What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-28 compared with 2022-03-30 · 211 added, 107 removed, 149 unchanged (68% of the section changed)

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December 30, 2019, we acquired all of the issued and outstanding share capital of ScoutCam Ltd.

(the “Closing Date”).

this transaction, we integrated and fully adopted ScoutCam Ltd.’s business into our Company as our primary business activity.

December 31, 2019, we changed our name to ScoutCam Inc.

ScoutCam Ltd., we are engaged in the development, production and marketing of innovative visual solutions composed of imaging equipment,

cloud and software based image processing (artificial intelligence (AI), Machine Learning (ML), and additional algorithm methodologies).

Some of our products that utilize our micro ScoutCam™ technology are used in medical procedures as well as various applications

in other industries.

Our current business model is a business-to-business (B2B) approach in which we seek to identify target businesses

interested in integrating our micro ScoutCam™ technology, or commissioning individual projects using our technology.

a substantial portion of our revenue from applications of our micro ScoutCam™ technology within the medical, defense and aerospace

We have recently begun examining additional applications for our visual solutions portfolio (composed of image acquisition, data

collection and storage and image processing), including Predictive Maintenance (PdM) and Condition Based Monitoring (CBM), as well as

additional industries outside of the foregoing listed industries, including sectors such as aviation, automotive, industrial non-destructing-testing

industries, energy, maritime (we refer to these applications and sectors as I4.0) We plan to further expand our activity in these non-medical

of COVID-19 Pandemic

COVID-19 pandemic has had a significant impact on global markets and the global economy, including countries in which the Company operates,

and we anticipate that it will have a continuing impact on global economies in the near and long-term future.

In light of the below mentioned

factors, the COVID-19 pandemic had and most likely will continue to have some negative effect on the Company’s operations, and

the extent to which the COVID-19 pandemic will impact the Company’s operations will depend on certain developments, including the

duration and spread of the outbreak, future prevention and mitigation measures, as well as the potential for some of these measures to

be reinstituted in the event of repeat waves of the virus or future variants of the virus.

In particular, COVID-19 has had and most likely

will continue to have some adverse impact on the Company’s operations and workforce, including its manufacturing activities, product

testing and market penetration and sales, as well as its ability to continue to raise capital.

Travel restrictions had and most likely

will continue to have a negative impact on our penetration, sales and marketing and research and development efforts.

Following this transaction, we integrated

and fully adopted ScoutCam Ltd.’s business into our Company as our primary business activity.

On December 31, 2019, we changed

our name to ScoutCam Inc.

ScoutCam Ltd., we are a pioneer in the development, production, and marketing of innovative Predictive Maintenance (PdM) and Condition

Based Monitoring (CBM) technologies, providing visual sensing and AI-based video analytics solutions for critical systems in the aviation,

maritime, industrial non-destructing-testing industries, transportation, and energy industries.

Some of our products utilize our unique

micro visualization technology in medical devices for complex and minimally invasive medical procedures.

Our technology includes proven

video technologies and products amalgamated into a first-of-its-kind, FDA-cleared minimally invasive surgical device.

At the present

time, we derive a substantial portion of our revenue from applications of our micro visualization technology within the medical field.

unique video-based sensors, embedded software, and AI algorithms are being deployed in hard-to-reach locations and harsh environments

across a variety of PdM and CBM use cases.

Our solution allows maintenance and operations teams visibility into areas which are inaccessible

under normal circumstances, or where the operating ambience otherwise is not suitable for continuous real-time monitoring, and has various

applications which have relevancy in a wide range of industry segments that utilize complicated mechanics requiring ongoing monitoring

and predictive maintenance applications.

Our current business model is a business-to-business (B2B) approach in which we seek to identify

target businesses interested in integrating our micro visualization technology or commissioning individual projects using our technology.

Accounting Policies and Estimates

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of manufacturing and are recognized over the manufacturing term.

As a result, during the years ending 2020 and 2021, we have deferred

all service revenues billed by us (representing the contract liabilities balance of $2,420,000, as of December 31, 2021) and the respective

service costs (representing the contract fulfillment asset balance of $1,675,000 as of December 31, 2021).

As a result, during the year 2021, we have deferred

all service revenues billed by us and the respective service costs.

apply the fair value recognition provisions of ASC 718, Compensation—Stock Compensation , or ASC 718, for stock-based awards

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requisite service period.

