NOTES
TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – GENERAL:
|
a.
|
ScoutCam
Inc. (the “Company”), formally known as Intellisense Solutions Inc., was incorporated under the laws of the
State of Nevada on March 22, 2013 under the name Intellisense Solutions Inc., or Intellisense. The Company was 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. The Company was unable to execute it original business plan, develop significant
operations or achieve commercial sales. Prior to the closing of the Securities Exchange Agreement (as defined below),
the Company was a “shell company”.
ScoutCam
Ltd., or ScoutCam, was formed in the State of Israel on January 3, 2019 as a wholly-owned subsidiary of Medigus Ltd. (the
“Parent Company”, “Medigus”), an Israeli company traded both on the Nasdaq Capital Market and
the Tel Aviv Stock Exchange, and commenced operations on March 1, 2019. Upon incorporation, ScoutCam issued to Medigus
1,000,000 Ordinary shares with no par value. On March 2019, ScoutCam issued to Medigus an additional 1,000,000 Ordinary
shares with no par value.
ScoutCam
was incorporated as part of a reorganization of Medigus, which was designed to distinguish ScoutCam’s miniaturized
imaging business, or the micro ScoutCam™ portfolio, from Medigus’s other operations and to enable Medigus
to form a separate business unit with dedicated resources focused on the promotion of such technology. In December 2019,
Medigus and ScoutCam consummated a certain Amended and Restated Asset Transfer Agreement, under which Medigus transferred
and assigned certain assets and intellectual property rights related to its miniaturized imaging business to ScoutCam.
On
September 16, 2019, Intellisense entered into a Securities Exchange Agreement (the “Exchange Agreement”),
with Medigus, pursuant to which Medigus assigned, transferred and delivered 100% of its holdings in ScoutCam to Intellisense,
in exchange for consideration consisting of shares of Intellisense’s common stock representing 60% of the issued
and outstanding share capital of Intellisense immediately upon the closing of the Exchange Agreement (the “Closing”).
The Closing occurred on December 30, 2019 (the “Closing Date”).
Although
the transaction resulted in ScoutCam becoming a wholly owned subsidiary of Intellisense, the transaction constituted a
reverse recapitalization since Medigus, the only shareholder of ScoutCam prior to the Exchange Agreement, was issued a
substantial majority of the outstanding capital stock of Intellisense upon consummation of the Exchange Agreement, and
also taking into account that prior to the Closing Date, Intellisense was considered as a shell corporation. Accordingly,
ScoutCam is considered the accounting acquirer of the merged company.
ScoutCam
has developed a range of micro CMOS (complementary metal-oxide semiconductor) and CCD (charge-coupled device) video cameras,
including micro ScoutCam™ 1.2. These innovative cameras are suitable for both medical and industrial applications.
Based on its proprietary technology, the Company designs and manufactures endoscopy and micro camera systems for partner
companies.
|
SCOUTCAM
INC.
NOTES
TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – GENERAL (continued):
|
b.
|
The
accompanying comparative consolidated financial statements include the historical accounts of ScoutCam as a “Carve-out
Business”, a division of Medigus. Throughout the comparative periods included in these Financial Statements, the
Carve-out Business operated as part of Medigus. Separate financial statements have not historically been prepared for the
Carve-out Business. These comparative carve-out financial data has been prepared on a standalone basis and is derived from
Medigus’s consolidated financial statements and accounting records. The carve-out comparative financial data reflects
ScoutCam’s financial position, results of operations, changes in net parent deficit and cash flows in accordance with
U.S. GAAP.
The
financial position, results of operations, changes in net parent deficit, and cash flows of the Carve-out Business may
not be indicative of its results had it been a separate stand-alone entity during the comparative periods presented.
The
comparative carve-out financial data of the Company include expenses which were allocated from Medigus for certain functions,
including general corporate expenses related to corporate strategy, procurement, Information Technology (“IT”),
Human Resources (“HR”) and legal. These allocation have been made on the basis of direct usage when identifiable,
with the remainder allocated on the basis of headcount. Management believes the expense allocation methodology and results
are reasonable and consistently applied for all comparative periods presented. However, these allocations may not be indicative
of the actual expenses that would have been incurred by an independent company or of the costs to be incurred in the future.
