Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Readers
are advised to review the following discussion and analysis of our financial condition and results of operations together with our consolidated
financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial
statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2020. Some of the information
contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our
plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See “Cautionary
Note Regarding Forward-Looking Statements”. You should review the “Risk Factors” section of our Annual Report for the
fiscal year ended December 31, 2020 for a discussion of important factors that could cause actual results to differ materially from the
results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
The
Company’s primary business activity during last few months was the completion of R&D in connection with a customer-specific
project and the transition to the production stage with respect to a contract with a Fortune 500 Multinational Healthcare Corporation,
while expanding the R&D team to enable additional projects in parallel. The main effect of this activity was the increase in the
number of employees to enable the Company to manage the anticipated increased workload. In addition, the Company has enlarged
its focus on I4.0 activities.
Other
major activities were the following:
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expanding
marketing activities, including the recruitment of a Director of Business Development in the US, and launching a multi-platform digital
marketing campaign;
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extensive
activity in connection with the Company’s IP, including submissions of new patent applications as well as maintenance, defense,
and commercialization efforts of existing patents;
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increased
operation expenses in order to improve the current Company’s R&D capabilities;
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increase
in research and development activities, including the development of new products and the improvement of existing technology, and
the examination of additional applications for our micro ScoutCam™ portfolio outside of the medical, defense and aerospace
fields, including sectors such as, inter alia, automotive, industrial non-destructing-testing industries, and predictive maintenance
(i.e. Industry 4.0) based on Internet of Things (IoT); and
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investment
in capital expenses to provide the necessary facilities, IT, and lab tools for our newly recruited employees and to upgrade the Company’s
production and quality control capabilities.
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Comparison
of the six months ended June 30, 2021 and 2020
The
following table summarizes our results of operations for the six months period ended June 30, 2021, and 2020, together with the changes
in those items in dollars and as a percentage:
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Six months ended June 30,
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2021
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2020
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% Change
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Revenues
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298,000
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74,000
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303
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%
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Cost of Revenues
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610,000
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281,000
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117
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%
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Gross Loss
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(312,000
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)
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(207,000
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)
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51
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%
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Research and development expenses
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754,000
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370,000
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104
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%
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Sales and marketing expense
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293,000
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188,000
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56
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%
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General and administrative expenses
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2,328,000
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1,680,000
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39
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%
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Operating Loss
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(3,687,000
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)
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(2,445,000
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)
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51
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%
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Revenues
For
the six months ended June 30, 2021, we generated revenues of $298,000, an increase of $224,000 from the six months ended June 30, 2020.
The
increase in revenues was primarily due to revenues from A.M. Surgical. Total revenues recorded from A.M. Surgical during the six months
ended June 30, 2021 amounted to approximately $200,000. We did not record any revenue from A.M. Surgical during the six months
ended June 30, 2020.
Cost
of Revenues
Cost
of revenues for the six months ended June 30, 2021 was $610,000, an increase of $329,000 compared to cost of revenues of $281,000 for
the six months ended June 30, 2020. The increase was primarily due to an increase in materials as a result of an increase in revenues
and an increase in payroll expenses as a result of hiring additional employees as part of the transition to the production stage with
respect to a contract with a Fortune 500 Multinational Healthcare Corporation.
Gross
Loss
Gross
loss for the six months ended June 30, 2021, was $312,000, an increase of $105,000 compared to gross loss of $207,000 for the six months
ended June 30, 2020.
Research
and Development Expenses
Research
and development expenses for the six months ended June 30, 2021 were $754,000, an increase of $384,000, or 104%, compared to $370,000
for the six months ended June 30, 2020. The increase was primarily due to (i) an increase in payroll expenses and materials and subcontractors
and (ii) an increase in research and development activities, including the development of new products and the improvement of existing
technology. We recently begun examining additional applications for our micro ScoutCam™ portfolio outside of the medical, defense
and aerospace fields, including sectors such as, inter alia, automotive, industrial non-destructing-testing industries, and predictive
maintenance (i.e. Industry 4.0) based on Internet of Things (IoT). We plan to further expand the activity in these non-medical spaces.
