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. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting has been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States of America, and that receipts and expenditures are being made only in accordance with authorization of our management and directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. 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 assessed the effectiveness of our internal control over financial reporting on December 31, 2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework, in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that assessment under those criteria, management has determined that, as of December 31, 2021, our internal control over financial reporting was effective. 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 There were no changes in internal control over financial reporting during the year ended December 31, 2021 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting. Item 9b. Other information None. 37 ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not Applicable 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 † 71 Chairman of the Board Shmuel Donnerstein † 69 Director Ronen Rosenbloom 50 Director Lior Amit † 55 Director Moshe (Mori) Arkin 69 Director Inbal Kreiss† 55 Director Zeev Vurembrand † 70 Director Yovav Sameah 49 Chief Executive Officer Tanya Yosef* 39 Chief Financial Officer Amir Govrin* 55 Chief Technology Officer Katrin Dlugach* 39 VP of Research and Development Roee Peled* 43 VP of Business Development Arik Priel* 47 Chief SW Architect * Executive Officer † Independent Director 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 and Inspira Technologies Ltd. since January 2021. 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 has been an entrepreneur for over 40 years and is an industry veteran. Mr. Donnerstein’s experience includes establishing businesses in multiple industries in Europe and Israel. Most notably, in 2008 he established Rav Bariach 08 Industries Ltd (TASE: BRIH) after buying the assets of its predecessor in receivership and led its turnaround to become a leading security door manufacturer worldwide. Mr. Donnerstein currently serves as the Executive Chairman and majority shareholder of Rav Bariach. In addition, Mr. Donnerstein is the Chairman of Rail Vision Ltd and, in 2014, received the Israeli Industry Award from Israel’s Minister of Economy and Industry for his lifelong contribution to the Israeli Industrial sector. 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. He has served as a member of the board of directors of Medigus Ltd. since August 2018. Mr. Rosenbloom holds an LLB from the Ono Academic College, an Israeli branch of University of Manchester. 38 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. He has served as a member of the board of directors of Inspira Technologies Ltd. since June 2021. 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. Moshe (Mori) 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, 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 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. Inbal Kreiss has served on our board of directors since April 9, 2021. Ms. Kreiss is currently the Head of Innovation at the Systems, Missiles and Space Division of the Israeli Aerospace Industries Ltd. (IAI) and Chairwoman of RAKIA, Israel’s 2nd Scientific and Technological Mission to the International Space Station. Since 2013, Ms. Kreiss has served as Deputy Director of the Space Division at IAI, leading the development, construction, launch and operation of observation and communication satellites for both Israeli and foreign users. Prior to that, Ms. Kreiss held various leadership positions within IAI, including chief engineer of Israel’s Arrow 2 anti-ballistic missile defense system from 2000 to 2006, and project manager of the Arrow 3 exo-atmospheric interceptor from 2007 to 2013. Ms. Kreiss holds a B.Sc in chemical engineering from the Technion, Israeli Institute of Technology, an Executive Masters in Business Administration from Tel Aviv University, and completed a visiting research fellowship at the Aeronautics & Astronautics Department of the Massachusetts Institute of Technology (MIT). Zeev Vurembrand has served on our board of directors since May 13, 2021. Mr. Vurembrand is currently the Chief Executive Officer and Owner of Vurembrand Management & Innovation Ltd. and a member of the board of directors of Isras Investment Company Ltd. (TASE: ISRS) since 2016 and of Bezeq the Israeli Telecommunication Corp. Ltd. (TASE: BEZQ) since 2017. Mr. Vurembrand has also served as chairman of the board of Lageen Ltd. since 2019. From 2013 until 2019, Mr. Vurembrand was the Chief Executive Officer of Kupat Holim Meuhedet, Israel’s third largest health care organization. From 2008 until 2013, he was the Chief Executive Officer of Alon Holding Blue Square – Israel Ltd., and prior to that, from 2007 until 2008, he was the Chief Executive Officer of Phoenix Investments and Finance Ltd. Earlier in his career, from 2002 until 2007, Mr. Vurembrand was the Chief Executive Officer of Clalit Health Services Group, Israel’s largest health care organization. Mr. Vurembrand has served on numerous boards of directors, including Africa Israel Resedence LTD. (TASE: AFRE) from 2014 until 2016, Discount Bank (TASE:DSCT) 2006 until 2007, U-Bank from 2005 until 2006, Blue Square Israel (TASE: BSI) from 2001 until 2006, and Dikla Medical Insurance Ltd. from 1995 until 2002. Mr. Vurembrand has also served on the board of trustees of Bar Ilan University since 2019. Mr. Vurembrand holds a B.Sc in industrial engineering and management from the Technion, Israeli Institute of Technology. Executive Officers Yovav Sameah has served as Chief Executive Officer of the Company since 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. 39 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 . 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 . 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. Roee Peled has served as our VP of Business Development since October 17, 2021. Prior to joining ScoutCam and since 2017, Mr. Peled was the VP Global Sales & Business Development at PointGrab. From 2016 until 2017, Mr. Peled was VP Business Development at imVision Technologies. Prior to that, Mr. Peled held various managerial sales positions, including from 2012 until 2016 at Director of Global Sales at Mantis Visio, and from 2010 until 2012 at Technical Sales Manager at Orckit Systems. Mr. Peled holds a B.Sc in Electrical and Electronic Engineering from Tel Aviv University and an MBA from Bar-Ilan University. Arik Priel has served as our Chief SW Architect since November 1, 2021. Mr. Priel has over 20 years of experience in leading multidisciplinary R&D and engineering teams in defining and navigating product development from concept to deployment, with a focus on cloud-based architectures and AI-based technologies. Prior to joining ScoutCam, Mr. Priel held several senior technology positions, most recently as CTO of Octopol from June 2019 to August 2021, where he combined state-of-the-art AI models together with cutting-edge software technology. Prior to Octopol, Mr. Priel served as Director of Technology at Green & Gold Analytics from March 2017 to June 2019, where he established partnerships with Microsoft and Amazon Web Services. Mr. Priel also previously served as VP R&D and established the Israeli Innovation Center of Landesk (currently named Ivanti). Mr. Priel earned both his BSc in Computer Science and Economics and MBA from Bar-Ilan University. Staggered Board Our board of directors is divided into three classes. Ronen Rosenbloom and Zeev Vurembrand are our Class I directors, with their terms of office to expire at our 2022 annual meeting of stockholders. Lior Amit, Shmuel Donnerstein and Inbal Kreiss are our Class II directors, with their terms of office to expire at our 2023 annual meeting of stockholders. Professor Benad Goldwasser and Moshe (Mori) Arkin are our Class III directors, with their terms of office to expire at our 2024 annual meeting of stockholders. At each annual meeting of stockholders, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election, with each director to hold office until his or her successor shall have been duly elected and qualified. Our board of directors may consider a broad range of factors relating to the qualifications and background of nominees to serve as director, which may include various diversity factors. We have no formal policy regarding board diversity. 