Annual Report for Fiscal Year Ending March 31, 2025 (Form 10-K)

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

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS OF DIH

The following discussion and analysis should be read together with the historical audited annual consolidated financial statements and related notes that are included elsewhere in this Form 10-K. The following discussion may contain forward-looking statements. Actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this Form 10-K, particularly in sections therein entitled "Cautionary Note Concerning Forward Looking Statements" and "Risk Factors".

Our fiscal year ends on March 31. "Fiscal 2025" and "fiscal 2024" refer to the year ended March 31, 2025 and 2024, respectively.

Overview

DIH is a global solution provider in blending innovative robotic and interactive visual-stimulation technologies with clinical integration and insights. DIH has a focused portfolio of rehabilitation solutions, which includes both technology and products designed for the hospital, clinic, and research markets.

In fiscal 2025, DIH generated revenue of $62.9 million compared to $64.5 million in fiscal 2024. The decrease was primarily due to a change in product mix, where many customers purchased a similar number of devices but with a lower average sales price than the prior year mix.

DIH's net loss for fiscal 2025 was $8.7 million, compared to $8.4 million in fiscal 2024, an increase of $0.3 million. The change in net loss was driven by the following key factors:

	●	Gross profit increased $2.4 million because we implemented a 10% price increase in fiscal year 2024 for sales orders received after the implementation date and, together with lower cost of sales, improved gross margin in fiscal 2025.
	●	Operating expenses excluding impairment of long-lived assets increased $4.7 million due to higher professional and personnel costs associated with becoming a public company and establishing required processes and controls even though Fiscal 2025 did not include Business Combination transaction costs that incurred in fiscal 2024.
	●	Impairment of long-lived assets of $2.2 million was recorded in the fourth quarter of fiscal 2025 related to the discontinuation of the SafeGait product and HocoNet-related software.
	●	Other expense, net improved $3.3 million because fiscal 2024 included a non-cash advisory fee of $3.5 million settled in 28,000 shares of common stock that did not recur in fiscal 2025
	●	Income taxes were favorable by $0.8 million year over year.

Recent Developments

During fiscal 2025 and through the date this annual report on Form 10-K was issued, we executed several capital transactions and received multiple Nasdaq notices that materially affect liquidity.

Reverse Stock Split

On October 17, 2025, we filed with the Secretary of State of the State of Delaware a certificate of amendment to our certificate of incorporation which effected a one-for-twenty-five reverse stock split of all of our outstanding Common Stock. As a result of the Reverse Stock Split, every twenty-five (25) shares of Common Stock were exchanged for one (1) share of Common Stock. The Common Stock began trading on the Nasdaq Capital Market on a split-adjusted basis at the start of trading on October 20, 2025. The Reverse Stock Split did not affect the total number of shares of capital stock that the Company is authorized to issue, which remain as set forth pursuant to the Certificate of Incorporation.

All share and per share data in this Annual Report on Form 10-K have been adjusted for all periods presented to reflect the Reverse Stock Split.

Issuance of Convertible Debt

On June 6, 2024, we issued $3.3 million principal amount of 8% original-issue-discount senior secured convertible debentures with monthly redemptions beginning November 1, 2024 and five-year warrants initially exercisable for 13,200 shares at $125.00 per share; the debentures are secured by substantially all domestic assets and guaranteed by domestic subsidiaries.

On March 20, 2025, the investor exercised its additional investment right and purchased an additional $330,000 principal amount of debentures and related warrants on terms derived from the June 2024 transaction; these additional debentures are convertible at $7.97 per share. In connection with this issuance, we issued warrants exercisable for 41,431 shares at an exercise price of $7.97 per share. As a result of this additional issuance, the conversion price of the remaining convertible amount under the Original Debentures adjusted to $7.97 per share, and the previously issued warrant exercise price adjusted to $7.97 with the warrant share count increasing to 207,156 pursuant to anti-dilution provisions that adjusts the conversion price and exercise price downward if the Company issues new equity securities at a price lower than the then-effective conversion price.