The
carve-out comparative financial statements include assets and liabilities specifically attributable to the Carve-out Business.
Medigus uses a centralized approach for managing cash and financing operations. Accordingly, a substantial portion of
the cash balances are transferred to Medigus’ cash management accounts regularly and therefore are not included
in the financial statements. Transfers of cash between Carve-out business and Medigus are included within “Net transfers
from Parent company” on the Statements of Cash Flows and the Statements of changes in shareholder’s equity
(capital deficiency).
As
the carve-out comparative financial information has been prepared on a carve-out basis, the amounts reflected in Parent Company
deficit in the comparative statement of changes in shareholder’s equity (capital deficiency) refer to net loss for the period
attributed to ScoutCam in addition to transactions between Medigus and ScoutCam.
|
|
|
|
|
c.
|
During the three month ended March 31, 2020, the
Company incurred a loss of USD 1,413 thousand and negative cash flows from operating activities of approximately USD
1,137 thousand. Based on the projected cash flows, the Company’s Management is of the opinion that without further
fundraising it will not have sufficient resources to enable it to continue its operating activities including the development,
manufacturing and marketing of its products within one year after the issuance date of these financial statements. As a result,
there is a substantial doubt about the Company’s ability to continue as a going concern within one year after the issuance
date of these financial statements.
|
|
|
|
|
|
Management’s
plans include continuing commercialization of the Company’s products and securing sufficient financing through the
sale of additional equity securities, debt or capital inflows from strategic partnerships and other opportunities. There
are no assurances however, that the Company will be successful in obtaining the level of financing needed for its operations.
If the Company is unsuccessful in commercializing its products and securing sufficient financing, it may need to reduce
activities, curtail or even cease operations.
|
|
|
|
|
|
These consolidated financial statements have been prepared assuming the Company will continue as a going concern, which assumes the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Accordingly, the consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The
accounting policies set out below have, unless otherwise stated, been applied consistently.
|
SCOUTCAM
INC.
NOTES
TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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, 2019.
|
B.
|
Principles
of Consolidation
|
The
accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.
All intercompany balances and transactions have been eliminated in consolidation.
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the reporting period. The Company evaluates on an
ongoing basis its assumptions, including those related to contingencies, deferred taxes, inventory impairment, stock based compensation,
as well as in estimates used in applying the revenue recognition policy. Actual results may differ from those estimates.
|
D.
|
Significant
Accounting Policies
|
The
significant accounting policies followed in the preparation of these unaudited interim condensed consolidated financial statements
are identical to those applied in the preparation of the latest annual financial statements.
|
E.
|
Recently
Adopted Accounting Pronouncement
|
The
significant accounting policies followed in the preparation of these unaudited interim consolidated financial statements are identical
to those applied in the preparation of the latest annual audited financial statements with the exception of the following:
In
June 2016, the FASB issued ASU 2016-13 “Financial Instruments – Credit Losses” to improve information on credit
losses for financial assets and net investment in leases that are not accounted for at fair value through net income. The ASU
replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. The Company
adopted this ASU on January 1, 2020. There was not a material impact on the interim consolidated financial statements.
In
August 2018, the FASB issued ASU 2018-13, “Changes to Disclosure Requirements for Fair Value Measurements,” which
will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard
removes, modifies, and adds certain disclosure requirements and is effective for the Company beginning on January 1, 2020. This
standard did not have a material effect on the Company’s interim consolidated financial statements.
In
November 2018, the FASB issued ASU 2018-18 – “Collaborative Arrangements (Topic 808),” which clarifies the interaction
between Topic 808 and Topic 606, Revenue from Contracts with Customers. The Company adopted this standard in the first quarter
of fiscal year 2020. This standard did not have a material impact on the Company’s consolidated financial statements and
related disclosures.
|
F.
|
Recent
Accounting Pronouncements
|
In
December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU
2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain
exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.