40 Our officers hold office until the earlier of their death, resignation or removal by our board of directors or until their successors have been selected. They serve at the pleasure of our board of directors. 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. However, we adopted a Conflict Minerals Policy that is available on our website at https://www.scoutcam.com/. Information contained on, or that can be accessed through, our website does not constitute a part of this Annual Report. 41 Board Committees Currently, our board of directors does not have any audit, nominating or compensation committees, or committees performing similar functions. item 11. Executive Compensation Summary Compensation Table The following sets forth information about the compensation paid to or accrued by the company’s principal executive officer and its two other most highly compensated persons serving as executive officers as of December 31, 2021. These executives are referred to as the “named executive officers.” Name and Principal Position Year Base Salary (*) Bonus Stock Awards Option Awards (**) All Other Compensation Total $ in thousands Dr. Yaron Silberman, 2021 $ 73 $ - $ - $ (80 ) $ 7 $ - Former Chief Executive Officer (1) 2020 $ 198 $ - $ - $ 167 $ 20 $ 385 Yovav Sameah, Chief Executive Officer (2) 2021 $ 232 $ 50 (***) $ - $ 616 $ 24 $ 922 Amir Govrin 2021 $ 184 $ - $ - $ 100 $ 22 $ 306 Chief Technology Officer (3) 2020 $ 168 $ - $ - $ 111 $ 21 $ 300 Katrin Dlugach, 2021 $ 170 $ - $ - $ 93 $ - $ 263 VP R&D (4) 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. Dr. Silberman’s employment terminated on March 31, 2021. (2) Consists of Mr. Sameah’s compensation earned in his capacity as the Chief Executive Officer of our wholly-owned subsidiary, ScoutCam Ltd. Mr. Sameah did not earn any compensation in his capacity as the Chief Executive Officer of ScoutCam Inc. Mr. Sameah’s employment commenced on April 15, 2021. (3) 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. (4) Consists of Ms. Katrin Dlugach compensation earned in his capacity as the VP R&D 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. (*) Base salaries are intended to provide a level of compensation sufficient to attract and retain an effective management team, when considered in combination with the other components of our executive compensation program. The relative levels of base salary for our named executive officers are designed to reflect each named executive officer’s scope of responsibility and accountability. Base salary amounts include management insurance (which includes pension, disability insurance and severance pay), payments towards such employee’s education fund, Israeli social security and amounts paid for use of a Company car. Each named executive officer also receives gross-up payments for the taxes on these benefits. 42 (**) The amounts shown in the “Option Awards” column represents the equity-based compensation expenses recorded in the Company’s consolidated financial statements for the years ended December 31, 2021 and December 31, 2020, in accordance with ASC 718, not the actual amounts paid to or realized by the named executive officer during fiscal 2021 and fiscal 2020 . The fair value of each stock option award is estimated as of the date of grant using the Black-Scholes valuation model. Additional information regarding the assumptions used to estimate the fair value of all stock option awards is included in Note 9 to Consolidated Financial Statements. (***) Represents a signing bonus. 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. Equity-based compensation 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, 2021. 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, 37,011 - 2.61 (*) March 31, 2022 Former Chief Executive Officer Yovav Sameah, Chief Executive Officer - 200,985 3.6 (**) April 15, 2028 Amir Govrin 40,712 18,506 2.61 (*) February 12, 2027 Chief Technology Officer - 26,112 4.50 (**) May 13, 2028 Katrin Dlugach 16,655 12,954 2.61 (*) February 12, 2027 VP R&D - 26,112 4.50 (**) May 13, 2028 (*) 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. 43 (**) 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. 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, 2021. Name Fees Earned or Paid in Cash Stock Awards Option Awards (*) All Other Compensation Total $ in thousands Prof. Benad Goldwasser $ 120 $ - $ 418 $ - $ 538 Shmuel Donnerstein $ 16 $ - $ 69 $ - $ 85 Ronen Rosenbloom $ 16 $ - $ 30 $ - $ 46 Lior Amit $ 16 $ - $ 79 $ - $ 95 Moshe (Mori) Arkin (1) $ 14 $ - $ 83 $ - $ 97 Inbal Kreiss (2) $ 12 $ - $ 55 $ - $ 67 Zeev Vurembrand (3) $ 10 $ - $ 33 $ - $ 43 (1) Appointed as a director of ScoutCam Inc. on February 15, 2021. (2) Appointed as a director of ScoutCam Inc. on April 9, 2021. (3) Appointed as a director of ScoutCam Inc. on May 13, 2021. (*) Represents the equity-based compensation expenses recorded in the Company’s consolidated financial statements for the year ended December 31, 2021, based on the option’s fair value, calculated in accordance with accounting guidance for equity-based compensation. On March 15, 2020, our board of directors approved a quarterly fee of $4,000 payable to each of our currently serving directors, excluding Professor Benad Goldwasser. On each of April, 9, 2021 and August 12, 2021, our board of directors approved the same terms for directors appointed subsequent to March 15, 2020. 44 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, 2022, 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 7,121,737 shares of common stock outstanding as of March 28, 2022. 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, 2022. 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. Unless otherwise indicated below, the address for each beneficial owner listed in the table below is c/o ScoutCam Inc., Suite 7A and 3B, Industrial Park, P.O. Box 3030, Omer, Israel 8496500. Name and Address of Beneficial Owner Amount and Nature of Beneficial Ownership (1) Percent of Class Prof. Benad Goldwasser (2) 360,839 4.85 % Shmuel Donnerstein (3) 101,827 1.42 % Ronen Rosenbloom (4) 12,534 * Lior Amit (5) 20,546 * Inbal Kreiss (6) 5,341 * Moshe (Mori) Arkin (7) 1,600,815 20.49 % Zeev Vurembrand - - Yovav Sameah (8) 66,988 * Tanya Yosef (9) 28,131 * Amir Govrin (10) 53,116 * Katrin Dlugach (11) 29,059 * Roee Peled - - Arik Priel - - Directors and officers as a group (13 individuals) 2,279,196 27.21 % Medigus Ltd. 1,923,575 27.01 % The More Group (12) 940 ,318 12.39 % The Phoenix Holdings (13) 1,358,026 17.41 % The Meitav Dash Group (14) 891 ,500 11.78 % Noked Long Limited Partnership (15) 370,148 5.07 % * 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) Includes options to purchase 316,898 shares of common stock which are currently exercisable or will become exercisable within 60 days of March 28, 2022. (3) Includes options to purchase 32,890 shares of common stock which are currently exercisable or will become exercisable within 60 days of March 28, 2022. (4) Includes options to purchase 12,534 shares of common stock which are currently exercisable or will become exercisable within 60 days of March 28, 2022. 