Odysight.ai Inc. 10-Q

Item 1. Financial Statements ODYSIGHT.AI INC. (Formerly known as ScoutCam Inc.) INTERIM FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2024 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, 2024 December 31, 2023 Unaudited Audited USD in thousands Assets CURRENT ASSETS: Cash and cash equivalents 20,906 8,945 Restricted cash 318 - Short terms deposits - 8,096 Accounts receivable 912 1,372 Inventory 328 504 Other current assets 634 432 Total current assets 23,098 19,349 NON-CURRENT ASSETS: Contract fulfillment assets 1,123 1,256 Property and equipment, net 423 477 Operating lease right-of-use assets 1,154 1,380 Severance pay asset 279 271 Other non-current assets 96 96 Total non-current assets 3,075 3,480 TOTAL ASSETS 26,173 22,829 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, 2024 December 31, 2023 Unaudited Audited USD in thousands Liabilities and shareholders’ equity CURRENT LIABILITIES: Accounts payable 301 287 Contract liabilities - short term 615 527 Operating lease liabilities - short term 468 470 Accrued compensation expenses 1,152 546 Related parties 51 41 Other current liabilities 337 211 Total current liabilities 2,924 2,082 NON-CURRENT LIABILITIES: Contract liabilities - long term 1,479 1,795 Operating lease liabilities - long term 601 856 Liability for severance pay 255 261 Other non-current liabilities - 28 Total non-current liabilities 2,335 2,940 TOTAL LIABILITIES 5,259 5,022 SHAREHOLDERS’ EQUITY: Common stock, $ 0.001 par value; 300,000,000 shares authorized as of September 30, 2024, and December 31, 2023, 12,607,516 and 10,443,768 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively 13 10 Additional paid-in capital 63,319 52,004 Accumulated deficit ( 42,418 ) ( 34,207 ) TOTAL SHAREHOLDERS’ EQUITY 20,914 17,807 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 26,173 22,829 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 2024 2023 2024 2023 Nine months ended September 30, Three months ended September 30, 2024 2023 2024 2023 Unaudited USD in thousands REVENUES 2,660 1,087 1,292 110 COST OF REVENUES 1,964 1,648 887 321 GROSS PROFIT (LOSS) 696 ( 561 ) 405 ( 211 ) RESEARCH AND DEVELOPMENT EXPENSES 4,705 4,107 1,730 1,354 SALES AND MARKETING EXPENSES 806 877 347 208 GENERAL AND ADMINISTRATIVE EXPENSES 3,929 3,225 1,344 1,099 OPERATING LOSS ( 8,744 ) ( 8,770 ) ( 3,016 ) ( 2,872 ) OTHER INCOME - 10 - - FINANCING INCOME, NET 533 656 149 330 NET LOSS ( 8,211 ) ( 8,104 ) ( 2,867 ) ( 2,542 ) Net loss per ordinary share (basic and diluted, USD) ( 0.74 ) ( 0.86 ) ( 0.23 ) ( 0.24 ) Weighted average ordinary shares (basic and diluted, in thousands) 11,054 9,395 12,255 10,439 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, 2024 (Unaudited) Number Amount capital deficit equity Common Stock Additional paid-in Accumulated Total Shareholders’ Number Amount capital deficit equity In thousands USD in thousands Balance as of January 1, 2024 10,444 $ 10 $ 52,004 $ ( 34,207 ) $ 17,807 Stock based compensation - - 1,500 - 1,500 Issuance of shares upon RSU vesting 19 - * - (*) - - Issuance of shares 2,145 3 9,815 - 9,818 Net loss - - - ( 8,211 ) ( 8,211 ) Balance as of September 30, 2024 12,608 $ 13 $ 63,319 $ ( 42,418 ) $ 20,914 Three Months Ended September 30, 2024 (Unaudited) Common Stock Additional paid-in Accumulated Total Shareholders’ Number Amount capital deficit equity In thousands USD in thousands Balance as of July 1, 2024 10,458 $ 10 $ 52,967 $ ( 39,551 ) $ 13,426 Stock based compensation - - 537 - 537 Issuance of shares upon RSU vesting 5 - * - (*) - - Issuance of shares 2,145 3 9,815 - 9,818 Net loss - - - ( 2,867 ) ( 2,867 ) Balance as of September 30, 2024 12,608 $ 13 $ 63,319 $ ( 42,418 ) $ 20,914 * 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, 2023 (Unaudited) Number Amount capital deficit equity Additional Total Common Stock paid-in Accumulated Shareholders’ Number Amount capital deficit equity In thousands USD in thousands Balance as 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 as 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 as July 1, 2023 10,437 $ 10 $ 51,110 $ ( 30,324 ) $ 20,796 Balance 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 as September 30, 2023 10,441 $ 10 $ 51,415 $ ( 32,866 ) $ 18,559 Balance 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. - 9 - ODYSIGHT.AI INC. (Formerly known as ScoutCam Inc.) INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 2024 2023 2024 2023 Nine months ended September 30, Three months ended September 30, 2024 2023 2024 2023 Unaudited USD in thousands CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ( 8,211 ) ( 8,104 ) ( 2,867 ) ( 