Odysight.ai Inc. 10-Q

Item 1. Financial Statements ODYSIGHT.AI INC. (Formerly known as ScoutCam Inc.) INTERIM FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2023 CONSOLIDATED ODYSIGHT.AI 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) 10 Notes to the Interim Condensed Consolidated Financial Statements 12 - 4 - ODYSIGHT.AI INC. (Formerly known as ScoutCam Inc.) INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS September 30, 2023 December 31, 2022 Unaudited Audited USD in thousands Assets CURRENT ASSETS: Cash and cash equivalents 15,938 10,099 Short terms deposits 3,569 3,047 Accounts receivable - 60 Inventory 782 630 Other current assets 573 281 Total current assets 20,862 14,117 NON-CURRENT ASSETS: Contract fulfillment assets 1,316 1,495 Property and equipment, net 503 648 Operating lease right-of-use assets 1,621 307 Severance pay asset 254 328 Total non- current assets 3,694 2,778 TOTAL ASSETS 24,556 16,895 The accompanying notes are an integral part of these interim condensed consolidated financial statements. - 5 - ODYSIGHT.AI INC. (Formerly known as ScoutCam Inc.) INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) September 30, 2023 December 31, 2022 Unaudited Audited USD in thousands Liabilities and shareholders’ equity CURRENT LIABILITIES: Accounts payable 293 297 Contract liabilities - short term 950 1,426 Operating lease liabilities - short term 528 199 Accrued compensation expenses 761 365 Related parties 52 58 Other accounts payable 280 214 Total current liabilities 2,864 2,559 NON-CURRENT LIABILITIES: Contract liabilities - long term 1,901 2,218 Operating lease liabilities - long term 957 64 Liability for severance pay 247 268 Other liabilities - long term 28 - Total non-current liabilities 3,133 2,550 TOTAL LIABILITIES 5,997 5,109 SHAREHOLDERS’ EQUITY: Common stock, $ 0.001 par value; 300,000,000 shares authorized as of September 30, 2023 and December 31, 2022, 10,440,850 and 7,121,737 shares issued and outstanding as of September 30, 2023 and December 31, 2022 , respectively 10 7 Additional paid-in capital 51,415 36,541 Accumulated deficit ( 32,866 ) ( 24,762 ) TOTAL SHAREHOLDERS’ EQUITY 18,559 11,786 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 24,556 16,895 The accompanying notes are an integral part of these interim condensed consolidated financial statements. - 6 - ODYSIGHT.AI INC. (Formerly known as ScoutCam Inc.) INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS Nine months ended September 30, Three months ended September 30, 2023 2022 2023 2022 Unaudited USD in thousands (except per share data) REVENUES 1,087 506 110 134 COST OF REVENUES 1,648 1,279 321 430 GROSS LOSS ( 561 ) ( 773 ) ( 211 ) ( 296 ) RESEARCH AND DEVELOPMENT EXPENSES 4,107 3,023 1,354 1,048 SALES AND MARKETING EXPENSES 877 617 208 171 GENERAL AND ADMINISTRATIVE EXPENSES 3,225 3,262 1,099 810 OPERATING LOSS ( 8,770 ) ( 7,675 ) ( 2,872 ) ( 2,325 ) OTHER INCOME 10 23 - 8 FINANCING INCOME (EXPENSES), NET 656 ( 152 ) 330 73 NET LOSS ( 8,104 ) ( 7,804 ) ( 2,542 ) ( 2,244 ) Net loss per ordinary share (basic and diluted, USD) ( 0.86 ) ( 1.10 ) ( 0.24 ) ( 0.32 ) Weighted average ordinary shares (basic and diluted, in thousands) 9,395 7,122 10,439 7,122 The accompanying notes are an integral part of these interim condensed consolidated financial statements. - 7 - ODYSIGHT.AI INC. (Formerly known as ScoutCam Inc.) INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Nine Months Ended September 30, 2023 (Unaudited) Additional Total Common Stock paid-in Accumulated Shareholders’ Number Amount capital deficit equity In thousands USD in thousands Balance at January 1, 2023 7,122 $ 7 $ 36,541 $ ( 24,762 ) $ 11,786 Stock based compensation - - 1,056 - 1,056 Issuance of shares upon RSU vesting 25 - * - * - - Issuance of shares and warrants 3,294 3 13,818 - 13,821 Net loss - - - ( 8,104 ) ( 8,104 ) Balance at September 30, 2023 10,441 $ 10 $ 51,415 $ ( 32,866 ) $ 18,559 Three Months Ended September 30, 2023 (Unaudited) Additional Total Ordinary shares paid-in Accumulated Shareholders’ Number Amount capital deficit Equity In thousands USD in thousands Balance at July 1, 2023 10,437 $ 10 $ 51,110 $ ( 30,324 ) $ 20,796 Stock based compensation - - 371 - 371 Issuance of shares upon RSU vesting 4 - * - * - - Issuance expenses - - ( 66 ) - ( 66 ) Net loss - - - ( 2,542 ) ( 2,542 ) Balance at September 30, 2023 10,441 $ 10 $ 51,415 $ ( 32,866 ) $ 18,559 * Represents an amount less than $1 thousand The accompanying notes are an integral part of these interim condensed consolidated financial statements. - 8 - Nine Months