UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30,March 31, 20222023

For the transition period from           to

Commission File No. 333-188920

SCOUTCAM INC.

(Exact name of registrant as specified in its charter)

+97273 370-4691

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 14, 2022,May 8, 2023, the registrant had 7,121,73710,432,518 shares of common stock, par value $0.001, of the registrant issued and outstanding.

As used in this Quarterly Report and unless otherwise indicated, the terms “ScoutCam,” “we,” “us,” “our,” or “our Company” refer to ScoutCam Inc. Unless otherwise specified, all dollar amounts are expressed in United States dollars.

SCOUTCAM INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain information set forth in this Quarterly Report on Form 10-Q, including in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein may address or relate to future events and expectations and as such constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting our business, including many assumptions regarding future events.

Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “would,” “could,” “scheduled,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors. These statements may be found under the section of our Annual Report on Form 10-K for the year ended December 31, 20212022 (filed on March 30, 2022)28, 2023) entitled “Risk Factors” as well as in our other public filings.

In light of these risks and uncertainties, and especially given the start-up nature of our business, there can be no assurance that the forward-looking statements contained herein will in fact occur. Readers should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

Item 1. Financial Statements

ScoutCam INC.

INTERIM FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2022MARCH 31, 2023

CONSOLIDATED SCOUTCAM INC.

SCOUTCAM INC.

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

SCOUTCAM INC.

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

SCOUTCAM INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

SCOUTCAM INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

NineThree Months Ended September 30, 2022March 31, 2023 (Unaudited)

Three Months Ended September 30,March 31, 2022 (Unaudited)

The accompanying notes are an integral part of these interim condensed consolidated financial

statements.

SCOUTCAM INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

SUPPLEMENTAL INFORMATION FOR CASH FLOW:

Non cash activities -

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

Nine Months Ended September 30, 2021 (Unaudited)

Three Months Ended September 30, 2021 (Unaudited)

SCOUTCAM INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Non cash activities -

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

SCOUTCAM INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – GENERAL:

SCOUTCAM INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – GENERAL (continued):

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, 2021.2022.

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, stock basedstock-based compensation, as well as in estimates used in applying the revenue recognition policy. Actual results may differ from those estimates.

SCOUTCAM INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTSd.Significant Accounting Policies

NOTE 2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued):

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.

As described therein, to the extent development services are not distinct from the performance obligation relating to the subsequent production phase, revenue from these services is deferred until commencement of the production phase. Further to the inception of the production phase (refer to Note 5), the Company recognizes deferred development services over the expected term of production.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 September 30, 2022,March 31, 2023, the Group’s ROU assets and lease liabilities for operating leases totaled $325346 thousand and $277289 thousand, respectively.

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.

In March 2021, ScoutCam entered into a lease agreement for additional office space in Omer, Israel. The agreement is until December 31, 2023.2023. Monthly lease payments under the agreements are approximately $12thousand.

Lease expenses recorded in the interim consolidated statements of operations were $203 thousand for the nine months ended September 30, 2022.

ScoutCam subleases part of the office space to a third party for approximately$3 thousand per month.

In December 2022, ScoutCam entered into a lease agreement for office space in Ramat Gan, Israel. The agreement is for 12 months beginning on December 14, 2022. The agreement expires on December 14, 2023, and the Company has an option to extend the lease period for an additional one year. The Company doesn’t expect to extend the lease period. Therefore, the Company has elected to use the practical expedient regarding short-term leases. Monthly lease payments under the agreements are $3 thousand.

In addition, the Company leases vehicles under various operating lease agreements.

Lease expenses recorded in the interim consolidated statements of operations were $57thousand for month.the three months ended March 31, 2023.

Supplemental cash flow information related to operating leases was as follows:

SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO OPERATING LEASES

As of September 30, 2022,March 31, 2023, the Company’s operating leases had a weighted average remaining lease term of 0.470.85 years and a weighted average discount rate of 6%6%. Future

The maturities of lease paymentsliabilities under operating leases as of September 30, 2022 wereMarch 31, 2023 are as follows:

SCHEDULE OF MATURITIES LEASE LIABILITIES UNDER OPERATING LEASES

SCOUTCAM INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – EQUITY:

Warrants:

As of September 30, 2022,March 31, 2023, the Company had the following outstanding warrants to purchase common stock:

SCHEDULE OF STOCK WARRANTS OUTSTANDING TO PURCHASE COMMON STOCK

In addition, if the Company 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 298,722 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-basedb. 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 “Plan”).

