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. 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 on the Nasdaq Capital Market,
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.
“Group”
- the Company together with ScoutCam.
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.
|
Since incorporation through March 31, 2021, the Group has an accumulated
deficit of approximately $7.9 million and its activities have been funded mainly by its shareholders. The Group’s cash and cash
equivalents as of March 31, 2021, as well as its proceeds from issuance of common stock and warrants in the private offering as detailed
in Note 4, will allow the Group to fund its operating plan through at least the next 12 months. However, the Group expects to continue
to incur significant research and development and other costs related to its ongoing operations and in order to continue its future operations,
the Group will need to obtain additional funding until becoming profitable.
|
|
|
|
|
c.
|
In early 2020, the World Health Organization
declared the rapidly spreading coronavirus disease (COVID-19) outbreak a pandemic. This pandemic has resulted in governments
worldwide enacting emergency measures to combat the spread of the virus. The Group considered the impact of COVID-19 on its
operations and determined that there were no material adverse impacts on the Group’s results of operations and financial
position as of March 31, 2021. These estimates may change, as new events occur and additional information is obtained.
|
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, 2020.
|
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.
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.
|
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.
SCOUTCAM
INC.
NOTES
TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 – LEASES:
On
January 1, 2019, the Group adopted ASU 2016-02 using the modified retrospective approach for all lease arrangements at the beginning
period of adoption. ScoutCam leases office and vehicles under operating leases. On March 31, 2021, the Group’s ROU assets
and lease liabilities for operating leases totaled $269 thousand.
In
December 2020, ScoutCam entered into a lease agreement for office space in Omer, Israel. The agreement is for 36 months
beginning on January 1, 2021. ScoutCam holds the right to terminate the lease agreement after 24 months. Monthly lease
payments under the agreement are approximately $8 thousand. Lease expenses recorded in the interim consolidated statements of
operations were $24 thousand for the three months ended March 31, 2021.
Supplemental
cash flow information related to operating leases was as follows:
|
|
Three months ended
March 31, 2021
|
|
|
|
USD in thousands
|
|
Cash payments for operating leases
|
|
|
24
|
|
Total lease expenses
|
|
|
24
|
|
As
of March 31, 2021, the Company’s operating leases had a weighted average remaining lease term of 1.75 years and a weighted average
discount rate of 10%. Future lease payments under operating leases as of March 31, 2021 were as follows:
|
|
Operating leases
|
|
|
|
USD in thousands
|
|
Remainder of 2021
|
|
|
99
|
|
2022
|
|
|
117
|
|
2023
|
|
|
86
|
|
Total future lease payments
|
|
|
302
|
|
Less imputed interest
|
|
|
(33
|
)
|
Total lease liability balance
|
|
|
269
|
|
SCOUTCAM
INC.
NOTES
TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4 – EQUITY:
Private
placement:
|
a.
|
In
December 2019, the Company allocated 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 was 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 allocation. 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 allocation.
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.
During
2020, 2,992,855 Warrants A were exercised. 420,457 unexercised Warrants A expired on December 30, 2020.
|
b.
|
On
March 3, 2020, the Company issued 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 was 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 allocation.
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 allocation.
The
gross proceeds from the issuance of all securities offered amounted to approximately USD 948 thousands. After deducting issuance costs,
the Company received proceeds of approximately USD 909 thousand.
During
2021, all Warrants A were exercised.
|
c.
|
On
May 18, 2020, the Company allocated 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 allocation.
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 allocation.
SCOUTCAM
INC.
NOTES
TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
gross proceeds from the issuance of all securities offered amounted to approximately USD 2 million. After deducting issuance costs, the
Company received proceeds of approximately USD 1.9 million.
During
February 2021, 336,135 Warrants A were exercised.
|
d.
|
On
June 23, 2020, (the “Conversion Date”), the Company entered into and consummated a Side Letter Agreement with Medigus,
whereby the parties agreed to convert, at a conversion price of $0.484, an outstanding line of credit previously extended by Medigus
to the Subsidiary, which as of the Conversion Date was $381,136, into (a) 787,471 shares of the Company’s common stock, (b)
warrants to purchase 393,736 shares of common stock with an exercise price of $0.595 (Warrant A), and (c) warrants to purchase 787,471
shares of common stock with an exercise price of $0.893 (Warrant B). As the conversion price represented the same unit price as in
the March 2020 and May 2020 private placements, no finance expenses have been recorded in statement of operations as a result of
the conversion.
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
months period following the allocation.
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
months period following the allocation.
|
|
e.
|
On
March 22, 2021, the Company undertook to issue to certain investors (the “Investors”) 22,222,223 units (the “Units”)
in exchange for an aggregate purchase price of $20 million. Each Unit consists 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$1.15 per share (the “Warrant”
and the “Exercise Price”). Each Warrant is exercisable until the close of
business on March 31, 2026.
