Odysight.ai Inc. 10-K

item 7. management’s discussion and analysis of financial condition and results of operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information, the following discussion contains forward-looking statements that involve risks, uncertainties and assumptions. See “Forward-looking Statements” for a discussion of the uncertainties and assumptions associated with these statements. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this Annual Report on Form 10-K. Overview We were incorporated under the laws of the State of Nevada on March 22, 2013, under the name Intellisense Solutions Inc. We were initially engaged in the business of developing web portals to allow companies and individuals to engage in the purchase and sale of vegetarian food products over the Internet. However, were not able to execute our original business plan, develop significant operations, or achieve commercial sales. On December 30, 2019, we acquired all of the issued and outstanding share capital of ScoutCam Ltd. and, on December 31, 2029, changed our name to ScoutCam Inc. Following this acquisition, we integrated and fully adopted the acquired miniaturized imaging business into our Company as our primary business activity. On June 5, 2023, we changed our name to Odysight.ai Inc. 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. 35 Our 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. Impact of the Ongoing War in Israel on Our Business On October 7, 2023, the Hamas terrorist organization launched a series of deadly terror attacks on civilian and military targets skirting the Gaza Strip in the southern part of Israel and fired rockets on many of the communities in southern and central Israel. Following the attack, Israel’s security cabinet declared war and commenced a military campaign in Gaza against Hamas. Since the outbreak of the war, the Hezbollah terrorist organization has regularly fired rockets into northern Israel, other terrorist organizations have done so from western Iraq and the Houthis terrorist organization operating out of Yemen has fired various projectiles and drones against commercial shipping vessels in the Gulf of Aden and Red Sea. The war has led to consequences and restrictions with respect to the Israeli economy, including a significant call-up of military reservists, most of whom have been released from such service as of the date of this Annual Report. To date the war has not had a material adverse effect on our business. While we have offices in Omer and Ramat Gan, Israel, neither of our sites is located near Israel’s relevant borders where the main impact of the war has been felt. Nevertheless, we have experienced some minor disruptions to our routine work, including some difficulties in traveling outside of Israel in the first month of the war and occasional rocket fire on the municipalities where our offices are located, requiring our employees to take temporarily shelter for a few minutes at a time in on-site safe rooms. In addition, several of our employees, including company officers such as our CEO Yehu Ofer, were called up to military reserve duty, with many such call-ups having since lapsed. As of the date of this Annual Report, Mr. Ofer is subject to military reserve duty a few days a month. We have taken various measures to mitigate the effects of the war, including adopting work-from-home measures, increased employee overtime and third-party outsourcing where needed, and reviewing our business continuity plan. As a result of the intensive flight hours flown by all Israeli Air Force platforms as a result of the war and an enhanced Israel Ministry of Defense budget of approximately $12 billion, we have experienced a growing interest in our technology from Israeli government agencies and R&D programs, which may lead to more rapid assimilation of our technology into relevant platforms than we had anticipated prior to the start of the war, positively affecting on our business activity in 2024. See also Risk Factors – “Conditions in Israel, including the October 7, 2023 attack by Hamas and other terrorist organizations and Israel’s war against them, if escalated, could negatively affect our operations.” Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are more fully described in Note 2 to our financial statements appearing elsewhere in this Form 10-K, we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations. Development Services Revenue and Contract Liabilities We determine at contract inception whether development services are distinct from the performance obligation to manufacture the product under development. Revenues from development services that we determine as not distinct from our performance obligation to manufacture the product under development are deferred until commencement of manufacturing and are recognized over the manufacturing term. As a result, during development phase we have deferred all service revenues billed by us to a Fortune 500 multinational healthcare corporation and the respective service costs. Further to the inception of the production phase of the project in the second quarter of 2022, these deferred revenues and costs are recognized over the expected term of production under the contract. Stock-Based Compensation We apply the fair value recognition