) | $(0.53) | $(0.27) | [Consolidated Statements of Cash Flows](index=6&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) In 2023, net cash used in operating activities was **$8.4 million**, a significant increase from **$5.7 million** in 2022, while investing activities used **$4.2 million** primarily for bank deposits, and financing activities provided **$3.1 million** from share issuances and warrant exercises, resulting in a **$9.6 million** decrease in cash and cash equivalents, ending the year at **$810 thousand** Statement of Cash Flows Highlights (in thousands USD) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(8,434) | $(5,714) | | Net cash used in investing activities | $(4,248) | $(66) | | Net cash provided by financing activities | $3,119 | $14,879 | | **Net (decrease) increase in cash** | **$(9,563)** | **$9,099** | | **Cash and cash equivalents at end of year** | **$810** | **$10,373** |

[Financial Statements](index=2&type=section&id=Financial%20Statements) This section presents the interim condensed consolidated financial statements and their accompanying notes for Wearable Devices Ltd [Interim Condensed Consolidated Balance Sheets](index=2&type=section&id=Interim%20Condensed%20Consolidated%20Balance%20Sheets) The balance sheet as of June 30, 2023, reflects a decrease in total assets and shareholders' equity, primarily due to reduced cash and accumulated losses, alongside an increase in total liabilities Consolidated Balance Sheet Summary (in thousands USD) | Account | June 30, 2023 | December 31, 2022 | Change | | :--- | :--- | :--- | :--- | | **Assets** | | | | | Cash and cash equivalents | $5,954 | $10,373 | ($4,419) | | Total Current Assets | $8,689 | $10,976 | ($2,287) | | Total Assets | $9,369 | $11,224 | ($1,855) | | **Liabilities & Equity** | | | | | Total Current Liabilities | $1,526 | $1,150 | $376 | | Total Liabilities | $1,728 | $1,244 | $484 | | Accumulated losses | ($17,305) | ($13,409) | ($3,896) | | Total Shareholders' Equity | $7,641 | $9,980 | ($2,339) | | Total Liabilities and Equity | $9,369 | $11,224 | ($1,855) | [Interim Condensed Consolidated Statements of Comprehensive Loss](index=4&type=section&id=Interim%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) For the six months ended June 30, 2023, the company reported a net loss of **$3.90 million**, significantly higher than the **$2.05 million** loss in the prior year, driven by decreased revenues and increased operating expenses Statement of Comprehensive Loss Summary (in thousands USD, except per share data) | Metric | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :--- | :--- | :--- | | Revenues | $12 | $28 | | Research and development, net | ($1,560) | ($944) | | Sales and marketing expenses | ($1,050) | ($471) | | General and administrative expenses | ($1,453) | ($587) | | **Operating Loss** | **($4,054)** | **($2,053)** | | **Comprehensive and Net Loss** | **($3,896)** | **($2,051)** | | Net loss per ordinary share | ($0.26) | ($0.18) | [Interim Condensed Consolidated Statements of Changes in Shareholders' Equity (Deficit)](index=5&type=section&id=Interim%20Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders%27%20Equity%20%28Deficit%29) Shareholders' equity decreased to **$7.64 million** by June 30, 2023, from **$9.98 million** at year-end 2022, primarily due to a comprehensive loss, partially offset by option exercises and share-based compensation - Total shareholders' equity decreased by **$2.34 million** during the first six months of 2023[10](index=10&type=chunk) Changes in Shareholders' Equity (in thousands USD) | Description | Amount | | :--- | :--- | | Balance as of Dec 31, 2022 | $9,980 | | Exercise of options | $1,448 | | Share based compensation | $109 | | Comprehensive loss | ($3,896) | | **Balance as of June 30, 2023** | **$7,641** | [Interim Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Interim%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2023, the company experienced a net decrease in cash of **$4.42 million**, driven by significant cash usage in operating and investing activities, partially offset by financing inflows Cash Flow Summary (in thousands USD) | Category | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($3,719) | ($1,439) | | Net cash used in investing