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.
Sales
and Marketing Expenses
Sales
and marketing expenses for the six months ended June 30, 2021, were $293,000, an increase of $105,000, or 56%, compared to $188,000 for
the six months ended June 30, 2020. The increase was primarily due to an expanding marketing activity, including the recruitment of a
Director of Business Development in the US, and launching a multi-platform digital marketing campaign.
We
expect that our selling and marketing expenses will increase as we continue to increase our selling and marketing efforts.
General
and Administrative Expenses
General
and Administrative expenses for the six months ended June 30, 2021 were $2,328,000, an increase of $648,000, or 39%, compared to $1,680,000
for the six months ended June 30, 2020. The increase was primarily due to:
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an
increase in in payroll expenses due to the hiring of additional employees including a new CEO, controller and the shift in
the position of the CFO from part-time to full-time;
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An
increase in IP expenses due to maintenance, defense, and commercialization efforts of existing patents.
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Operating
loss
We
incurred an operating loss of $3,687,000 for the six months ended June 30, 2021, an increase of $1,242,000, or 51%, compared to operating
loss of $2,445,000 for the six months ended June 30, 2020. The increase in operating loss was due to $105,000 increase in gross loss,
$384,000 increase in research and development expenses, and $105,000 increase in sales and marketing expenses and $648,000 increase
in administrative and general expenses.
Cash
Flows
The
following table sets forth the significant sources and uses of cash for the periods set forth below (in dollars):
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Six month ended June 30,
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2021
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2020
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Cash used in Operating Activity
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(3,054,000
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)
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(2,277,000
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)
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Cash used in Investing Activity
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(170,000
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)
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(221,000
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)
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Cash provided by Financing Activity
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21,622,000
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2,777,000
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Operating
Activities
For
the six months ended June 30, 2021, net cash flows used in operating activities was $3,054,000, due primarily to a net loss of $3,694,000,
partially offset by share based compensation of $635,000.
Investing
Activities
For
the six months ended June 30, 2021, net cash flows used in investing activities was $170,000, due to the purchase of property
and equipment.
Financing
Activities
For
the six months ended June 30, 2021, net cash flows provided by financing activities was $21,622,000, due to proceeds from the issuance
of shares and warrants equivalent to approximately $19,118,000 and proceeds from exercise from warrants of approximately $2,504,000.
Comparison
of the three months ended June 30, 2021 and 2020
The
following table summarizes our results of operations for the three months period ended June 30, 2021, and 2020, together with the changes
in those items in dollars and as a percentage:
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Three months ended June 30,
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2021
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2020
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% Change
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Revenues
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274,000
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34,000
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706
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%
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Cost of Revenues
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407,000
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151,000
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170
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%
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Gross Loss
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(133,000
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)
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(117,000
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)
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14
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%
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Research and development expenses
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421,000
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115,000
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266
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%
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Sales and marketing expense
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148,000
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136,000
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9
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%
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General and administrative expenses
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1,395,000
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568,000
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146
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%
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Operating Loss
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(2,097,000
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)
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(936,000
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)
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124
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%
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Revenues
For
the three months ended June 30, 2021, we generated revenues of $274,000, an increase of $240,000 from the three months ended June 30,
2020.
The
increase in revenues was primarily due to revenues from A.M. Surgical. Total revenues recorded from A.M. Surgical during the three
month ended June 30, 2021 amounted to approximately $200,000. We did not record any revenue from A.M. Surgical during the
three months ended June 30, 2020.
Cost
of Revenues
Cost
of revenues for the three months ended June 30, 2021, was $407,000, an increase of $256,000 compared to cost of revenues of $151,000
for the three months ended June 30, 2020. The increase was primarily due to an increase in materials as a result of an increase in revenues
and an increase in payroll expenses as a result of hiring additional employees as part of the transition to the production stage with
respect to a contract with a Fortune 500 Multinational Healthcare Corporation.
Gross
Loss
Gross
loss for the three months ended June 30, 2021, was $133,000, an increase of $16,000 compared to gross loss of $117,000 for the three
months ended June 30, 2020.