2,542 ) Adjustments to reconcile net loss to net cash used in operations: Depreciation 92 239 28 47 Stock based compensation 1,500 1,056 537 371 Severance pay asset and liability ( 14 ) 53 ( 1 ) ( 1 ) Interest and exchange differences from operating lease liability ( 29 ) ( 78 ) 13 ( 56 ) Loss (Profit) from exchange differences on cash and cash equivalents 11 64 ( 29 ) 11 Interest income in respect of deposits 96 ( 22 ) - 167 Changes in operating assets and liability items: Decrease (increase) in accounts receivable 460 60 ( 154 ) 158 Decrease (increase) in inventory 176 ( 152 ) 111 ( 58 ) Decrease in operating lease liability ( 340 ) ( 225 ) ( 114 ) ( 115 ) Decrease in right-of-use asset 338 211 111 117 Decrease (increase)in other current and non-current assets ( 202 ) ( 292 ) 23 95 Increase (decrease) in accounts payable 14 ( 4 ) 9 ( 481 ) Increase (decrease) in related parties 10 ( 6 ) 9 5 Decrease in contract fulfillment assets 133 179 13 60 Decrease in current and non-current contract liabilities ( 228 ) ( 793 ) ( 101 ) ( 110 ) Increase in accrued compensation expenses 606 396 187 307 Increase (decrease) in other current and non-current liabilities 66 80 26 ( 230 ) Net cash flows used in operating activities ( 5,522 ) ( 7,338 ) ( 2,199 ) ( 2,255 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 38 ) ( 94 ) ( 8 ) ( 37 ) Withdrawal of short terms deposits 8,000 18,000 - 15,000 Investment in short term deposits - ( 18,500 ) - - Net cash flows provided by (used in) investing activities 7,962 ( 594 ) ( 8 ) 14,963 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of shares and warrants 9,850 13,835 9,850 ( 78 ) Net cash flows provided by (used in) financing activities 9,850 13,835 9,850 ( 78 ) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH 12,290 5,903 7,643 12,630 BALANCE OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF THE PERIOD 8,945 10,099 13,552 3,319 LOSS (PROFIT) FROM EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS AND RESTRICTED CASH ( 11 ) ( 64 ) 29 ( 11 ) BALANCE OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT THE END OF THE PERIOD 21,224 15,938 21,224 15,938 - 10 - Non-cash activities - Nine months ended September 30, Three months ended September 30, 2024 2023 2024 2023 Unaudited USD in thousands Non cash activities Right-of-use assets obtained in exchange for operating lease liabilities 167 1,577 47 1,112 Termination of right-of-use assets in exchange for cancellation of operating lease obligations ( 55 ) ( 52 ) - ( 27 ) 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. The Company’s wholly owned subsidiary, Odysight.ai Ltd (“Odysight.ai”), formerly known as ScoutCam Ltd., was incorporated in the State of Israel on January 3, 2019, and was merged into the Company on December 31, 2019, in a share exchange transaction, following which the surviving operations of the merged entity were the operations of Odysight.ai. On February 28, 2024, D. VIEW Ltd., a wholly owned subsidiary of the Company, was incorporated in the State of Israel to act as a local representative for the defense market in Israel. The Company, through its subsidiaries, provides image-based platform solutions for the Predictive Maintenance (PdM) and Condition Based Monitoring (CBM) markets with its visualization and AI platform. The Company’s video sensor-based platform provides solutions for critical systems in the aviation, transportation, and energy industries. Its video-based sensors, embedded software, and AI algorithms are deployed in hard-to-reach locations and harsh environments across a variety of PdM and CBM use cases and allow maintenance and operations teams visibility into areas which are inaccessible under normal operation, or where the operating ambience is not suitable for continuous real-time monitoring. 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 the incorporation of Odysight.ai and through September 30, 2024, the Company accumulated a deficit of approximately $ 42.4 million and its activities have been funded mainly by its shareholders. The Company’s management believes the Company’ cash and cash resources as of September 30, 2024 will allow the Company to fund its operating plan through at least the next 12 months from the filing date of these 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2023. 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 and 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. With the commencement of development and customization contracts during the nine-month period ended September 30, 2024, in which the performance obligation is satisfied over time, the Company measures the progress of the activities using the input method, based on the effort expended relative to the estimated total effort to satisfy the performance obligation. 