45 (5) Includes options to purchase 20,546 shares of common stock which are currently exercisable or will become exercisable within 60 days of March 28, 2022. (6) Includes options to purchase 5,341 shares of common stock which are currently exercisable or will become exercisable within 60 days of March 28, 2022. (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. Includes warrants to purchase 681,360 shares of common stock and options to purchase 8,527 shares of common stock which are currently exercisable or will become exercisable within 60 days of March 28, 2022. (8) Includes options to purchase 66,988 shares of common stock which are currently exercisable or will become exercisable within 60 days of March 28, 2022 (9) Includes options to purchase 28,131 shares of common stock which are currently exercisable or will become exercisable within 60 days of March 28, 2022. (10) Includes options to purchase 53,116 shares of common stock which are currently exercisable or will become exercisable within 60 days of March 28, 2022. (11) Includes options to purchase 29,059 shares of common stock which are currently exercisable or will become exercisable within 60 days of March 28, 2022. (12) Based on information provided to or available to the Company, consists of warrants to purchase 470,159 shares of common stock. The business address of the More Group is BSR Tower 1, 2 Ben Gurion Street, Ramat Gan, Israel. (13) Based on the Schedule 13G/A filed by The Phoenix Holdings with the SEC on February 7, 2022 and information provided to or available to the Company, consists of 679,013 warrants to purchase shares of common stock, which are currently exercisable or will become exercisable within 60 days of March 28, 2022. The business address of the Phoenix Holdings Ltd. is Derech Hashalom 53, Givataim 53454, Israel. (14) Based on information provided to or available to the Company, consists of warrants to purchase 445,750 shares of common stock. (15) Based on information provided to or available to the Company, consists of warrants to purchase shares 185,185 of common stock. The business address of Noked Long Limited Partnership is 30 Haarbaa’a street, Tel Aviv, Israel Item 13. Certain relationships and related transactions, and director independence Related Party Transactions On April 20, 2020, Medigus and ScoutCam Ltd. entered into an 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 days prior written notice. The services to be provided by ScoutCam Ltd. include 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 March 22, 2022, ScoutCam Ltd. provided prior written notice to Medigus of termination of the Intercompany Services Agreement effective May 21, 2022. 46 On May 18, 2020, we entered into and consummated a securities purchase agreement with M. Arkin (1999) Ltd. (“Arkin Ltd.”) in connection with the sale and issuance of 229,569 units (“Arkin Units”), at a purchase price of $8.712 per Arkin Unit, and for an aggregate purchase price of $2,000,000 (the “Arkin Transaction”). Each Arkin Unit consists of: (i) two shares of common stock and (ii) (a) one warrant to purchase one share of common stock with an exercise price of $5.355 (“Arkin Warrant A”) and (b) two warrants, each to purchase one share of common stock with an exercise price of $8.037 (“Arkin Warrant B”, and together with Arkin Warrant A, the “Arkin Warrants”). The shares of common stock and Arkin Warrants were issued to Arkin Ltd. pursuant to Regulation S of the Securities Act of 1933, as amended. Also on May 18, 2020, and in connection with the Arkin Transaction, we, Medigus and Arkin Ltd. entered into a Voting Agreement, pursuant to which Arkin Ltd. 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 our board of directors. Each of Arkin Ltd.’s and Medigus’ rights under the Voting Agreement are contingent upon, inter alia, such party maintaining certain beneficial ownership thresholds in our company. Also on May 18, 2020, in connection with the Arkin Transaction, we, Medigus and Arkin, entered into the Letter Agreement, whereby, provided that we obtain certain regulatory approvals described therein, we and Medigus 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 us; provided, however, that in the event that we neglect the foregoing patent assets, we must transfer back ownership of the patent assets to Medigus for no additional consideration and absent any additional contingencies. On July 27, 2020, Medigus and ScoutCam Ltd. entered into each of the Addendum No. 1 to the Amended and Restated Asset Transfer Agreement, or the Addendum, and the Patent License Agreement Termination, in order to reflect and effect the amendments agreed upon in the Letter Agreement. On June 23, 2020, we and Medigus entered into a Conversion Side Letter, pursuant to which Medigus converted $381,136 worth of outstanding credit previously extended to us, including interest by Medigus, into (a) 87,497 shares of our common stock, (b) warrants to purchase 43,749 shares of common stock at an exercise price of $5.355, and (c) warrants to purchase 87,497 shares of our common stock at an exercise price of $8.037. In November 2020, we and certain of our warrant holders, including Professor Benad Goldwasser and Arkin Ltd., executed an amendment in connection with previously issued warrants to purchase shares of common stock, pursuant to which the parties agreed to remove the restrictions on transferability originally imposed on such warrants. As of December 31, 2020, warrants to purchase 100,257 shares of common stock were transferred in accordance with the foregoing amendment. Beginning on January 1, 2021 and as of the date hereof, our board of directors authorized the allotment of options and RSU to purchase 128,334 shares of common stock to Prof. Benad Goldwasser and an aggregate of 501,842 options to purchase shares of common stock to additional directors and certain officers of our company. On March 29, 2021, we issued to certain investors, including M. Arkin (1999) Ltd., a major stockholder of our company, of which Mori Arkin, a director of our company, is the owner, 2,469,156 units in exchange for an aggregate purchase price of $20 million. Each such unit consists of (i) one share of common stock and (ii) one warrant to purchase one share of common stock with an exercise price of $10.35 per share. Each such warrant is exercisable until the close of business on March 31, 2026. Pursuant to the terms of the foregoing warrants, following April 1, 2024, if the closing price of our the common stock equal or exceeds 135% of the aforementioned 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, we may force the exercise of the warrants, in whole or in part, by delivering to these investors a notice of forced exercise. The shares of common stock and the warrants were issued to such investors pursuant to Regulation S of the Securities Act of 1933, as amended. The securities issued in connection with the foregoing investment were registered by us for resale under a registration statement on Form S-1 declared effective on May 10, 2021. 47 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. Director Independence Our board of directors has determined that Professor Benad Goldwasser, Mr. Shmuel Donnerstein, Ms. Inbal Kreiss, Mr. Lior Amit and Mr. Zeev Vurembrand do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent”. 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, Mr. Donnerstein, Ms. Kreiss, Mr. Amit and Mr. Vurembrand qualify accordingly. Item 14. Principal accounting fees and services Audit and Accounting Fees The following table sets forth the fees billed to our Company for professional services rendered by Brightman Almagor Zohar & Co., a firm in the Deloitte global network, and Kesselman & Kesselman, a member of PricwaterhouseCoopers International Limited, for the fiscal years ended December 31, 2020 and December 31, 2021: Services Year Ended December 31, 2021 Year Ended December 31, 2020 $ in thousands Audit fees (1) $ 240 (3) $ 170 (4) Tax fees (2) 16 - All other fees - - Total fees $ 256 $ 170 (1) Audit fees consist of audit and review services, consents and review of documents filed with the SEC. (2) Tax fees consist of services related to representing the Company before the Israel Tax Authority in a VAT assessment. (3) Audit Fees consists of $123,000 in connection with the services rendered by Brightman Almagor Zohar & Co., a firm in the Deloitte global network, and $117,000 in connection with the services rendered by Kesselman & Kesselman, a member of PricwaterhouseCoopers International Limited (4) Audit Fees consists of $65,000 in connection with the services rendered by Brightman Almagor Zohar & Co., a firm in the Deloitte global network, and $105,000 in connection with the services rendered by Kesselman & Kesselman, a member of PricwaterhouseCoopers International Limited. 