Subsequent to March 31, 2025, on August 7, 2025 we entered into a Securities Purchase Agreement for $2.2 million principal of additional 8% original-issue-discount senior secured convertible debentures, structured to deliver $1.9 million of total expected net proceeds after estimated offering expenses through four funding tranches. As of the issuance date of this Annual Report on Form 10-K, three tranches totaling $1.4 million have funded; funding of the remaining balance is subject to the conditions described in Note 21 - Subsequent Events to the Consolidated Financial Statements. The debentures carry an initial $6.25 conversion price; beginning October 1, 2025, we must redeem $170,940 monthly, payable cash or, if the equity conditions are satisfied (including, among other things, that a resale registration statement has been filed with, and been declared effective by, the SEC, the Company's common stock is listed on a trading market, there is no existing event of default under the Debenture), in shares of Common Stock based on a conversion price equal to the lesser of (i) the then Conversion Price and (ii) 90% of the average of the five lowest VWAPs (volume-weighted average prices of our Common Stock on the principal trading market, as reported by Bloomberg) for the 10 consecutive trading days ending on the trading day immediately prior to the applicable Monthly Redemption Date, subject to the limitations set forth in the Debenture. These instruments also trigger anti-dilution adjustments that will reduce the conversion price of the existing convertible notes and warrant exercise prices to $6.25 and increase corresponding underlying share counts pursuant to their terms upon stockholders' approval.

Issuance of Common Stock and Warrants

On February 3, 2025, we closed an offering of 237,484 Units ("Units"), each consisting of one share of common stock, par value $0.0001 per share, and one Class A warrant to purchase one share of common stock at a public offering price of $19.58 per Unit, for gross proceeds of $4.6 million. The Units have no stand-alone rights and will not be certified or issued as stand-alone securities. Each Class A warrant was immediately exercisable for one share of common stock at an exercise price of $19.58 per share (100% of the public offering price per Unit) and will expire on the fifth anniversary of the original issuance date. The offering resulted in net proceeds of approximately $3.9 million, after deducting placement agent fees and estimated offering expenses payable by the Company.

Impact of Tariffs

The U.S. tariffs initially announced in April 2025, which continue to evolve, and other countries' potential retaliatory tariffs may have a significant adverse impact to our results of operations and cash flows. We continue to evaluate the impact of these tariffs on our business and are taking steps to implement mitigating actions, including accelerating production and shipments into the U.S. during the period of delayed application of the reciprocal tariffs, negotiations with our customers, and potential price increases. However, the duration and scope of the tariffs are difficult to predict, we may not be able to fully offset the impact through our mitigation efforts.

Key Factors Affecting the DIH's Operating Results

DIH believes that its future success and financial performance depend on a number of factors that present significant opportunities for its business, but also pose risks and challenges, including those discussed below and in the Section of this Form 10-K entitled "Item 1a. Risk Factors."

Supply Chain and Inflation

The global supply chain and logistics challenges continue to impact DIH and the industry. As a result of these challenges, DIH has experienced cost increases for freight and logistics, raw materials and purchased components as well as increased manufacturing conversion costs. These supply chain disruptions have not materially affected DIH's business outlook and goals or its operating results, including its sales, revenue, or liquidity or capital resources and DIH has not implemented any mitigation efforts to date as a result. However, DIH cannot predict the impact to it of any future or prolonged supply chain disruptions or any mitigation efforts it may take going forward. For example as a result of these supply chain disruptions, DIH may be required to extend the overall shipment and installation timeline. In addition, DIH may consider additional or alternative third-party manufacturers and logistics providers, suppliers, vendors or distributors. Such mitigation efforts may result in cost increases and any attempts to offset such increases with price increases may result in reduced sales, increased customer dissatisfaction, or otherwise harm DIH's reputation. Further, if DIH were to elect to transition or add manufacturers or logistics providers, suppliers, vendors or distributors, it may result in temporary or additional delays in shipments of products or risks related to consistent product quality or reliability. This in turn may limit DIH's ability to fulfill customer sales orders and DIH may be unable to satisfy all of the demand for its products. DIH may in the future also purchase components further in advance, which in return can result in less capital being allocated to other activities such as marketing and other business needs. DIH cannot quantify the impact of such disruptions at this time or predict the impact of any mitigation efforts DIH may take in response to supply chain disruptions on its business, financial condition, and results of operations.