Ended September 30, 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 - - 1,916 - 1,916 Net loss - - - ( 7,804 ) ( 7,804 ) Balance at September 30, 2022 7,122 7 36,819 ( 23,098 ) 13,728 Three Months Ended September 30, 2022 (Unaudited) Ordinary shares Additional paid-in Accumulated Total Shareholders’ Number Amount capital deficit Equity In thousands USD in thousands Balance at July 1, 2022 7,122 7 36,360 ( 20,854 ) 15,513 Balance 7,122 7 36,360 ( 20,854 ) 15,513 Stock based compensation - - 459 - 459 Net loss - - - ( 2,244 ) ( 2,244 ) Balance at September 30, 2022 7,122 7 36,819 ( 23,098 ) 13,728 Balance 7,122 7 36,819 ( 23,098 ) 13,728 The accompanying notes are an integral part of these interim condensed consolidated financial statements. - 9 - ODYSIGHT.AI INC. (Formerly known as ScoutCam Inc.) INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Nine months ended September 30, Three months ended September 30, 2023 2022 2023 2022 Unaudited USD in thousands CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ( 8,104 ) ( 7,804 ) ( 2,542 ) ( 2,244 ) Adjustments to reconcile net loss to net cash used in operations: Depreciation 239 160 47 57 Stock based compensation 1,056 1,916 371 459 Severance pay asset and liability 53 51 ( 1 ) - Profit from exchange differences from operating lease liability ( 78 ) ( 52 ) ( 56 ) ( 2 ) Loss (Profit) from exchange differences on cash and cash equivalents 64 301 11 ( 26 ) Interest income in respect of deposits ( 22 ) ( 66 ) 167 ( 43 ) CHANGES IN OPERATING ASSET AND LIABILITY ITEMS: Decrease (increase) in accounts receivable 60 ( 7 ) 158 84 Increase in inventory ( 152 ) ( 485 ) ( 58 ) ( 43 ) Decrease (increase) in other current assets ( 292 ) 171 95 138 Decrease in contract fulfillment assets 179 120 60 60 Decrease in ROU asset 211 210 117 78 Increase (decrease) in account payables ( 4 ) 263 ( 481 ) 57 Increase (decrease) in contract liabilities ( 793 ) 1,333 ( 110 ) ( 102 ) Decrease in operating lease liability ( 225 ) ( 183 ) ( 115 ) ( 58 ) Increase (decrease) in accrued compensation expenses 396 ( 3 ) 307 ( 24 ) Increase (decrease) in related parties ( 6 ) 28 5 45 Increase (decrease) in other account payable 80 ( 60 ) ( 230 ) ( 145 ) Net cash flows used in operating activities ( 7,338 ) ( 4,107 ) ( 2,255 ) ( 1,709 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 94 ) ( 87 ) ( 37 ) ( 45 ) Withdrawal of short terms deposits 18,000 5,000 15,000 - Investment in short term deposits ( 18,500 ) ( 6,500 ) - ( 3,000 ) Net cash flows provided by (used in) investing activities ( 594 ) ( 1,587 ) 14,963 ( 3,045 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of shares and warrants 13,835 - ( 78 ) - Net cash flows provided by (used in) financing activities 13,835 - ( 78 ) - INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,903 ( 5,694 ) 12,630 ( 4,754 ) LOSS FROM EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS ( 64 ) ( 301 ) ( 11 ) ( 26 ) BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 10,099 8,581 3,319 7,314 BALANCE OF CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 15,938 2,586 15,938 2,586 - 10 - Non cash activities - Nine months ended September 30, Three months ended September 30, 2023 2022 2023 2022 Unaudited USD in thousands Non cash activities Change in unpaid issuance expenses 14 - ( 12 ) - Right-of-use assets obtained in exchange for operating lease liabilities 1,577 118 1,112 37 Termination of right-of-use assets in exchange for cancellation of operating lease obligations ( 52 ) ( 65 ) ( 27 ) ( 65 ) The accompanying notes are an integral part of these interim condensed consolidated financial statements. - 11 - ODYSIGHT.AI INC. (Formerly known as ScoutCam Inc.) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – GENERAL : a . Odysight.ai.Inc (the “Company”), formerly known as ScoutCam Inc., 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”. On June 5, 2023, the Company filed with the Nevada Secretary of State a Certificate of Amendment to the Registrant’s Articles of Incorporation to change its name from “ScoutCam Inc.” to “Odysight.ai Inc.”, effective June 5, 2023. The Company’s wholly owned subsidiary, Odysight.ai Ltd (“Odysight.ai”.), formerly known as ScoutCam Ltd., 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 Odysight.ai consummated an asset transfer agreement, under which Medigus transferred and assigned certain assets and intellectual property rights related to its miniaturized imaging business to Odysight.ai. On December 30, 2019, the Company and Medigus consummated a securities exchange agreement (the “Exchange