This guidance is effective for the Company beginning on January 1, 2021, with early adoption permitted. The Company does not expect
that the adoption of this standard will have a significant impact on the consolidated financial statements and related disclosures.
SCOUTCAM
INC.
NOTES
TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 – LEASES:
On
January 1, 2019, the Company adopted ASU 2016-02 using the modified retrospective approach for all lease arrangements at the beginning
period of adoption. ScoutCam Ltd. leases office and vehicles under operating leases. At March 31, 2020, the Company’s ROU
assets and lease liabilities for operating leases totaled $72 thousand.
In
January 2020, ScoutCam Ltd. entered into a lease agreement for office space in Omer, Israel. The agreement is for 11 months beginning
on February 1, 2020. Monthly lease payments under the agreement are approximately $6 thousand. Lease expenses recorded in the
interim consolidated statements of operations were $15 thousand for the three months ended March 31, 2020. The Company has elected
the short-term lease exception for this lease. As part of this election it will not recognize right-of-use assets and lease liabilities
on the balance sheet for this lease.
Supplemental
cash flow information related to operating leases was as follows:
|
|
Three months ended
March 31, 2020
|
|
|
|
USD in thousands
|
|
Cash payments for operating leases
|
|
|
12
|
|
Cash payments for short-term lease
|
|
|
15
|
|
Total lease expenses
|
|
|
27
|
|
As
of March 31, 2020, the Company’s operating leases had a weighted average remaining lease term of 1.5 years and a weighted
average discount rate of 10%. Future lease payments under operating leases as of March 31, 2020 were as follows:
|
|
Operating leases
|
|
|
|
USD in thousands
|
|
Remainder of 2020
|
|
|
25
|
|
2021
|
|
|
33
|
|
2022
|
|
|
23
|
|
Total future lease payments
|
|
|
81
|
|
Less imputed interest
|
|
|
(9
|
)
|
Total lease liability balance
|
|
|
72
|
|
SCOUTCAM
INC.
NOTES
TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4 – EQUITY:
Private
placement:
|
a.
|
In December 2019,
the Company allotted in a private issuance, a total of 3,413,312 units at a purchase price of USD $0.968 per unit. Each unit
was comprised of two shares of common stock par value US$0.001 per share, one Warrant A (defined below) and two Warrants B
(defined below). The immediate proceeds (gross) from the issuance of the units amounted to approximately USD 3.3 million.
|
Each
Warrant A is exercisable into one share of common stock of the Company at an exercise price of USD 0.595 per share during the
12 month period following the allotment. Each Warrant B is exercisable into one share of common stock of the Company at an exercise
price of USD 0.893 per share during the 18 month period following the allotment.
In
addition, Shrem Zilberman Group Ltd. (the “Consultant”) will be entitled to receive the amount representing 3% of
any exercise price of each Warrant A or Warrant B that may be exercised in the future. In the event the total proceeds received
as a result of exercise of Warrants will be less than $2 million at the time of their expiration, the Consultant will be required
to invest $250,000 in the Company in return for shares of common stock of Company.
|
b.
|
On
March 3, 2020, the Company allotted in a private issuance a total of 979,754 units at a purchase price of USD $0.968 per unit.
|
Each
unit was comprised of two shares of common stock par value US$0.001 per share, one Warrant A (defined below) and two Warrants
B (defined below).
Each
Warrant A is exercisable into one share of common stock of the Company at an exercise price of USD 0.595 per share during the
12 month period following the allotment.
Each
Warrant B is exercisable into one share of common stock of the Company at an exercise price of USD 0.893 per share during the
18 month period following the allotment.
The
immediate proceeds (gross) from the issuance of all securities offered amounted to approximately USD 948 thousands. After deducting
closing costs and fees, the Company received proceeds of approximately USD 909 thousand, net of issuance expenses.