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.

Our expected dividend rate is zero since we not currently pay cash dividends and does not anticipate doing

so in the foreseeable future.

Each of the above factors requires our to use judgment and make estimates in determining the percentages

and time periods used for the calculation.

If we were to use different percentages or time periods, the fair value of option awards could

be materially different.

We recognizes stock-based compensation cost for option awards on a accelerated basis over the employee’s

requisite service period, net of estimated forfeitures.

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.

Our expected dividend rate is zero since we do not currently pay cash dividends and do not

anticipate doing so in the foreseeable future.

Each of the above factors requires us to use judgment and make estimates in

determining the percentages and time periods used for the calculation.

If we were to use different percentages or time periods, the

fair value of option awards could be materially different.

We recognize stock-based compensation cost for option awards on an

accelerated basis over the employee’s requisite service period, net of estimated forfeitures.

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.

We have 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 our stock-based compensation.

The weighted average

expected life of options was estimated individually in respect of each grant.

of the Year Ended December 31, 2022 and the Year Ended December 31, 2021

Company’s primary business activity during 2020 was R&D and preparation for production in connection with a customer-specific

project for a Fortune 500 multinational healthcare corporation.

Company’s primary business activities during 2022 were:

● During the second quarter of 2022, the Company completed the development

of a product relating to a customer-specific project for a Fortune 500 multinational healthcare corporation, and moved from the development

phase of the project to its production phase.

As a result, during the year ended December 31, 2022, the Company recognized development

services revenues and related development costs that had been previously deferred.

The amounts were recognized based on the expected manufacturing

term of the product, which the Company estimates at seven years.

focus on R&D activities in the domain of I4.0 (including PdM and CBM in sectors such

as aerospace, maritime energy and other heavy machinery, engines and complicated mechanics

which have a need for monitoring and predictive maintenance applications).

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.

following table summarizes our results of operations for the years ended December 31, 2022 and 2021, together with the changes in those

items in dollars and as a percentage:

Cost of Revenues

Research and development expenses

Sales and marketing expense

General and administrative expenses

Operating Loss

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.

the year ended December 31, 2022, we generated revenues of $665,000, an increase of $278,000, or 72%, from 2021 revenues.

in revenues was primarily due to the completion of development of the product relating to our miniature camera solution with a Fortune 500 company and moving to production stage.

Total revenues recorded from our miniature camera solution with the Fortune 500

company during 2022, amounted to approximately $538,000.

We did not record any revenue from our miniature camera solution with the Fortune

500 company during 2021.

increase in revenues was partly offset by the following:

- Total revenues recorded from A.M.

during 2021 amounted to approximately $199,000.

We did not record any revenue from A.M.

Surgical during 2022.

- A decrease of $61,000 due to an overall decrease in sales of the Company’s

component products to occasional customers.

performance obligations (“RPO”) represents contracted revenue that have not yet been recognized, which include deferred revenue

and amounts that will be invoiced and recognized as revenue in future periods.

As of December 31, 2022, the total RPO amounted to $3.6

million, which we expect to recognize over the expected manufacturing term of the product under development.

of revenues for the year ended December 31, 2022, were $1,631,000, an increase of $523,000, or 47%, compared to cost of revenues of $1,108,000

for the year ended December 31, 2021.

The increase was primarily due to:

An increase in payroll expenses due to additional employee recruitments (such as in the areas of procurement, production planning and

control, engineering, and quality inspectors) to support the transition to serial production for the Fortune 500 customer.

In the second quarter of 2022, the Company completed the development service stage of its miniature camera solution and moved to the

production stage.

As a result, the Company recognized expenses of $180,000 during the year ended December 31, 2022, based on the expected

manufacturing term of the product.

loss for the year ended December 31, 2022, was $966,000, an increase of $245,000, or 34%, compared to a gross loss of $721,000 for the

year ended December 31, 2021.

The increase was primarily due to increase in cost of revenues partially offset by an increase in revenue

as described above.

and Development Expenses

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.

and development expenses for the year ended December 31, 2022, were $4,197,000, an increase of $2,195,000, or 110%, compared to

$2,002,000 for the year ended December 31, 2021.