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 (the “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 (the “Additional Space”), with the term for such agreement 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. Odysight.ai expects that the lease period for the Original Space will be three years. Monthly lease payments under the agreement for the Original Space are approximately $ 7 thousand. b. Ramat Gan office space In May 2023, Odysight.ai entered into a 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 approximately $ 25 thousand. Odysight.ai subleases part of the office space in Ramat Gan to a third party for approximately $ 7 thousand per month. c. The Company leases vehicles under various operating lease agreements. Supplemental cash flow information related to operating leases was as follows: SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO OPERATING LEASES 2024 2023 2024 2023 Nine months ended September 30, Three months ended September 30, 2024 2023 2024 2023 Unaudited USD in thousands Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases 443 262 146 143 As of September 30, 2024, the Company’s operating leases had a weighted average remaining lease term of 0.78 years and a weighted average discount rate of 6 % for vehicles and 12.8 % for offices. The maturities of lease liabilities under operating leases as of September 30, 2024, are as follows: SCHEDULE OF MATURITIES LEASE LIABILITIES UNDER OPERATING LEASES Operating leases USD in thousands Remainder of 2024 147 2025 552 2026 447 2027 157 Total future lease payments 1,303 Less imputed interest ( 234 ) Total lease liability balance 1,069 - 14 - ODYSIGHT.AI INC. (Formerly known as ScoutCam Inc.) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 – OTHER CURRENT LIABILITIES : Other current liabilities consisted of the following: SCHEDULE OF OTHER CURRENT LIABILITIES September 30, December 31, 2024 2023 USD in thousands Accrued expenses 209 132 Other current liabilities 128 79 Total other current liabilities 337 211 NOTE 5 – EQUITY : a. Private Placement 1. On March 29, 2021, the Company issued to certain investors, including Moshe (Mori) Arkin, a major stockholder and director of the Company, an aggregate of 2,469,156 units in exchange for an aggregate purchase price of $ 20 million. Each such unit consisted of (i) one share of the Company’s common stock and (ii) one warrant to purchase one share of the Company’s common stock with an exercise price of $ 10.35 per share. Each such warrant is exercisable until March 31, 2026 and subject to customary adjustments. Pursuant to the terms of the foregoing warrants, following April 1, 2024, if the closing price of Company common stock equal or exceeds 135 % of the aforementioned exercise price (subject to appropriate adjustments for stock splits, stock dividends, stock combinations and other similar transactions after the issue date of the warrants) for any thirty (30) consecutive trading days, the Company may force the exercise of the warrants, in whole or in part, by delivering to these investors a notice of forced exercise. 2. On March 16, 2023, the Company entered into stock purchase agreements for a private placement with (i) Moshe (Mori) Arkin and (ii) The Phoenix Insurance Company Ltd. (“Phoenix Insurance”) and Shotfut Menayot Israel – Phoenix Amitim (“Phoenix Amitim”), in connection with the sale and issuance of an aggregate of 3,294,117 units, at a purchase price of $ 4.25 per unit, and for an aggregate purchase price of $ 14 million. Each unit consisted of: (i) one share of the Company’s common stock and (ii) one warrant to purchase one share of the Company’s common stock with an exercise price of $ 5.50 . The warrants are immediately exercisable, expire three years from the date of issuance and are subject to customary adjustments. 3. On July 16, 2024, the Company issued 2,144,583 shares of its common stock in consideration for a purchase price of $ 4.80 per share to new and existing investors, including Moshe (Mori) Arkin and The Phoenix Holdings, through Phoenix Insurance and Phoenix Amitim (the “2024 Private Placement”). The Company raised approximately $ 10.3 million (gross) in the 2024 Private Placement. Warrants: As of September 30, 2024, the Company had the following outstanding warrants to purchase common stock: SCHEDULE OF STOCK WARRANTS OUTSTANDING TO PURCHASE COMMON STOCK Exercise Price Number of Issuance Expiration Per Share Underlying Warrant Date Date ($) Common Stocks March 2021 Warrants March 29, 2021 March 31, 2026 10.35 