Input cost inflation historically has not been a material factor to our gross margin; however, beginning at the end of fiscal 2022 DIH began to experience increases in raw material and components costs due to inflation effects, which are expected to continue to remain at elevated levels for at least the near term.

Foreign Currency Fluctuations

DIH's business operates in three different functional currencies (Euro, Swiss Franc, Singapore Dollar). DIH's reporting currency is the U.S. Dollar. DIH's results are affected by fluctuations in currency exchange rates that give rise to translational exchange rate risks. The extent of such fluctuations is determined in part by global economic conditions and macro-economic trends. Movements in exchange rates have a direct impact on DIH's reported revenues. Generally, the impact on operating income or loss associated with exchange rate changes on reported revenues is partially offset from exchange rate impacts on operating expenses denominated in the same functional currencies. As foreign currency exchange rates change, translation of the statements of operations of DIH's international businesses into U.S. dollars may affect year-over-year comparability of DIH's operating results.

EU MDR Implementation Costs

Changes in law or regulation could make it more difficult and costly for DIH and its subsidiaries to manufacture, market and distribute its products or obtain or maintain regulatory approval of new or modified products. DIH's experience with the transition to the EU MDR, which it began in 2019, showed how complex, time-consuming and expensive a change in Medical Device Legislation can be. The EU MDR replaced the existing European Medical Devices Directive (MDD) and Active Implantable Medical Device Directive (AIMDD) regulatory frameworks, and manufacturers of medical devices were required to comply with EU MDR beginning in May 2021 for new product registrations and by May 2024 for medical devices which have a valid CE Certificate to the prior Directives (issued before May 2021). Updates to the legislative text of the EU MDR were adopted by the European Parliament and are currently being reviewed for adoption by the Council of the European Union, including an extension of the transitional period to 2027 for class IIb and III and 2028 for class I and IIa medical devices which have a valid CE Certificate to the prior Directives (issued before May 2021).

Nasdaq Notifications and Listing Status

Through the date this Annual Report on Form 10-K is filed, DIH has received Nasdaq deficiency notices for failure to satisfy the Market Value of Listed Securities, the Market Value of Publicly Held Shares, and the $1.00 minimum bid-price standards, and for delinquent periodic reports (Form 10-K and Form 10-Q). On these bases, Nasdaq has notified DIH that its securities are subject to delisting. DIH has requested a hearing before the Nasdaq Hearings Panel and a stay pending the hearing; there is no assurance that continued listing will be granted or that compliance will be regained within any extension period. Delisting risk could reduce trading liquidity and limit or increase the cost of access to capital markets, adversely affecting operating results.

Going Concern and Liquidity

Recurring losses, negative operating cash flows, negative working capital, and debt obligations raise substantial doubt about DIH's ability to continue as a going concern within one year after the date that these financial statements are issued. Management is pursuing additional financing, utilizing permitted equity-settlement features under existing agreements, and implementing cost-reduction and organizational streamlining. There can be no assurance that these plans will be successfully executed or will be sufficient to alleviate the substantial doubt. Failure to secure near-term capital could require further reductions in operations and would adversely affect operating results.

Macroeconomic Uncertainties on Future Operations

DIH's operations are exposed to and impacted by various global macroeconomic factors. DIH faces continuing market and operating challenges across the globe due to, among other factors, impact of conflict in Ukraine, supply chain disruption, higher interest rates and inflationary pressures. Continued evolution of these conditions could lead to economic slowdowns.

Basis of Presentation

Refer to Note 2 of the Notes to Annual Consolidated Financial Statements for a discussion of the underlying basis used to prepare the consolidated financial statements.

Components of Results of Operations

Revenue

DIH generates revenue from the sale of medical rehabilitation devices and technology. DIH's primary customers include healthcare systems, clinics, third-party healthcare providers, distributors, and other institutions, including governmental healthcare programs and group purchasing organizations. Shipping and handling costs charged to customers are included in net sales. Given our current liquidity position and related spending constraints, management does not expect a significant increase in revenue in fiscal 2026.

Cost of Sales

Cost of sales primarily consists of direct materials, supplies, in-bound freight and labor-related costs, including salaries and benefits for our manufacturing personnel, technical support team, our professional consulting personnel and our training teams. Cost of sales also includes allocated overhead costs, including facilities costs, depreciation of manufacturing-related equipment and facilities and other direct costs. Cost of sales varies with production volume and mix; because a portion of overhead is fixed and absorbed into inventory, it will not necessarily track revenue, and lower volumes can reduce absorption and increase cost of sales as a percentage of revenue.

