Odysight.ai Inc. 10-K

item 9a. controls and Procedures Disclosure Controls and Procedures Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of December 31, 2020, the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2020. 31 Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management evaluated the design and operating effectiveness of internal control over financial reporting based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO 2013”). Remediation Efforts of Previously Disclosed Material Weaknesses As discussed in our 2019 Annual Report on Form 10-K, in connection with the audit of our financial statements for the year ended December 31, 2019, management and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting. In response to that material weakness, we implemented a remediation plan for the identified material weakness. As part of our remediation plan, during 2019 we recruited additional personnel with a requisite level of qualification and experience. In addition, we reviewed our existing processes and controls in order to identify additional control deficiencies and designed new controls or adjusted the design of existing controls in order to improve our processes and controls. The new controls and the revised existing controls included controls to address the non-routine complex accounting issues. More specifically, there is a renewed emphasis on conducting the necessary procedures with the full internal accounting team and external consultants to review and research the proper guidance and approach toward the accounting, and documenting as such in a white paper or memo as needed. Based on the above, and the results of testing conducted during the year ended December 31, 2020, we concluded that the identified material weakness was remediated as of December 31, 2020. Attestation Independent Report of the Registered Public Accounting Firm This annual report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this annual report on Form 10-K. Changes in Internal Control over Financial Reporting Except for the remediation of the previously identified material weakness discussed below, there were no other changes in internal control over financial reporting during the year ended December 31, 2020 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting. Item 9b. Other information None. part iii Item 10. Directors, Executive Officers and corporate governance Directors, Executive Officers, Promoters and Control Persons The following table sets forth the names and ages of our directors and executive officers: Name Age Position Prof. Benad Goldwasser † 70 Chairman of the Board Shmuel Donnerstein † 68 Director Ronen Rosenbloom 49 Director Issac Zilberman 69 Director Lior Amit 54 Director Mori Arkin 68 Director Dr. Yaron Silberman* 51 Chief Executive Officer (outgoing) Yovav Sameah 48 Chief Executive Officer (incoming) Tanya Yosef* 38 Chief Financial Officer Amir Govrin* 54 Chief Technology Officer Katrin Dlugach* 38 VP of Research and Development * Executive Officer † Independent Director 32 Directors Prof. Benad Goldwasser has served as chairman of our board of directors since December 26, 2019, and has served as chairman of ScoutCam Ltd.’s board of directors since its inception. Prof. Goldwasser is a serial entrepreneur and retired urology medical doctor. In 2016, Prof. Goldwasser launched a venture capital fund partnered with SAIL, a Shanghai Government investment company. Prof. Goldwasser has served as a member of the board of directors of Innoventric Ltd. since 2017. From 2013-2016 Prof. Goldwasser served as an external director of BioCanCell Ltd. (TASE: BICL). Prof. Goldwasser was the co-founder of Vidamed Inc., Medinol Ltd., Rita Medical Inc., Optonol Ltd. and GI View Ltd. Prof. Goldwasser served as managing director of Biomedical Investments Ltd., an Israeli Venture Capital firm. During his medical career, he served as Chairman of Urology at the Chaim Sheba Medical Center and Professor of Surgery at Tel-Aviv University. Prof. Goldwasser holds an MD and MBA from Tel-Aviv University. Shmuel Donnerstein has served on our board of directors since December 26, 2019. Mr. Donnerstein is the chairman and owner of the RB Group. Prior to that, in 1995 Mr. Donnerstein established Open Gallery Door Company, and in 1998 led its merger with Carmiel Timber Plants, which Mr. Donnerstein had acquired prior to the merger. Mr. Donnerstein managed the combined company until 2006. Earlier in his career, Mr. Donnerstein was owner and CEO of Motti Sweets from 1975 until it was acquired by the Strauss Group in 1983. In 2014, Mr. Donnerstein was awarded the Industry Prize from the Manufacturers’ Association of Israel. Ronen Rosenbloom has served as a member of our board since December 26, 2019. Mr. Rosenbloom is an independent lawyer working out of a self-owned law firm specializing in white collar offences. Mr. Rosenbloom serves as chairman of the Israeli Money Laundering Prohibition committee and the Prohibition of Money Laundering Committee of the Tel Aviv District, both of the Israel Bar Association. Mr. Rosenbloom previously served as a police prosecutor in the Tel Aviv District. Mr. Rosenbloom holds an LLB from the Ono Academic College, an Israeli branch of University of Manchester. Issac Zilberman has served as a member of our board since December 26, 2019. From 2007 through the end of 2016, Mr. Zilberman also served as a special investment advisor at Sullam Holdings L.R. Ltd., a financial services corporation in the Lenny Recanati Group, focusing primarily on investments in high-tech, biotechnology and real estate companies. Mr. Zilberman also serves as a director in other private Israeli companies, and has over 20 years of prior experience as an executive officer of various public and private companies. Mr. Zilberman holds a BA in economics and accounting from Tel Aviv University in Tel Aviv, Israel, and he is a certified public accountant in Israel. Lior Amit has served on our board of directors since December 26, 2019. Since 2014, Mr. Amit has served as a financial consultant to multiple companies on matters related to, inter alia, mergers and acquisitions. Mr. Amit currently serves as a member of the board of directors for multiple Israeli public and private companies, including in the role of an external or independent director. Mr. Amit holds both a BA in economics and accounting and an MBA from Tel-Aviv University. Mr. Amit is a certified public accountant in Israel. Mr. Moshe Arkin has served on our board of directors since February 15, 2021. Mr. Arkin is a leading life science and pharmaceutical entrepreneur and serves as the chairman of Arkin Holdings Ltd., which he founded in 2009. Mr. Arkin has served as chairman of the board of directors of Sol Gel Technologies Ltd. (NASDAQ: SLGL) since 2014 and sits on the board of directors of several private pharmaceutical and medical device companies, including SoniVie Ltd., a company developing systems for the treatment of pulmonary arterial hypertension, Digma Medical, a company developing systems to treat insulin resistance present in type 2 diabetes and other metabolic syndrome diseases, and Valcare Medical, a company developing heart valve devices. From 2005 to 2008, Mr. Arkin served as the head of generics at Perrigo Company, and from 2005 until 2011, as a member of its board of directors. Prior to joining Sol Gel Technologies Ltd., Mr. Arkin served as a director of cCAM Biotherapeutics Ltd., a company focused on the discovery and development of novel immunotherapies to treat cancer from 2012 until its acquisition in 2015 by Merck & Co., Inc. Mr. Arkin served as chairman of Agis Industries Ltd. from 1972 until its acquisition by Perrigo Company in 2005. Mr. Arkin holds a B.A. in psychology from the Tel Aviv University, Israel. Executive Officers Dr. Yaron Silberman served as our Chief Executive Officer from December 27, 2019 until March 31, 2021, and has served as Chief Executive Officer of ScoutCam Ltd. from March 2019 until March 31, 2021. Prior to that, since January 2011, Dr. Silberman served as ScoutCam’s VP Sales and Marketing. Dr. Silberman has served as Marketing Director of NiTi Surgical Solutions Ltd., and as Product Manager of Given Imaging Ltd. Dr. Silberman holds a PhD in Computational Neuroscience and Data Processing from Hebrew University of Jerusalem, Israel, an MBA from the College of Management Academic Studies of Rishon Le’Zion, Israel, and a BA in Theoretical Mathematics from The Technion Institute of Technology, Israel. Dr. Yaron Silberman’s employment with the Company was terminated on March 7, 2021, effective as of March 31, 2021. Mr. Yovav Sameah will serve as Chief Executive Officer of the Company beginning April 15, 2021. Prior to his position with the Company, Mr. Sameah was the Chief Executive Officer of Frontline PCB Solutions, a non-public worldwide leading provider of Pre-Production and Industry 4.0 SW solutions in the PCB industry, and the subsidiary of KLA-Tencor Corp. (Nasdaq: KLAC). From September 2013 until July of 2015, Mr. Sameah was the Corporate Vice President and Chief Products Officer at Orbotech Ltd. (acquired by KLA-Tencor in February of 2019). Prior to that, Mr. Sameah held a variety of roles at Orbotech, including Vice President of Electronic Components Manufacturers Business (PCB Division) from September 2012 until September 2013, and Vice President AOI & Repair Product Line (PCB Division) from March 2008 until March 2012. Mr. Sameah holds both a BSc in chemical engineering and an MBA from Ben-Gurion University, Israel. Tanya Yosef has served as our Chief Financial Officer since December 27, 2019. Ms. Yosef is a certified public accountant with many years of experience, and held various positions with Medigus Ltd. (Nasdaq:MDGS) since December of 2009, including most recently as chief financial officer and prior thereto as financial controller. During 2008-2009 Ms. Yosef worked in the audit department at Kesselman & Kesselman, a member firm of PricewaterhouseCoopers International Limited. Ms. Yosef holds a BA in Economics and Accounting from the Ben-Gurion University, Israel. Mr. Amir Govrin has served as our Chief Technology Officer since May 1, 2019. Prior to his position with ScoutCam, Mr. Govrin held various positions at Medigus Ltd. (Nasdaq: MDGS) beginning in 2003, including VP R&D, R&D manager and GERD project manager. Prior to his tenure at Medigus, Mr. Govrin was project manager at Aran R&D from 1997 until 2003, and an R&D engineer at Netafim Ltd. from 1992 until 1997. Mr. Govrin holds a B.Sc in mechanical engineering from Tel Aviv University, Israel. Ms. Katrin Dlugach has served as our VP of Research and Development since July 1, 2019. Prior to her position with ScoutCam, Ms. Dlugach was a system engineer and project manager at Nanofabrica Ltd. from August 2018 to June 2019. Before that, Ms. Dlugach served in a number of roles, including chief of development and chief executive officer, at Nitinotes Ltd. from 2014 until 2018. Earlier in her career, Ms. Dlugach held a variety of R&D positions at Medigus Ltd. (Nasdaq: MDGS). Ms. Dlugach holds a B.Sc., M.Sc. and MBA from Ben-Gurion University, Israel. Term of Office Our directors are elected for a term ending at the following annual meeting of the stockholders and serve until such director’s successor is duly elected and qualified. Each executive officer serves at the pleasure of the board. Significant Employees We currently have no significant employees. 33 Family Relationships There are no family relationships between or among any of our directors or executive officers. Involvement in Certain Legal Proceedings To our knowledge, our directors and executive officers have not been involved in any of the following events during the past ten years: a) any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; b) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); c) being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities; d) being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; e) being subject of, or a party to, any federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or f) being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. Compliance with Section 16(a) of the Exchange Act Our Common Stock is not registered pursuant to Section 12 of the Exchange Act. Accordingly, our directors, officers and principal stockholders are not subject to the beneficial ownership reporting requirements of Section 16(a) of the Exchange Act. Code of Ethics We currently do not have a code of ethics applicable to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions as required by the Sarbanes-Oxley Act of 2002 due to our small size and limited resources and because management’s attention has been focused on matters pertaining to raising capital and the operation of the business. Board Committees Currently, our board of directors does not have any audit, nominating or compensation committees, or committees performing similar functions. 