Odysight.ai Inc. 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 333-188920 SCOUTCAM INC. (Exact name of registrant as specified in its charter) Nevada 47-4257143 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) Suite 7A , Industrial Park P.O. Box 3030 , Omer , Israel 8496500 (Address of Principal Executive Offices) (Zip Code) +972 73 370-4691 (Registrant’s telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of exchange on which registered N/A N/A N/A Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ☐ Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☒ Smaller reporting company ☐ Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ As of May 16, 2022, the registrant had 7,121,737 shares of common stock, par value $0.001, of the registrant issued and outstanding. As used in this Quarterly Report and unless otherwise indicated, the terms “ScoutCam,” “we,” “us,” “our,” or “our Company” refer to ScoutCam Inc. Unless otherwise specified, all dollar amounts are expressed in United States dollars. SCOUTCAM INC. QUARTERLY REPORT ON FORM 10-Q TABLE OF CONTENTS Page Cautionary Note Regarding Forward-Looking Statements 3 PART 1-FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (unaudited) 4 Consolidated Balance Sheets 5 Consolidated Statements of Comprehensive Loss 7 Statements of Stockholders’ Equity 8 Consolidated Statements of Cash Flows 9 Notes to Consolidated Financial Statements 10 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 18 Item 3. Quantitative and Qualitative Disclosures about Market Risk 21 Item 4. Control and Procedures 21 PART II-OTHER INFORMATION Item 1A. Risk Factors 22 Item 6. Exhibits 22 SIGNATURES 23 - 2 - CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain information set forth in this Quarterly Report on Form 10-Q, including in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein may address or relate to future events and expectations and as such constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting our business, including many assumptions regarding future events. Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “would,” “could,” “scheduled,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors. These statements may be found under the section of our Annual Report on Form 10-K for the year ended December 31, 2021 (filed on March 30, 2022) entitled “Risk Factors” as well as in our other public filings. In light of these risks and uncertainties, and especially given the start-up nature of our business, there can be no assurance that the forward-looking statements contained herein will in fact occur. Readers should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason. - 3 - Item 1. Financial Statements ScoutCam INC. INTERIM FINANCIAL STATEMENTS AS OF MARCH 31, 2021 CONSOLIDATED SCOUTCAM INC. Page Interim Condensed Consolidated Financial Statements - in US Dollars (USD) in thousands Interim Condensed Consolidated Balance Sheets (unaudited) 5 Interim Condensed Consolidated Statements of Operations (unaudited) 7 Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited) 8 Interim Condensed Consolidated Statements of Cash Flows (unaudited) 9 Notes to the Interim Condensed Consolidated Financial Statements 10 - 4 - SCOUTCAM INC. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS March 31, December 31, 2022 2021 Unaudited Audited USD in thousands Assets CURRENT ASSETS: Cash and cash equivalents 8,292 8,581 Short terms deposits 11,026 11,013 Accounts receivable 14 8 Inventory 190 167 Other current assets 416 443 Total current assets 19,938 20,212 NON-CURRENT ASSETS: Contract fulfillment assets 1,675 1,675 Property and equipment, net 755 781 Operating lease right-of-use assets 463 482 Severance pay asset 390 396 Total non current assets 3,283 3,334 TOTAL ASSETS 23,221 23,546 The accompanying notes are an integral part of these interim condensed consolidated financial statements. - 5 - SCOUTCAM INC. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) March 31, December 31, 2022 2021 Unaudited Audited USD in thousands Liabilities and shareholders’ equity CURRENT LIABILITIES: Accounts payable 227 103 Contract liabilities - short term 1,276 346 Operating lease liabilities - short term 252 256 Accrued compensation expenses 375 355 Related parties - 39 Other accrued expenses 212 210 Total current liabilities 2,342 1,309 NON-CURRENT LIABILITIES: Contract liabilities - long term 2,760 2,074 Operating lease liabilities - long term 181 203 Liability for severance pay 338 344 Total non-current liabilities 3,279 2,621 TOTAL LIABILITIES 5,621 3,930 SHAREHOLDERS’ EQUITY: Common stock, $ 0.001 par value; 300,000,000 shares authorized as of March 31, 2022 and December 31, 2021, 7,121,737 shares issued and outstanding as of March 31, 2022 and December 31, 2021 7 7 Additional paid-in capital 35,675 34,903 Accumulated deficit ( 18,082 ) ( 15,294 ) TOTAL SHAREHOLDERS’ EQUITY 17,600 19,616 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 23,221 23,546 The accompanying notes are an integral part of these interim condensed consolidated financial statements. - 6 - SCOUTCAM INC. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS 2022 2021 Three months ended March 31, 2022 2021 Unaudited USD in thousands (except per share data) REVENUES 2 24 COST OF REVENUES 288 203 GROSS LOSS ( 286 ) ( 179 ) RESEARCH AND DEVELOPMENT EXPENSES 954 281 SALES AND MARKETING EXPENSES 243 197 GENERAL AND ADMINISTRATIVE EXPENSES 1,286 933 OPERATING LOSS ( 2,769 ) ( 1,590 ) OTHER INCOME 8 - FINANCING EXPENSES, NET ( 27 ) ( 16 ) NET LOSS ( 2,788 ) ( 1,606 ) Net loss per ordinary share (basic and diluted, USD) ( 0.39 ) ( 0.38 ) Weighted average ordinary shares (basic and diluted, in thousands) 7,122 4,222 The accompanying notes are an integral part of these interim condensed consolidated financial statements. - 7 - SCOUTCAM INC. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Three Months Ended March 31, 2022 (Unaudited) Ordinary shares Additional paid-in Accumulated Total Shareholders’ Number Amount capital deficit equity In thousands USD in thousands Balance at January 1, 2022 7,122 7 34,903 ( 15,294 ) 19,616 Stock based compensation - - 772 - 772 Net loss - - - ( 2,788 ) ( 2,788 ) Balance at March 31, 2022 7,122 7 35,675 ( 18,082 ) 17,600 Three Months Ended March 31, 2021 (Unaudited) Ordinary shares Additional paid-in Accumulated Total Shareholders’ Number Amount capital deficit equity In thousands USD in thousands Balance at January 1, 2021 4,084 4 10,267 ( 6,307 ) 3,964 Issuance of shares and warrants 2,469 2 19,116 - 19,118 Stock based compensation - - 79 - 79 Exercise of warrants 146 1 780 - 781 Net loss - - - ( 1,606 ) ( 1,606 ) Balance at March 31, 2021 6,699 7 30,242 ( 7,913 ) 22,336 The accompanying notes are an integral part of these interim condensed consolidated financial statements. - 8 - SCOUTCAM INC. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 2022 2021 Three months ended March 31, 2022 2021 Unaudited USD in thousands CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ( 2,788 ) ( 1,606 ) Adjustments to reconcile net loss to net cash used in operations: Depreciation 50 17 Share based compensation 772 79 Profit from exchange differences from operating lease liability ( 10 ) - Loss from exchange differences on cash and cash equivalents 41 12 Interest income in respect of deposits ( 13 ) - CHANGES IN OPERATING ASSET AND LIABILITY ITEMS: Decrease (increase) in accounts receivable ( 6 ) 6 Increase in inventory ( 23 ) ( 101 ) Decrease in operating lease liability ( 16 ) - Decrease in ROU asset 19 - Decrease (increase) in other current assets 27 ( 105 ) Increase in account payables 124 413 Increase (decrease) in related parties ( 39 ) 46 Increase in contract fulfillment assets - ( 240 ) Increase in contract liabilities 1,616 663 Increase (decrease) in accrued compensation expenses 20 ( 80 ) Increase in other accrued expenses 2 122 Net cash flows used in operating activities ( 224 ) ( 774 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 24 ) ( 117 ) Net cash flows used in investing activities ( 24 ) ( 117 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of warrants - 781 Proceeds from issuance of shares and warrants - 9,500 Net cash flows provided by financing activities - 10,281 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ( 248 ) 9,390 BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 8,581 3,373 LOSS FROM EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS ( 41 ) ( 12 ) BALANCE OF CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 8,292 12,751 SUPPLEMENTAL INFORMATION FOR CASH FLOW: Non cash activities - Three months ended March 31, 2022 2021 Unaudited USD in thousands Non cash activities Right-of-use assets obtained in exchange for operating lease liabilities 46 226 The accompanying notes are an integral part of these interim condensed consolidated financial statements. - 9 - SCOUTCAM INC. NOTES TO THE INTERIM CONDENSED 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 March 31, 2022, 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. - 10 - SCOUTCAM INC. NOTES TO THE INTERIM CONDENSED 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 interim consolidated financial statements have been adjusted to reflect the reverse stock split on a retroactive basis. c . Since incorporation of ScoutCam and through March 31, 2022, the Company accumulated a deficit of approximately $ 18.1 million and its activities have been funded mainly by its shareholders. The Company’s management believes the Company’ cash and cash resources as of March 31, 2022 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 (COVID19) 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 March 31, 2022. These estimates may change, as new events occur and additional information is obtained. NOTE 2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES a. Unaudited Interim Financial Statements The accompanying unaudited interim condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of U.S. Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included (consisting only of normal recurring adjustments except as otherwise discussed). For further information, reference is made to the consolidated financial statements and footnotes thereto included in the Group’s Annual Report on Form 10-K for the year ended December 31, 2021. b. Principles of Consolidation The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany balances and transactions have been eliminated in consolidation. c. Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The Company evaluates on an ongoing basis its assumptions, including those related to contingencies, deferred taxes, inventory impairment, stock-based compensation, as well as in estimates used in applying the revenue recognition policy. Actual results may differ from those estimates. d. Significant Accounting Policies The significant accounting policies followed in the preparation of these unaudited interim condensed consolidated financial statements are identical to those applied in the preparation of the latest annual financial statements. e. Recent Accounting Pronouncements Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Group’s condensed consolidated financial statements. - 11 - SCOUTCAM INC. NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – LEASES : On March 31, 2022, the Group’s ROU assets and lease liabilities for operating leases totaled $ 463 thousands and $433 thousand, respectively. In December 2020, ScoutCam entered into a lease agreement for office space in Omer, Israel. The agreement is for 36 months beginning on January 1, 2021. ScoutCam holds the right to terminate the lease agreement after 24 months. In March 2021, ScoutCam entered into a lease agreement for additional office space in Omer, Israel. The agreement is until December 31, 2023. ScoutCam holds the right to terminate these agreements by December 31, 2022. Monthly lease payments under the agreements are approximately $ 12 thousand. Lease expenses recorded in the interim consolidated statements of operations were $ 71 thousand for the three months ended March 31, 2022. ScoutCam subleases the part of the office space to a third party for approximately $ 3 thousand for month. Supplemental cash flow information related to operating leases was as follows: SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO OPERATING LEASES Three months ended March 31, 2022 USD in thousands Cash payments for operating leases 71 Total lease expenses 71 As of March 31, 2022, the Company’s operating leases had a weighted average remaining lease term of 0.7 years and a weighted average discount rate of 6 % . Future lease payments under operating leases as of March 31, 2022 were as follows: SCHEDULE OF MATURITIES LEASE LIABILITIES UNDER OPERATING LEASES Operating leases USD in thousands Remainder of 2022 203 2023 218 2024 37 Total future lease payments 458 Less imputed interest ( 25 ) Total lease liability balance 433 - 12 - SCOUTCAM INC. NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 – EQUITY : Warrants: As of March 31, 2022, 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 Warrant March 2021 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. - 13 - SCOUTCAM INC. NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 – EQUITY (continued): 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. Stock option activity During the three months ended March 31, 2022, the Company granted 53,000 options pursuant to the Plan. The fair value of each option was estimated as of the date of grant or reporting period using the Black-Scholes option-pricing model, using the following assumptions: SCHEDULE OF SHARE-BASED PAYMENT, STOCK OPTIONS, VALUATION ASSUMPTIONS Three months ended March 31, 2022 Underlying value of ordinary shares ($) 7.2 Exercise price ($) 4.5 Expected volatility (%) 127.62 % Term of the options (years) 7 Risk-free interest rate 1.98 % The cost of the benefit embodied in the options granted during the three months ended March 31, 2022, based on their fair value as at the grant date, is estimated to be approximately $ 356 thousands. These amounts will be recognized in statements of operations over the vesting period. The following table summarizes stock option activity for the three months ended March 31, 2022: SCHEDULE OF STOCK OPTIONS ACTIVITY For the Three months ended March 31, 2022 Amount of options Weighted average exercise price $ Outstanding at beginning of period 1,253,554 3.31 Granted 53,000 4.50 Cancelled ( 37,011 ) 2.61 Outstanding at end of period 1,269,543 4.14 Vested at end of period 441,785 2.65 - 14 - SCOUTCAM INC. NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 – EQUITY (continued): Restricted stock unit (“RSU”) activity During the three months ended March 31, 2022, the Company granted 90,000 RSUs pursuant to the Plan. Each RSU will vest based on continued service which is generally over three years. The grant date fair value of the award will be recognized as stock-based compensation expense over the requisite service period. The fair value of restricted stock units was estimated on the date of grant based on the fair value of the Company’s common stock. The cost of the benefit embodied in the RSU granted during the three months ended March 31, 2022, based on their fair value as at the grant date, is estimated to be approximately $ 648 thousands. These amounts will be recognized in statements of operations over the vesting period. The following table summarizes RSU activity for the three months ended March 31, 2022: SCHEDULE OF STOCK OPTIONS ACTIVITY For the Three months ended March 31, 2022 Amount of RSUs Weighted Average Grant Date Fair Value per Share $ Outstanding at beginning of period - - Granted 90,000 7.2 Vested - - Forfeited - - Unvested and Outstanding at end of period 90,000 7.2 The following