activities | ($2,148) | ($15) | | Net cash provided by financing activities | $1,448 | $500 | | **Net Decrease in Cash** | **($4,419)** | **($954)** | | Cash at beginning of period | $10,373 | $1,274 | | **Cash at end of period** | **$5,954** | **$320** | [Notes to the Interim Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20the%20Interim%20Condensed%20Consolidated%20Financial%20Statements) These notes provide essential context on the company's business, accounting policies, and significant events, including its going concern status, related-party transactions, equity changes, and recent operational developments [NOTE 1 – GENERAL](index=7&type=section&id=NOTE%201%20%E2%80%93%20GENERAL) This note outlines Wearable Devices Ltd.'s business as a developer of human-machine interface solutions and highlights substantial doubt about its going concern ability due to accumulated losses and funding dependency - The company is in the development stage, focusing on human-machine interface solutions for the smart wearables industry[13](index=13&type=chunk) - The company's dependency on external funding and its accumulated losses of **$17.3 million** raise substantial doubt about its ability to continue as a going concern[14](index=14&type=chunk)[17](index=17&type=chunk) [NOTE 2 – BASIS FOR PREPARATION](index=7&type=section&id=NOTE%202%20%E2%80%93%20BASIS%20FOR%20PREPARATION) These unaudited interim financial statements are prepared in accordance with U.S. GAAP for interim reporting, with no significant changes to accounting policies during the period - Financial statements are prepared according to U.S. GAAP for interim reporting and do not include all disclosures required for complete annual statements[15](index=15&type=chunk) [NOTE 3 – RELATED PARTIES](index=8&type=section&id=NOTE%203%20%E2%80%93%20RELATED%20PARTIES) Employment expenses for the company's co-founders significantly increased to **$174 thousand** for the first half of 2023, up from **$71 thousand** in the prior year period - Employment expenses for the three co-founders totaled **$174 thousand** for the first six months of 2023, compared to **$71 thousand** for the same period in 2022[18](index=18&type=chunk) [NOTE 4 – EQUITY](index=8&type=section&id=NOTE%204%20%E2%80%93%20EQUITY) This note details the company's equity structure, including warrant exercises, outstanding options, and new option grants to employees and consultants during the reporting period - In June 2023, **724,139** warrants were exercised, generating proceeds at an exercise price of **$2.00** per share[21](index=21&type=chunk) - As of June 30, 2023, **1,053,264** options were outstanding for employees under the 2015 Share Option Plan[24](index=24&type=chunk) - In the first half of 2023, the company granted **65,000** options to new employees and **100,000** options to a consultant[24](index=24&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk) [NOTE 5 – SIGNIFICANT EVENTS IN THE REPORTING PERIOD](index=10&type=section&id=NOTE%205%20%E2%80%93%20SIGNIFICANT%20EVENTS%20IN%20THE%20REPORTING%20PERIOD) Significant events include a new lease agreement, a development program with the Israeli Innovation Authority for approximately **$900 thousand**, and regaining Nasdaq minimum bid price compliance - The Israeli Innovation Authority approved a program to finance **60%** of a **~$900 thousand** project for the company's manufacturing process development[29](index=29&type=chunk) - On June 9, 2023, the company regained compliance with the Nasdaq minimum bid price requirement[29](index=29&type=chunk) [NOTE 6 – SUBSEQUENT EVENTS](index=10&type=section&id=NOTE%206%20%E2%80%93%20SUBSEQUENT%20EVENTS) Subsequent events include the Board's approval on August 23, 2023, to grant **406,500** new options and increase the shares available under the 2015 Share Option Plan by **931,139** - On August 23, 2023, the Board approved granting **406,500** new options at an exercise price of **$1.32** per share[29](index=29&type=chunk) - The Board increased the number of shares available for grant under the 2015 Share Option Plan by **931,139**[29](index=29&type=chunk)

FORM 20-F ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Israel (Jurisdiction of incorporation or organization) 5 Ha-Tnufa Street Yokne'a ...