34 item 11. Executive Compensation Summary Compensation Table The following table sets out the compensation paid, for the year ended December 31, 2020, to the following Named Executive Officers: ● Dr. Yaron Silberman, the outgoing Chief Executive Officer of ScoutCam Inc. and the outgoing Chief Executive Officer of our wholly-owned subsidiary, ScoutCam Ltd.; ● Amir Govrin, the Chief Technology Officer of ScoutCam Inc. and of our wholly-owned subsidiary, ScoutCam Ltd.; and ● Katrin Dlugach, VP R&D of ScoutCam Inc. and of our wholly-owned subsidiary, ScoutCam Ltd. Name and Principal Position Year Salary Bonus Stock Awards Option Awards (*) All Other Compensation Total $ in thousands Dr. Yaron Silberman, Chief Executive Officer (1) 2020 $ 198 $ - $ - $ 167 $ 20 $ 385 Amir Govrin, Chief Technology Officer (2) 2020 $ 168 $ - $ - $ 111 $ 21 $ 300 Ms. Katrin Dlugach, VP R&D of ScoutCam Ltd. (3) 2020 $ 156 $ - $ - $ 51 $ - $ 207 (1) Consists of Dr. Silberman’s compensation earned in his capacity as the Chief Executive Officer of wholly-owned subsidiary, ScoutCam Ltd. Dr. Silberman did not earn any compensation in his capacity as the Chief Executive Officer of ScoutCam Inc. (2) Consists of Mr. Govrin’s compensation earned in his capacity as the Chief Technology Officer of our wholly-owned subsidiary, ScoutCam Ltd. Mr. Govrin did not earn any compensation in his capacity as the Chief Technology Officer of ScoutCam Inc. (3) Consists of Ms. Katrin Dlugach compensation earned in his capacity as the Chief Technology Officer of our wholly-owned subsidiary, ScoutCam Ltd. Ms. Dlugach did not earn any compensation in her capacity as the VP R&D of ScoutCam Inc. (*) Represents the equity-based compensation expenses recorded in the Company’s consolidated financial statements for the year ended December 31, 2020, based on the option’s fair value, calculated in accordance with accounting guidance for equity-based compensation. Employment Agreements We, and through our Israeli subsidiary, have entered into written employment agreements with each of our executive officers. All of these agreements contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions. However, the enforceability of the noncompetition provisions may be limited under applicable law. In addition, we have entered into agreements with each executive officer and director pursuant to which we have agreed to indemnify each of them to the fullest extent permitted by law to the extent that these liabilities are not covered by directors and officers insurance. 35 Outstanding Equity Awards The following table provides information concerning unexercised options for each of our named executive officers, as that term is defined in Item 402(m)(2) of Regulation S-K as of our fiscal year end of December 31, 2020. Name and Position No. of Securities Underlying Unexercised Options (#) Exercisable No. of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($) Vesting Schedule Option Expiration Date Dr. Yaron Silberman, 291,460 374,735 0.29 (*) February 12, 2027 Chief Executive Officer - 314,081 0.29 (**) June 22, 2027 Ms. Tanya Yosef, Chief Financial Officer 116,584 149,894 0.29 (*) February 12, 2027 Mr. Amir Govrin, Chief Technology Officer 233,168 299,788 0.29 (*) February 12, 2027 Ms. Katrin Dlugach, VP R&D 83,274 183,204 0.29 (*) February 12, 2027 (*) 25% of the options granted will vest on the first anniversary, and 6.25% of the options will vest at the end of each subsequent three-month period thereafter over the course of the following three (3) years; and (iii) an acceleration mechanism pursuant to which any outstanding and unvested option shall immediately accelerate and vest upon the occurrence of certain events, including, inter alia, a merger or sale of all assets of the Company. (**) 33.33% of the options granted will vest on the first, and 8.33% of the options will vest at the end of each subsequent three-month period thereafter over the course of the following two (2) years; and (iii) an acceleration mechanism pursuant to which any outstanding and unvested option shall immediately accelerate and vest upon the occurrence of certain events, including, inter alia, a merger or sale of all assets of the Company. Retirement or Similar Benefit Plans We do not have any arrangements or plans that provide for the payment of retirement or similar benefits to our directors or executive officers. 36 Resignation, Retirement, Other Termination, or Change in Control Arrangements We have no contract, agreement, plan or arrangement, whether written or unwritten, that provides for payments to our directors or executive officers at, following, or in connection with the resignation, retirement or other termination of our directors or executive officers, or a change in control of our Company or a change in our directors’ or executive officers’ responsibilities following a change in control. Director Compensation The following table sets out the compensation paid to directors for services rendered during the year ended December 31, 2020. Name Fees Earned or Paid in Cash Stock Awards Option Awards (*) All Other Compensation Total $ in thousands Prof. Benad Goldwasser (1)(2) $ 110 $ - $ 541 $ - $ 651 Shmuel Donnerstein (3) $ 15 $ - $ 49 $ - $ 64 Ronen Rosenbloom (3) $ 15 $ - $ 20 $ - $ 35 Issac Zilberman (3) $ 15 $ - $ 20 $ - $ 35 Lior Amit (3) $ 15 $ - $ 27 $ - $ 35 Irit Yaniv (4) (5) $ 10 $ - $ 13 $ - $ 23 (1) Appointed as a director of ScoutCam Inc. on December 26, 2019, and served as Chairman of the Board of Directors of our wholly-owned subsidiary, ScoutCam Ltd., since its inception. (2) On July 31, 2019, ScoutCam Ltd. and Prof. Benad Goldwasser entered into a consulting agreement, whereby Prof. Goldwasser agreed to serve as chairman of the board of directors of ScoutCam Ltd., effective retroactively to March 1, 2019, in consideration for, inter alia , a monthly fee of $10,000 and options representing 5% of our fully-diluted share capital as of the Closing Date. (3) Appointed as a director of ScoutCam Inc. on December 26, 2019. (4) Appointed as a director of ScoutCam Inc. on May 18, 2020. (5) On February 14, 2021, Dr. Irit Yaniv tendered her resignation as a member of the Board of Directors and our wholly-owned subsidiary, ScoutCam Ltd. O n February 15, 2021, the Board of Directors appointed Mr. Moshe (Mori) Arkin to serve as a member of the Board of Directors and to fill the vacancy immediately following the resignation of Dr. Irit Yaniv . (*) Represents the equity-based compensation expenses recorded in the Company’s consolidated financial statements for the year ended December 31, 2020, based on the option’s fair value, calculated in accordance with accounting guidance for equity-based compensation. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder matters Security Ownership of Certain Beneficial Owners and Management The table below provides information regarding the beneficial ownership of our Common Stock as of March 28, 2021, of (i) each of our current directors, (ii) each of the Named Executive Officers, (iii) all of our current directors and officers as a group, and (iv) each person or entity known to us who owns more than 5% of our Common Stock. The percentage of Common Stock beneficially owned is based on 38,073,022 shares of Common Stock outstanding as of March 28, 2021. The number and percentage of shares beneficially owned by a person or entity also include shares of Common Stock issuable upon exercise of warrants that are currently exercisable or will become exercisable within 60 days of March 28, 2021. However, these shares are not deemed to be outstanding for the purpose of computing the percentage of shares beneficially owned of any other person or entity. 37 Unless otherwise indicated below, the address for each beneficial owner listed in the table below is c/o ScoutCam Inc., Suite 7A, Industrial Park, P.O. Box 3030, Omer, Israel 8496500. Name and Address of Beneficial Owner Title of Class Amount and Nature of Beneficial Ownership (1) Percent of Class Prof. Benad Goldwasser (2) Common Stock 2,092,359 5.26 % Shmuel Donnerstein (3) Common Stock 1,082,104 2.81 % Ronen Rosenbloom (4) Common Stock 48,069 * Isaac Zilberman (5) Common Stock 48,069 * Lior Amit (6) Common Stock 48,069 * Dr. Irit Yaniv Common Stock - - Moshe (Mori) Arkin (7) Common Stock - * Dr. Yaron Silberman (8) Common Stock 333,097 * Yovav Sameah Common Stock - * Tanya Yosef (9) Common Stock 133,239 * Amir Govrin (10) Common Stock 266,478 * Katrin Dlugach (11) Common Stock 116,584 * Directors and officers as a group (12 individuals) 4,168,068 10.11 % Medigus Ltd. (12) Common Stock 18,099,630 46.11 % M. Arkin (1999) Ltd. (13) Common Stock 10,330,580 23.51 % * Less than 1%. (1) Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Each of the beneficial owners named in the table have, to our knowledge, direct ownership of and sole voting and investment power with respect to the shares of Common Stock beneficially owned by them. (2) Consists of 395,464 shares of Common Stock, options to purchase 1,490,088 shares of Common Stock and warrants to purchase 206,807 shares of Common Stock, which are currently exercisable or will become exercisable within 60 days of March 28, 2021. (3) Consists of 620,421 shares of Common Stock, options to purchase 48,069 shares of Common Stock and warrants to purchase 413,614 shares of Common Stock, which are currently exercisable or will become exercisable within 60 days of March 28, 2021. (4) Consists of 48,069 option to purchase shares of Common Stock, which are currently exercisable or will become exercisable within 60 days of March 28, 2021. (5) Consists of 48,069 option to purchase shares of Common Stock, which are currently exercisable or will become exercisable within 60 days of March 28, 2021. (6) Consists of 48,069 option to purchase shares of Common Stock, which are currently exercisable or will become exercisable within 60 days of March 28, 2021. (7) Mr. Moshe Arkin is the sole shareholder and sole director of M. Arkin (1999) Ltd. and may therefore be deemed to be the indirect beneficial owner of the shares of Common Stock and warrants to purchase shares of Common Stock owned directly by M. Arkin (1999) Ltd. (8) Consists of 333,097 option to purchase shares of Common Stock, which are currently exercisable or will become exercisable within 60 days of March 28, 2021. (9) Consists of 133,239 option to purchase shares of Common Stock, which are currently exercisable or will become exercisable within 60 days of March 28, 2021. (10) Consists of 266,478 option to purchase shares of Common Stock, which are currently exercisable or will become exercisable within 60 days of March 28, 2021. (11) Consists of 116,584 option to purchase shares of Common Stock, which are currently exercisable or will become exercisable within 60 days of March 28, 2021. (12) Consists of 16,918,423 shares of Common Stock and warrants to purchase 1,181,207 shares of Common Stock, which are currently exercisable or will become exercisable within 60 days of March 28, 2021. (13) Consists of 4,468,367 shares of Common Stock and 5,862,213 warrants to purchase shares of Common Stock, which are currently exercisable or will become exercisable within 60 days of March 28, 2021. 38 Item 13. Certain relationships and related transactions, and director independence Related Party Transactions On June 3, 2019, Medigus executed a capital contribution into ScoutCam Ltd. for an aggregate amount of $720,000. On July 31, 2019, ScoutCam Ltd. and Prof. Benad Goldwasser entered into a consulting agreement, whereby Prof. Goldwasser agreed to serve as chairman of the board of directors of ScoutCam Ltd., effective retroactively to March 1, 2019, in consideration for, inter alia , a monthly fee of $10,000 and options representing 5% of our fully-diluted share capital as of the Closing Date. On August 27, 2019, Medigus provided ScoutCam Ltd. with a line of credit in the aggregate amount of US$500,000, and, in exchange, ScoutCam Ltd. granted Medigus a capital note that bears an annual interest rate of 4%. The repayment of the credit line amount is spread over one year in monthly payments beginning on the Closing Date, being January 2020. As of December 31, 2019, ScoutCam Ltd. withdrew the entire amount of the line of credit. On September 3, 2019, a certain Asset Transfer Agreement by and between ScoutCam Ltd. and Medigus dated May 28, 2019 became effective, whereby, inter alia , ScoutCam Ltd. transferred certain assets to Medigus representing an aggregate amount of $168,000. Under the terms of the Amended and Restated Asset Transfer Agreement, Medigus transferred certain intellectual property rights and licenses, collectively representing an aggregate of $9.8 million. On September 16, 2019, Intellisense and Medigus entered into the Exchange Agreement, pursuant to which Medigus assigned, transferred and delivered 100% of its holdings in ScoutCam Ltd. to Intellisense, in exchange for consideration consisting of shares of the Company’s common stock representing 60% of the issued and outstanding share capital of the Company immediately upon the Closing Date. The Exchange Agreement was conditioned on certain obligations by the respective parties, including, but not limited to, the Company having no less than $3 million in cash on hand upon the Closing Date, and that the Company bear the costs and expenses in connection with the execution of the Exchange Agreement. The Exchange Agreement provided that if ScoutCam Ltd. achieves an aggregate amount of $33 million in sales within the first three years immediately after the Closing Date, the Company will issue to Medigus 2,688,492 shares of the Company’s common stock, which represents 10% of the Company’s issued and outstanding share capital as of the Closing Date. On December 1, 2019, Medigus and ScoutCam Ltd. entered into that certain Amended and Restated Asset Transfer Agreement, which transferred and assigned certain assets and intellectual property rights related to its miniaturized imaging business. Under the Amended and Restated Asset Transfer Agreement, Medigus transferred two patent families to ScoutCam Ltd. in exchange for a perpetual, transferable, worldwide, royalty free, sub licensable license, to access and use the transferred patent families in connection with the development, marketing and sale of the Medigus Ultrasonic Surgical Endostapler. In addition, Medigus granted us a non-exclusive license to access, use, improve, develop, market and sell licensed intellectual property, including the right to any future versions, enhancements, improvements and derivative works of such licensed intellectual property in connection with the development and commercialization of the ScoutCam miniature video technology. As a condition of the aforementioned license, Medigus is prohibited from selling, offering to sell or grant any ownership right in the licensed intellectual property to any potential direct competitor of ScoutCam Ltd. In addition, ScoutCam Ltd. is obligated to provide Medigus with consultancy and support services for no consideration, on matters relating to the management, development, maintenance and commercialization of Medigus’ patent portfolio. The Amended and Restated Asset Transfer Agreement is for an indefinite term and it was contractually permissible to terminate the agreement pursuant to the mutual written consent of the parties prior to closing. Also on December 1, 