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. 48 Part IV Item 15. exhibits, financial statement schedules Exhibit No. Exhibit Description 3.1.1 Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1.4 to our Quarterly Report on Form 10-Q filed with the SEC on August 12, 2021) 3.2.1 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2.2 to our Quarterly Report on Form 10-Q filed with the SEC on August 12, 2021) 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 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) 10.3+ 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) 10.4 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) 10.5 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) 10.6 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) 10.7** 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) 10.8+ 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) 10.9+ 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) 10.10+ Employment Agreement, by and between ScoutCam Ltd. and Tanya Yosef, dated January 14, 2021 (incorporated by reference to Exhibit 10.21 to our Annual Report on Form 10-K filed with the SEC on March 31, 2021) 10.11+ Employment Agreement, by and between ScoutCam Ltd. and Katrin Dlugach, dated July 1, 2019 (incorporated by reference to Exhibit 10.22 to our Annual Report on Form 10-K filed with the SEC on March 31, 2021) 10.12 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) 10.13 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) 10.14 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) 10.15 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) 10.16** Addendum No. 1 to the Amended and Restated Asset Transfer Agreement, dated July 27, 2020, by and between ScoutCam Ltd. and Medigus Ltd. (incorporated by reference to Exhibit 10.30 to our Registration Statement on Form S-1/A filed with the SEC on October 19, 2021) 10.17 Patent License Agreement Termination, dated July 27, 2020, by and between ScoutCam Ltd. and Medigus Ltd. (incorporated by reference to Exhibit 10.31 to our Registration Statement on Form S-1/A filed with the SEC on October 19, 2021) 49 10.18 Form of Amendment to Warrant to Purchase Shares of Common Stock (incorporated by reference to Exhibit 10.32 to our Annual Report on Form 10-K filed with the SEC on March 31, 2021) 10.19+ 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) 10.20 Purchase Order Form, between ScoutCam Inc. and the Investors in the March 2021 Private Placement (incorporated by reference to Exhibit 10.34 to our Registration Statement on Form S-1 filed with the SEC on May 4, 2021) 10.21 Form of Warrant (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed with the SEC on March 24, 2021) 10.22+ Employment Agreement, dated August 31, 2021, by and between ScoutCam Ltd. and Roee Peled, (incorporated by reference to Exhibit 10.38 to our Registration Statement on Form S-1/A filed with the SEC on October 19, 2021) 10.23+* Employment Agreement, dated October 26 , 2021, by and between ScoutCam Ltd. and Arik Priel 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 Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) * 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 (b) Financial Statement Schedules. Schedules have been omitted because the information required to be set out therein is not applicable or is shown in the financial statements or notes thereto. 50 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/ Yovav Sameah Name: Yovav Sameah Title: Chief Executive Officer Date: March 30, 2022 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/ Yovav Sameah Chief Executive Officer March 30, 2022 Yovav Sameah (Principal Executive Officer) /s/ Tanya Yosef Chief Financial Officer March 30, 2022 Tanya Yosef (Principal Financial Officer and Principal Accounting Officer) /s/ Benad Goldwasser Chairman of the Board March 30, 2022 Benad Goldwasser /s/ Shmuel Donnerstein Director March 30, 2022 Shmuel Donnerstein /s/ Ronen Rosenbloom Director March 30, 2022 Ronen Rosenbloom /s/ Lior Amit Director March 30, 2022 Lior Amit /s/ Mori Arkin Director March 30, 2022 Mori Arkin /s/ Inbal Kreiss Director March 30, 2022 Inbal Kreiss /s/ Zeev Vurembrand Director March 30, 2022 Zeev Vurembrand SCOUTCAM INC. TABLE OF CONTENTS Page Consolidated Financial Statements – in US Dollars (USD) in thousands Report of Independent Registered Public Accounting Firm (PCAOB ID 1197 ) F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Changes in Shareholders’ Equity F-5 Consolidated Statements of Cash Flows F-6 Notes to the Consolidated Financial Statements F-8 F- 1 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, 2021 and 2020, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. 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 consolidated 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 consolidated 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 consolidated 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 2k. 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 2021, all development services revenues billed have been deferred and recorded as contract liabilities (representing the contract liabilities balance of $2,420,000 as of December 31, 2021) and the respective service costs have been deferred and recorded as contract fulfillment assets ($1,675,000 as of December 31, 2021), 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, 2021. 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. /s/ Brightman Almagor Zohar & Co. Certified Public Accountants A Firm in the Deloitte Global Network Tel Aviv, Israel March 30, 2022 We have served as the Company’s auditor since 2020. F- 2 SCOUTCAM INC. CONSOLIDATED BALANCE SHEETS December 31, 2021 2020 USD in thousands Assets Note CURRENT ASSETS: Cash and cash equivalents 8,581 3,373 Short terms deposits 3 11,013 - Accounts receivable 8 17 Inventory 4 167 244 Medigus receivable 8 - 47 Other current assets 443 348 Total current assets 20,212 4,029 NON-CURRENT ASSETS: Contract fulfillment assets 10 1,675 1,130 Property and equipment, net 5 781 269 Operating lease right-of-use assets 12 482 107 Severance pay asset 396 360 Total non-current assets 3,334 1,866 TOTAL ASSETS 23,546 5,895 Liabilities and shareholders’ equity CURRENT LIABILITIES: Accounts payable 103 79 Contract liabilities - short term 10 346 69 Operating lease liabilities - short term 12 256 60 Accrued compensation expenses 355 369 Medigus payable 8 39 - Other accrued expenses 6 210 195 Total current liabilities 1,309 772 NON-CURRENT LIABILITIES: Contract liabilities - long term 10 2,074 779 Operating lease liabilities - long term 12 203 47 Liability for severance pay 344 333 Total non-current liabilities 2,621 1,159 TOTAL LIABILITIES 3,930 1,931 SHAREHOLDERS’ EQUITY: 9 Common stock, $ 0.001 par value; 300,000,000 and 75,000,000 shares authorized as of December 31, 2021 and December 31, 2020, 7,121,737 and 4,084,122 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively 7 4 Additional paid-in capital 34,903 10,267 Accumulated deficit ( 15,294 ) ( 6,307 ) TOTAL SHAREHOLDERS’ EQUITY 19,616 3,964 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 23,546 5,895 The accompanying notes are an integral part of these consolidated financial statements. F- 3 SCOUTCAM INC. CONSOLIDATED STATEMENTS OF OPERATIONS Year ended December 31, Note 2021 2020 USD in thousands (except per share data) REVENUES 11 387 491 COST OF REVENUES 1,108 994 GROSS LOSS ( 721 ) ( 503 ) RESEARCH AND DEVELOPMENT EXPENSES 2,002 725 SALES AND MARKETING EXPENSES 908 443 GENERAL AND ADMINISTRATIVE EXPENSES 5,481 3,035 OPERATING LOSS ( 9,112 ) ( 4,706 ) OTHER INCOME 8 - FINANCING INCOME (EXPENSES), NET 117 41 LOSS BEFORE TAXES ON INCOME ( 8,987 ) ( 4,665 ) TAXES ON INCOME - ( 2 ) NET LOSS ( 8,987 ) ( 4,667 ) Net loss per share (basic and diluted, in USD) ( 1.44 ) ( 1.32 ) Weighted average common shares (basic and diluted, in thousands) 6,240 3,529 The accompanying