Selling, General and Administrative Expense

Selling, general and administrative expense primarily consists of personnel-related expenses for DIH's corporate, executive, finance and other administrative functions, as well as expenses for sales and marketing personnel, marketing and exhibition, advertising and promotional activities. It also includes outside professional services, including legal, audit and advisory services, facilities costs, depreciation, amortization, and other administrative expenses. Personnel-related expenses consist of salaries and benefits.

DIH expects selling, general and administrative expenses to increase for the foreseeable future as it scales headcount, expands hiring of engineers and designers, continues to invest in development of technology in order to drive the growth of the business, and as a result of operating as a public company, including compliance with the rules and regulations of the SEC, legal, audit, additional insurance expenses, investor relations activities and other administrative and professional services.

Research and Development

Research and development primarily consists of personnel-related research, engineering, and technical activities to develop a new product or service or make significant improvement to an existing product or manufacturing process. Research and development costs also include pre-approval regulatory and clinical trial expenses.

DIH expects research and development costs to increase as it continues to invest in product design and technology to drive the growth of the business.

Impairment of long-lived assets

Impairment of long-lived assets consists of charges recognized when the carrying amounts of capitalized software and other long-lived assets are not recoverable based on expected future cash flows.

During fiscal 2025, the Company recorded impairment charges reflecting the full write-off of capitalized software and product-related assets following management's decision not to continue their development or commercialization.

Interest Expense

Interest expense primarily consists of interest expense associated with related party notes payable and bank charges.

Other Expense, Net

Other expense, net primarily consists of the non-service components of net periodic defined benefit plan income (costs) and certain non-recurring costs in connection with the Business Combination.

Income Tax Expense (Benefit)

The income tax expense (benefit) consists of an estimate for U.S. federal, state and foreign income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities and changes in the tax law.

Results of Operations

		Years ended March 31,
(in thousands, except percentages)		2025				2024				$ Change				% Change
Revenue		$	62,864			$	64,473				(1,609	)			(2.5	)%
Cost of sales			30,650				34,702				(4,052	)			(11.7	)%
Gross profit			32,214				29,771				2,443				8.2	%
Operating expenses:
Selling, general, and administrative expense			29,982				25,776				4,206				16.3	%
Research and development			7,096				6,609				487				7.4	%
Impairment of long-lived assets			2,160				-				2,160				NM
Total operating expenses			39,238				32,385				6,853				21.2	%
Operating loss			(7,024	)			(2,614	)			(4,410	)			168.7	%
Other expense:
Interest expense			(317	)			(693	)			376				54.3	%
Other expense, net			(925	)			(3,890	)			2,965				76.2	%
Total other expense			(1,242	)			(4,583	)			3,341				72.9	%
Loss before income taxes			(8,266	)			(7,197	)			(1,069	)			14.9	%
Income tax expense			410				1,246				(836	)			(67.1	)%
Net loss		$	(8,676	)		$	(8,443	)		$	(233	)			2.8	%

NM - Not meaningful

Revenue

The following table presents net revenue by major source for the years ended March 31, 2025 and 2024:

		Years ended March 31,
(in thousands, except percentages)		2025				2024				$ Change				% Change
Devices		$	49,716			$	51,125			$	(1,409	)			(2.8	)%
Services			12,036				11,105				931				8.4	%
Other			1,112				2,243				(1,131	)			(50.4	)%
		$	62,864			$	64,473			$	(1,609	)			(2.5	)%

The overall decrease between Devices and Other was primarily due to a change in product mix, where many customers purchased a similar number of devices but with a lower average sales price than the prior year mix. This change in mix was offset by a price increase implemented during fiscal year 2024, and effective for devices sold in fiscal year 2025. Services Revenues increased slightly during the year, as the Company continues to focus on expanding its service department in established regions. Overall, as the product mix shifted to smaller and lower priced products, the revenues decreased slightly, year over year.