As
of March 31, 2020, the Company had the following outstanding warrants to purchase Common Stock as follows:
Warrant
|
|
Issuance Date
|
|
Expiration Date
|
|
Exercise Price Per Share ($)
|
|
|
Number of Shares of Common Stock Underlying Warrants
|
|
Warrant A
|
|
December 30, 2019
|
|
December 30, 2020
|
|
|
0.595
|
|
|
|
3,413,317
|
|
Warrant B
|
|
December 30, 2019
|
|
June 30, 2021
|
|
|
0.893
|
|
|
|
6,826,623
|
|
Warrant A
|
|
March 3, 2020
|
|
March 3, 2021
|
|
|
0.595
|
|
|
|
979,754
|
|
Warrant B
|
|
March 3, 2020
|
|
September 3, 2021
|
|
|
0.893
|
|
|
|
1,959,504
|
|
|
|
|
|
|
|
|
|
|
|
|
13,179,198
|
|
SCOUTCAM
INC.
NOTES
TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4 – EQUITY (continued):
Share-based
compensation to employees and to directors:
In
February 2020, the Company’s Board of Directors approved the 2020 Share Incentive Plan (the “Plan”). The Plan
initially included a pool of 5,228,007 shares of common stock for grant to Company employees, consultants, directors and other
service providers. On March 15, 2020, the Company’s Board of Directors approved an increase to the Company’s option
pool pursuant to the Plan by an additional 576,888 shares of Common Stock.
The
Plan is designed to enable the Company to grant options to purchase ordinary shares 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.
On
February 12, 2020, the Company granted 4,367,515 options pursuant to the Plan. Each option is convertible into one share of common
stock of the Company of $0.001 par value at the exercise price of $0.29.
On
March 15, 2020, the Company granted 576,888 options pursuant to the Plan to each of the Company’s then serving directors,
excluding Professor Benad Goldwasser. Each option is convertible into one share of common stock of the Company of $0.001 par value
at the exercise price of $0.29.
The
fair value of each option was estimated as of the date of grant or reporting period using the Black-Scholes option-pricing
model, using the following assumptions:
|
|
February 12, 2020
|
|
|
March 15, 2020
|
|
Underlying value of ordinary shares ($)
|
|
|
0.484
|
|
|
|
0.484
|
|
Exercise price ($)
|
|
|
0.29
|
|
|
|
0.29
|
|
Expected volatility (%)
|
|
|
43.35
|
|
|
|
45.25
|
|
Term of the options (years)
|
|
|
7
|
|
|
|
7
|
|
Risk-free interest rate
|
|
|
1.55
|
|
|
|
0.89
|
|
The
cost of the benefit embodied in the options granted during the three months ended March 31, 2020, based on their fair value as
at the grant date, is estimated to be approximately $2.9 million. These amounts will be recognized in statements of operations
over the vesting period.
SCOUTCAM
INC.
NOTES
TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4 – EQUITY (continued):
The
following table summarizes stock option activity for the three months ended March 31, 2020:
|
|
For the
Three months ended
March 31, 2020
|
|
|
|
Amount of options
|
|
|
Weighted average exercise price
|
|
|
|
|
|
|
|
|
$
|
|
Outstanding at beginning of period
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
4,944,403
|
|
|
|
0.29
|
|
Outstanding at end of period
|
|
|
4,944,403
|
|
|
|
0.29
|
|
|
|
|
|
|
|
|
|
|
Vested at end of period
|
|
|
739,021
|
|
|
|
0.29
|
|
The
following table sets forth the total share-based payment expenses resulting from options granted, included in the statements of
operation:
|
|
Three months ended
March 31, 2020
|
|
|
|
USD in thousands
|
|
Research and development
|
|
|
108
|
|
General and administrative
|
|
|
574
|
|
Total expenses
|
|
|
682
|
|
SCOUTCAM
INC.
NOTES
TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
5 – REVENUES:
Contract
liabilities:
The
Company’s contract liabilities as of March 31, 2020 and December 31, 2019 were as follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
USD in thousands
|
|
Contract liabilities
|
|
|
546
|
|
|
|
502
|
|
Contract
liabilities include advance payments, which are primarily related to advanced billings for development services.