Pursuant
to the terms of the Warrants, following April 1, 2024, if the closing price of the common stock equal or exceeds 135% of the Exercise
Price (subject to appropriate adjustments for stock splits, stock dividends, stock combinations and other similar transactions after
the issue date of the Warrants) for any thirty (30) consecutive trading days, the Company may force the exercise of the Warrants,
in whole or in part, by delivering to the Investors a notice of forced exercise.
|
As
of March 31, 2021, the Company had the following outstanding warrants to purchase common stock:
Warrant
|
|
Issuance Date
|
|
Expiration Date
|
|
Exercise Price
Per Share ($)
|
|
|
Number of
Shares
of common stock
Underlying
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
Medigus Warrant
|
|
December 30, 2019
|
|
December 30, 2022
|
|
|
(*
|
)
|
|
|
2,688,492
|
|
Warrant B
|
|
December 30, 2019
|
|
June 30, 2021
|
|
|
0.893
|
|
|
|
6,826,623
|
|
Warrant B
|
|
March 3, 2020
|
|
September 3, 2021
|
|
|
0.893
|
|
|
|
1,959,504
|
|
Warrant A
|
|
May 18, 2020
|
|
November 18, 2021
|
|
|
0.595
|
|
|
|
1,729,981
|
|
Warrant B
|
|
May 18 2020
|
|
May 18, 2022
|
|
|
0.893
|
|
|
|
4,132,232
|
|
Warrant A
|
|
June 23, 2020
|
|
June 23, 2021
|
|
|
0.595
|
|
|
|
393,736
|
|
Warrant B
|
|
June 23,2020
|
|
December 23, 2021
|
|
|
0.893
|
|
|
|
787,471
|
|
Warrant March 2021,
|
|
March 29,2021
|
|
March 31, 2026
|
|
|
1.150
|
|
|
|
22,222,223
|
|
|
|
|
|
|
|
|
|
|
|
|
40,740,262
|
|
(*)
|
If
ScoutCam achieves an aggregate amount of $33 million in sales within the first three years immediately after the Exchange Agreement,
the Company will issue to Medigus 2,688,492 shares of the Company’s common stock, which represents 10% of the Company’s
issued and outstanding share capital as of the Exchange Agreement.
|
SCOUTCAM
INC.
NOTES
TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4 – EQUITY (continued):
Share-based
compensation to employees and to directors:
In
February 2020, the Company’s Board of Directors approved the 2020 Share Incentive Plan (the “Plan”). The Plan initially
included a pool of 5,228,007 shares of common stock for grant to Company employees, consultants, directors and other service providers.
On March 15, 2020, the Company’s Board of Directors approved an increase to the Company’s option pool pursuant to the Plan
by an additional 576,888 shares of Common Stock. On June 22, 2020, the Company’s Board of Directors approved an increase to the
Company’s option pool pursuant to the Plan by an additional 3,617,545 shares of common stock.
The
Plan is designed to enable the Company to grant options to purchase ordinary shares and RSUs under various and different tax regimes
including, without limitation: (i) pursuant and subject to Section 102 of the Israeli Tax Ordinance or any provision which may amend
or replace it and any regulations, rules, orders or procedures promulgated thereunder and to designate them as either grants made through
a trustee or not through a trustee; and (ii) pursuant and subject to Section 3(i) of the Israeli Tax Ordinance.
During
the three months ended March 31, 2021, the Company granted 511,792 options pursuant to the Plan.
The
fair value of each option was estimated as of the date of grant or reporting period using the Black-Scholes option-pricing model, using
the following assumptions:
|
|
Three months
ended March 31,
2021
|
|
Underlying value of ordinary shares ($)
|
|
|
0.85-0.90
|
|
Exercise price ($)
|
|
|
0.40-0.80
|
|
Expected volatility (%)
|
|
|
47.44
|
%
|
Term of the options (years)
|
|
|
7
|
|
Risk-free interest rate
|
|
|
0.78%-0.94
|
%
|
The
cost of the benefit embodied in the options granted during the three months ended March 31, 2021, based on their fair value as at the
grant date, is estimated to be approximately $289 thousands. 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, 2021:
|
|
For the
Three months ended
March 31, 2021
|
|
|
|
Amount of
options
|
|
|
Weighted average
exercise price
|
|
|
|
|
|
|
|
|
$
|
|
Outstanding at beginning of period
|
|
|
6,633,394
|
|
|
|
0.29
|
|
Granted
|
|
|
511,792
|
|
|
|
0.51
|
|
Cancelled
|
|
|
(791,401
|
)
|
|
|
0.29
|
|
Outstanding at end of period
|
|
|
6,353,785
|
|
|
|
0.31
|
|
|
|
|
|
|
|
|
|
|
Vested at end of period
|
|
|
2,267,216
|
|
|
|
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, 2021
|
|
|
|
USD in thousands
|
|
Research and development
|
|
|
56
|
|
General and administrative
|
|
|
23
|
|
Total expenses
|
|
|
79
|
|
SCOUTCAM
INC.
NOTES
TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
5 – REVENUES:
Contract
fulfillment assets and Contract liabilities:
The
Company’s contract fulfillment assets and contract liabilities as of March 31, 2021 and December 31, 2020 were as follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
USD in thousands
|
|
Contract fulfillment assets
|
|
|
1,370
|
|
|
|
1,130
|
|
Contract liabilities
|
|
|
1,511
|
|
|
|
848
|
|
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, 2021, the total RPO amounted to $2.9
million, which t the Company expects to recognize over the expected manufacturing term of the product under development.
NOTE
6 – INVENTORY:
Composed
as follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
USD in thousands
|
|
Raw materials and supplies
|
|
|
145
|
|
|
|
45
|
|
Finished goods
|
|
|
279
|
|
|
|
278
|
|
Inventory write downs
|
|
|
(79
|
)
|
|
|
(79
|
)
|
|
|
|
345
|
|
|
|
244
|
|
During
the period ended March 31, 2021, 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.
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, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Receivable from Parent Company
|
|
|
1
|
|
|
|
47
|
|