[2022 Financial Results and Business Update](index=1&type=section&id=2022%20Financial%20Results%20and%20Business%20Update) Wearable Devices reported a wider net loss in 2022, driven by strategic investments and IPO expenses, while significantly strengthening its cash position and advancing neural interface technology [Financial Performance](index=1&type=section&id=Financial%20Performance) Wearable Devices' 2022 financial performance saw a widened net loss to **$6.5 million** from **$2.6 million** in 2021, driven by increased operating expenses and IPO costs, despite a substantial increase in cash to **$10.4 million** from IPO proceeds Key Financial Metrics (in thousands USD, except per share data) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Revenues | $45 | $142 | | Net Loss | $(6,496) | $(2,614) | | Net Loss Per Share (diluted) | $(0.53) | $(0.27) | | Cash Balance (Year-End) | $10,400 | $1,300 | [Statement of Comprehensive Loss](index=4&type=section&id=Statement%20of%20Comprehensive%20Loss) The company's net loss significantly widened to **$6.5 million** in 2022, primarily due to increased operating expenses across R&D, sales, and general administration, alongside one-time IPO costs, while revenues declined Consolidated Statements of Comprehensive Loss (in thousands USD) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Revenues | $45 | $142 | | Research and development, net | $(2,271) | $(1,411) | | Sales and marketing expenses, net | $(1,370) | $(665) | | General and administrative expenses | $(1,948) | $(628) | | Initial public offering expenses | $(904) | $(97) | | **OPERATING LOSS** | **$(6,458)** | **$(2,669)** | | **COMPREHENSIVE AND NET LOSS** | **$(6,496)** | **$(2,614)** | [Balance Sheet](index=3&type=section&id=Balance%20Sheet) As of December 31, 2022, the company's balance sheet significantly strengthened post-IPO, with total assets growing to **$11.2 million** and cash to **$10.4 million**, substantially increasing shareholders' equity to **$10.0 million** Consolidated Balance Sheet Highlights (in thousands USD) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $10,373 | $1,274 | | **TOTAL ASSETS** | **$11,224** | **$1,445** | | **TOTAL LIABILITIES** | **$1,244** | **$638** | | **TOTAL SHAREHOLDERS' EQUITY** | **$9,980** | **$807** | [Statement of Cash Flows](index=5&type=section&id=Statement%20of%20Cash%20Flows) In 2022, increased cash usage in operations was significantly offset by **$14.9 million** in net cash from financing activities, primarily from **$14.3 million** in IPO proceeds, resulting in a **$9.1 million** net cash increase Consolidated Cash Flow Highlights (in thousands USD) | Cash Flow Source | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(5,714) | $(2,103) | | Net cash used in investing activities | $(66) | $(36) | | Net cash provided by financing activities | $14,879 | $2,938 | | **Net increase in cash** | **$9,099** | **$799** | - The primary source of financing cash flow in 2022 was the **$14.3 million** net proceeds from the issuance of ordinary shares and warrants in connection with the initial public offering[12](index=12&type=chunk) [Business and Operational Highlights](index=1&type=section&id=Business%20and%20Operational%20Highlights) The company is strategically investing in neural interface technology for AI and Metaverse markets, pursuing a dual B2B and B2C strategy with early traction for 'Mudra Inspire' and 'Mudra Band', and securing key post-year-end partnerships and grants - The company's vision is to make the user's hand a **universal input device** for touchless interaction, targeting the AI and Metaverse markets[5](index=5&type=chunk)[7](index=7&type=chunk) - The CEO stated that the **increased net loss** is a result of **strategic investments** in R&D to refine technology, with the expectation of driving future shareholder returns[5](index=5&type=chunk) - The CEO believes **2023 is positioned to be a transformative year** for the company as it continues to showcase its technology and bring products to market[5](index=5&type=chunk) [Business-to-Business (B2B) Operations](index=1&type=section&id=Business-to-Business%20%28B2B%29%20Operations) The company's B2B strategy, centered on the 'Mudra Inspire' development kit, has gained early traction with **over 100 companies** across diverse sectors, indicating a broad addressable market - The 'Mudra Inspire' development kit has been purchased by **over 100 companies**, indicating strong initial interest in the B2B market[5](index=5&type=chunk) - Customers for the development kit span a wide range of industries, including consumer electronics manufacturers, IT services, software development, industrial companies, and utility providers[5](index=5&type=chunk) [Business-to-Consumer (B2C) Operations](index=1&type=section&id=Business-to-Consumer%20%28B2C%29%20Operations) The B2C focus is the 'Mudra Band' for Apple Watch, which has garnered considerable interest through robust preorder activity and recently introduced the 'Mudra Air-Touch' AI feature for seamless device control - The 'Mudra Band' for the Apple Watch is the company's flagship B2C product, showing considerable interest through **robust preorder activity**[5](index=5&type=chunk) - A new feature, 'Mudra Air-Touch', has been introduced to allow users to toggle and switch between connected Apple devices, enhancing the user experience[5](index=5&type=chunk) [Financing Activities and Subsequent Events](index=1&type=section&id=Financing%20Activities%20and%20Subsequent%20Events) In September 2022, the company closed its IPO, raising approximately **$16 million** in gross proceeds, and subsequently secured a strategic partnership with a Fortune 500 company and a **$900,000 grant** for manufacturing advancement - In September 2022, the company closed its IPO, raising gross proceeds of approximately **$16 million** before expenses[5](index=5&type=chunk) - Post year-end, the company entered a **strategic partnership** with a Fortune 500 communications equipment company to embed Mudra technology into the partner's chipset[6](index=6&type=chunk) - Received a **$900,000 grant** from the Israel Innovation Authority to finance further development of the 'Mudra Band' manufacturing process[6](index=6&type=chunk)