Changes in foreign currency exchange rates had an unfavorable impact on our revenue for the year ended March 31, 2025, resulting in a decrease of approximately $0.2 million as compared to 2024. This was mainly driven by fluctuations in Euro valuations throughout the period.

Cost of Sales

The cost of devices decreased by $5.3 million, primarily due to the change in product mix, as the devices produced for delivery to customers had a lesser cost basis, and the impact of a lesser inventory reserve recorded in the current fiscal year, as compared to the prior year. The decreased reserve in the current year is the result of a stabilized current inventory on hand, with significantly less identified materials where excess inventory was identified. The decrease in devices costs was offset by an increasedcost of services for providing routine and on demand service requests of $1.2 million between periods.

Changes in foreign currency exchange rates had a favorable impact on our cost of sales for the year ended March 31, 2025, resulting in a decrease of approximately $0.2 million. This was mainly driven by fluctuations in Euro valuations throughout the period.

Selling, General and Administrative Expense

The increase was driven by a $1.9 million increase in personnel expenses related to compensation including an increase in performance-based compensation, merit increases to salaries, and additions in headcount as well as a $0.6 million increase in stock compensation. In addition, there was a $1.1 million increase due toimpairment of related party receivable in the year ended March 31, 2025 due to a settlement of related party balances. The provision for credit losses reflected a $0.3 million release in fiscal 2025 compared to a $1.0 million release in fiscal 2024, resulting in a $0.7 million increase in total expense in the year ended March 31, 2025.

Research and Development

The increase was primarily due to a $0.5 million increase in software costs in the year ended March 31, 2025.

Impairment of long-lived assets

During the fourth quarter of fiscal year 2025, we discontinued the development and commercialization of the SafeGait product, resulting in an impairment loss of $0.6 million. We also ceased further development of capitalized software related to the HocoNet platform, resulting in an additional impairment loss of $1.5 million. There were no such impairments recognized during fiscal year 2024.

Interest Expense

The decrease in interest expense for the periods presented was primarily driven by lower bank charges, while interest on Related Party Notes remained consistent.

Other Expense, Net

The prior year amount included a nonrecurring $3.5 million financial advisory fee, which was settled through the issuance of 28,000 shares of Common Stock in connection with the closing of the Business Combination. In addition, the Company recognized foreign exchange income of $0.6 million in fiscal year 2025, compared to a foreign exchange loss of $0.4 million in the year ended March 31, 2024. The decrease in other expense, net was partially offset by a $1.5 million increase in expense due to change in the fair value of the convertible note and warrants.

Income Tax Expense

For the year ended March 31, 2025, we recorded an income tax expense of $0.4 million compared to income tax expense of $1.2 million for the year ended March 31, 2024, a decrease of $0.8 million, primarily driven by pre-tax book income in certain jurisdictions while the benefit from pre-tax losses in other jurisdiction may not be realizable and the change in the tax penalty accrual.

Liquidity and Capital Resources

As of March 31, 2025, we had cash and cash equivalents of $1.9 million and have a history of incurring losses. Our historical operating losses resulted in an accumulated deficit of $43.9 million as of March 31, 2025. For the year ended March 31, 2024, results reflected elevated costs associated with becoming a publicly traded company and establishing public-company processes and controls. For the year ended March 31, 2025, we reported negative cash flows from operating activities and operating results affected by liquidity constraints and tariff- and import-related factors that delayed customer order confirmations and product deliveries, together with ongoing compliance cost. During the year ended March 31, 2025, we had negative cash flows from operating activities of $4.1 million and operating loss of $7.0 million.