provisions of ASC 718, Compensation—Stock Compensation , or ASC 718, for stock-based awards granted to employees, directors, and other providers for their services. Determining the amount of stock-based compensation to be recorded requires us to develop estimates of the fair value of stock options as of their grant date. We estimate the fair value of each stock option grant using the Black-Scholes option-pricing model. Calculating the fair value of stock-based awards requires that we make subjective assumptions. Pursuant to ASC 718, we measure stock-based awards granted to employees, members of the board of directors and other providers at fair value on the date of grant and recognize the corresponding stock-based compensation expense of those awards on a straight-line basis over the requisite service period. The Black-Scholes option-pricing model requires a number of assumptions, of which the most significant are the stock price volatility and the expected option term. 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, and forfeitures are accounted for as they occur. 36 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. Comparison of the Year Ended December 31, 2023 and the Year Ended December 31, 2022 Overview The Company’s primary business activities during 2023 were: ● Production and supply of product to a Fortune 500 multinational healthcare corporation. ● Enlarging our 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 activity. The following table summarizes our results of operations for the years ended December 31, 2023 and 2022, together with the changes in those items in dollars and as a percentage: 2023 2022 % Change Revenues 3,033,000 665,000 356 % Cost of Revenues 2,524,000 1,631,000 55 % Gross Profit (Loss) 509,000 (966,000 ) 153 % Research and development expenses 5,602,000 4,197,000 33 % Sales and marketing expense 1,109,000 699,000 59 % General and administrative expenses 4,431,000 3,577,000 24 % Operating Loss (10,633,000 ) (9,439,000 ) 13 % 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 year ended December 31, 2023, we generated revenues of $3,033,000, an increase of $2,368,000, or 356%, from 2022 revenues. The increase in revenues was primarily due to increase in revenues from a Fortune 500 company (see “Customer A” in note 10 to our annual financial statements) due to: - an increase in the number of products sold and supplied to the customer during 2023, and - formalization of negotiations with the customer, according to which the price per unit increased significantly compared to the previous price. Cost of Revenues Cost of revenues for the year ended December 31, 2023, were $2,524,000 an increase of $893,000, or 55%, compared to cost of revenues of $1,631,000 for the year ended December 31, 2022. The increase was primarily due to an increase in the number of products sold and supplied to the Fortune 500 company, partially offset by an improvement in the production process which resulted in a reduced scrap rate. 37 Gross Profit (Loss) Gross profit for the year ended December 31, 2023 was $509,000, an increase of $1,475,00, or 153%, compared to a gross loss of $966,000 for the year ended December 31, 2022. The increase was primarily due to an increase in revenues, partially offset by an increase in cost of revenues as described above. The transition from a gross loss to a gross profit is attributable to the formalization of negotiations with the healthcare customer. Under this framework, the unit price experienced a substantial increase compared to its previous rate. We also benefited from an increase in the number of products sold and supplied to the customer during 2023. 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 year ended December 31, 2023 were $5,602,000, an increase of $1,405,000, or 33%, compared to $4,197,000 for the year ended December 31, 2022. The increase was primarily due to an increase in payroll expenses due to additional employee recruitment, as result of enlarging our focus on R&D activities in the domain of I4.0. We expect that our research and development expenses will increase as we continue to develop our products and services and recruit additional research and development employees due to increased focus on R&D activities in the domain of I4.0. Sales and Marketing Expenses Sales and marketing expenses primarily consist of payroll expenses, consulting services, promotional materials, exhibitions, demonstration equipment, and certain allocated facility infrastructure costs. Sales and marketing expenses for the year ended December 31, 2023 were $1,109,000, an increase of $410,000, or 59%, compared to $699,000 for the year ended December 31, 2022. The increase was primarily due to recent rebranding activities, including expenses related to the changing the name of the Company from “ScoutCam Inc.” to “Odysight.ai Inc.”, which included among other expenses designing a new logo and promotional materials. In addition, the Company incurred expenses by participating in the Paris Air Show in June 2023, the world’s premier and largest event dedicated to the aviation and space industry. We expect that our selling and marketing expenses will increase as we expand our selling and marketing efforts in the I4.0 domain. 