Research
and Development Expenses
Research
and development expenses for the three months ended June 30, 2021 were $421,000, an increase of $306,000, or 266%, compared to
$115,000 for the three months ended June 30, 2020. The increase was primarily due to (i) an increase in payroll expenses,
materials and subcontractors; and (ii) an increase in research and development activities, including the development of new
products and the improvement of existing technology. We recently began examining additional applications for our micro
ScoutCam™ portfolio outside of the medical, defense and aerospace fields, including sectors such as automotive, industrial non-destructing-testing industries, and predictive maintenance (i.e. Industry 4.0) based on Internet of
Things (IoT). We plan to further expand the activity in these non-medical spaces.
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.
Sales
and Marketing Expenses
Sales
and marketing expenses for the three months ended June 30, 2021 were $148,000, an increase of $12,000, or 9%, compared to $136,000 for
the three months ended June 30, 2020.
General
and Administrative Expenses
General
and Administrative expenses for the three months ended June 30, 2021 were $1,395,000, an increase of $827,000, or 146%, compared to
$568,000 for the three months ended June 30, 2020. The increase was primarily due to:
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an
increase in share based compensation due to new options grants as described in Note 4 of our interim condensed financial statements
as of June 30, 2021;
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an
increase in in payroll expenses due to the hiring of additional employees including a new CEO and controller, and an increase due
to the transition of our CFO from part-time to full-time; and
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An
increase in IP expenses due to maintenance, defense, and commercialization efforts of existing patents.
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Operating
loss
We
incurred an operating loss of $2,097,000 for the three months ended June 30, 2021, an increase of $1,161,000, or 124%, compared to operating
loss of $936,000 for the three months ended June 30, 2020. The increase in operating loss was due to $16,000 increase in gross loss,
$306,000 increase in research and development expenses, and $12,000 increase in sales and marketing expenses and $827,000 increase
in administrative and general expenses.
Cash
Flows
The
following table sets forth the significant sources and uses of cash for the periods set forth below (in dollars):
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Three month ended June 30,
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2021
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2020
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Cash used in Operating Activity
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(2,280,000
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)
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(1,140,000
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)
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Cash used in Investing Activity
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(53,000
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)
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(36,000
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)
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Cash provided by Financing Activity
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11,341,000
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1,949,000
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Operating
Activities
For
the three months ended June 30, 2021, net cash flows used in operating activities were $2,280,000, due primarily to a net loss
of $2,088,000 and change in operating asset and liabilities of approximately $698,000, partially offset by share based compensation of
$556,000.
Investing
Activities
For
the three months ended June 30, 2021, net cash flows used in investing activities were $53,000, due to the purchase of
property and equipment.
Financing
Activities
For
the three months ended June 30, 2021, net cash flows provided by financing activities were $11,341,000, due to proceeds from the
issuance of shares and warrants equivalent to approximately $9,618,000 and proceeds from exercise from warrants of approximately $1,723,000.
Future
Funding Requirements
The
Company believes that it will require additional financing in order to provide the capital it needs to achieve its growth targets.
Liquidity
and Capital Resources
We
generated liquidity primarily from fund raising and warrant exercises as described in Note 4 of our interim condensed financial statements
as of June 30, 2021.
As
of June 30, 2021, our total assets were $25,548,000. As of December 31, 2020, our total assets were $5,895,000. The increase of assets
was mainly due to an increase of cash and cash equivalents due to fundraising activities and warrants exercise, as described in Note
4 of our interim condensed financial statements as of June 30, 2021.
As
of June 30, 2021, our total liabilities were $3,066,000. As of December 31, 2020, our total liabilities were $1,931,000. The increase
of liabilities was mainly due to an increase of accounts payables, contract liabilities and operating lease liabilities.
Since
our incorporation through June 30, 2021, we incurred accumulated deficit of approximately $10 million. The management believes that
our cash and cash resources as of June 30, 2021 will allow us to fund our operating plan through at least the next 12 months.
However, we expect to continue to incur significant research and development expenses and other costs related to our ongoing operations;
and in order to continue our future operations, we will need to obtain additional funding at least until such time that
we become profitable.
Off-Balance
Sheet Arrangements
None.