As of March 31, 2025, we had $2.3 million of principal outstanding under senior secured convertible debentures ($2.0 million on the June 7, 2024 debentures and $0.3 million on the March 20, 2025 debenture). On June 6, 2024, we issued $3.3 million of 8% original-issue-discount senior secured convertible debentures due December 7, 2025 and warrants initially exercisable for 13,200 shares at $125 per share, resulting in net proceeds of approximately $2.8 million after offering expenses. The June 2024 debentures require fixed monthly redemptions of $0.2 million beginning November 1, 2024. During fiscal 2025 we issued 58,399 shares to redeem $1.3 million of the principal amount. On March 20, 2025, the investor exercised an additional investment right and purchased $0.3 million of additional debentures convertible at $7.97 per share, with monthly redemptions beginning August 1, 2025, and we issued warrants for 41,431 shares at an exercise price of $7.97. In connection with that issuance, the conversion price on the remaining principal of the June 2024 debentures reset to $7.97, and the June 2024 warrant exercise price reset to $7.97 with the warrant share count increasing from 13,200 to 207,156 under anti-dilution provisions. On August 7, 2025, we entered into a Securities Purchase Agreement providing for the issuance of $2.2 million principal amount of additional 8% original-issue-discount senior secured convertible debentures with an initial conversion price of $6.25 per share, together with warrants to purchase 355,556 shares at $6.25 per share. The debentures are structured to deliver $1.9 million of total net proceeds through four funding tranches; as of the issuance date of this Annual Report on Form 10-K, $1.4 million has funded under the first three tranches. The remaining $0.5 million is expected to fund as described in Note 21 - Subsequent Events. Under the anti-dilution provisions in our existing instruments, the conversion price of the existing convertible note and warrant exercise prices will reset to $6.25 and the related underlying share counts will increase when determined in accordance with their terms upon stockholders' approval. All debentures are senior secured by a first-priority lien on substantially all of our domestic assets and are guaranteed by our domestic subsidiaries. The debentures also provide a maturity-extension option: if no event of default exists and at least 33% of principal has been repaid or converted, we may extend the maturity by six months upon payment of six months' interest.

In connection with the transfer of Hocoma AG's business and assets to DIH, we incurred three related party notes payable to Hocoma AG. The three Related Party Notes amounting to $10.5 million, $7.8 million and $1.6 million reflect transferring the assets, equity ownership in subsidiaries and IP rights Hocoma AG held to Legacy DIH. Each of the Related Party Notes Payable is due on June 30, 2026 with interest rate of 1.25% per annum. We made periodic payment on Related Party Notes payable with proceeds from its operations. The remaining balance on the Related Party Notes payable was $8.6 million as of March 31, 2025.

In February 2025, we closed an offering of 237,484 Units ("Units"), each consisting of one share of common stock, par value $0.0001 per share, and one Class A warrant to purchase one share of common stock at a public offering price of $19.58 per Unit, for gross proceeds of $4.6 million, or net proceeds of $3.9 million after deducting placement agent fees and estimated offering expenses payable by us.

During the year ended March 31, 2025 and through the date of issuance of these financial statements, the Company received multiple deficiency notices from NASDAQ and received corresponding delisting notices for failure to meet the listing requirements. The Company requested a hearing which was held on October 16, 2025 with the Nasdaq Hearings Panel to present its compliance plan and request additional time to regain compliance. There can be no assurance the Panel will grant the extension or that the Company will evidence compliance within any extension period granted.

In addition, changes in U.S. and other governmental tariff and trade policies announced or extended during 2025 could increase component costs, lengthen lead times, and raise working-capital needs. We are pursuing mitigation actions-supplier negotiations, shipment timing, and selective price adjustments-but may not fully offset the impact.

These recurring losses, negative operating cash flows and negative working capital, together with the financing obligations described above, raise substantial doubt about our ability to continue as a going concern within one year after the issuance of these financial statements. Our ability to continue as a going concern is dependent upon our ability to raise additional funding. Our plans include pursuing additional public or private equity and debt financings, utilizing permitted equity-settlement features in existing debenture agreements for certain redemptions and interest, and continuing initiatives to streamline our organization and cost structure while seeking to improve future revenue growth. However, we may not be able to secure such financing in a timely manner or on favorable terms, if at all, and if we are unable to raise sufficient additional capital in the very near term, we may need to further curtail or cease operations and seek protection by filing a voluntary petition for relief under the United States Bankruptcy Code. Furthermore, if we issue equity securities to raise additional funds, our existing stockholders may experience dilution, and the new equity securities may have rights, preferences and privileges senior to those of our existing stockholders.

Our other material contractual operating cash commitments at March 31, 2025relate to leases and employee benefit plans. DIH's employee benefit plans are discussed further in Note 15 of the Notes to Annual Consolidated Financial Statements. DIH's lease obligations and future payments are discussed further in Note 18 of the Notes to Annual Consolidated Financial Statements.