2019, ScoutCam Ltd. and Medigus entered into that certain License Agreement granting ScoutCam Ltd. a perpetual, non-exclusive, transferable solely upon an M&A Event (as defined therein), royalty free, license to access, use, improve, develop either by or on behalf of ScoutCam Ltd., market and sell the licensed patent family, including the right to any future versions, enhancements, improvements and derivative works of the licensed intellectual property for the purpose of developing and commercializing the ScoutCam miniature video technology. As a condition to the agreement, Medigus is prohibited from selling, offering to sell or grant any ownership right in the licensed intellectual property to any potential direct competitor of ScoutCam Ltd. The patent family licensed under the License Agreement includes know-how which was funded through benefits and incentives provided by the IIA. As a result of such funding, the patent family is subject to certain restrictions and obligations pursuant to the Innovation Law. The restrictions applicable to patent family licensed pursuant to the License Agreement require approval of the IIA prior to manufacturing products resulting from IIA funded know-how outside of Israel, prior to the transfer of IIA funded know-how out of Israel and prior to a grant of the license out of Israel in connection with the IIA funded know-how. In addition, ScoutCam Ltd. is obligated to notify the IIA of any change of control and of any non-Israeli entity which becomes an “Interested Party” as defined in the Israeli Companies Law, 5759-1999, as amended. An Interested Party includes a shareholder holdings 5% or more of a company’s issued and outstanding share capital, an entity entitled to appoint a director or the chief executive officer of a company as well as the directors and chief executive officer of a company. On December 10, 2019, ScoutCam Ltd. and Shrem Zilberman Group Ltd. (the “Consultant”) entered into a consulting agreement whereby in exchange for certain consulting services, the Consultant received, among other things, an aggregate flat fee of $165,000 and an amount representing 3% of any exercise price related to those warrants issued as part of that certain Securities Purchase Agreement executed by and between the Company and those investors listed therein (the “Purchase Agreement”). Additionally, in the event the total proceeds received as a result of exercise of warrants issued in connection with the Purchase Agreement will be less than $2 million at the time of their expiration, the Consultant will be required to invest $250,000 in the Company. 39 On March 15, 2020, the Company’s Board of Directors approved, among other things, a quarterly fee of $4,000 payable to each of the Company’s currently serving directors, excluding Professor Benad Goldwasser. On April 20, 2020, Medigus and ScoutCam Ltd. entered into that certain Intercompany Services Agreement, which amended and restated the intercompany services agreement executed between the parties on May 30, 2019. The agreement has an initial term of one year, and renews automatically for additional one-year periods, unless either party provides 60 (sixty) days written notice of non renewal. Either Medigus or ScoutCam Ltd. may terminate the agreement for convenience upon providing 60 (sixty) days prior written notice. The services to be provided by ScoutCam Ltd. include, inter alia, the provision of office space, utilities, car services, insurance and chief financial officer services. In consideration for the foregoing services, ScoutCam Ltd. is entitled to arm’s length service fees based on the most recent transfer pricing analysis as performed by an external expert, which may be adjusted from time to time. On May 18, 2020, in connection with the Arkin Transaction (as defined below), the Company, Medigus and Arkin (as defined below), entered into the Letter Agreement, whereby, provided the Company obtains certain regulatory approvals described therein, Medigus and the Company agreed to amend certain terms of the Amended and Restated Asset Transfer Agreement and the License Agreement, thereby transferring outright certain patent assets from Medigus to the Company; provided, however, that in the event the Company neglects the foregoing patent assets, the Company must transfer back ownership of the patent assets to Medigus for no additional consideration and absent any additional contingencies. Also on May 18, 2020, and in connection with the Arkin Transaction, the Company, Medigus and Arkin entered into a Voting Agreement, pursuant to which Arkin and Medigus each agreed to vote their respective shares of Common Stock in favor of the election of the opposite party’s designated representative(s), as applicable, to the Board. Each of Arkin’s and Medigus’ rights under the Voting Agreement are contingent upon, inter alia, such party maintaining a certain beneficial ownership threshold in the Company, as defined therein. On June 23, 2020, the Company and Medigus entered into a certain Conversion Side Letter, pursuant to which the Company converted US$381,136 worth of outstanding credit previously extended by Medigus to the Company, which amount, as of the date thereof, included interest accrued thereon. In accordance with the terms of the Conversion Side Letter, the Company issued to Medigus, at a purchase price of US$0.968, (a) 787,471 shares of Common Stock, (b) warrants to purchase 393,736 shares of Common Stock at an exercise price of US$0.595, and (c) warrants to purchase 787,471 shares of Common Stock at an exercise price of US$0.893. In November 2020, the Company and certain of warrant holders, including Professor Benad Goldwasser and M. Arkin (1999) Ltd., executed an amendment to warrants issued in connection with the Purchase Agreement, pursuant to which the parties agreed to remove the restrictions on transferability originally imposed on said warrants. As of December 31, 2020, warrants to purchase 902,271 shares of Common Stock were transferred in accordance with the foregoing amendment. During 2020, the Company’s Board of Directors authorized the allotment of options to purchase 2,863,854 shares of Common Stock to Prof. Benad Goldwasser, our Chairman of the Board, and an aggregate of 3,625,318 options to purchase shares of Common Stock to additional directors and certain officers of the Company. See also note 9 to our financial statements for year ended December 31, 2020. Policies and Procedures for Related Party Transactions Our board of directors is responsible for approving all related party transactions. Given our small size and limited financial resources, we have not adopted formal policies and procedures for the review, approval or ratification of transactions with our related persons. We intend to establish formal policies and procedures in the future, once we have sufficient resources and have appointed additional directors, so that such transactions will be subject to the review, approval or ratification of our board of directors, or an appropriate committee thereof. 40 Director Independence We currently have two independent directors on our board of directors, Professor Benad Goldwasser and Mr. Shmuel Donnerstein. We are not currently subject to listing requirements of any national securities exchange, which generally stipulates certain requirements that a majority of a company’s board of directors be classified as “independent”. As a result, we are not at this time required to have our board of directors comprised of a majority of “independent directors”. Notwithstanding the foregoing, we have voluntarily adopted the definition of “independent” as defined under Nasdaq Rule 5605(a)(2), and believe Professor Goldwasser and Mr. Donnerstein qualify accordingly. Item 14. Principal accounting fees and services Independent Public Accounting Firm On February 9, 2020, the Registrant’s board of directors appointed Kesselman & Kesselman, a member of PricwaterhouseCoopers International Limited as the Registrant’s independent public accounting firm for the fiscal year ended December 31, 2019. MaloneBailey LLP served as the Registrant’s independent public accounting firm since 2013. On May 24, 2020, the Board of Directors resolved to replace Kesselman & Kesselman, a member of PricewaterhouseCoopers International Limited, with Brightman Almagor Zohar & Co., a firm in the Deloitte global network, to serve as the Company’s new independent registered public accounting firm for the fiscal year ending December 31, 2020. Audit and Accounting Fees The following table sets forth the fees billed to our Company for professional services rendered by (i) MaloneBailey LLP, an independent registered public accounting firm, for the fiscal year-ended December 31, 2019, and the fiscal year ended March 31, 2019, (ii) Kesselman & Kesselman, a member of PricwaterhouseCoopers International Limited for the fiscal year ended December 31, 2019, and (iii) Brightman Almagor Zohar & Co., a firm in the Deloitte global network for the fiscal year ended December 31, 2020: Services Year Ended December 31, 2020 Year Ended December 31, 2019 $ in thousands Audit fees (1) $ 106 $ 173 (2) Tax fees (3) 5 10 All other fees - – Total fees $ 111 $ 183 (1) Audit fees consist of audit and review services, consents and review of documents filed with the SEC. (2) Audit Fees consists of $16 thousands in connection with the services rendered by MaloneBailey LLP, and $157 thousands in connection with the services rendered by Kesselman & Kesselman, a member of PricwaterhouseCoopers International Limited. (3) Tax fees consist of preparation of federal and state tax returns. Audit fees consist of fees for professional services rendered for the audit of our annual financial statements and review of financial statements included in our quarterly reports on Form 10-Q. Audit Committee Administration of Engagement We have not yet established an audit committee. Until then, there are no formal pre-approval policies and procedures with respect to the engagement of an accountant for audit or non-audit services. Nonetheless, the auditors engaged for these services are required to provide and uphold estimates for the cost of services to be rendered. 41 Part IV Item 15. exhibits, financial statement schedules Exhibit No. Exhibit Description 3.1.1 Articles of Incorporation (incorporated by reference to Exhibit 3.1 to our Registration Statement on Form S-1 filed with the SEC on May 29, 2013) 3.1.2 Certificate of Amendment to the Articles of Incorporation (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed with the SEC on January 2, 2020) 3.1.3* Certificate of Amendment to the Articles of Incorporation, effective as of February 5, 2021 3.2 Bylaws (incorporated by reference to Exhibit 3.2 to our Registration Statement on Form S-1 filed with the SEC on May 29, 2013) 4.1 Description of the Registrant’s Securities (incorporated by reference to Exhibit 4.1 to our Annual Report on Form 10-K filed with the SEC on March 16, 2020) 10.1 Securities Exchange Agreement, dated September 16, 2019, by and between our Company and Medigus Ltd. (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on September 17, 2019) 10.2 Form of Securities Purchase Agreement, dated December 26, 2019, by and between our Company, ScoutCam Ltd., and certain investors listed therein (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on December 31, 2019) 10.3 Form of Escrow Agreement, dated December 26, 2019, by and between our Company, ScoutCam Ltd., Altshuler Shaham Trusts Ltd., and those certain investors that are a party to the Securities Purchase Agreement dated December 26, 2019 (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed with the SEC on December 31, 2019) 10.4 Form of Warrant A by and between our Company and those certain investors that are a party to the Securities Purchase Agreement dated December 30, 2019 (incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K filed with the SEC on December 31, 2019) 10.5 Form of Warrant B by and between our Company and those certain investors that are a party to the Securities Purchase Agreement dated December 30, 2019 (incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K filed with the SEC on December 31, 2019) 10.6 Form of Registration Rights Agreement, dated December 26, 2019, by and between our Company and those certain investors that are a party to the Securities Purchase Agreement dated December 26, 2019 (incorporated by reference to Exhibit 10.6 to our Current Report on Form 8-K filed with the SEC on December 31, 2019) 10.7 Amended and Restated Asset Transfer Agreement, by and between ScoutCam Ltd. and Medigus Ltd., dated December 1, 2019 (incorporated by reference to Exhibit 10.7 to our Current Report on Form 8-K filed with the SEC on December 31, 2019) 10.8+ Consulting Agreement by and between ScoutCam Ltd. and Prof. Benad Goldwasser, dated July 31, 2019 (incorporated by reference to Exhibit 10.8 to our Current Report on Form 8-K filed with the SEC on December 31, 2019) 10.9 Consulting Agreement by and between ScoutCam Ltd. and Shrem Zilberman Group Ltd., dated December 10, 2019 (incorporated by reference to Exhibit 10.9 to our Annual Report on Form 10-K filed with the SEC on March 16, 2020) 10.10 2020 Share Incentive Plan (incorporated by reference to Exhibit 10.10 to our Annual Report on Form 10-K filed with the SEC on March 16, 2020) 10.11 Form of Notice of Option Grant and Option Agreement (incorporated by reference to Exhibit 10.11 to our Annual Report on Form 10-K filed with the SEC on March 16, 2020) 10.12 Form of Securities Purchase Agreement, dated March 3, 2020, by and among ScoutCam Inc. and certain investors listed therein (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on March 5, 2020) 10.13 Form of Registration Rights Agreement, dated March 3, 2020, by and among ScoutCam Inc. and those certain investors that are a party to the Securities Purchase Agreement dated March 3, 2020 (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on March 5, 2020) 42 10.14 Form of Warrant A, by and among ScoutCam Inc. and those certain investors that are a party to the Securities Purchase Agreement dated March 3, 2020 (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed with the SEC on March 5, 2020) 10.15 Form of Warrant B, by and among ScoutCam Inc. and those certain investors that are a party to the Securities Purchase Agreement dated March 3, 2020 (incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K filed with the SEC on March 5, 2020) 10.16 Intercompany Services Agreement, by and between Medigus Ltd. and ScoutCam Ltd., dated May 30, 2019 (incorporated by reference to Exhibit 10.16 to our Form S-1 filed with the SEC on May 12, 2020) 10.17 Amended and Restated Intercompany Services Agreement, by and between Medigus Ltd. and ScoutCam Ltd., dated April 20, 2020 (incorporated by reference to Exhibit 10.17 to our Form S-1 filed with the SEC on May 12, 2020) 10.18 Patent License Agreement, by and between Medigus Ltd. and ScoutCam Ltd., dated December 1, 2019*** (incorporated by reference to Exhibit 10.18 to our Form S-1 filed with the SEC on May 12, 2020) 10.19+ Employment Agreement, by and between ScoutCam Ltd. and Yaron Silberman, dated February 28, 2019 (incorporated by reference to Exhibit 10.19 to our Form S-1 filed with the SEC on May 12, 2020) 10.20 + Employment Agreement, by and between ScoutCam Ltd. and Amir Govrin, dated May 1, 2019 (incorporated by reference to Exhibit 10.20 to our Form S-1 filed with the SEC on May 12, 2020) 10.21* + Employment Agreement, by and between ScoutCam Ltd. and Tanya Yosef, dated January 14, 2021 10.22*+ Employment Agreement, by and between ScoutCam Ltd. and Katrin Dlugach, dated July 1, 2019 10.23 Securities Purchase Agreement, dated May 18, 2020, by and between ScoutCam Inc. and M. Arkin (1999) Ltd. (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on May 19, 2020) 10.24 Registration Rights Agreement, dated May 18, 2020, by and between ScoutCam Inc. and M. Arkin (1999) Ltd. (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on May 19, 2020) 10.25 Voting Agreement, dated May 18, 2020, by and among ScoutCam Inc. Medigus Ltd. and M. Arkin (1999) Ltd. (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed with the SEC on May 19, 2020) 10.26 Letter Agreement, dated May 18, 2020, by and among ScoutCam Inc., ScoutCam Ltd., Medigus Ltd. and M. Arkin (1999) Ltd. (incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K filed with the SEC on May 19, 2020) 10.27 Form of Warrant A by and between ScoutCam Inc. and M. Arkin (1999) Ltd. (incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K filed with the SEC on May 19, 2020) 10.28 Form of Warrant B by and between ScoutCam Inc. and M. Arkin (1999) Ltd. (incorporated by reference to Exhibit 10.6 to our Current Report on Form 8-K filed with the SEC on May 19, 2020) 10.29 Side Letter Agreement, dated June 23, 2020, by and between ScoutCam Inc. and Medigus Ltd. (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on June 24, 2020) 10.30 Form of Warrant A by and between ScoutCam Inc. and Medigus Ltd. (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on June 24, 2020) 10.31 Form of Warrant B by and between ScoutCam Inc. and Medigus Ltd. (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed with the SEC on June 24, 2020) 10.32* Form of Amendment to Warrant to Purchase Shares of Common Stock 10.33+ Employment Agreement, by and between Yovav Sameah and ScoutCam Ltd. (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on March 8, 2021) 21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to our Current Report on Form 8-K filed with the SEC on December 31, 2019) 31.1* Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer and Principal Financial Officer 32.1* Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer and Principal Financial Officer 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document * Filed herewith. *** Certain confidential information contained in this exhibit, marked by brackets, was omitted because it is both (i) not material and (ii) would likely cause competitive harm to the Company if publicly disclosed. “[***]” indicates where the information has been omitted from this exhibit. + Management contract or compensatory plan or arrangement. 43 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SCOUTCAM INC. By: /s/ Yaron Silberman Name: Yaron Silberman Title: Chief Executive Officer Date: March 31, 2021 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Yaron Silberman Chief Executive Officer March 31, 2021 Yaron Silberman (Principal Executive Officer) /s/ Tanya Yosef Chief Financial Officer March 31, 2021 Tanya Yosef (Principal Financial Officer and Principal Accounting Officer) /s/ Benad Goldwasser Chairman of the Board March 31 , 2021 Benad Goldwasser /s/ Shmuel Donnerstein Director March 31, 2021 Shmuel Donnerstein /s/ Ronen Rosenbloom Director March 31 , 2021 Ronen Rosenbloom /s/ Issac Zilberman Director March 31, 2021 Issac Zilberman /s/ Lior Amit Director March 31, 2021 Lior Amit /s/ Mori Arkin Director March 31, 2021 Mori Arkin 44 SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) CONSOLIDATED FINANCIAL STATEMENTS SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) TABLE OF CONTENTS Page Consolidated Financial Statements – in US Dollars (USD) in thousands Consolidated Balance Sheets F-4 Consolidated Statements of Operations F-5 Consolidated Statements of Changes in Shareholders’ Equity F-6 Consolidated Statements of Cash Flows F-7 Notes to the Consolidated Financial Statements F-8 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of ScoutCam Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of ScoutCam Inc. and its subsidiary (the “Company”) as of December 31, 2020 and the related consolidated statements of operations, shareholders’ equity (capital deficiency), and cash flows for the year ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1B to the financial statements, the Company’s accumulated losses and the additional funds needed to maintain its operations raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1B. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Development Services Revenue and Contract Liabilities – Refer to Note 2J. and Note 10 to the Consolidated Financial Statements Critical Audit Matter Description The Company generates revenues from development services. The Company determines at contract inception whether development services are distinct from the performance obligation to manufacture the product under development. Revenues from development services that are determined as not distinct from the performance obligation to manufacture the product under development are deferred until commencement of manufacturing and are recognized over the manufacturing term. During 2020, all development services revenues billed have been deferred and recorded as contract liabilities (representing the majority of the contract liabilities balance of $848,000 as of December 31, 2020) and the respective service costs have been deferred and recorded as contract fulfillment assets ($1,130,000 as of December 31, 2020), as the development services were determined as not distinct from the performance obligation to manufacture the product under development. We identified the assessment of whether development services were a distinct performance obligation and the impact on the timing of revenue recognition as a critical audit matter. Evaluating whether development services should be accounted for separately required judgment and increased audit effort in comparison to our audit as a whole, because of the complexity of the technical accounting analysis and due to the magnitude of the related contract liabilities as of December 31, 2020. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the Company’s determination of the performance obligations and the timing of revenue recognition for development service contracts included the following, among others: ● We read the agreements and analyzed the terms of the Company’s development service contracts. ● We read communications between the Company and its clients relating to development services contracts. ● We inquired of Company research and development personnel to understand the commercial facts and circumstances relating to development services contracts. ● We evaluated the Company’s interpretation and application of the relevant requirements of generally accepted accounting principles in relation to the development services contracts and the related contract liabilities. Brightman Almagor Zohar & Co. Certified Public Accountants A Firm in the Deloitte Global Network Tel Aviv, Israel March 31, 2021 We have served as the Company’s auditor since 2020. F- 2 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors of ScoutCam Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of ScoutCam Inc. and its subsidiary (the “Company”) as of December 31, 2019, and the related consolidated statements of operations, of changes in shareholders' equity (capital deficiency) and of cash flows for each of the two years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Substantial Doubt about the Company’s Ability to Continue as a Going Concern The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1(b) to the consolidated financial statements, the Company has suffered recurring losses from operations and cash outflows from operating activities that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1(b). The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Kesselman & Kesselman Certified Public Accountants (Isr.) A member firm of PricewaterhouseCoopers International Limited Tel-Aviv, Israel March 16, 2020 We served as the Company's auditor from 2019 to 2020. F- 3 SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) CONSOLIDATED BALANCE SHEETS December 31, 2020 2019 USD in thousands Assets CURRENT ASSETS: Cash and cash equivalents 3,373 3,245 Accounts receivable 17 22 Inventory 24 4 900 Receivable from Parent Company 47 73 Other current assets 348 78 Total current assets 4,029 4,318 NON-CURRENT ASSETS: Contract fulfillment assets 1,130 - Property and equipment, net 269 59 Operating lease right-of-use assets 107 53 Severance pay asset 360 327 Total non-current assets 1,866 439 TOTAL ASSETS 5,895 4,757 Liabilities and shareholders’ equity CURRENT LIABILITIES: Accounts payable 79 35 Contract liabilities 69 502 Operating lease liabilities - short term 60 24 Accrued compensation expenses 369 297 Loan from Parent Company - 500 Other accrued expenses 195 552 Total current liabilities 772 1,910 NON-CURRENT LIABILITIES: Contract liabilities 779 - Operating lease liabilities - long term 47 29 Liability for severance pay 333 296 Total non-current liabilities 1,159 325 TOTAL LIABILITIES 1,931 2,235 SHAREHOLDERS’ EQUITY: Ordinary shares Common stock, $0.001 par value; 75,000,000 shares authorized, 36,756,983 and 26,884,921 shares issued and outstanding as of December 31, 2020 and 2019, respectively 37 27 Additional paid-in capital 10,234 4,135 Accumulated deficit (6,307 ) (1,640 ) TOTAL SHAREHOLDERS’ EQUITY 3,964 2,522 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 5,895 4,757 The accompanying notes are an integral part of these consolidated financial statements. F- 4 SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) CONSOLIDATED STATEMENTS OF OPERATIONS Year ended December 31, 2020 2019 2018 USD in thousands (except per share data) REVENUES (*): PRODUCTS 491 188 174 SERVICES - 121 217 4 91 309 391 COST OF REVENUES: PRODUCTS 994 421 104 SERVICES - 121 117 994 542 221 GROSS PROFIT (LOSS) (503 ) (233 ) 170 RESEARCH AND DEVELOPMENT EXPENSES 725 274 183 SALES AND MARKETING EXPENSES 443 183 270 GENERAL AND ADMINISTRATIVE EXPENSES 3,035 1,117 240 OPERATING LOSS (4,706 ) (1,807 ) (523 ) FINANCING INCOME (EXPENSES), NET 41 (20 ) ** LOSS BEFORE TAXES ON INCOME (4,665 ) (1,827 ) (523 ) TAXES ON INCOME (2 ) (2 ) (1 ) NET LOSS (4,667 ) (1,829 ) (524 ) Net loss per ordinary share (basic and diluted, in USD) (0.15 ) (0.11 ) (0.03 ) Weighted average ordinary shares (basic and diluted, in thousands) 31,753 16,190 16,131 * As for revenues related to transaction with the Parent Company – see Note 11 ** Less than 1 thousand The accompanying notes are an integral part of these consolidated financial statements. F- 5 SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (CAPITAL DEFICIENCY) Ordinary shares Additional paid-in capital Accumulated deficit Total Shareholders’ equity (Capital deficiency) Shares in thousands amount USD in thousands Balance at January 1, 2020 26,885 $ 27 4,135 (1,640 ) 2,522 Issuance of shares and warrants 6,092 $ 6 2,852 - 2,858 Exercise of warrants 2,993 $ 3 1,726 - 1,729 Stock based compensation - - 1,141 - 1,141 Conversion of loan from Parent Company 787 $ 1 380 - 381 Net loss - - - (4,667 ) (4,667 ) Balance at December 31, 2020 36,757 $ 37 10,234 (6,307 ) 3,964 Ordinary shares Additional paid-in capital Parent Company deficit Accumulated deficit Total Shareholders’ equity (Capital deficiency) Shares in thousands USD in thousands Balance at January 1, 2019 16,131 16 (16 ) (118 ) - (118 ) Net transfer from Parent Company - - - 514 - 514 Net loss - - - (189 ) (1,640 ) (1,829 ) Consummation of the carve-out - - 207 (207 ) - - Capital contribution from Parent Company - - 720 - - 720 Sale of assets to Parent Company - - 168 - - 168 Effect of reverse recapitalization 10,754 11 3,029 - - 3,040 Share based compensation - - 27 - - 27 Balance at December 31, 2019 26,885 27 4,135 - (1,640 ) 2,522 Ordinary shares Additional paid-in capital Parent Company deficit Total Shareholders’ equity (Capital deficiency) Shares in thousands USD in thousands Balance at January 1, 2018 16,131 16 (16 ) (117 ) (117 ) Net transfer from Parent Company - - - 523 523 Net loss - - - (524 ) (524 ) Balance at December 31, 2018 16,131 16 (16 ) (118 ) (118 ) The accompanying notes are an integral part of these consolidated financial statements. F- 6 SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31, 2020 2019 2018 USD in thousands CASH FLOWS FROM OPERATING ACTIVITIES: Net loss (4,667 ) (1,829 ) (524 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 66 6 5 Share based compensation 1,107 27 25 Loss (profit) from exchange differences on cash and cash equivalents (85 ) 5 - Other non-cash items 4 (10 ) 1 CHANGES IN OPERATING ASSET AND LIABILITY: Accounts receivable 5 68 (85 ) Decrease (increase) in inventory 693 (819 ) (25 ) Other current assets (270 ) (16 ) (62 ) Account payables 44 16 - Contract fulfillment assets (1,130 ) - - Contract liability 346 302 192 Accrued compensation expenses 72 166 (13 ) Receivable from Parent Company (15 ) (73 ) - Other accrued expenses (357 ) 358 32 Net cash flows used in operating activities (4,187 ) (1,799 ) (454 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (276 ) (52 ) - Change in severance pay asset - (3 ) 4 Net cash flows generated from (used in) investing activities (276 ) (55 ) 4 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of shares and warrants 2,858 - - Proceeds from exercise of warrants 1,729 - - Repayment of loan from Parent Company (81 ) - - Transfer from Parent Company - 514 450 Sale of assets to Parent Company - 168 - Capital contribution from Parent Company - 720 - Loan from Parent Company - 500 - Cash obtained in connection with Recapitalization Transaction - 3,202 - Net cash flows provided by financing activities 4,506 5,104 450 INCREASE IN CASH AND CASH EQUIVALENTS 43 3,250 - BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,245 - - PRPFITS (LOSSES) FROM EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS 85 (5 ) - BALANCE OF CASH AND CASH EQUIVALENTS AT END OF YEAR 3,373 3,245 - Non cash activities - Year ended December 31, 2020 2019 2018 USD in thousands Loan from Parent Company settled against receivable from Parent Company 41 - - Conversion of a loan from Parent Company 381 - - SUPPLEMENTAL INFORMATION FOR CASH FLOW: As of December 30, 2019 Assets acquired (liabilities assumed): Current assets excluding cash and cash equivalents $ - Current liabilities (73 ) Recapitalization Transaction costs (89 ) Reverse recapitalization effect on equity (3,040 ) Cash obtained in connection with Recapitalization Transaction $ 3,202 The accompanying notes are an integral part of these consolidated financial statements. F- 7 SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – GENERAL: a . ScoutCam Inc. (the “Company”), formerly known as Intellisense Solutions Inc. (“Intellisense”), was incorporated under the laws of the State of Nevada on March 22, 2013. The Company was initially engaged in the business of developing web portals to allow companies and individuals to engage in the purchase and sale of vegetarian food products over the Internet. The Company was unable to execute its original business plan, develop significant operations or achieve commercial sales. Prior to the closing of the Securities Exchange Agreement (as defined below), the Company was a “shell company”. ScoutCam Ltd. (the “Subsidiary”, “ScoutCam”), was formed in the State of Israel on January 3, 2019 as a wholly-owned subsidiary of Medigus Ltd. (the “Parent Company”, “Medigus”), an Israeli company traded both on the Nasdaq Capital Market and the Tel Aviv Stock Exchange, and commenced operations on March 1, 2019. Upon incorporation, the Subsidiary issued to Medigus 1,000,000 ordinary shares with no par value. On March 2019, the Subsidiary issued to Medigus an additional 1,000,000 ordinary shares with no par value. The Subsidiary was incorporated as part of a reorganization of Medigus, which was designed to distinguish the Subsidiary’s miniaturized imaging business, or the micro ScoutCam™ portfolio, from Medigus’s other operations and to enable Medigus to form a separate business unit with dedicated resources focused on the promotion of such miniaturized imaging business. In December 2019, Medigus and the Subsidiary consummated a certain Amended and Restated Asset Transfer Agreement, under which Medigus transferred and assigned certain assets and intellectual property rights related to its miniaturized imaging business to the Subsidiary. On September 16, 2019, Intellisense entered into a Securities Exchange Agreement (the “Exchange Agreement”), with Medigus, pursuant to which Medigus assigned, transferred and delivered 100% of its holdings in the Subsidiary to Intellisense, in exchange for consideration consisting of shares of Intellisense’s common stock representing 60% of the issued and outstanding share capital of Intellisense immediately upon the closing of the Exchange Agreement (the “Closing”). In addition, the Exchange Agreement provides that if ScoutCam achieves an aggregated amount of USD 33 million in sales within the first three years immediately after the Closing, the Company will issue to Medigus 2,688,492 additional shares of Company’s common stock. The Closing occurred on December 30, 2019 (the “Closing Date”). On December 31, 2019, Intellisense changed its name to ScoutCam Inc. Although the transaction resulted in the Subsidiary becoming a wholly owned subsidiary of Intellisense, the transaction constituted a reverse recapitalization since Medigus, the only shareholder of the Subsidiary prior to the Exchange Agreement, was issued a majority of the outstanding capital stock of Intellisense upon consummation of the Exchange Agreement, and also taking into account that prior to the Closing Date, Intellisense was considered as a shell corporation. Accordingly, the Subsidiary is considered the accounting acquirer of the merged company. “Group” - the Company together with ScoutCam. The Subsidiary has developed a range of micro CMOS (complementary metal-oxide semiconductor) and CCD (charge-coupled device) video cameras, including micro ScoutCam™ 1.2. These innovative cameras are suitable for both medical and industrial applications. Based on its proprietary technology, the Subsidiary designs and manufactures endoscopy and micro camera systems for partner companies. F- 8 SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – GENERAL (continued) : b. During the year ended December 31, 2020, the Company incurred a loss of USD 4,667 thousand and negative cash flows from operating activities of approximately USD 4,187 thousand. Based on the projected cash flows, the Company’s Management is of the opinion that without further fundraising it will not have sufficient resources to enable it to continue its operating activities including the development, manufacturing and marketing of its products within one year after the issuance date of these consolidated financial statements. As a result, there is a substantial doubt about the Company’s ability to continue as a going concern within one year after the issuance date of these financial statements. Management did not take into account the proceeds from the private placement (see note 13c), because the closing of the private placement didn’t occur as of the date of issuance of these financial statements. Management’s plans include continuing commercialization of the Company’s products and securing sufficient financing through the sale of additional equity securities, debt or capital inflows from strategic partnerships and other opportunities. There are no assurances however, that the Company will be successful in obtaining the level of financing needed for its operations. If the Company is unsuccessful in commercializing its products and securing sufficient financing, it may need to reduce activities, curtail or even cease operations. These consolidated financial statements have been prepared assuming the Company will continue as a going concern, which assumes the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Accordingly, the consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. c. The COVID-19 pandemic has had a significant impact on global markets and the global economy, including countries in which the Company operates. As the extent of the impact on the global economy remains unclear, the Company anticipates that it will have a continuing impact on global economies in the near and long-term future. In light of the below mentioned factors, the COVID-19 pandemic had and most likely will continue to have a material effect on the Company’s operations, and the extent to which the COVID-19 pandemic will impact the Company’s operations will depend on future developments. In particular, the continued spread of COVID-19 globally had and most likely will continue to have material adverse impact on the Company’s operations and workforce, including its manufacturing activities, product sales, as well as its ability to continue to raise capital. Travel restrictions had and most likely will continue to have a material adverse impact on Company’s sales and marketing and research and development efforts. F- 9 SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES: a. Basis of preparation: The accounting treatment for the Exchange Agreement was as a reverse recapitalization of ScoutCam, for financial accounting and reporting purposes. As such, ScoutCam Ltd. is treated as the acquirer for accounting and financial reporting purposes while the Company is treated as the acquired entity for accounting and financial reporting purposes. As a result, the comparative figures that are reflected in the Company’s financial statements are those of ScoutCam and from the Closing Date, the Company’s assets, liabilities and results of operations are consolidated with the assets, liabilities and results of operations of ScoutCam. The consolidated financial statements reflect the Company’s financial position, results of operations, changes in shareholders equity (capital deficiency) and cash flows in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The accompanying comparative financial statements include the historical accounts of ScoutCam as a “Carve-out Business”, a division of Medigus. Throughout the comparative periods included in these financial statements, the Carve-out Business operated as part of Medigus. Separate financial statements have not historically been prepared for the Carve-out Business. These comparative carve-out financial statements have been prepared on a standalone basis and are derived from Medigus’s consolidated financial statements and accounting records. The carve-out comparative financial statements reflect ScoutCam’s financial position, results of operations, changes in net Parent Company deficit and cash flows in accordance with U.S. GAAP. The financial position, results of operations, changes in net parent deficit, and cash flows of the Carve-out Business may not be indicative of its results had it been a separate stand-alone entity during the comparative periods presented. The comparative carve-out financial statements of the Company include expenses which were allocated from Medigus for certain functions, including general corporate expenses related to corporate strategy, procurement, Information Technology (“IT”), Human Resources (“HR”) and legal. These allocation have been made on the basis of direct usage when identifiable, with the remainder allocated on the basis of headcount. Management believes the expense allocation methodology and results are reasonable and consistently applied for all comparative periods presented. However, these allocations may not be indicative of the actual expenses that would have been incurred by an independent company or of the costs to be incurred in the future. The carve-out comparative financial statements include assets and liabilities specifically attributable to the Carve-out Business. Transfers of cash between Carve-out Business and Medigus are included within “Transfers from Parent Company” on the Statements of Cash Flows and the Statements of changes in shareholder’s equity (capital deficiency). As the carve-out comparative financial statements have been prepared on a carve-out basis, the amounts reflected in Parent Company deficit in the comparative statement of changes in shareholder’s equity (capital deficiency) refer to net loss for the period attributed to ScoutCam. F- 10 SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued) : b. Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The Company evaluates on an ongoing basis its assumptions, including those related to contingencies, deferred taxes, inventory impairment, as well as in estimates used in applying the revenue recognition policy. Actual results may differ from those estimates. c. Functional currency A majority of ScoutCam’s revenues are generated in U.S. dollars. The substantial majority of ScoutCam costs are incurred in U.S. dollars and New Israeli Shekels (“NIS”). ScoutCam management believes that the U.S. dollar is the currency of the primary economic environment in which ScoutCam operates. Thus, the functional currency of ScoutCam is the U.S. dollar. Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Balances in non U.S. dollar currencies are translated into U.S. dollars using historical and current exchange rates for non-monetary and monetary balances, respectively. For non-U.S. dollar transactions and other items in the statements of operations (indicated below), the following exchange rates are used: (i) for transactions exchange rates at transaction dates and (ii) for other items (derived from non-monetary balance sheet items such as depreciation and amortization) historical exchange rates. Currency transaction gains and losses are presented in financial income or expenses, as appropriate. d. Cash and Cash Equivalents The Company considers as cash equivalents all short-term, highly liquid investments, which include short-term bank deposits with original maturities of three months or less from the date of purchase that are not restricted as to withdrawal or use and are readily convertible to known amounts of cash. e. Accounts receivable Accounts receivable are presented in the Company’s consolidated balance sheets net of allowance for doubtful accounts. The Company estimates the collectibility of its accounts receivable balances and adjusts its allowance for doubtful accounts accordingly. When revenue recognition criteria are not met for a sale transaction that has been billed, the Company does not recognize deferred revenues or the related account receivable. As of December 31, 2020 and 2019, no allowance for doubtful accounts was recorded. f. Property and equipment Property and equipment is stated at cost, net of accumulated depreciation and amortization. Depreciation is calculated on a straight-line basis over the estimated useful lives. The annual depreciation rates are as follows: % Machinery and laboratory equipment 10%-15% Office furniture and equipment 10% Computers and computer software 33% Leasehold improvements Over the shorter of the lease term (including options if any) or useful life F- 11 SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued) : g. Severance pay Israeli labor law generally requires payment of severance pay upon dismissal of an employee or upon termination of employment in certain other circumstances. Pursuant to Section 14 of the Severance Compensation Act, 1963 (“Section 14”), all of the Company’s employees in Israel are entitled a monthly contribution, at a rate of 8.33% of their monthly salary, made in their name with insurance companies. Contributions under Section 14 relieve the Company from any future severance payment obligation with respect to those employees. The aforementioned contributions are not recorded as an asset on the Company’s balance sheet, and there is no liability recorded as the Company does not have a future obligation to make any additional payments. The asset and the liability for severance pay presented in the balance sheets reflects employees that began employment prior to automatic application of Section 14. The severance pay liability of the Company to its employees that began employment prior to automatic application of Section 14 based upon the number of years of service and the latest monthly salary and is partly covered by regular deposits with recognized pension funds and deposits with severance pay funds. Under labor laws, these deposits are in the employees’ names and, subject to certain limitations, are the property of the employees. The Company records the obligation as if it were payable at each balance sheet date on an undiscounted basis. h. Stock-Based Compensation The Company measures and recognizes compensation expense for its equity classified stock-based awards, including option awards exercisable into shares of common stock of the Parent Company under its plan based on estimated fair values on the grant date. The Company calculates the fair value of option awards on the grant date using the Black-Scholes option pricing model. The Black-Scholes option-pricing model requires a number of assumptions, of which the most significant are the stock price volatility and the expected option term. For the years ended December 31, 2019, and 2018, the volatility was based on the historical stock volatility of the Parent Company. The Company’s expected dividend rate is zero since the Company does not currently pay cash dividends on its stocks and does not anticipate doing so in the foreseeable future. Each of the above factors requires the Company to use judgment and make estimates in determining the percentages and time periods used for the calculation. If the Company were to use different percentages or time periods, the fair value of option awards could be materially different. The Company recognizes stock-based compensation cost for option awards on a accelerated basis over the employee’s requisite service period, net of estimated forfeitures. F- 12 SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued) : i. Inventories Inventories include raw materials, inventory in process and finished products and are valued at the lower of cost or net realizable value. The cost is determined on the basis of “first in-first out” basis. Cost of purchased raw materials and inventory in process includes costs of design, raw materials, direct labor, other direct costs and fixed production overheads. Materials and other supplies held for use in the production of inventories are not written down if the finished products in which they will be incorporated are expected to be sold at or above cost. The Company regularly evaluates its ability to realize the value of inventory based on a combination of factors including the following: forecasted sales or usage, estimated current and future market values. j. Revenue recognition a) Revenue measurement Commencing January 1, 2018, the Company’s revenues are measured according to the ASC 606, “Revenue from Contracts with Customers” (“ASC 606”). Under ASC 606, revenues are measured according to the amount of consideration that the Company expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties, such as VAT taxes. Revenues are presented net of VAT. b) Revenue recognition The Company recognizes revenue when a customer obtains control over promised goods or services. For each performance obligation, the Company determines at contract inception whether it satisfies the performance obligation over time or satisfies the performance obligation at a point in time. Performance obligations are satisfied over time if one of the following criteria is met: (a) the customer simultaneously receives and consumes the benefits provided by the Company’s performance; (b) the Company’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or (c) the Company’s performance does not create an asset with an alternative use to the Company and the Company has an enforceable right to payment for performance completed to date. If a performance obligation is not satisfied over time, a Company satisfies the performance obligation at a point in time. F- 13 SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES (continued): The transaction price is allocated to each distinct performance obligations on a relative standalone selling price (“SSP”) basis and revenue is recognized for each performance obligation when control has passed. In most cases, the Company is able to establish SSP based on the observable prices of services sold separately in comparable circumstances to similar customers and for products based on the Company’s best estimates of the price at which the Company would have sold the product regularly on a stand-alone basis. The Company reassesses the SSP on a periodic basis or when facts and circumstances change. Product Revenue Revenues from product sales are recognized at a point in time when the customer obtains control of the Company’s product, typically upon shipment to the customer. Sales taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues. Service Revenue The Company also generates revenues from development services. Revenue from development services is recognized over the period of the applicable service contract. To the extent development services are not distinct from the performance obligation relating to the subsequent mass production phase of the prototype under development, revenue from these services is deferred until commencement of the production phase of the project. There are no long-term payment terms or significant financing components of the Company’s contracts. The Company’s contract payment terms for product and services vary by customer. The Company assesses collectibility based on several factors, including collection history. k. Cost of revenues Cost of revenue consists of products purchased from sub-contractors, raw materials for in-house assembly line, shipping and handling costs to customers, salary, employee-related expenses, depreciation and overhead expenses. Cost of revenues are expensed commensurate with the recognition of the respective revenues. Costs deferred in respect of deferral of revenues are recorded as contract fulfilment assets on the Company’s balance sheet, and are written down to the extent the contract is expect to incur losses. l. Research and development costs Research and development costs are expensed as incurred and includes salaries and employee-related expenses, overhead expenses, material and third-party contractor’s charges. m. Income taxes Income taxes are accounted for using the asset and liability approach under ASC-740, “Income Taxes” (“ASC-740”). The asset and liability approach require the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. The measurement of current and deferred tax liabilities and assets is based on provisions of the relevant tax law. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. Uncertain tax positions are accounted for in accordance with the provisions of ASC 740-10, under which a company may recognize the tax benefit from an uncertain tax position claimed or expected to be claimed on a tax return only if it is more likely than not that the tax position will be sustained on examination by the taxation authorities, based on the technical merits of the position, at the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. Interest and penalties, if any, related to unrecognized tax benefits, are recognized in tax expense. F- 14 SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES (continued): n. Legal contingencies From time to time, the Company becomes involved in legal proceedings or is subject to claims arising in its ordinary course of business. Such matters are generally subject to many uncertainties and outcomes are not predictable with assurance. The Company accrues for contingencies when the loss is probable, and it can reasonably estimate the amount of any such loss. o. Loss per share Basic loss per share is computed by dividing net loss, by the weighted average number of ordinary shares as described below. In computing the Company’s diluted earnings per share, the numerator used in the basic earnings per share computation is adjusted for the dilutive effect, if any, of the Company’s potential common stock. The denominator for diluted earnings per share is a computation of the weighted-average number of ordinary shares and the potential dilutive shares common stock outstanding during the period. The loss per share information in these consolidated financial statements is reflected and calculated as if the Company had existed since January 1, 2018. Accordingly, loss per share for all periods was calculated based on the number of ordinary shares retroactively adjusted for the exchange ratio determined in the reverse recapitalization (see also note 3). p. Leases The Company determines if an arrangement contains a lease at inception. Company’s leases do not contain any residual value guarantees or material restrictive covenants. The rate implicit is most of Company’s leases are not reasonably determinable, therefore we use our incremental borrowing rate based on the information available at the commencement date to determine the present value of the future lease payments. Certain of Company’s leases include variable costs. Variable costs include non-lease components that were incurred based upon actual terms rather than contractually fixed amounts. In addition, variable costs are incurred for lease payments that are indexed to a change in rate or index. Because the ROU asset recorded on the balance sheet was determined based upon factors considered at the commencement date, subsequent changes in the rate or index that were not contemplated in the ROU asset balances recorded on the balance sheets result in variable expenses being incurred when paid during the lease term. See Note 12. The Company has elected not to recognize on the balance sheet leases with terms of 12 months or less. F- 15 SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - REVERSE RECAPITALIZATION On December 30, 2019, Intellisense and Medigus completed the Exchange Agreement. The accounting treatment for the Exchange Agreement was as a reverse recapitalization transaction. Pursuant to the Exchange Agreement, Intellisense issued to Medigus 16,130,952 shares. Upon such issuance, ScoutCam became a wholly-owned subsidiary of Intellisense. On December 31, 2019, Intellisense Solutions Inc. changed its name to ScoutCam Inc. Immediately prior to the Closing Date the Company’s outstanding common stock was comprised of 3,927,346 shares of common stock $0.001 par value, of which 1,352,666 shares were issued immediately prior to the Closing Date as part of the conversion of promissory notes to related parties and the exercise of warrants by related parties, employees and service providers. Also, on the Closing Date, 3,413,312 units, each comprised of two shares of common stock par value USD 0.001 per share, one Warrant A (as defined below) and two Warrants B (as defined below), were issued to investors as part of the financing transaction that the Company was obligated to secure prior to the Closing. The immediate gross proceeds from the issuance of the units amounted to approximately USD 3.3 million. Each Warrant A was exercisable into one share of common stock of the Company at an exercise price of USD 0.595 per share during the12 month period from the date of issuance. Each Warrant B is exercisable into one share of common stock of the Company at an exercise price of USD 0.893 per share during the 18 month period from the date of issuance. During 2020, 2,992,855 Warrants A were exercised. 