notes are an integral part of these consolidated financial statements. F- 4 SCOUTCAM INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Common stock Additional paid-in capital Accumulated deficit Total Shareholders’ equity Number in thousands Amount USD in thousands Balance at January 1, 2021 4,084 $ 4 10,267 ( 6,307 ) 3,964 Issuance of shares and warrants (see note 9) 2,469 $ 2 19,116 - 19,118 Exercise of warrants (see note 9) 568 $ 1 3,490 - 3,491 Stock based compensation (see note 9) - - 2,030 - 2,030 Round up of shares due to reverse stock split (see note 9) 1 $ - * - * - * Conversion of a loan from Medigus Conversion of a loan from Medigus, shares Net loss - - - ( 8,987 ) ( 8,987 ) Balance at December 31, 2021 7,122 7 34,903 ( 15,294 ) 19,616 Common stock Additional paid-in capital Accumulated deficit Total Shareholders’ equity Number in thousands Amount USD in thousands Balance at January 1, 2020 2,987 $ 3 4,159 ( 1,640 ) 2,522 Balance 2,987 $ 3 4,159 ( 1,640 ) 2,522 Issuance of shares and warrants (see note 9) 677 $ 1 2,857 - 2,858 Exercise of warrants (see note 9) 333 $ - * 1,729 - 1,729 Stock based compensation (see note 9) - - 1,141 - 1,141 Conversion of loan from Medigus (see note 8) 87 $ - * 381 - 381 Net loss - - - ( 4,667 ) ( 4,667 ) Balance at December 31, 2020 4,084 $ 4 10,267 ( 6,307 ) 3,964 Balance 4,084 $ 4 10,267 ( 6,307 ) 3,964 * Represents an amount less than $1 thousand The accompanying notes are an integral part of these consolidated financial statements. F- 5 SCOUTCAM INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31, 2021 2020 USD in thousands CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ( 8,987 ) ( 4,667 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 114 66 Share based compensation 2,030 1,107 Profit from exchange differences on cash and cash equivalents ( 130 ) ( 85 ) Severance pay asset and liability ( 25 ) 4 Interest income in respect of deposits ( 13 ) - CHANGES IN OPERATING ASSET AND LIABILITY: Decrease in accounts receivable 9 5 Decrease in inventory 77 693 Increase in operating lease liability 20 - Increase in ROU asset ( 43 ) - Increase in other current assets ( 126 ) ( 270 ) Increase in account payables 24 44 Increase in contract fulfillment assets ( 545 ) ( 1,130 ) Increase in contract liabilities 1,572 346 Increase (decrease) in accrued compensation expenses ( 14 ) 72 Increase (decrease) in Medigus receivable / payable 86 ( 15 ) Increase (decrease) in other accrued expenses 65 ( 357 ) Net cash flows used in operating activities ( 5,886 ) ( 4,187 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 595 ) ( 276 ) Investment in short terms deposits ( 11,000 ) - Net cash flows used in investing activities ( 11,595 ) ( 276 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of shares and warrants 19,118 2,858 Proceeds from exercise of warrants 3,491 1,729 Issuance expenses ( 50 ) - Loan repayment to Medigus - ( 81 ) Net cash flows provided by financing activities 22,559 4,506 INCREASE IN CASH AND CASH EQUIVALENTS 5,078 43 BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,373 3,245 PROFITS FROM EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS 130 85 BALANCE OF CASH AND CASH EQUIVALENTS AT END OF YEAR 8,581 3,373 F- 6 Non cash activities - Year ended December 31, 2021 2020 USD in thousands Non cash activities - Right-of-use assets obtained in exchange for operating lease liabilities 524 97 Increase in property and equipment through a decrease in advances to suppliers 31 - Loan from Medigus settled against receivable from Medigus - 41 Conversion of loan from Medigus - 381 The accompanying notes are an integral part of these consolidated financial statements. F- 7 SCOUTCAM 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. Prior to the closing of the Exchange Agreement (as defined below), the Company was a non-operating “shell company”. The Company’s wholly owned subsidiary, ScoutCam Ltd. (“ScoutCam”), was formed in the State of Israel on January 3, 2019, as a wholly-owned subsidiary of Medigus Ltd. (“Medigus”), an Israeli company traded on the Nasdaq Capital Market, and commenced operations on March 1, 2019. In December 2019, Medigus and ScoutCam consummated an asset transfer agreement, under which Medigus transferred and assigned certain assets and intellectual property rights related to its miniaturized imaging business to ScoutCam. On December 30, 2019, Intellisense and Medigus consummated a securities exchange agreement (the “Exchange Agreement”), pursuant to which Medigus delivered 100% of its holdings in ScoutCam to Intellisense in exchange for shares of Intellisense’s common stock representing 60% of the issued and outstanding share capital of Intellisense immediately upon the consummation of the Exchange Agreement. As of December 31, 2021, Medigus beneficially owned 27.01% of the Company’s outstanding common stock. The Company, through ScoutCam, provides image-based platforms. Through the use of its proprietary visualization technology, ScoutCam offers solutions across predictive maintenance and condition-based monitoring markets, in sectors such as energy, automotive and aviation. ScoutCam’s solutions are based on small and highly resilient cameras, specialized AI analysis and supplementary technologies. F- 8 SCOUTCAM INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – GENERAL (continued) : b. On August 9, 2021, the Company amended its Articles of Incorporation to effect a nine-to-one reverse stock split of its outstanding Common Stock. As a result of the reverse stock split, every nine shares of the Company’s outstanding Common Stock was combined and reclassified into one share of the Company’s Common Stock. No fractional shares were issued in connection with or following the reverse split. The amount of authorized capital of the Company’s Common Stock and par value of such shares remained unchanged. All share, stock option and per share information in these consolidated financial statements have been adjusted to reflect the reverse stock split on a retroactive basis. . c. Since incorporation of ScoutCam and through December 31, 2021, the Company accumulated a deficit of approximately $ 15.3 million and its activities have been funded mainly by its shareholders. The Company’s management believes the Company’ cash and cash resources as of December 31, 2021 will enable the Company to fund its operating plan for more than 12 months from the date of issuance of these financial statements. The Company expects to continue to incur significant research and development expenses and other costs related to its ongoing operations and, as a result, will need to obtain additional funding in order to continue its future operations. d. In early 2020, the World Health Organization declared the rapidly spreading coronavirus disease (COVID-19) outbreak a pandemic. This pandemic has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. The Company considered the impact of COVID-19 on its operations and determined that there were no material adverse impacts on the Company’s results of operations and financial position as of December 31, 2021. These estimates may change, as new events occur and additional information is obtained. F- 9 SCOUTCAM INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES : a. Basis of preparation : 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”). 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 its assumptions on an ongoing basis, including those related to contingencies, deferred taxes and inventory impairment, as well as estimates used in applying its revenue recognition policy. Actual results may differ from these 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. Short-term bank deposits Bank deposits with maturities of more than three months but less than one year are included in short-term bank deposits. Such short-term bank deposits are stated at cost which approximates fair market value. F- 10 SCOUTCAM INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued) : f. Accounts receivable Accounts receivable are presented in the Company’s consolidated balance sheets net of allowance for doubtful accounts. The Company estimates the collectability 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, 2021 and 2020, no allowance for doubtful accounts was recorded. g. Property and equipment Property and equipment are 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: SCHEDULE OF PROPERTY AND EQUIPMENT ANNUAL DEPRECIATION RATES % 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 h. 