Cash Flows

The following table summarizes DIH's cash flow activities for the periods presented:

		Year ended March 31,
(in thousands)		2025				2024
Net cash (used in) provided by operating activities		$	(4,144	)		$	5,192
Net cash used in investing activities			(536	)			(202	)
Net cash provided by (used in) financing activities			3,393				(4,945	)
Effect of currency translation on cash and cash equivalents			1				5
Net (decrease) increase in cash and cash equivalents		$	(1,286	)		$	50

Net Cash (Used in) Provided by Operating Activities

The decrease in net cash (used in) provided by operating activities of $(9.3) million was primarily driven by:

	●	Although net loss increased by $0.2 million, the impact of net loss reconciling items was $3.6 million higher, resulting in $3.4 million more cash provided from earnings items compared with the prior year. The non-cash change primarily reflected impairment of related party receivable, higher provisions for credit losses, higher amortization of capitalized software placed into service, impairments of long-lived assets, and fair-value changes on convertible notes and warrants, partially offset by the absence of the prior-year $3.5 million equity success fee.
	●	However, this improvement was more than offset by an $12.7 million net outflow from changes in working capital the year ended March 31, 2025. The outflow reflected a $8.1 million decrease in customer advances due to the timing of order intake and related prepayments, a $6.0 million decrease in related-party balances due to the timing of purchases from the Motek Group, and a $5.4 million net outflow across receivables, payables and other liabilities. This outflow reflects the timing of cash collections from receivables, and the timing of payments to vendors and for other liabilities, which was impacted by liquidity constraints during the period.
		These decreases were partially offset a $3.0 million increase in cash flow due to inventory movement due to production planning and shipment schedules, a $3.1 million increase in deferred revenue due to the timing of delivery, installation and extended warranty service contracts, and a $1.3 million increase in accrued employee compensation due to timing of payout.

Net Cash Used in by Investing Activities

Net cash used in investing activities increased by $0.3 million for the year ended March 31, 2025, primarily due to increased purchases of demonstration goods, property and equipment compared to the year ended 2024.

Net Cash Provided by (Used in) Financing Activities

The increase in net cash provided by financing activities was primarily driven by $3.9 million in proceeds from an equity offering and $3.1 million from convertible note financing, both of which occurred during 2025. Additionally, there was a $2.7 million decrease in payments on related party notes payable. These increases were partially offset by a $0.5 million redemption of convertible notes in 2025 and the impact of $0.9 million in proceeds received in fiscal year 2024 in connection with the closing of the Business Combination, which did not repeat in fiscal year 2025.

Critical Accounting Policies and Estimates

DIH's financial statements are based on the selection and application of significant accounting policies, which require management to make significant estimates and assumptions. Management believes that the following are some of the more critical judgment areas in the application of accounting policies that currently affect DIH's financial condition and results of operations.

Revenue Recognition

Sales are recognized as the performance obligations to deliver products or services are satisfied and are recorded based on the amount of consideration DIH expects to receive in exchange for satisfying the performance obligations. DIH's sales are recognized primarily when it transfers control to the customer, which can be on the date of shipment of the product, the date of receipt of the product by the customer or upon completion of any required product installation service depending on the terms of the sales contracts and product shipping terms. The sales amount of warranties are deferred and recognized as revenue on a straight-line basis over the warranty period.

We provide a variety of products and services to our customers. Most of our contracts consist of multiple distinct performance obligations or promises to transfer goods or services to a customer. We allocate the total transaction price to each performance obligation using our best estimate of the standalone selling price of each identified performance obligation.

Deferred revenue primarily represents service contracts and equipment maintenance, for which consideration is received in advance of when service for the device or equipment is provided, and a smaller component of product shipments where a residual installation service is to be completed. Revenue related to services contracts and equipment maintenance is recognized over the service period as time elapses. Revenues related to products containing an installation clause are recognized once the item is confirmed installed by the customer.

Employee Benefit Plans

DIH has defined contribution plans or benefit pension plans covering substantially all of its employees. We recognize a liability for the underfunded status of the single employer defined benefit plans. Actuarial gains or losses and prior service costs or credits are recorded within other comprehensive income (loss). The determination of our obligation and related expense for our sponsored pensions is dependent, in part, on management's selection of certain actuarial assumptions in calculating these amounts.