The 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 Company’s option pool pursuant to the Plan by an additional 64,099 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 401,950 shares of common stock. During the second quarter of 2021, the Company’s Board of Directors approved an increase to the Company’s option pool pursuant to the Plan 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 option pool pursuant to the Plan by an additional 1,000,000 shares of common stock.

The Plan is designed to enable the Company to grant options to purchase shares of common stock 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.

Stock option activity

During the ninethree months ended September 30, 2022,March 31, 2023, the Company granted 53,00057,000 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 pricingoption-pricing model, using the following assumptions:

SCHEDULE OF SHARE-BASED PAYMENT, STOCK OPTIONS, VALUATION ASSUMPTIONS

The cost of the benefit embodied in the options granted during the ninethree months ended September 30, 2022,March 31, 2023, based on their fair value as atof the grant date, is estimated to be approximately $356142 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 three months ended March 31, 2023:

SCHEDULE OF STOCK OPTION ACTIVITY

SCOUTCAM INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – EQUITY (continued):

The following table summarizes stock option activity for the nine months ended September 30, 2022:

SCHEDULE OF STOCK OPTIONS ACTIVITY

Restricted stock unit (“RSU”) activity

During the nine months ended September 30, 2022, the Company granted 90,000 RSUs pursuant to the 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 cost of the benefit embodied in the RSU granted during the nine months ended September 30, 2022, based on their fair value as at the grant date, is estimated to be approximately $648 thousand. These amounts will be recognized in statements of operations over the vesting period

The following table summarizes RSU activity for the ninethree months ended September 30, 2022:March 31, 2023:

SCHEDULE OF STOCK OPTIONSOPTION ACTIVITY

The following table sets forth the total stock-based payment expenses resulting from options granted, included in the statements of operation and comprehensive income:

SCOUTCAM INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 45 – EQUITY REVENUES:(continued):

The following table sets forth the total share-based payment expenses resulting from options granted, included in the statements of operation:

SCHEDULE OF TOTAL SHARE-BASED PAYMENT EXPENSES

SCHEDULE OF DISAGGREGATION OF REVENUE

September 30, 2022	(*)	During the second quarter of 2022, the Company completed the development of the product relating to a customer-specific project for a Fortune 500 multinational healthcare corporation and moved from the development phase of the project to its production phase. As a result, during the three months ended March 31, 2023, the Company recognized development services revenues and related development costs that had been previously deferred, in the amounts of $106 thousand. The amounts were recognized based on the expected manufacturing term of the product, which the Company estimates at 7 years.
		USD in thousands
CostIn addition, following the commencement of the production phase, the Company recognized product revenues of $182			37
Research and thousands during the three months ended March 31, 2023 from the sale of units of the product developed in the context of these development			442
Sales and marketing			134
General and administrative			1,303
Total expenses			1,916	services.

NOTE 5 – REVENUES:

Contract fulfillment assets and Contract liabilities:

The Company’s contract fulfillment assets and contract liabilities as of September 30, 2022March 31, 2023 and December 31, 20212022 were as follows:

SCHEDULE OF CONTRACT FULFILLMENT ASSETS AND CONTRACT LIABILITIES

Contract liabilities include advance payments, which are primarily related to advanced billings for development services.

In the second quarter of 2022 the Company completed the development of its miniature camera solution relating to these advanced payments and moved to production. As a result, the Company recognized revenues of $211 thousand during the nine-month period ended September 30, 2022, that were included as deferred development services revenuesThe change in the contract liabilities balance, based on the expected manufacturing term of the product. Accordingly, the Company recognized expenses of $120 thousands during the nine-month period ended September 30, 2022, that were included as deferred development services expenses in the contract fulfillment assets balance.

In addition, the Company recognized revenues of 222$ thousands during the nine-month period from the sales of the product.assets:

SCHEDULE OF CONTRACT FULFILLMENT ASSETS

The change in contract liabilities:

 SCHEDULE OF CONTRACT FULFILLMENT LIABILITIES

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 September 30, 2022,March 31, 2023, the total RPO amounted to $3,7533.4 thousand,million, which the Company expects to recognize over the expected manufacturing term of the product under development.product.

NOTE 6 – INVENTORY:

Composed as follows:

SCHEDULE OF INVENTORY

During the period ended March 31, 2023, no impairment occurred.

SCOUTCAM INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - INVENTORY:

Composed as follows:

SCHEDULE OF INVENTORY

During the period ended September 30, 2022, no impairment occurred.

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.