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 ScoutCam’s employees in Israel are entitled to 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 ScoutCam 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 ScoutCam to its employees that began employment prior to automatic application of Section 14 is based upon the number of years of service and the latest monthly salary of such employees 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. ScoutCam records the obligation as if it were payable at each balance sheet date on an undiscounted basis. F- 11 SCOUTCAM INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued) : i. Stock-Based Compensation The Company measures and recognizes compensation expense for its equity classified stock-based awards granted under its plan based on estimated fair values on the grant dates. The Company calculates the estimated 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. 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 estimated 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. j. 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 a “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 and estimated current and future market values. k. Revenue recognition a) Revenue measurement 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: F- 12 SCOUTCAM INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued) : (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. 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. Indirect 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. F- 13 SCOUTCAM INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued) : l. 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 expected to incur losses. m. 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 contractors’ charges. n. Income taxes Income taxes are accounted for using the asset and liability approach under ASC-740, “Income Taxes”. 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. o. Legal contingencies From time to time, the Company and its subsidiary become involved in legal proceedings or are subject to claims arising in their 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 can reasonably estimate the amount of any such loss. F- 14 SCOUTCAM INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES (continued): p. Basic and diluted net loss per common stock : Basic net loss per common stock is computed by dividing net loss, as adjusted to include the weighted average number of shares of common stock outstanding during the year. Diluted net loss per common stock is computed by dividing net loss, as adjusted, by the weighted average number of shares of common stock outstanding during the year, plus the number of shares of common stock that would have been outstanding if all potentially dilutive shares of common stock had been issued, using the treasury stock method, in accordance with ASC 260-10 “Earnings per Share”. All outstanding stock options and warrants have been excluded from the calculation of the diluted loss per share for the years ended December 31, 2021 and December 31, 2020, since all such securities have an anti-dilutive effect. q. Leases In accordance with ASC 842, leases, at inception of an arrangement, the Company determines whether an arrangement is or contains a lease based on the facts and circumstances present in the arrangement. An arrangement is or contains a lease if the arrangement conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Arrangements that are determined to be leases at inception are recognized in long-term right-of-use assets (“ROU”) assets and short and long-term lease liabilities in the consolidated balance sheet at lease commencement. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future fixed lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company applies its incremental borrowing rate based on the economic environment at commencement date in determining the present value of future payments. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating leases or payments are recognized on a straight-line basis over the lease term. The Company has elected not to recognize on the balance sheet leases with terms of 12 months or less. r. Recent Accounting Standards: Accounting for Income Taxes In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update No. ASU 2019-12, “Simplifying the Accounting for Income Taxes”. This ASU amends Accounting Standards Codification (“ASC”) 740 by removing certain exceptions to the general principles, clarifying and amending existing guidance. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. The Company adopted this standard in the first quarter of 2021. The adoption of this ASU did not impact on the Company’s financial statements or the related disclosures. F- 15 SCOUTCAM INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SHORT-TERM DEPOSITS Short term investments as of December 31, 2021 include bank deposits bearing annual interest rates varying from 0.3 % to 0.53 %, with maturities of up to 12 months . NOTE 4 - INVENTORY : SCHEDULE OF INVENTORY 2021 2020 December 31, 2021 2020 USD in thousands Raw materials and supplies 99 45 Work in progress 2 - Finished goods 66 278 Inventory write downs - ( 79 ) Inventory Net 167 244 During the year ended 2021, no impairment occurred. During the year ended 2020, the Company recognized an inventory impairment of $ 79 thousands. NOTE 5 - PROPERTY AND EQUIPMENT, NET : Property, plant and equipment, net consisted of the following: SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT NET 2021 2020 December 31, 2021 2020 USD in thousands Cost: Machinery and laboratory equipment 578 285 Leasehold improvements, office furniture and equipment 316 36 Computers and computer software 140 87 Total property and equipment, gross 1,034 408 Less: accumulated deprecation ( 253 ) ( 139 ) Total property and equipment, net 781 269 Depreciation expenses were $ 114 thousand and $ 66 thousand for the years ended December 31, 2021 and 2020, respectively. F- 16 SCOUTCAM INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 – OTHER ACCRUED EXPENSES : SCHEDULE OF OTHER ACCRUED EXPENSES 2021 2020 December 31, 2021 2020 USD in thousands IRS (see note 7b) 40 73 Accrued expenses 170 122 Total other accrued expenses 210 195 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, respectively). Income from Israel was taxed at the corporate tax rate of 23 %. The Company 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. The Company 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). As a result of a penalty abatement request by the Company, the IRS abated the penalty to approximately to $ 40 thousand. c. Israel tax loss carry forwards As of December 31, 2021, ScoutCam 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 ScoutCam’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. d. On December 31, 2021, following a VAT audit in Israel for years 2019-2021, ScoutCam owed approximately NIS 740 thousand, (which is approximately $ 229 thousand) additional taxes to the Israeli Tax Authorities. As such, the financial statements as of December 31, 2021, include a provision of $ 229 thousand included in general and administrative expenses. On November 18, 2021, ScoutCam submitted an appeal to the Israeli Tax Authority on the finding of this VAT audit. F- 17 SCOUTCAM INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 – RELATED PARTIES : a. On April 20, 2020, ScoutCam entered into an Amended and Restated Intercompany Services Agreement with Medigus (the “Intercompany agreement”). The agreed upon services provided under the amended and restated Intercompany Agreement include: 1) lease of office space based on actual space utilized by Medigus and in shared spaces according to employee ratio; (2) utilities such as electricity, water, information technology and communication services based on employee ratio; (3) car services, including car rental, gas usage and payment for toll roads based on 100% of expense incurred from ScoutCam’s employee car; (5) directors and officers insurance, Medigus shall pay $150,000 of the annual premium for; (6) CFO services at a sum of 50% of Medigus’ CFO employer cost; (7) every direct expense of ScoutCam’s that is paid by Medigus 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 $ 143 thousand. The Company didn’t recognize expenses for the year ended December 31, 2021 in connection with this agreement. On March 22, 2022, ScoutCam Ltd. provided 60 days prior written notice to Medigus of termination of the Intercompany Services Agreement. b. 