The actuarial assumptions used for the defined benefit plans are based on the economic conditions prevailing in the jurisdiction in which they are offered. Changes in the defined benefit obligation are most sensitive to changes in the discount rate. The discount rate is based on the yield of high-quality corporate bonds quoted in an active market in the currency of the respective plan. A decrease in the discount curve increases the defined benefit obligation. DIH regularly reviews the actuarial assumptions used in calculating the defined benefit obligation to determine their continuing relevance. We utilized weighted discount rates of 1.50% and 2.10% for our pension plan expenses for fiscal 2025 and fiscal 2024, respectively.

Sensitivity to changes in the discount rate used in the calculation of our pension plan liabilities is illustrated below (dollars in millions).

Percentage Point Change

Projected Benefit Obligation (Decrease) Increase

Service Cost (Decrease) Increase

Discount rate

+/-1.00

%

$

(1.7)/2.3

$

(0.1)/0.3

Convertible Note and Warrants

DIH has elected to measure the Convertible Note using the fair value option under ASC 825. The fair value of the Convertible Note is remeasured at each reporting date using a binomial lattice model. This model incorporates transaction details such as stock price, contractual terms, conversions scenarios, dividend yield, risk-free rate, adjusted equity volatility, credit rating, market credit spread, and estimated yield. We regularly reassess our estimates and assumptions as new information becomes available. Any changes in these estimates are reflected in our financial statements in the period in which they occur. The effective debt yield and volatility involve unobservable inputs classified as Level 3 of the fair value hierarchy. The sensitivity of the fair value calculation to these methods, assumptions, and estimates included could create materially different results under different conditions or using different assumptions.

We account warrants issued in connection with the convertible note issuance as either equity-classified or liability-classified instruments based on an assessment of the warrant's specific terms and applicable authoritative guidance ASC 480, Distinguishing Liabilities from Equity ("Topic 480") and ASC 815, Derivatives and Hedging ("Topic 815"). The assessment considers whether the warrants are freestanding financial instruments pursuant to Topic 480, meet the definition of a liability pursuant to Topic 480, and whether the warrants meet all of the requirements for equity classification under Topic 815, including whether the warrants are indexed to the Company's own shares of 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 quarterly period end date while the warrants are outstanding.

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance or modification. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company's consolidated statement of operations.

Income Taxes

DIH accounts for income taxes in accordance with Accounting Standards Codification Topic 740, Income Taxes (Topic 740). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and other loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. DIH reviews its deferred income tax asset valuation allowances on a quarterly basis or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or combined group recording the net deferred income tax asset is considered, along with any positive or negative evidence including tax law changes. Since future financial results and tax law may differ from previous estimates, periodic adjustments to DIH's valuation allowances may be necessary. DIH has generated operating losses in each of the years presented.

DIH is subject to income taxes in the U.S. and numerous foreign jurisdictions These tax laws and regulations are complex and significant judgment is required in determining DIH's worldwide provision for income taxes and recording the related deferred tax assets and liabilities.

In the ordinary course of DIH's business, there are transactions and calculations where the ultimate tax determination is uncertain. Accruals for unrecognized tax benefits are provided for in accordance with the requirements of Topic 740. An unrecognized tax benefit represents the difference between the recognition of benefits related to items for income tax reporting purposes and financial reporting purposes. DIH's tax returns are subject to regular review and audit by US and non-US tax authorities. Although the outcome of tax audits is always uncertain, DIH believes that it has appropriate support for the positions taken on its tax returns and that its annual tax provision includes amounts sufficient to pay any assessments. Nonetheless, the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year and would be the obligation of Parent. DIH accrues interest and penalties related to uncertain tax positions as a component of income tax expense.

Refer to Note 16 of the Notes to Annual Consolidated Financial Statements for further discussion regarding DIH's income taxes.

Emerging Growth Company Status

The Company is an "emerging growth company," as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company's financial statements with another public company which is either not an emerging growth company or an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

New Accounting Standards Not Yet Adopted

Other than the recent accounting pronouncements disclosed in DIH's Annual Consolidated Financial Statements included elsewhere herein, there have been no new accounting pronouncements or changes in accounting pronouncements during the year ended March 31, 2025 that are significant or potentially significant to DIH.