2,469,156 March 2023 Warrants 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 5 – 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 “2020 Plan”). The 2020 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 2020 Plan’s option pool by an additional 64,099 shares of common stock. On June 22, 2020, the Company’s Board of Directors approved an increase to the 2020 Plan’s option pool 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 2020 Plan’s option pool 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 2020 Plan’s option pool by an additional 1,000,000 shares of common stock. In June 2024, the Company’s Board of Directors approved the 2024 Share Incentive Plan (the “2024 Plan”). The 2024 Plan initially included a pool of 234,484 shares of common stock, representing the number of shares remaining available for grant under the 2020 Plan. These shares are available for future grant to Company employees, consultants, directors and other service providers. Shares that were subject to awards granted under either the 2020 Plan or the 2024 Plan that have expired or were cancelled or become un-exercisable for any reason without having been exercised in full shall become available for future grant under the 2024 Plan. In July, 2024, the Company’s Board of Directors approved an increase to the 2024 Plan’s option pool by an additional 850,000 shares of common stock. The 2020 Plan and 2024 Plan each provide for the grant of stock options (including incentive stock options and nonqualified stock options), shares of common stock, restricted shares, restricted share units, and other share-based awards. Stock option activity: During nine months ended September 30, 2024, the Company granted 91,000 options pursuant to the 2020 Plan and 669,500 options pursuant to the 2024 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 FAIR VALUE OF OPTIONS ESTIMATED ASSUMPTIONS Nine months ended September 30, 2024 Underlying value of ordinary shares ($) 5.55 - 5.70 Exercise price ($) 4.5 - 4.8 Expected volatility (%) 101 % Term of the options (years) 7 Risk-free interest rate 3.51 %- 4.23 % The cost of the benefit embodied in the options granted during the nine months ended September 30, 2024, based on their fair value as of the grant date, is estimated to be approximately $ 3,692 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, 2024: SCHEDULE OF STOCK OPTION ACTIVITY For the Nine months ended September 30, 2024 Weighted average Number of exercise Options price $ Outstanding at beginning of period 2,455,069 3.46 Granted 760,500 4.76 Forfeited ( 23,335 ) 3 Outstanding at end of period 3,192,234 3.77 Vested at end of period 1,573,336 3.47 - 16 - ODYSIGHT.AI INC. (Formerly known as ScoutCam Inc.) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 – EQUITY (continued): Restricted stock unit (“RSU”) activity The Company from time to time has granted RSUs to its employees and service provider pursuant to the 2020 Plan. Each RSU will vest based on continued service which is generally over three years. The grant date fair value of the award will be recognized as stock-based compensation expense over the requisite service period. The fair value of restricted stock units was estimated on the date of grant based on the fair value of the Company’s common stock. The following table summarizes RSU activity for the nine months ended September 30, 2024: SCHEDULE OF STOCK OPTION ACTIVITY For the Nine months ended September 30, 2024 Weighted Average Number of Grant Date Fair Value RSUs per Share $ Outstanding at beginning of period 39,585 4.08 Granted - - Forfeited - - Vested ( 19,165 ) 4.34 Unvested and Outstanding at end of period 20,420 3.84 The following table sets forth the total stock-based payment expenses resulting from options and RSUs granted, included in the statements of operation and comprehensive income: SCHEDULE OF STOCK-BASED PAYMENT EXPENSE 2024 2023 2024 2023 Nine months ended September 30, Three months ended September 30, 2024 2023 2024 2023 Unaudited USD in thousands Cost of revenues 23 11 6 6 Research and development 402 323 177 58 Sales and marketing expenses 151 83 56 21 General and administrative 924 639 298 286 Total expenses 1,500 1,056 537 371 - 17 - ODYSIGHT.AI INC. (Formerly known as ScoutCam Inc.) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 – REVENUES : SCHEDULE OF DISAGGREGATION OF REVENUE Disaggregation of revenue 2024 2023 2024 2023 Nine months ended Three months ended September 30, September 30, 2024 2023 2024 2023 USD in thousands USD in thousands Development Services ( * ) 843 317 548 105 Products 1,817 770 744 5 Total Revenues 2,660 1,087 1,292 110 (*) During the second quarter of 2022, the Company completed the development of 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 30, 2024, the Company recognized development services revenues in the amount of $317 thousand and related development costs previously deferred in the amount of $180 thousand. The amounts were recognized based on the expected manufacturing term of the product, which the Company estimates at seven years. In addition, the Company recognized product revenues of $1,731 thousand during the nine months ended September 2024 from the sale of units of the product developed in the context of these development services . (*) During the second quarter of 2022, the Company completed the development of 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 30, 2024, the Company recognized development services revenues in the amount of $ 317 thousand and related development costs previously deferred in the amount of $ 180 thousand. The amounts were recognized based on the expected manufacturing term of the product, which the Company estimates at seven years . In addition, the Company recognized product revenues of $ 1,731 thousand during the nine months ended September 2024 from the sale of units of the product developed in the context of these development services. During the nine months ended September 30, 2024 the Company recognized development services revenues in the amount of $ 526 thousand from development and customization contracts in which the performance obligation is satisfied over time. Contract fulfillment assets and Contract liabilities: The Company’s contract fulfillment assets and contract liabilities as of September 30, 2024, and December 31, 2023, were as follows: SCHEDULE OF CONTRACT FULFILLMENT ASSETS AND CONTRACT LIABILITIES September 30, December 31, 2024 2023 USD in thousands Contract fulfillment assets 1,123 1,256 Contract liabilities 2,094 2,322 Contract liabilities include deferred service and advance payments. The change in contract fulfillment assets: September 30, December 31, 2024 2023 USD in thousands Balance at beginning of the period 1,256 1,495 Contract costs deferred during the period 47 Contract costs recognized during the period ( 180 ) ( 239 ) Balance at end of the period 1,123 1,256 The change in contract liabilities: September 30, December 31, 2024 2023 USD in thousands Balance at beginning of the period 2,322 3,644 Revenue deferred during the period 161 - Revenue recognized during the period ( 389 ) ( 1,322 ) Balance at end of the period 2,094 2,322 Remaining Performance Obligations Remaining Performance Obligations (“RPO”) represents contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that are expected to be invoiced and recognized as revenue in future periods. As of September 30, 2024, the total RPO amounted to approximately $ 16.0 million. The total RPO amount includes an amount exceeding $ 10 million related to a long-term purchase order agreement signed in Q3.2024 with a leading international defense contractor, in respect of which no deferred revenue was recorded and no fulfillment of performance obligations commenced as of September 30, 2024. - 18 - ODYSIGHT.AI INC. (Formerly known as ScoutCam Inc.) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 - INVENTORY : Composed as follows: SCHEDULE OF INVENTORY September 30, December 31, 2024 2023 USD in thousands Raw materials and supplies 290 445 Work in progress 37 34 Finished goods 1 25 Inventory Net 328 504 During the period ended September 30, 2024, no impairment occurred. NOTE 8 – LOSS PER SHARE Basic loss per share is computed by dividing the 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 9 – RELATED PARTIES a. Balances with related parties: SCHEDULE OF BALANCES WITH RELATED PARTIES September 30, 2024 December 31, 2023 USD in thousands Directors (directors’ accrued compensation) 51 31 Smartec R&D Ltd. (see b below) - 10 Related parties 51 41 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 former CTO. Total compensation paid to Smartec R&E Ltd. during the nine months ended September 30, 2023, was approximately $ 29 thousand. NOTE 10 - 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 an IIA relating to the program, the Company is required to pay royalties of 3% to the IIA up to the amount of IIA funding received and the accrued interest repayment of the grant. Such repayment 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 are aborted or if such enhancement plans generate no sales. NOTE 11 – SUBSEQUENT EVENTS The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. The Company identified no subsequent events as of the date that the financial statements were issued. - 19 -