The increase was primarily due to an increase in payroll expenses (including

stock-based compensation) due to additional employee recruitments, materials and subcontractors, rent and maintenance expenses due

to enlarging focus on R&D activities in the domain of I4.0.

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.

and Marketing Expenses

and marketing expenses primarily consist of personnel costs, consulting services, promotional materials, demonstration equipment, and

certain allocated facilities infrastructure costs.

and marketing expenses for the year ended December 31, 2022, were $699,000, a decrease of $209,000, or 23%, compared to $908,000 for the

year ended December 31, 2021.

The decrease was primarily due to reductions in sales and marketing costs in the medical field.

expect that our selling and marketing expenses will increase as we increase our selling and marketing efforts in the I4.0 domain.

and Administrative Expenses

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, public relations, accounting, auditing, tax services, and

insurance costs.

and administrative expenses for the year ended December 31, 2022, were $3,577,000, a decrease of $1,904,000, or 35%, compared to $5,481,000

for the year ended December 31, 2021.

decrease was primarily due to:

A decrease in IP expenses of $506,000.

A decrease in stock-based compensation of $580,000.

A decrease in professional services of $334,000, mainly due to expenses of $206,000 in expenses incurred in 2021 related to our efforts

to uplist to Nasdaq.

Cancellation of a provision of $129,000 related to additional taxes due following entrance into an agreement with the Israeli Tax

In September 2021, the Company accrued an amount of approximately NIS 740,000 ($229,000) for additional taxes due following

a VAT audit by the Israeli Tax Authority for the years 2019-2021.

In July 2022, the Company reached an agreement with the Israeli Tax

Authority, according to which the amount due in additional taxes was reduced to approximately NIS 340,000 ($100,000).

We incurred an operating loss

of $9,439,000 for the year ended December 31, 2022, an increase of $327,000, or 4%, compared to operating loss of $9,112,000 for the year

ended December 31, 2021.

The increase in operating loss was primarily due to increases in gross loss and expenses related to research

and development, partially offset by decrease in general and administrative expenses and sales and marketing expenses.

of the Year Ended December 31, 2021 and the Year Ended December 31, 2020

Company’s primary business activities during 2021 were:

of R&D and transition to the serial production in connection with a customer-specific project for a Fortune 500 multinational

healthcare corporation;

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.

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.

major activities were the following:

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Operating Loss

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.

the year ended December 31, 2021, we generated revenues of $387,000, a decrease of $104,000, or 21%, from 2020 revenues.

decrease in revenues was primarily due to sales of products to A.M.

in revenues was primarily due to sales of products to A.M.

Total sales to A.M.

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amounted to approximately $199,000, a decrease from approximately $383,000 in 2020.

This decrease was partially offset by increase

in the sales of our products to other customers.

This decrease was partially offset by increase in

the sales of our products to other customers.

performance obligations (“RPO”) represents contracted revenue that has not yet been recognized, which includes deferred revenue

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million, which we expect to recognize over the expected manufacturing term of the product under development.

of revenue is primarily comprised of cost of personnel includes warehouse personnel costs, inventory write-downs, certain allocated facilities,

and expenses associated with logistics and quality control.

of revenues for the year ended December 31, 2021 were $1,108,000, an increase of $114,000, or 11%, compared to cost of revenues of $994,000

for the year ended December 31, 2020.

The increase was primarily due to an increase in payroll

expenses (including stock-based compensation) as a result of hiring additional employees as part of the transition to the production

stage with respect to the contract with a Fortune 500 multinational healthcare corporation, partially offset by decrease in materials

as a result of a decrease in revenues.

The increase was primarily due to an increase in payroll expenses (including stock-based compensation)

as a result of hiring additional employees as part of the transition to the production stage with respect to the contract with a Fortune

500 multinational healthcare corporation, partially offset by decrease in materials as a result of a decrease in revenues.

loss for the year ended December 31, 2021 was $721,000, an increase of $218,000, or 43%, compared to a gross loss of $503,000 for the

year ended December 31, 2020.

The increase was primarily due to a decrease in revenues and an increase

in cost of revenues as described above.

The increase was primarily due to a decrease in revenues and an increase in cost of revenues as described

and Development Expenses

and development efforts are focused on new product development and on developing additional functionality for our existing products.