420,457 unexercised Warrants A expired on December 30,2020. While ScoutCam Inc. was the legal acquirer, ScoutCam was treated as the acquiring company for accounting purposes as the Exchange Agreement was accounted for as a reverse recapitalization which is equivalent to the issuance of 10,753,969 shares by ScoutCam for the net monetary assets of ScoutCam Inc. As a result, the financial statements of the Company prior to the Closing Date are the historical financial statements of ScoutCam Ltd. The financial statements of the Company after the Closing Date reflect the results of the operations of ScoutCam Ltd. and ScoutCam Inc. on a combined basis. The net acquired assets of the Company as of the Closing Date was $3,040 thousands. There were no fair value adjustments necessary to perform as the carrying values of the net acquired assets approximated fair value. Further, given the nature of the operations of ScoutCam Inc. prior to the Closing Date, there were no intangible assets, including goodwill, established as a result of the Exchange Agreement. Under the Exchange Agreement, the number of shares of common stock and USD amount for common stock is based on the nominal value and the shares of common stock issued by ScoutCam Inc. (reflecting the legal structure of ScoutCam Inc. as the legal acquirer) on the Closing Date plus shares of common stock issued by ScoutCam Inc. as part of the Exchange Agreement as described above. Historical stockholders’ equity reflects the accounting acquirer, except for share number and USD amount adjusted for the shares exchange ratio pursuant to the Exchange Agreement amounting to 8.065. F- 16 SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 - INVENTORY: Composed as follows: December 31, 2020 2019 USD in thousands Raw materials and supplies 45 24 Work in progress - 316 Finished goods 278 560 Inventory write downs (79 ) - 244 900 During the year ended 2019, no impairment occurred. NOTE 5 - PROPERTY AND EQUIPMENT, NET: Property, plant and equipment, net consisted of the following: December 31, 2020 2019 USD in thousands Cost: Machinery and laboratory equipment 285 87 Leasehold improvements, office furniture and equipment 36 25 Computers and computer software 87 20 408 132 Less: accumulated deprecation (139 ) (73 ) Total property and equipment, net 269 59 Depreciation expenses were USD 66 thousand, USD 6 thousand and USD 5 thousand in the years ended December 31, 2020, 2019 and 2018, respectively. NOTE 6 – OTHER ACCRUED EXPENSES: December 31, 2020 2019 USD in thousands Unpaid recapitalization transaction costs - 89 IRS (see note 7b) 73 73 Accrued expenses 122 390 195 552 F- 17 SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 - INCOME TAXES : a. Basis of taxation The Company and its subsidiary are taxed under the domestic tax laws of the jurisdiction of incorporation of each entity (United States and Israel). Income from Israel was taxed at the corporate tax rate of 23%. ScoutCam Inc. was incorporated in the United States and is subject to the Federal and State tax laws established in the United States. On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act reduces the corporate tax rate to 21 percent from 35 percent, among other things. b. ScoutCam Inc. did not timely file its tax return for 2013-2014 and therefore the IRS imposed penalties in the amount of $60 thousand (approximately $73 thousands including interest). c. Israel tax loss carry forwards As of December 31, 2020, the Company has accumulated losses for tax purposes that were generated in Israel. These losses may be carried forward and offset against taxable income in the future for an indefinite period. A full valuation allowance was created against the Company’s deferred tax assets generated in Israel. Management currently believes that it is more likely than not that the deferred taxes generated in Israel will not be realized in the foreseeable future. F- 18 SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 – RELATED PARTIES : a. On May 30, 2019, ScoutCam entered into an intercompany agreement with Medigus (the “Intercompany Agreement”) according to which ScoutCam agreed to hire and retain certain services from Medigus. The agreed upon services provided under the Intercompany Agreement included: (1) lease of office space and clean room based on actual space utilized by ScoutCam and in shared spaces according to employee ratio; (2) utilities such as electricity water, IT and communication services based on employee ratio; (3) car services, including car rental, gas usage, payment for toll roads based on 100% of expense incurred from a ScoutCam employee car; (4) external accountant services at a price of USD 6,000 per annum; (5) directors and officers insurance at a sum of 1/3 of Parent Company cost; (6) CFO services at a sum of 50% of Parent Company CFO employer cost; (7) every direct expense of ScoutCam that is paid by the Parent Company in its entirety subject to approval of such direct expenses in advance; and (8) any other mutual expense that is borne by the parties according to the respective portion of the Mutual Expense. The total expenses for year ended December 31, 2019 amounted to USD 329 thousand. As of December 31, 2019, the balance with Medigus amounted to USD 73 thousand. On April 20, 2020, the Subsidiary entered into an amended and restated intercompany services agreement with Medigus. The agreed upon services provided under the amended and restated Intercompany Agreement included: 1) lease of office space based on actual space utilized by the Parent Company and in shared spaces according to employee ratio; (2) utilities such as electricity water, IT and communication services based on employee ratio; (3) car services, including car rental, gas usage, payment for toll roads based on 100% of expense incurred from a Subsidiary employee car; (5) directors and officers insurance the Parent Company shall pay $150,000 of the annual premium.; (6) CFO services at a sum of 50% of Parent Company CFO employer cost; (7) every direct expense of the Subsidiary that is paid by the Parent Company in its entirety subject to approval of such direct expenses in advance; and (7) any other mutual expense that is borne by the parties according to the respective portion of the mutual expense. The total net expenses for year ended December 31, 2020 amounted to USD 143 thousand. As of December 31, 2020, the balance with Medigus amounted to USD 47 thousand. In addition, ScoutCam’s employees provide support services to Medigus. For additional information see note 11b. b. On June 3, 2019, the Parent Company executed a capital contribution with ScoutCam whereby it paid an aggregate amount of USD 720 thousand. c. On July 31, 2019, ScoutCam and Prof. Benad Goldwasser entered into a consulting agreement, whereby Prof. Goldwasser agreed to serve as chairman of the Board of Directors of ScoutCam. The consulting agreement effective retroactively to March 1, 2019, in consideration for, inter alia , a monthly fee of $10,000 and options representing 5% of Company’s fully-diluted share capital as of the Closing Date. d. On August 27, 2019, the Parent Company provided ScoutCam with a line of credit in the aggregate amount of USD 500 thousand and, in exchange, ScoutCam agreed to grant the Parent Company a capital note that will bear an annual interest rate of 4%. The repayment of the credit line amount shall be spread over one year in monthly payments beginning January 2020. The said note is presented in the consolidated balance sheets within “Loan from Parent Company”. On June 23, 2020, the Company and Medigus entered into a certain Conversion Side Letter, pursuant to which the Company converted US$381,136 worth of outstanding credit previously extended by Medigus to the Company, which amount, as of the date thereof, included interest accrued thereon. In accordance with the terms of the Conversion Side Letter, the Company issued to Medigus, at a purchase price of US$0.968, (a) 787,471 shares of common stock, (b) warrants to purchase 393,736 shares of common stock at an exercise price of US$0.595, and (c) warrants to purchase 787,471 shares of common stock at an exercise price of US$0.893. e. On September 3, 2019, a certain Asset Transfer Agreement, by and between ScoutCam and the Parent Company dated May 28, 2019, became effective. According to the Asset Transfer Agreement, the Company transferred certain assets (property and equipment) with a nil carrying amount to the Parent Company in consideration of USD 168 thousand. The assets were then sold to a third party. The excess of the said consideration over the carrying amount was directly recorded to shareholders’ equity. f. During December 2019, the Company entered into a consulting agreement with Shrem Zilberman Group (the “Consultant”) in the amount of USD 165 thousand (see also note 9b). A director of the Company is related to one of the Consultant’s shareholders. g. On February 12, 2020, the Company’s Board of Directors authorized the grant of options to purchase 2,235,691 shares of common stock of the Company to Professor Benad Goldwasser, the Company’s Chairman of the Board, and options to purchase 1,865,346 shares of common stock of the Company to certain officers of the Company. Each option is exercisable into one share of common stock of the Company of $0.001 par value at an exercise price of $0.29. See also note 13b. F- 19 SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 – RELATED PARTIES (continued): h. On March 15, 2020, the Company’s Board of Directors approved, among other things, a quarterly fee of $4,000 payable to each of the Company’s directors, excluding Professor Benad Goldwasser; and a grant of options to purchase 576,888 shares of common stock of the Company to each of the Company’s currently serving directors, excluding Professor Benad Goldwasser. The terms of the options granted to the Company’s currently serving directors include (i) an exercise price of $0.29 (ii) a vesting schedule whereby 33.33% of the options granted will vest on the first anniversary of March 15, 2020, and 8.33% of the options will vest at the end of each subsequent three-month period thereafter over the course of the following two (2) years; and (iii) an acceleration mechanism pursuant to which any outstanding and unvested option shall immediately accelerate and vest upon the occurrence of certain events, including, inter alia, a merger or sale of all assets of the Company. i. On April 20, 2020, Medigus and ScoutCam entered into that certain Intercompany Services Agreement, which amended and restated the intercompany services agreement executed between the parties on May 30, 2019. The agreement has an initial term of one year, and renews automatically for additional one-year periods, unless either party provides 60 (sixty) days written notice of non renewal. Either Medigus or ScoutCam may terminate the agreement for convenience upon providing 60 (sixty) days prior written notice. The services to be provided by ScoutCam include, inter alia, the provision of office space, utilities, car services, insurance and chief financial officer services. In consideration for the foregoing services, ScoutCam is entitled to arm’s length service fees based on the most recent transfer pricing analysis as performed by an external expert, which may be adjusted from time to time. j. On May 18, 2020, in connection with the Arkin Transaction (as defined below), the Company, Medigus and Arkin (as defined below), entered into the Letter Agreement, whereby, provided the Company obtains certain regulatory approvals described therein, Medigus and the Company agreed to amend certain terms of the Amended and Restated Asset Transfer Agreement and the License Agreement, thereby transferring outright certain patent assets from Medigus to the Company; provided, however, that in the event the Company abandons the foregoing patent assets, the Company must transfer back ownership of the patent assets to Medigus for no additional consideration and absent any additional contingencies. Also, on May 18, 2020, and in connection with the Arkin Transaction, the Company, Medigus and Arkin entered into a Voting Agreement, pursuant to which Arkin and Medigus each agreed to vote their respective shares of common stock in favor of the election of the opposite party’s designated representative(s), as applicable, to the Board. Each of Arkin’s and Medigus’ rights under the Voting Agreement are contingent upon, inter alia, such party maintaining a certain beneficial ownership threshold in the Company, as follows: at each annual or special meeting of stockholders at which an election of directors is held or pursuant to any written consent of the stockholders, (a) one person designated by Arkin shall be elected to the Board, for so long as Arkin, together with its Affiliates, continues to own beneficially at least eight (8%) of the issued and outstanding capital stock of the Company (“ Arkin Director ”), and (b) (i) three persons designated by Medigus shall be elected to the Board, for so long as Medigus, together with its Affiliates, continues to own beneficially at least thirty five (35%) of the issued and outstanding capital stock of the Company, or (ii) two persons designated by Medigus for so long as Medigus, together with its Affiliates, continues to own beneficially less than thirty five (35%) and more than twenty (20%) of the issued and outstanding capital stock of the Company, or (iii) one person designated by Medigus for so long as Medigus, together with its Affiliates, continues to own beneficially less than twenty (20%) and more than eight (8%) of the issued and outstanding capital stock of the Company. k. On June 22, 2020, the Company’s Board of Directors authorized the grant of options to purchase 628,163 shares of common stock to Prof. Benad Goldwasser, Chairman of the Board, and 628,162 options to purchase shares of common stock to CEO and director of the Company. Each option is exercisable into one share of common stock at an exercise price of $0.29. l. On November 11, 2020, the Company’s Board of Directors authorized the grant of options to purchase 144,222 shares of common stock to director of the Company. Each option is exercisable into one share of common stock at an exercise price of $0.35. F- 20 SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - EQUITY: Reverse Recapitalization: As discussed in note 3, the Recapitalization is accounted for as a reverse recapitalization with ScoutCam Inc. as the legal acquirer and ScoutCam Ltd. as the accounting acquirer. Under the Recapitalization, the USD amount for shares of common stock is based on the nominal value and the shares of common stock issued by ScoutCam Inc. (reflecting the legal structure of ScoutCam Inc. as the legal acquirer) on the Recapitalization Date plus shares of common stock issued by the Company as part of the Recapitalization as described above. Historical stockholders’ equity reflects the accounting acquirer’s share number and USD amount adjusted for the exchange ratio determined in the Recapitalization. Private placement: a. In December 2019, the Company allocated in a private issuance, a total of 3,413,312 units at a purchase price of USD $0.968 per unit. Each unit was comprised of two shares of common stock par value US$0.001 per share, one Warrant A (defined below) and two Warrants B (defined below). The immediate proceeds (gross) from the issuance of the units amounted to approximately USD 3.3 million. Each Warrant A was exercisable into one share of common stock of the Company at an exercise price of USD 0.595 per share during the 12 month period following the allocation. Each Warrant B is exercisable into one share of common stock of the Company at an exercise price of USD 0.893 per share during the 18 month period following the allocation. In addition, Shrem Zilberman Group Ltd. (the “Consultant”) will be entitled to receive the amount representing 3% of any exercise price of each Warrant A or Warrant B that may be exercised in the future. In the event the total proceeds received as a result of exercise of Warrants will be less than $2 million at the time of their expiration, the Consultant will be required to invest $250,000 in the Company in return for shares of common stock of Company. During 2020, 2,992,855 Warrants A were exercised. 