Remaining
Performance Obligations
Remaining
Performance Obligations (“RPO”) represents contracted revenue that has not yet been recognized, which includes deferred
revenue and amounts that will be invoiced and recognized as revenue in future periods. As of March 31, 2020, the total RPO amounted
to $900 thousand, which the Company expects to recognize during the next 12 months.
NOTE
6 – INVENTORY
Composed
as follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
USD in thousands
|
|
Raw materials and supplies
|
|
|
20
|
|
|
|
24
|
|
Work in progress
|
|
|
457
|
|
|
|
316
|
|
Finished goods
|
|
|
567
|
|
|
|
560
|
|
|
|
|
1,044
|
|
|
|
900
|
|
During
the period ended March 31, 2020, no impairment occurred.
SCOUTCAM
INC.
NOTES
TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7 – LOSS PER SHARE
Basic
loss per share is computed by dividing net loss attributable to ordinary shareholders of the Company, by the weighted average
number of ordinary shares as described below.
In
computing the Company’s diluted loss per share, the numerator used in the basic loss per share computation is adjusted for
the dilutive effect, if any, of the Company’s potential shares of common stock. The denominator for diluted loss per share
is a computation of the weighted-average number of ordinary shares and the potential dilutive ordinary shares outstanding during
the period.
The
loss per share information in these consolidated financial statements is reflected and calculated as if the Company had existed
since January 1, 2019. Accordingly, loss per share for all periods was calculated based on the number of shares retroactively
adjusted for the exchange ratio determined in the reverse recapitalization.
NOTE
8 – RELATED PARTIES
On
May 30, 2019, ScoutCam Ltd. entered into an intercompany agreement with Medigus (the “Intercompany Agreement”) according
to which ScoutCam Ltd. agreed to hire and retain certain services from Medigus. The agreed upon services provided under the Intercompany
Agreement included: (1) lease of office space and clean room based on actual space utilized by ScoutCam Ltd. and in shared spaces
according to employee ratio; (2) utilities such as electricity water, IT and communication services based on employee ratio; (3)
car services, including car rental, gas usage, payment for toll roads based on 100% of expense incurred from a ScoutCam Ltd. employee
car; (4) external accountant services at a price of USD 6,000 per annum; (5) directors and officers insurance at a sum of 1/3
of Parent company cost; (6) CFO services at a sum of 50% of Parent company CFO employer cost; (7) every direct expense of ScoutCam
Ltd. that is paid by the Parent company in its entirety subject to approval of such direct expenses in advance; and (8) any other
mutual expense that is borne by the parties according to the Respective portion of the Mutual Expense
In
addition, ScoutCam Ltd.’s employees provide support services to Medigus.
On
April 20, 2020, ScoutCam Ltd. entered into an amended and restated intercompany services agreement with Medigus.
Balances
with related parties:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Parent Company
|
|
|
48
|
|
|
|
73
|
|
Loan from Parent Company
|
|
|
378
|
|
|
|
500
|
|
Transactions
with related parties:
|
|
Three months ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Revenues
|
|
|
5
|
|
|
|
-
|
|
Cost of revenues
|
|
|
5
|
|
|
|
-
|
|
SCOUTCAM
INC.
NOTES
TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
9 - SUBSEQUENT EVENTS:
On
May 18, 2020, the Company allotted in a private issuance a total of 2,066,116 units at a purchase price of USD $0.968 per unit.
Each
unit was comprised of two shares of common stock par value US$0.001 per share, one Warrant A (defined below) and two Warrants
B (defined below).
Each
Warrant A is exercisable into one share of common stock of the Company at an exercise price of USD 0.595 per share during the
18 month period following the allotment.
Each
Warrant B is exercisable into one share of common stock of the Company at an exercise price of USD 0.893 per share during the
24 month period following the allotment.
The
immediate proceeds (gross) from the issuance of all securities offered amounted to approximately USD 2 million.