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, public relations, accounting, auditing, tax services, and insurance costs. General and administrative expenses for the year ended December 31, 2023 were $4,431,000, an increase of $854,000, or 24%, compared to $3,577,000 for the year ended December 31, 2022. 38 The increase was primarily due to: - an increase in payroll expenses, due to additional employee recruitment; - an increase in patent related expenses due to maintenance, defense, and commercialization efforts involving existing patents; - an increase in professional services expenses due to the hiring of a financial consultant, IR consultant, HR consultant and the appointment of new directors ; - an increase in rent and maintenance, due to our new offices in Ramat Gan; and - In 2022, we benefited from the cancellation of a provision of $129,000 related to additional taxes due following entrance into an agreement with the Israel Tax Authority (the “ITA”). In September 2021, the Company accrued approximately NIS 740,000 ($229,000) for additional taxes due following a VAT audit by the ITA for the years 2019-2021. In July 2022, the Company reached an agreement with the ITA, according to which the amount due in additional taxes was reduced to approximately NIS 340,000 ($100,000). Operating loss We incurred an operating loss of $10,633,000 for the year ended December 31, 2023, an increase of $1,194,000, or 13%, compared to operating loss of $9,439,000 for the year ended December 31, 2022. The increase in operating loss was due to increases in research and development expenses, general and administrative expenses and sales and marketing expense, each as described above. Comparison of the Year Ended December 31, 2022 and the Year Ended December 31, 2021 Overview The 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 have been previously deferred. The amounts were recognized based on the expected manufacturing term of the product, which the Company estimates at seven years. ● Increased 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 activity. The 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: 2022 2021 % Change Revenues 665,000 387,000 72 % Cost of revenues 1,631,000 1,108,000 47 % Gross Loss (966,000 ) (721,000 ) 34 % Research and development expenses 4,197,000 2,002,000 110 % Sales and marketing expense 699,000 908,000 (23 )% General and administrative expenses 3,577,000 5,481,000 (35 )% Operating Loss (9,439,000 ) (9,112,000 ) 4 % 39 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 year ended December 31, 2022, we generated revenues of $665,000, an increase of $278,000, or 72%, from 2021 revenues. The increase in revenues was primarily due to the completion of development of the product relating to our endoscopic camera solution with a Fortune 500 company and moving to production stage. Total revenues recorded from our endoscopic camera solution with the Fortune 500 company during 2022, amounted to approximately $538,000. We did not record any revenue from our endoscopic camera solution with the Fortune 500 company during 2021. This increase in revenues was partly offset by the following: - We did not record any revenue from A.M. Surgical during 2022, a decrease of approximately $199,000 from 2021. - A decrease of $61,000 due to an overall decrease in sales of the Company’s component products to occasional customers. Remaining performance obligations (“RPOs”) 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. Cost of Revenues Cost 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 recruitment (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 stage of its endoscopic 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. Gross Loss Gross 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. 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 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 recruitment, materials and subcontractors, rent and maintenance expenses due to increased focus on R&D activities in the domain of I4.0. 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. 40 Sales and Marketing Expenses Sales and marketing expenses primarily consist of personnel costs, consulting services, promotional materials, demonstration equipment, and certain allocated facilities infrastructure costs. Sales 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. We expect that our selling and marketing expenses will increase as we increase our selling and marketing efforts in the I4.0 domain. 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, public relations, accounting, auditing, tax services, and insurance costs. General 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. The decrease was primarily due to: - A decrease in stock-based compensation of $580,000. - A decrease in IP expenses of $506,000. - 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 our entrance into an agreement with the Israeli Tax Authority. 