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. Effective retroactively to March 1, 2019, services as chairman under the agreement were provided 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. c. On June 23, 2020, the Company and Medigus entered into a certain Conversion Side Letter, pursuant to which the Company converted $ 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 $8.712, (a) 87,497 shares of common stock, (b) warrants to purchase 43,749 shares of common stock at an exercise price of $5.355, and (c) warrants to purchase 87,497 shares of common stock at an exercise price of $8.037 . d. During December 2019, the Company entered into a consulting agreement with Shrem Zilberman Group (the “Consultant”) in the amount of $ 165 thousand (see also note 9a). A former director of the Company is related to one of the Consultant’s shareholders. F- 18 SCOUTCAM INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 – RELATED PARTIES (continued): e. 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 Goldwasser. f. On May 18, 2020, the Company allocated in a private issuance to M. Arkin (1999) Ltd. (“Arkin”) a total of 229,569 units (as described in note 9c) at a purchase price of $ 8.712 per unit (“Arkin Transaction”). In connection with the Arkin Transaction, the Company, Medigus and Arkin, 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. In addition, 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: (a) One person designated by Arkin is to be elected, for as long as Arkin, continues to beneficially own at least eight percent of the issued and outstanding capital stock of the Company. (b) Three persons designated by Medigus are to be elected, for as long as Medigus, continues to beneficially own at least thirty five percent of the issued and outstanding capital stock of the Company. (c) Two persons designated by Medigus are to be elected for so long as Medigus, continues to beneficially own less than thirty five percent and more than twenty percent of the issued and outstanding capital stock of the Company. (d) One person designated by Medigus is to be elected for as long as Medigus, continues to beneficially own less than twenty percent and more than eight percent of the issued and outstanding capital stock of the Company. g. During 2020 the Company’s Board of Directors authorized the grant of options to purchase 318,207 shares of common stock of the Company to Prof. Goldwasser, the Chairman of the Board, options to purchase 131,048 shares of common stock of the Company to directors of the Company and options to purchase 227,356 shares of common stock of the Company to certain officers of the Company. h. During 2021 the Company’s Board of Directors authorized the grant of options to purchase 83,334 shares of common stock of the Company to Prof. Goldwasser, the Chairman of the Board, options to purchase 75,855 shares of common stock of the Company to directors of the Company and options to purchase 335,987 shares of common stock of the Company to certain officers of the Company. i. During 2020 and 2021 the Company received development services from Smartec R&D Ltd., a company owned by the Company’s CTO. Total compensation for the fiscal years ended December 31, 2020 and December 31, 2021 was approximately $ 102 thousands and $ 82 thousands, respectively. j During 2020 and 2021 the Company received financial consultant services from Anona De Finance Ltd., a company owned by one of the Company’s directors. Total compensation for the fiscal years ended December 31, 2020 and December 31, 2021 was approximately $ 32 thousands and $ 37 thousands, respectively. F- 19 SCOUTCAM INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - EQUITY : Increase of the authorized share capital 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 shares of common stock 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 shares of common stock. Private placement: a. In December 2019, the Company allocated in a private placement, a total of 379,269 units at a purchase price of $ 8.712 per unit. Each unit was comprised of two shares of common stock par value $0.001 per share, one Warrant A (as described below) and two Warrants B (as described below). The immediate proceeds (gross) from the issuance of the units amounted to approximately $ 3.3 million. Each Warrant A was exercisable into one share of common stock of the Company at an exercise price of $ 5.355 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 $ 8.037 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. As of December 31, 2021, holders of the foregoing warrants have exercised in excess of $ 2 million and, accordingly, the Consultant is not required to invest $250,000 in the Company. During 2020, 332,551 Warrants A were exercised and 46,718 unexercised Warrants A expired on December 30, 2020 . The Consultant received $ 53 thousand following the exercise of 332,551 Warrants A. During the second quarter of 2021, 185,271 Warrants B were exercised and 573,256 unexercised Warrants B expired on June 30, 2021 . The Consultant received $ 45 thousand following the exercise of 185,274 Warrants A. b. On March 3, 2020, the Company issued in a private placement a total of 108,880 units at a purchase price of $ 8.712 per unit. Each unit was comprised of two shares of common stock par value $0.001 per share, one Warrant A (as described below) and two Warrants B (as described below) . Each Warrant A was exercisable into one share of common stock of the Company at an exercise price of $ 5.355 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 $ 8.037 per share during the 18 month period following the allocation. The gross proceeds from the issuance of all securities offered amounted to approximately $ 948 thousands. After deducting issuance costs, the Company received proceeds of approximately $ 909 thousand. F- 20 SCOUTCAM INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 – EQUITY (continued): During 2021, 108,880 Warrants A were exercised. 217,760 unexercised Warrants B expired on September 3, 2021 . c. On May 18, 2020, the Company allocated in a private placement to Arkin a total of 229,569 units at a purchase price of $ 8.712 per unit. Each unit was comprised of two shares of common stock par value $0.001 per share, one Warrant A (as described below) and two Warrants B (as described below) . Each Warrant A was exercisable into one share of common stock of the Company at an exercise price of $ 5.355 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 $ 8.037 per share during the 24 month period following the allocation. The gross proceeds from the issuance of all securities offered amounted to approximately $ 2 million. After deducting issuance costs, the Company received proceeds of approximately $ 1.9 million. During February 2021, 37,349 Warrants A were exercised. During November 2021, 192,220 Warrants A were exercised. d. On June 23, 2020, (the “Conversion Date”), the Company entered into a side letter agreement with Medigus whereby the parties agreed to convert, at a conversion price of $ 4.356 per share, an outstanding line of credit previously extended by Medigus to ScoutCam, which as of the Conversion Date had $ 381,136 outstanding, into (a) 87,497 shares of the Company’s common stock, (b) to 43,749 Warrant A (as described below), and (c) 87,497 Warrant B (as described below). 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 $ 5.355 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 $ 8.037 per share during the 18 months period following the allocation. During June 2021, 43,749 Warrants A were exercised. On December 23, 2021, 87,497 unexercised Warrants B expired. e. On March 29, 2021, the Company issued to certain investors, including M. Arkin (1999) Ltd., a major stockholder of the Company, of which Mori Arkin, a director of the company, is the owner, 2,469,156 units in exchange for an aggregate purchase price of $ 20 million. Each such unit consists of (i) one share of common stock and (ii) one warrant to purchase one share of common stock with an exercise price of $10.35 per share. Each such warrant is exercisable until the close of business on March 31, 2026 . Pursuant to the terms of the foregoing warrants, following April 1, 2024, if the closing price of Company common stock equal or exceeds 135% of the aforementioned exercise price (subject to appropriate adjustments for stock splits, stock dividends, stock combinations and other similar transactions after the issue date of the warrants) for any thirty (30) consecutive trading days, the Company may force the exercise of the warrants, in whole or in part, by delivering to these investors a notice of forced exercise. F- 21 SCOUTCAM INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 – EQUITY (continued): As of December 31, 2021, the Company had the following outstanding warrants to purchase common stock: SCHEDULE OF STOCK WARRANTS OUTSTANDING TO PURCHASE COMMON STOCK Warrant Issuance Date Expiration Date Exercise Price Per Share ($) Number of Shares of common stock Underlying Warrants Warrant B May 18, 2020 May 18, 2022 8.037 459,137 March 2021 Warrant March 29, 2021 March 31, 2026 10.350 2,469,156 2,928,293 In addition, 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 298,722 shares of the Company’s common stock, which represents 10 % of the Company’s issued and outstanding share capital as of the Exchange Agreement. Share-based compensation to employees, directors and service providers: In February 2020, the Company’s Board of Directors approved the 2020 Share Incentive Plan (the “Plan”). The Plan initially included a pool of 580,890 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 64,099 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 401,950 shares of common stock. During the second quarter of 2021, the Company’s Board of Directors approved an increase to the Company’s option pool pursuant to the Plan by an additional 777,778 shares of common stock. The Plan is designed to enable the Company to grant options to purchase shares of common stock 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. During 2020, the Company granted 737,049 options pursuant to the Plan. During 2021, the Company granted 648,712 options pursuant to the Plan. Options granted generally have a contractual term of seven years and vest over a period of three to four years . F- 22 SCOUTCAM INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 – EQUITY (continued): Stock Option Activity The following summarizes stock option activity: SCHEDULE OF 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 737,049 2.61 - - Outstanding - December 31, 2020 737,049 2.61 6.23 2,446 Granted 648,712 4.09 - - Cancelled ( 132,207 ) 3.34 - - Outstanding - December 31, 2021 1,253,554 3.31 5.65 5,884 Options Exercisable - December 31, 2021 437,666 2.62 4.77 2,356 As of December 31, 2021, 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, 2021 was $ 6.73 . The fair value of each award is estimated using Black-Scholes option-pricing model based on the following assumptions: SCHEDULE OF SHARE-BASED PAYMENT, STOCK OPTIONS, VALUATION ASSUMPTIONS Year ended December 31, 2021 Year ended December 31, 2020 Underlying value of shares ($) 7.65 - 10.35 4.014 - 7.2 Exercise price ($) 2.61 - 7.2 2.61 - 3.15 Expected volatility (%) 45.8 %- 49.00 % 43.35 %- 45.25 % Term of the options (years) 7 7 Risk-free interest rate (%) 0.78 %- 1.51 % 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 and does not anticipate paying dividends in the foreseeable future. Accordingly, no dividend yield was assumed for purposes of estimating the fair value of the F- 23 SCOUTCAM INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 – EQUITY (continued): 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, 2021 is approximately $ 2.05 million and is expected to be recognized over a weighted-average period of 1.36 years. F- 24 SCOUTCAM INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 - REVENUES : a. Contract fulfillment assets: The Company’s contract fulfillment assets: SCHEDULE OF CONTRACT FULFILLMENT ASSETS December 31, 2021 2020 USD in thousands The change in contract fulfillment assets: Balance at beginning of year 1,130 - Additions during the year 545 1,130 Balance at end of year 1,675 1,130 b. Contract liabilities: The Company’s contract liabilities were as follows: SCHEDULE OF CONTRACT LIABILITIES 2021 2020 December 31, 2021 2020 USD in thousands The change in contract liabilities: Balance at beginning of year 848 502 Deferred revenue relating to new sales 1,641 735 Revenue recognition during the period ( 69 ) ( 389 ) Balance at end of year 2,420 848 Contract liabilities include advance payments, which are primarily related to advanced billings for development services. Revenue recognized in 2021 that was included in deferred revenue balance as of December 31, 2020 was $ 69 thousand. Revenue recognized in 2020 that was included in deferred revenue balance as of December 31, 2019 was $ 389 thousand. 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, 2021, the total RPO amounted to $ 3.2 million, which the Company expects to recognize over the expected manufacturing term of the product under development. F- 25 SCOUTCAM INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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, as described in Note 1. a. Revenues by geographical area (based on the location of customers) The following is a summary of revenues within geographic areas: SCHEDULE OF REVENUES WITHIN GEOGRAPHIC AREAS 2021 2020 Year ended on December 31, 2021 2020 USD in thousands United States 273 418 United Kingdom 48 41 Israel 19 5 Other 4 7 27 Revenue 387 491 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): SCHEDULE OF MAJOR CUSTOMER BREAKDOWN OF COMPANY’S REVENUE Year ended on December 31, 2021 2020 USD in thousands Customer A 199 383 Customers B 48 41 F- 26 SCOUTCAM 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: SCHEDULE OF LEASE EXPENSES 2021 2020 Year ended December 31, 2021 2020 USD in thousands Operating lease expenses 202 45 Short-term lease expenses - 88 Sublease income ( 8 ) - Total net lease expenses 194 133 Supplemental cash flow information related to operating leases during the period presented was as follows: SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO OPERATING LEASES 2021 2020 Year ended December 31, 2021 2020 USD in thousands Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases 202 45 Lease term and discount rate related to operating leases as of the period presented were as follows: SCHEDULE OF LEASE TERM AND DISCOUNT RATE RELATED TO OPERATING LEASES December 31, 2021 2020 USD in thousands Weighted-average remaining lease term (in years) 0.76 1.85 Weighted-average discount rate 6 % 10 % The maturities of lease liabilities under operating leases as of December 31, 2021 are as follows: SCHEDULE OF MATURITIES LEASE LIABILITIES UNDER OPERATING LEASES USD in thousands 2022 265 2023 203 2024 20 Total undiscounted lease payments 488 Less: Imputed interest ( 29 ) Total lease liabilities 459 NOTE 13 - SUBSEQUENT EVENTS : On February 23, 2022, the Company’s Board of Directors authorized the grant of options to Prof. Goldwasser, the Chairman of the Board, to purchase 45,000 shares of common stock of the Company and RSU to purchase 90,000 shares of common stock of the Company to certain officers of the Company. 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