420,457 unexercised Warrants A expired on December 30, 2020. F- 21 SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 – EQUITY (continued): b. On March 3, 2020, the Company issued in a private issuance a total of 979,754 units at a purchase price of USD $0.968 per unit. Each unit was comprised of two shares of common stock par value US$0.001 per share, one Warrant A (defined below) and two Warrants B (defined below). Each Warrant A was exercisable into one share of common stock of the Company at an exercise price of USD 0.595 per share during the 12 month period following the allocation. Each Warrant B is exercisable into one share of common stock of the Company at an exercise price of USD 0.893 per share during the 18 month period following the allocation. The gross proceeds from the issuance of all securities offered amounted to approximately USD 948 thousands. After deducting issuance costs, the Company received proceeds of approximately USD 909 thousand. During 2021, 979,784 Warrants A were exercised. c. On May 18, 2020, the Company allocated in a private issuance a total of 2,066,116 units at a purchase price of USD $0.968 per unit. Each unit was comprised of two shares of common stock par value US$0.001 per share, one Warrant A (defined below) and two Warrants B (defined below). Each Warrant A is exercisable into one share of common stock of the Company at an exercise price of USD 0.595 per share during the 18 month period following the allocation. Each Warrant B is exercisable into one share of common stock of the Company at an exercise price of USD 0.893 per share during the 24 month period following the allocation. The gross proceeds from the issuance of all securities offered amounted to approximately USD 2 million. After deducting issuance costs, the Company received proceeds of approximately USD 1.9 million. During February 2021, 336,135 Warrants A were exercised. d. On June 23, 2020, (the “Conversion Date”), the Company entered into and consummated a Side Letter Agreement with Medigus, whereby the parties agreed to convert, at a conversion price of $0.484, an outstanding line of credit previously extended by Medigus to the Subsidiary, which as of the Conversion Date was $381,136, into (a) 787,471 shares of the Company’s common stock, (b) warrants to purchase 393,736 shares of common stock with an exercise price of $0.595 (Warrant A), and (c) warrants to purchase 787,471 shares of common stock with an exercise price of $0.893 (Warrant B). As the conversion price represented the same unit price as in the March 2020 and May 2020 private placements, no finance expenses have been recorded in statement of operations as a result of the conversion. Each Warrant A is exercisable into one share of common stock of the Company at an exercise price of USD 0.595 per share during the 12 months period following the allocation. Each Warrant B is exercisable into one share of common stock of the Company at an exercise price of USD 0.893 per share during the 18 months period following the allocation. F- 22 SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 – EQUITY (continued): As of December 31, 2020, the Company had the following outstanding warrants to purchase common stock: Warrant Issuance Date Expiration Date Exercise Price Per Share ($) Number of Shares of common stock Underlying Warrants Warrant Medigus December 30, 2019 December 30, 2022 (*) 2,688,492 Warrant B December 30, 2019 June 30, 2021 0.893 6,826,623 Warrant A March 3, 2020 March 3, 2021 0.595 979,754 Warrant B March 3, 2020 September 3, 2021 0.893 1,959,504 Warrant A May 18, 2020 November 18, 2021 0.595 2,066,116 Warrant B May 18 2020 May 18, 2022 0.893 4,132,232 Warrant A June 23, 2020 June 23, 2021 0.595 393,736 Warrant B June 23,2020 December 23, 2021 0.893 787,471 19,833,928 (*) If ScoutCam. achieves an aggregate amount of $33 million in sales within the first three years immediately after the Exchange Agreement, the Company will issue to Medigus 2,688,492 shares of the Company’s common stock, which represents 10% of the Company’s issued and outstanding share capital as of the Exchange Agreement. Stock based compensation: 2020 Equity Incentive Plan In February 2020, the Company’s Board of Directors approved the 2020 Share Incentive Plan (the “Plan”). The Plan initially included an option pool of 5,228,007 shares of common stock for grant to Company employees, consultants, directors, and other service providers. On March 15, 2020, the Company’s Board of Directors approved an increase to the Company’s option pool pursuant to the Plan by an additional 576,888 shares of common stock. On June 22, 2020, the Company’s Board of Directors approved an increase to the Company’s option pool pursuant to the Plan by an additional 3,617,545 shares of common stock. The Plan is designed to enable the Company to grant options to purchase ordinary shares and RSUs under various and different tax regimes including, without limitation: (i) pursuant and subject to Section 102 of the Israeli Tax Ordinance or any provision which may amend or replace it and any regulations, rules, orders or procedures promulgated thereunder and to designate them as either grants made through a trustee or not through a trustee; and (ii) pursuant and subject to Section 3(i) of the Israeli Tax Ordinance. On February 12, 2020, the Company granted 4,367,515 options pursuant to the Plan. Each option is exercisable into one share of common stock of the Company of $0.001 par value at the exercise price of $0.29. On March 15, 2020, the Company granted 576,888 options pursuant to the Plan to each of the Company’s then serving directors, excluding Professor Benad Goldwasser. Each option is exercisable into one share of common stock of the Company of $0.001 par value at the exercise price of $0.29. On June 22, 2020, the Company granted 1,544,769 options pursuant to the Plan to Company employees, consultants, directors. Each option is exercisable into one share of common stock of the Company of $0.001 par value at the exercise price of $0.29. On November 11, 2020, the Company granted 144,222 options pursuant to the Plan to Company director. Each option is exercisable into one share of common stock of the Company of $0.001 par value at the exercise price of $0.35. Options granted generally have a contractual term of 7 years and vest over a period of 3 up to 4 years. F- 23 SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 – EQUITY (continued): Stock Option Activity The following summarizes stock option activity: Amount of options Weighted average exercise price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value (in thousands) $ $ in thousands Outstanding - December 31, 2019 - - - Granted 6,633,394 0.29 Outstanding - December 31, 2020 6,633,394 0.29 6.23 2,446 Options Exercisable - December 31, 2020 1,941,701 0.29 6.12 718 At December 31, 2020, the aggregate intrinsic value of options granted is calculated as the difference between the exercise price and the closing price on the same date. The Company estimates the fair value of stock option awards on the grant date using the Black-Scholes option pricing model. The weighted-average grant date fair value per option granted during the years ended December 31, 2020 was $0.27. The fair value of each award is estimated using Black-Scholes option pricing model based on the following assumptions: Year ended December 31, 2020 Underlying value of ordinary shares ($) 0.446-0.800 Exercise price ($) 0.29-0.35 Expected volatility (%) 43.35%-45.00 % Term of the options (years) 7 Risk-free interest rate (%) 0.54%-1.55 % Volatility is derived from the historical volatility of publicly traded set of peer companies. The risk-free interest rates used in the Black-Scholes calculations are based on the prevailing U.S. Treasury yield as determined by the U.S. Federal Reserve. The Company has not paid dividends does not anticipate paying dividends in the foreseeable future. Accordingly, no dividend yield was assumed for purposes of estimating the fair value of the Company's share-based compensation. The weighted average expected life of options was estimated individually in respect of each grant. The unrecognized compensation expense calculated under the fair-value method for stock options expected to vest as of December 31, 2020 is approximately $0.6 million and is expected to be recognized over a weighted-average period of 1.2 years. F- 24 SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 - REVENUES: a. Contract fulfillment assets: The Company’s contract fulfillment assets as of December 31, 2020: December 31, 2020 USD in thousands Contract fulfillment assets from contract with Customer B (see note 11b) 1,130 b. Contract liabilities: The Company’s contract liabilities were as follows: December 31, 2020 2019 2018 USD in thousands The change in deferred revenues: Balance at beginning of year 502 200 8 Deferred revenue relating to new sales 735 387 200 Revenue recognition during the period (389 ) (85 ) (8 ) Balance at end of year 848 502 200 Contract liabilities include advance payments, which are primarily related to advanced billings for development services. Revenue recognized in 2020 that was included in deferred revenue balance as of December 31, 2019 was USD 389 thousand. There was no revenue recognized in 2019 that was included in deferred revenue balance as of December 31, 2018. Revenue recognized in 2018 that was included in deferred revenue balance as of January 1, 2018 was USD 8 thousand. F- 25 SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 – REVENUES (continued): Remaining Performance Obligations Remaining Performance Obligations (“RPO”) represents contracted revenue that has not yet been recognized, which includes contract liability and amounts that will be invoiced and recognized as revenue in future periods. As of December 31, 2020, the total RPO amounted to USD 2.9 million, Which the Company expects to recognize over the expected manufacturing term of the product under development. NOTE 11 - ENTITY WIDE DISCLOSURES: ASC 280, “Segment Reporting,” establishes standards for reporting information about operating segments. The Company manages its business based on one operating segment and derives revenues from sales of products and services developing minimally invasive endosurgical tools and highly innovative imaging solutions. a. Revenues by geographical area (based on the location of customers) The following is a summary of revenues within geographic areas: Year ended on December 31, 2020 2019 2018 USD in thousands United States 418 142 300 United Kingdom 41 33 24 South Korea - - 7 Israel 5 67 12 Other 27 67 48 491 309 391 b. Major customers Set forth below is a breakdown of Company’s revenue by major customers (major customer –revenues from these customers constituted at least 10% of total revenues in a certain year): Year ended on December 31, 2020 2019 2018 USD in thousands Customer A 383 85 134 Customer B - 30 92 Customers C 41 33 21 Customer D – Parent Company 5 36 - F- 26 SCOUTCAM INC. (Formerly known as Intellisense Solutions Inc.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 - LEASES The Company’s leases relate to vehicles leases and to short term lease of Company’s offices. The components of lease expenses during the periods presented were as follows: Year ended December 31, 2020 2019 USD in thousands Operating lease expenses 45 29 Short-term lease expenses 88 60 Total lease expenses 133 89 Supplemental cash flow information related to operating leases during the period presented was as follows: Year ended December 31, 2020 2019 USD in thousands Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases 45 29 Lease term and discount rate related to operating leases as of the period presented were as follows: December 31, 2020 2019 USD in thousands Weighted-average remaining lease term (in years) 1.85 1.4 Weighted-average discount rate 10 % 10 % The maturities of lease liabilities under operating leases as of December 31, 2020 are as follows: USD in thousands 2021 63 2022 47 2023 8 Total undiscounted lease payments 118 Less: Imputed interest (11 ) Total lease liabilities 107 NOTE 13 - SUBSEQUENT EVENTS: a. On January 20, 2021, the Company’s Board of Directors approved an increase of the authorized share capital of the Company by an additional 225,000,000 ordinary shares par value $0.001 per share, such that the authorized share capital of the Company following such increase shall be consisting of 300,000,000 ordinary shares. b. Refer to Note 9b-c regarding exercising of warrants. c. On March 22, 2021, the Company undertook to issue to certain investors (the “Investors”) 22,222,223 units (the “Units”) in exchange for an aggregate purchase price of $20 million. Each Unit consists of (i) one share of the Company’s common stock and (ii) one warrant to purchase one share of common stock with an exercise price of US$1.15 per share (the “Warrant” and the “Exercise Price”). Each Warrant is exercisable until the close of business on March 31, 2026. Pursuant to the terms of the Warrants, following April 1, 2024, if the closing price of the common stock equal or exceeds 135% of the Exercise Price (subject to appropriate adjustments for stock splits, stock dividends, stock combinations and other similar transactions after the issue date of the Warrants) for any thirty (30) consecutive trading days, the Company may force the exercise of the Warrants, in whole or in part, by delivering to the Investors a notice of forced exercise. F- 27