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 of additional taxes was reduced to approximately NIS 340,000 ($100,000). Operating loss 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. Liquidity and Capital Resources As of December 31, 2023, we had cash and cash equivalents of $8.9 million and short-term deposits of $8.1 million compared to cash and cash equivalents of $10.1 million and short-term deposits of $3 million as of December 31, 2022. In addition, as of December 31, 2023, we incurred an accumulated deficit of $34.2 million compared to $24.8 million as of December 31, 2022. Our primary sources of liquidity to date have been from fund raising and warrant exercises. On March 27, 2023, we issued 3,294,117 units (the “Units”) in consideration for approximately $14 million (the “Private Placement”) to Phoenix Insurance Company Ltd. (for Moshe Arkin through his individual retirement account), The Phoenix Insurance Company Ltd. (“Phoenix Insurance”) and Shotfut Menayot Israel – Phoenix Amitim (“Phoenix Amitim”). Each Unit consisted of (i) one share of the Company’s Common Stock and (ii) one warrant to purchase one share of Common Stock with an exercise price of US$5.50 per share (the “Warrant”). The Warrants are immediately exercisable and will expire three (3) years from the date of issuance and are subject to customary adjustments. In connection with the Private Placement, we undertook to file a Registration Statement on Form S-1 with the Securities and Exchange Commission covering the resale of all shares of Common Stock issued pursuant to the Private Placement, including those shares of Common Stock to be held by the Selling Stockholders assuming the exercise of the Warrants issued pursuant to the Private Placement, and any other shares of Common Stock and shares of Common Stock underlying warrants to the extent previously issued to Mr. Arkin, Phoenix Insurance or Phoenix Amitim. We further undertook that the Registration Statement on Form S-1 would not include any shares of Common Stock or other securities for the account of any other holder without the prior written consent of Mr. Arkin, Phoenix Insurance and Phoenix Amitim. Mr. Arkin currently serves as a director on our board of directors. 41 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 allow us to fund our 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. 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. Cash Flows 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 in spending on our business and to meet our working capital requirements. Comparison of the Year Ended December 31, 2023 and the Year Ended December 31, 202 2 The following table sets forth the significant sources and uses of cash for the years ended December 31, 2023 and December 31, 2022 (in dollars): 2023 2022 Cash used in Operating Activities (10,009,000 ) (6,095,000 ) Cash provided by (used in) Investing Activities (5,113,000 ) 7,882,000 Cash provided by Financing Activities 13,809,000 - Operating Activities During the year ended December 31, 2023, cash used in operating activities was $10 million, consisting of net loss of $9.4 million, partially offset by a non-cash benefit of $1.8 million and an unfavorable net change in operating assets and liabilities of $2.4 million. Our non-cash benefit consisted primarily of non-cash charges of $1.7 million for stock-based compensation. The unfavorable net change in our operating assets and liabilities was primarily due to an increase in accounts receivable of $1.3 million and decrease in contract liabilities of $1.3 million. During 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. Our non-cash 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. 42 Investing Activities During the year ended December 31, 2023, cash used in investing activities was $5.1 million, consisting mainly of investment of short-term deposits, net. During the year ended December 31, 2022, cash provided by investing activities was $7.9 million, consisting mainly of withdrawal of short-term deposits, net. Financing Activities During the year ended December 31, 2023, cash provided by financing activities was $13.8 million, consisting of cash proceeds from issuance of shares and warrants in a private placement. Comparison of the Year Ended December 31, 2022 and the Year Ended December 31, 202 1 The following table sets forth the significant sources and uses of cash for the years ended December 31, 2022 and December 31, 2021 (in dollars): 2022 2021 Cash used in Operating Activities (6,095,000 ) (5,886,000 ) Cash provided by (used in) Investing Activities 7,882,000 (11,595,000 ) Cash provided by Financing Activities - 22,559,000 Operating Activities During 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. Our non-cash 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. During 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. Our non-cash 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. Investing Activities During the year ended December 31, 2022, cash provided by investing activities was $7.9 million, consisting mainly of withdrawal of short-term deposits, net. During 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. Financing Activities During 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 the exercise of outstanding warrants. item 7a. quantitative and qualitative disclosures about market risk As a smaller reporting company, we are not required to provide the information required by this Item. item 8. financial statements and supplementary data The information called for by Item 8 is included following the “Index to Financial Statements” on page F-1 of this Annual Report. 43 item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.