table sets forth the total share-based payment expenses resulting from options granted, included in the statements of operation: SCHEDULE OF TOTAL SHARE-BASED PAYMENT EXPENSES Three months ended March 31, 2022 USD in thousands Cost of revenues 28 Research and development 150 Sales and marketing expenses 61 General and administrative 533 Total expenses 772 - 15 - SCOUTCAM INC. NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 – REVENUES : Contract fulfillment assets and Contract liabilities: The Company’s contract fulfillment assets and contract liabilities as of March 31, 2022 and December 31, 2021 were as follows: SCHEDULE OF CONTRACT LIABILITIES March 31, December 31, 2022 2021 USD in thousands Contract fulfillment assets 1,675 1,675 Contract liabilities 4,036 2,420 Contract liabilities include advance payments, which are primarily related to advanced billings for development services. Remaining Performance Obligations Remaining Performance Obligations (“RPO”) represents contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. As of March 31, 2022, the total RPO amounted to $ 4 million, which the Company expects to recognize over the expected manufacturing term of the product under development. NOTE 6 – INVENTORY : Composed as follows: SCHEDULE OF INVENTORY March 31, December 31, 2022 2021 USD in thousands Raw materials and supplies 96 99 Work in progress 2 2 Finished goods 92 66 Inventory Net 190 167 During the period ended March 31, 2022, no impairment occurred. - 16 - SCOUTCAM INC. NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 – LOSS PER SHARE Basic loss per share is computed by dividing net loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares as described below. In computing the Company’s diluted loss per share, the numerator used in the basic loss per share computation is adjusted for the dilutive effect, if any, of the Company’s potential shares of common stock. The denominator for diluted loss per share is a computation of the weighted-average number of ordinary shares and the potential dilutive ordinary shares outstanding during the period. NOTE 8 – RELATED PARTIES a. Balances with related parties : SCHEDULE OF BALANCES WITH RELATED PARTIES March 31, 2022 December 31, 2021 USD in thousands Related parties - 39 b. During three months ended March 31, 2022 and March 31, 2022 the Company received development services from Smartec R&D Ltd., a company owned by the Company’s CTO. Total compensation during the three months ended March 31, 2022 and March 31, 2021 was approximately $ 25 thousands and $ 13 thousands, respectively. NOTE 9 – SUBSEQUENT EVENTS The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. The Company identified no subsequent events as of the date that the financial statements were issued. - 17 - Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Readers are advised to review the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2021. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements”. You should review the “Risk Factors” section of our Annual Report for the fiscal year ended December 31, 2021 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . Overview The Company’s primary business activity during last few months was enlarging its focus on R&D activities in the domain of I4.0 (including PdM and CBM in sectors such as the aviation, energy and automotive). The main effect of this activity was an increase in the number of employees to enable the Company to manage the anticipated increased workload and solution development. Comparison of the three months ended March 31, 2022 and 2021 The following table summarizes our results of operations for the three month period ended March 31, 2022 and 2021, together with the changes in those items in dollars and as a percentage: 2022 2021 % Change Revenues 2,000 24,000 (92 )% Cost of Revenues 288,000 203,000 42 % Gross Loss (286,000 ) (179,000 ) 60 % Research and development expenses 954,000 281,000 240 % Sales and marketing expense 243,000 197,000 23 % General and administrative expenses 1,286,000 933,000 38 % Operating Loss (2,769,000 ) (1,590,000 ) 74 % Revenues As a result of the nature of our target market and the current stage of our development, a substantial portion of our revenue comes from a limited number of customers. For the three months ended March 31, 2022, ScoutCam generated revenues of $2,000, a decrease of $22,000, or 92%, from the three months ended March 31, 2021 revenues. The decrease in revenues was primarily due to an overall decrease in the sales of the Company’s component products to occasional customers. Cost of Revenues Cost of revenue is primarily comprised of cost of personnel including warehouse personnel costs, inventory write-downs, certain allocated facilities, and expenses associated with logistics and quality control. Cost of revenues for the three months ended March 31, 2022 was $288,000, an increase of $85,000, or 42%, compared to cost of revenues of $203,000 for the three months ended March 31, 2021. The increase was primarily due to an increase in payroll expenses due to stock-based compensation and increase in facility costs due to a lease for additional office space. Gross Loss Gross loss for the three months ended March 31, 2022 was $286,000, an increase of $107,000, or 60%, compared to gross loss of $179,000 for the three months ended March 31, 2021. The increase was primarily due to decrease in revenues and increase in cost of revenues as described above. Research and Development Expenses Research and development efforts are focused on new product development and on developing additional functionality for our new and existing products. These expenses primarily consist of employee-related expenses, including salaries, benefits, and stock-based compensation expense for personnel engaged in research and development functions, consulting and professional fees related to research and development activities, prototype materials, facility costs and other allocated expenses, which include expenses for rent and maintenance of our facility, utilities, depreciation and other supplies. We expense research and development costs as incurred. Research and development expenses for the three months ended March 31, 2022 were $954,000, an increase of $673,000, or 240%, compared to $281,000 for the three months ended March 31, 2021. The increase was primarily due to an increase in payroll expenses (including stock-based compensation), materials and subcontractors, and because we have recently begun examining additional applications for our micro ScoutCam™ portfolio outside of the medical, defense and aerospace fields, including in sectors such as automotive, industrial non-destructing-testing industries, automotive and energy. In addition, there was an increase in R&D payroll expenses in first quarter of 2022 due to the fact that during the first quarter of 2021 a substantial part of our payroll expenses was capitalized to contract fulfillment asset and was not recognized as expenses in profit and loss. We expect that our research and development expenses will increase as we continue to develop our products and service and recruit additional research and development employees to the I4.0 domain. - 18 - Sales and Marketing Expenses Sales and marketing expenses primarily consist of personnel costs, consulting services, promotional materials, demonstration equipment and certain allocated facility infrastructure costs. Sales and marketing expenses for the three months ended March 31, 2022 were $243,000, an increase of $46,000, or 23%, compared to $197,000 for the three months ended March 31, 2021. The increase was primarily due to an increase in payroll expenses (including stock-based compensation) due to the recruitment of a VP Business Development in Industry 4.0. We expect that our selling and marketing expenses will increase as we continue to increase our selling and marketing efforts. General and Administrative Expenses General and administrative expenses primarily consist of salaries and other related costs, including stock-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs, as well as professional fees for legal, patent, consulting, investor, and public relations, accounting, auditing, tax services and insurance costs. General and Administrative expenses for the three months ended March 31, 2022 were $1,286,000, an increase of $353,000, or 38%, compared to $933,000 for the three months ended March 31, 2021. The increase was primarily due to an increase of $511,000 in share based compensation due to new option grants, partially offset by a decrease in IP expenses. Operating loss We incurred an operating loss of $2,769,000 for the three months ended March 31, 2022, an increase of $1,179,000, or 74%, compared to operating loss of $1,590,000 for the three months ended March 31, 2021. The increase in operating loss was primarily due to increases in expenses related to general and administrative, research and development, and sales and marketing, as described above. Liquidity and Capital Resources As of March 31, 2022, we had cash and cash equivalents of $8.3 million and $11 million of short-term deposits compared to cash and cash equivalents $8.6 million and 11 million of short-term deposits as of December 31, 2021. In addition, as of March 31, 2022 we incurred an accumulated deficit of approximately $18.1 million, compared to $15.3 million as of December 31, 2021. Our primary sources of liquidity to date have been from fund raising and warrant exercises. Additional Cash Requirements We plan to continue to invest for long-term growth, and therefore we expect that our expenses will increase. We currently believe that our existing cash and cash equivalents and short-term deposits will be sufficient to meet our anticipated cash needs for at least the next 12 months. We expect our expenses will increase in connection with our ongoing activities, particularly as we continue the research and development and the scale up process of our I4.0 solutions. We expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Furthermore, we will continue to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. We may raise these funds through equity financing, debt financing or other sources, which may result in further dilution in the equity ownership of our common stock. There is no assurance that we will be able to maintain operations at a level sufficient for investors to obtain a return on their investment in our common stock, or that we will be able to raise sufficient capital required to implement our business plan on acceptable terms, if at all. Even if we are successful in raising sufficient capital to implement our business plan, we will, most likely, continue to be unprofitable for the foreseeable future. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts. - 19 - Cash Flows The following table sets forth the significant sources and uses of cash for the periods set forth below (in dollars): Three month ended March 31, 2022 2021 Cash used in Operating Activity (224,000 ) (774,000 ) Cash used in Investing Activity (24,000 ) (117,000 ) Cash provided by Financing Activity - 10,281,000 Operating Activities Our primary uses of cash from operating activities have been for headcount-related expenditures, research and development costs, manufacturing costs, marketing and promotional expenses, professional services cost and costs related to our facilities. Our cash flows from operating activities will continue to be affected due to the expected increase of spending on our business and our working capital requirements. During the three months ended March 31, 2022, cash used in operating activities was $0.2 million, consisting of net loss of $2.8 million, partially offset by a non-cash benefit of $0.8 million and a favorable net change in operating assets and liabilities of $1.7 million. Our non-cash benefit consisted primarily of non-cash charges of $0.8 million for stock-based compensation. The net change in our operating assets and liabilities primarily reflects cash inflows from changes in contract liability of $1.6 million. During the three months ended March 31, 2021, cash used in operating activities was $0.8 million, consisting of net loss of $1.6 million, partially offset by a non-cash benefit of $0.1 million and a favorable net change in operating assets and liabilities of $0.7 million. Our non-cash benefit consisted primarily of stock-based compensation expense of $0.1 million. The net change in our operating assets and liabilities primarily reflects cash inflows from the changes in contract liability of $0.7 million, account payables of $0.4 million and other accrued expenses of $0.1 million, partially offset by cash outflows from changes in contract fulfillment assets of $0.2 million, inventory and other current assets of $0.2 million. Investing Activities During the three months ended March 31, 2022, cash used in investing activities was $24,000, consisting of purchases of property and equipment. During the three months ended December 31, 2021, cash used in investing activities was $117,000, consisting of purchases of property and equipment. Financing Activities During the three months ended March 31, 2021, cash provided by financing activities was $10.3 million, consisting primarily of $9.5 million from cash proceeds from issuance of shares and warrants and $0.8 million proceeds from exercise of warrants. - 20 - Off-Balance Sheet Arrangements None. Item 3. Quantitative and Qualitative Disclosures About Market Risk. As a smaller reporting company, we are not required to provide the information requested by this Item. Item 4. Controls and Procedures. Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Exchange Act Rule 13a-15(e). Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. No change in our internal control over financial reporting, as defined in Exchange Act Rule 13a-15(e), occurred during the fiscal quarter ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. - 21 - PART II- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time, we may become involved in legal proceedings relating to claims arising from the ordinary course of business. Our management believes that there are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse effect on our results of operations, financial condition or cash flows. ITEM 1A. RISK FACTORS. There have been no material changes from the information set forth in “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31,2021 as filed with the SEC on March 30, 2022. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES There have been no unregistered sales of equity securities in addition to the sales provided under Form 8-K as filed with the SEC during the recent fiscal quarter ended March 31, 2022. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. MINE SAFETY DISCLOSURE Not applicable. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS. (a) The following documents are filed as exhibits to this Quarterly Report or incorporated by reference herein. Exhibit Number Description 3.1.1 Amended and Restated Articles of Incorporation, effective as of August 9, 2021 (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). 31.1* Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act 31.2* Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act 32.1** Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2** Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS Inline XBRL Instance Document 101.INS 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. ** Furnished herewith. - 22 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: May 16, 2022 SCOUTCAM INC. By: /s/ Yovav Sameah Name: Yovav Sameah Title: Chief Executive Officer ScoutCam Inc. By: /s/ Tanya Yosef Name: Tanya Yosef Title: Chief Financial Officer ScoutCam Inc. - 23 -