Agreement”), pursuant to which Medigus delivered 100 % of its holdings in Odysight.ai to the Company in exchange for shares of the Company’s common stock representing 60 % of the issued and outstanding share capital of the Company immediately upon the consummation of the Exchange Agreement. During 2020-2023 Medigus has decreased its holdings in the Company such that as of March 31, 2023, Medigus owned 18.45 % of the Company’s outstanding common stock. On June 1, 2023, Medigus sold all its holdings in the Company to existing shareholders and to Chairman of the Board and CEO of the Company. The Company, through Odysight.ai, provides image-based platforms. Through the use of its proprietary visualization technology, Odysight.ai offers solutions across predictive maintenance and condition-based monitoring markets, in sectors such as energy, automotive and aviation. Odysight.ai’s solutions are based on small and highly resilient cameras, specialized AI analysis and supplementary technologies. Some of the Company’s products utilize micro visualization technology in medical devices for minimally invasive medical procedures. - 12 - ODYSIGHT.AI INC. (Formerly known as ScoutCam Inc.) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – GENERAL (continued): b. Since incorporation of Odysight.ai and through September 30, 2023, the Company accumulated a deficit of approximately $ 32.9 million and its activities have been funded mainly by its shareholders. The Company’s management believes the Company’ cash and cash resources will allow the Company to fund its operating plan through at least the next 12 months from the filing date of these Interim Condensed Consolidated Financial Statements. However, the Company expects to continue to incur significant research and development and other costs related to its ongoing operations, requiring the Company to obtain additional funding in order to continue its future operations until becoming profitable. 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, 2022. 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. - 13 - ODYSIGHT.AI INC. (Formerly known as ScoutCam Inc.) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued): 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. NOTE 3 – LEASES : a. Omer office space In December 2020, Odysight.ai entered into a lease agreement for office space in Omer, Israel (“original space”), with the 36-month term for such agreement beginning on January 1, 2021. In March 2021, Odysight.ai entered into a lease agreement for additional office space in Omer, Israel (“additional space”), with the term for such agreement is ending December 31, 2023. On June 25, 2023, Odysight.ai entered into an amendment to these agreements, pursuant to which the lease for the additional space will be shortened and end on June 30, 2023 and the lease for the original space will be extended for an additional five years until December 31, 2028. It was also agreed that Odysight.ai has an option to terminate the agreement for the original space after three years. Monthly lease payments under the agreement for the original space are approximately $ 7 thousand. b. Ramat Gan office space In December 2022, Odysight.ai entered into a lease agreement for office space in Ramat Gan, Israel. The agreement is for 12 months beginning on December 14, 2022 and the Company has an option to extend the lease period for an additional one year. The Company does not expect to extend the lease period. Therefore, the Company has elected to use the practical expedient regarding short-term leases. Monthly lease payments under the agreement are $ 3 thousand. In May 2023, Odysight.ai entered into an additional lease agreement for office space in Ramat Gan, Israel. The agreement is for 48 months beginning on July 1, 2023 and the Company has an option to extend the lease period for an additional two years. The Company does not currently expect to extend the lease period. Monthly lease payments under the agreement are in the amount of approximately $ 24 thousand. Odysight.ai subleases part of the additional office space in Ramat Gan to a third party for approximately $ 7 thousand per month. Supplemental cash flow information related to operating leases was as follows: SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO OPERATING LEASES 2023 2022 2023 2022 Nine months ended September 30, Three months ended September 30, 2023 2022 2023 2022 Unaudited USD in thousands Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases 262 203 143 67 As of September 30, 2023, the Company’s operating leases had a weighted average remaining lease term of 0.89 years and a weighted average discount rate of 6 %. Future lease payments under operating leases as of September 30, 2023 were as follows: SCHEDULE OF MATURITIES LEASE LIABILITIES UNDER OPERATING LEASES Operating leases USD in thousands Remainder of 2023 138 2024 542 2025 502 2026 382 2027 148 Total future lease payments 1,712 Less imputed interest ( 227 ) Total lease liability balance 1,485 - 14 - ODYSIGHT.AI INC. (Formerly known as ScoutCam Inc.) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 – EQUITY : a. Private Placement On March 16, 2023, the Company consummated a Stock Purchase Agreements for a private placement with (i) Moshe Arkin through his individual retirement account and (ii) The Phoenix Insurance Company Ltd. and Shotfut Menayot Israel – Phoenix Amitim, in connection with the sale and issuance of an aggregated amount of 3,294,117 units (collectively, the “Units”), at a purchase price of $ 4.25 per Unit, and for an aggregated purchase price of $ 14,000,000 . Each Unit consists of: (i) one share of the Company’s common stock with par value of $ 0.001 per share (the “Common Stock”) and (ii) one warrant to purchase one share of Common Stock with an exercise price of $ 5.50 (the “Warrants”). The Warrants are immediately exercisable and will expire three years from the date of issuance and will be subject to customary adjustments. Warrants: As of September 30, 2023, the Company had the following outstanding warrants to purchase common stock: SCHEDULE OF STOCK WARRANTS OUTSTANDING TO PURCHASE COMMON STOCK Number of Shares of Exercise Price common stock Issuance Expiration Per Share Underlying Warrant Date Date ($) Warrants March 2021 Warrant March 29, 2021 March 31, 2026 10.35 2,469,156 March 2023 Warrant March 27, 2023 March 26, 2026 5.50 3,294,117 5,763,273 - 15 - ODYSIGHT.AI INC. (Formerly known as ScoutCam Inc.) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 – EQUITY (continued): b. Stock-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 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 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 option pool pursuant to the Plan by an additional 777,778 shares of common stock. During the first quarter of 2023, the Company’s Board of Directors approved an increase to the option pool pursuant to the Plan by an additional 1,000,000 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 nine months ended September 30, 2023, the Company granted 684,000 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 Nine months ended September 30, 2023 Underlying value of ordinary shares ($) 2.95 - 5.00 Exercise price ($) 3.0 - 4.5 Expected volatility (%) 37.39 %- 37.50 % Term of the options (years) 7 Risk-free interest rate 3.94 %- 4.47 % The cost of the benefit embodied in the options granted during the nine months ended September 30, 2023, based on their fair value as of the grant date, is estimated to be approximately $ 1,028 thousand. These amounts will be recognized in the statements of operations and comprehensive income over the vesting period. The following table summarizes stock option activity for the nine months ended September 30, 2023: SCHEDULE OF STOCK OPTION ACTIVITY For the Nine months ended September 30, 2023 Weighted average Amount of exercise options price $ Outstanding at beginning of period 1,560,040 3.64 Granted 684,000 3.13 Fortfeited ( 29,117 ) 3.78 Outstanding at end of period 2,214,923 3.48 Vested at end of period 993,487 3.21 - 16 - ODYSIGHT.AI INC. (Formerly known as ScoutCam Inc.) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 – EQUITY (continued): Restricted stock unit (“RSU”) activity 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 following table summarizes RSU activity for the nine months ended September 30, 2023: SCHEDULE OF STOCK OPTION ACTIVITY For the Nine months ended September 30, 2023 Weighted Average Amount of Grant Date Fair Value RSUs per Share $ Outstanding at beginning of period 50,000 6.32 Granted 25,000 3.20 Fortfeited ( 7,501 ) 7.20 Vested ( 24,996 ) 6.32 Unvested and Outstanding at end of period 42,503 4.33 The following table sets forth the total stock-based payment expenses resulting from options and RSU granted, included in the statements of operation and comprehensive income: SCHEDULE OF TOTAL SHARE-BASED PAYMENT EXPENSES Nine months ended September 30, Three months ended September 30, 2023 2022 2023 2022 Unaudited USD in thousands Cost of revenues 11 37 6 ( 11 ) Research and development 323 442 58 131 Sales and marketing expenses 83 134 21 35 General and administrative 639 1,303 286 304 Total expenses 1,056 1,916 371 459 - 17 - ODYSIGHT.AI INC. (Formerly known as ScoutCam Inc.) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 – REVENUES : Disaggregation of revenue SCHEDULE OF DISAGGREGATION OF REVENUE Nine months ended Three months ended September 30, 2023 September 30, 2023 2023 2022 2023 2022 USD in thousands USD in thousands Development Services ( * ) 317 211 105 105 Products 770 295 5 29 Revenue 1,087 506 110 134 (*) During the second quarter of 2022, the Company completed the development of the 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 nine months ended September 2023, the Company recognized development services revenues and related development costs that had been previously deferred, in the amount of $ 317 thousand. The amount was recognized based on the expected manufacturing term of the product, which the Company estimates at seven years . In addition, following the commencement of the production phase, the Company recognized product revenues of $ 722 thousand during the nine months ended September 2023 from the sale of units of the product developed in the context of these development services. Contract fulfillment assets and Contract liabilities: The Company’s contract fulfillment assets and contract liabilities as of September 30, 2023 and December 31, 2022 were as follows: SCHEDULE OF CONTRACT FULFILLMENT ASSETS AND CONTRACT LIABILITIES September 30, December 31, 2023 2022 USD in thousands Contract fulfillment assets 1,316 1,495 Contract liabilities 2,851 3,644 Contract liabilities include deferred service revenue and advance payment. The change in contract fulfillment assets: September 30, December 31, 2023 2022 USD in thousands Balance at beginning of the period 1,495 1,675 Contract costs recognized during the period ( 179 ) ( 180 ) Balance at end of the period 1,316 1,495 The change in contract liabilities: September 30, December 31, 2023 2022 USD in thousands Balance at beginning of the period 3,644 2,420 Deferred revenue relating to new sales - 1,613 Revenue recognized during the period ( 793 ) ( 389 ) Balance at end of the period 2,851 3,644 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 September 30, 2023, the total RPO amounted to $ 2.9 million, which the Company expects to recognize over the expected manufacturing term of the product. - 18 - NOTE 6 – ODYSIGHT.AI INC. (Formerly known as ScoutCam Inc.) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - INVENTORY : Composed as follows: SCHEDULE OF INVENTORY September 30, December 31, 2023 2022 USD in thousands Raw materials and supplies 242 438 Work in progress 277 148 Finished goods 263 44 Inventory net 782 630 During the period ended September 30, 2023, no impairment occurred. 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 September 30 , 2023 December 31, 2022 USD in thousands Directors (directors’ accrued compensation) 43 48 Smartec R&D Ltd. (see b below) 9 10 Related parties 52 58 b. During nine months ended September 30, 2023 the Company received development services from Smartec R&D Ltd., a company owned by the Company’s CTO. Total compensation during the nine months ended September 30, 2023 and September 30, 2022 were approximately $ 29 thousands and $ 87 thousands, respectively. NOTE 9 - COMMITMENTS AND CONTINGENCIES On April 2023, the Company received approval from the Israel Innovation Authority (previously the Office of the Chief Scientist), (the “IIA”) to support and enhance the Company’s production line and capabilities in the next 24 months until April 2025. Pursuant to the agreement with the IIA relating to the program, the Company has to pay royalties of 3% to the IIA up to the amount IIA funding received and the accrued interest repayment of the grant is contingent upon the Company successfully completing its enhancement plans and generating sales from the enhancements preformed. The Company has no obligation to repay these grants if its enhancement plans are not completed or aborted or if it generates no sales. During the three months ended September 30, 2023 grants of $ 50 thousand recorded as cost of revenues in the consolidated statements. NOTE 10 – SUBSEQUENT EVENTS On October 7, 2023, subsequent to the reporting period, Hamas terrorists infiltrated Israel’s southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets, which led Israel to formally declare war on Hamas the next day. The war is ongoing as of the issuance date of these financial statements. At this stage, the Company does not expect substantial impact of the above-described events on its operations. - 19 -