These expenses primarily consist of e mployee-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

We expense research and development costs as incurred.

and development expenses for the year ended December 31, 2021 were $2,002,000, an increase of $1,277,000, or 176%, compared to

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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,

stock-based compensation) due to additional employee recruitments, 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.

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and Marketing Expenses

and marketing expenses primarily consist of personnel costs, consulting services, promotional materials, demonstration equipment and

certain allocated facilities infrastructure costs.

and marketing expenses for the year ended December 31, 2021 were $908,000, an increase of $465,000, or 105%, compared to $443,000 for

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and Administrative Expenses

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.

and administrative expenses for the year ended December 31, 2021 were $5,481,000, an increase of $2,446,000, or 81%, compared to $3,035,000

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increase of $675,000 in IP expenses due to maintenance, defense, and commercialization efforts of existing patents;

provision of $229,000 due to a VAT audit by the

Israeli Tax Authority ;

increase of $528,000 in share based compensation due to new option grants;

provision of $229,000 due to a VAT audit by the Israeli Tax Authority;

increase of $528,000 in stock-based compensation due to new option grants;

$206,000 related to our efforts to uplist to Nasdaq;

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and additional hires.

incurred an operating loss of $9,112,000 for the year ended December 31, 2021, an increase of $4,406,000, or 94%,

compared to operating loss of $4,706,000 for the year ended December 31, 2020.

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.

incurred an operating loss of $9,112,000 for the year ended December 31, 2021, an increase of $4,406,000, or 94%, compared to operating

loss of $4,706,000 for the year ended December 31, 2020.

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.

and Capital Resources

of December 31, 2021, we had cash and cash equivalents of $8.6 million and $11 million of short-term deposits compared to cash and cash

equivalents $3.4 million and no short-term deposits as of December 31,2020.

In addition, as of December 31, 2021 we incurred an accumulated

deficit of approximately $15.3 million compared to $6.3 million as of December 31, 2020.

of December 31, 2022, we had cash and cash equivalents of $10.1 million and short-term deposits of $3 million compared to cash and

cash equivalents of $8.6 million and short-term deposits of $11 million as of December 31, 2021.

In addition, as

of December 31, 2022, we incurred an accumulated deficit of $24.8 million compared to $15.3 million as of December 31,

primary sources of liquidity to date have been from fund raising and warrant exercises.

During 2021, we received $22.6 million from the

issuance of our shares and warrants in a private placement and from the exercise of outstanding warrants.

Cash Requirements

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 and beyond.

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.

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 allow our to fund ours operating plan through 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.

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.

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.

of the Year Ended December 31, 2022 and the Year Ended December 31, 2021

following table sets forth the significant sources and uses of cash for the years ended December 31, 2022 and December 31, 2021 (in dollars):

Cash used in Operating Activities

Cash provided by (used in) Investing Activities

(11,595,000 )

Cash provided by Financing Activities

the year ended December 31, 2022, cash used in operating activities was $6.1 million, consisting of net loss of $9.5 million, partially

offset by a non-cash benefit of $2.1 million and a favorable net change in operating assets and liabilities of $1.3 million.

benefit consisted primarily of non-cash charges of $1.6 million for stock-based compensation.

The net change in our operating assets

and liabilities primarily reflects cash inflows from changes in contract liability of $1.2 million.

the year ended December 31, 2021, cash used in operating activities was $5.9 million, consisting of net loss of $9 million, partially

offset by a non-cash benefit of $2 million and a favorable net change in operating assets and liabilities of $1.1 million.

benefit consisted primarily of non-cash charges of $2 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 partially offset by cash outflows from

changes in contract fulfillment assets of $0.5 million.

the year ended December 31, 2022, cash provided by investing activities was $7.9 million, consisting mainly of withdrawal, net of short-term

the year ended December 31, 2021, cash used in investing activities was $11.6 million, consisting of investment in short-term deposits

of $11 million and purchases of property and equipment of $0.6 million.

the year ended December 31, 2021, cash provided by financing activities was $22.6 million, consisting primarily of $19.1 million from

cash proceeds from issuance of shares and warrants in a private placement and $3.5 million proceeds from exercise of outstanding warrants.

of the Year Ended December 31, 2021 and the Year Ended December 31, 2020

following table sets forth the significant sources and uses of cash for the years ended December 31, 2021 and December 31, 2020 (in dollars):

Cash used in Operating Activities

Cash used in Investing Activities

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis