NOTES
TO THE 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. However, 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, the Company 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 the Company,
in exchange for consideration consisting of shares of the Company’s common stock representing 60% of the issued
and outstanding share capital of the Company immediately upon the closing of the Exchange Agreement (the “Closing”).
The Exchange Agreement was conditioned on certain obligations by the respective parties, including, but not limited to,
that the Company will have at least USD 3 million in cash on hand upon Closing, and that the Company will bear the costs
and expenses in connection with the execution of the Exchange Agreement. In accordance with said obligations, the Company
undertook to secure at least USD 3 million in funding prior to the Closing, based on a pre-money valuation of USD 10 million
of the Company on a post-Closing basis. In addition, the Exchange Agreement provides that if ScoutCam achieves an aggregated
amount of USD 33 million in sales within the first three years immediately after the Closing, the Company will issue to
Medigus additional shares of Company’s common stock representing 10% of the Company’s issued and outstanding
share capital as reflected on the date of the Closing.
The
Closing occurred on December 30, 2019 (the “Closing Date”). On December 31, 2019, Intellisense filed with
the Nevada Secretary of State a Certificate of Amendment to the Registrant’s Articles of Incorporation to change
its name from “Intellisense Solutions Inc.” to “ScoutCam Inc.”, effective December 31, 2019. Thereafter,
on January 23, 2019, FINRA approved the Company’s name change and its trading symbol was changed from INLL to SCTC
on the OTC Markets, Pink Tier. The Company’s Common Stock is quoted on the OTC Pink under the symbol “SCTC”.
There is currently no trading market for Company’s Common Stock and there is no assurance that a regular trading
market will ever develop.
Although
the transaction resulted in ScoutCam becoming a wholly owned subsidiary of the Company, the transaction constitutes a
reverse recapitalization as the shareholders of ScoutCam own a substantial majority of the outstanding common shares of
the Company and taking into account that prior to the Closing Date the Company was considered as a shell corporation.
Accordingly, ScoutCam is considered accounting acquirer of the merged company.
|
SCOUTCAM
INC. (Formerly known as Intellisense Solutions Inc.)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – GENERAL (continued):
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.
|
b.
|
During
the year ended December 31, 2019, the Company incurred a loss of USD 1,829 thousand and negative cash flows from operating
activities of approximately USD 1,799 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 consolidated
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.
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES:
The
Exchange Agreement is being treated as a reverse recapitalization of Scoutcam Ltd., for financial accounting and reporting purposes.
As such, ScoutCam Ltd. is treated as the acquirer for accounting and financial reporting purposes while the Company is treated
as the acquired entity for accounting and financial reporting purposes. As a result, the comparative figures that are reflected
in the Company’s financial statements are those of ScoutCam and from the Closing Date, the Company’s assets, liabilities
and results of operations are consolidated with the assets, liabilities and results of operations of ScoutCam.
The
consolidated financial statements reflect the group’s financial position, results of operations, changes in shareholders
equity (capital deficiency) and cash flows in accordance with generally accepted accounting principles in the Unites States (“U.S.
GAAP”).
SCOUTCAM
INC. (Formerly known as Intellisense Solutions Inc.)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES (continued):
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 statements have been prepared on a standalone basis and are derived from Medigus’s consolidated
financial statements and accounting records. The carve-out comparative financial statements reflect 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 statements 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 statements have 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.
The
accounting policies set out below have, unless otherwise stated, been applied consistently.
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, as well as in estimates
used in applying the revenue recognition policy. Actual results may differ from those estimates.
SCOUTCAM
INC. (Formerly known as Intellisense Solutions Inc.)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES (continued):
A
majority of ScoutCam’s revenues are generated in U.S. dollars. The substantial majority of ScoutCam Ltd.’s costs are
incurred in U.S. dollars and New Israeli Shekels (“NIS”). ScoutCam Ltd.’s management believes that the U.S.
dollar is the currency of the primary economic environment in which ScoutCam Ltd. operates. Thus, the functional currency of ScoutCam
Ltd.’s is the U.S. dollar.
Transactions
and balances originally denominated in U.S. dollars are presented at their original amounts. Balances in non-dollar currencies
are translated into U.S. dollars using historical and current exchange rates for non-monetary and monetary balances, respectively.
For non-U.S. dollar transactions and other items in the statements of operations (indicated below), the following exchange rates
are used: (i) for transactions exchange rates at transaction dates and (ii) for other items (derived from non-monetary balance
sheet items such as depreciation and amortization) historical exchange rates. Currency transaction gains and losses are presented
in financial income or expenses, as appropriate.
|
d.
|
Cash
and Cash Equivalents
|
The
Company considers as cash equivalents all short-term, highly liquid investments, which include short-term bank deposits with original
maturities of three months or less from the date of purchase that are not restricted as to withdrawal or use and are readily convertible
to known amounts of cash.
Accounts
receivable are presented in the Company’s consolidated balance sheet net of allowance for doubtful accounts. The Company
estimates the collectibility of its accounts receivable balances and adjusts its allowance for doubtful accounts accordingly.
When
revenue recognition criteria are not met for a sale transaction that has been billed, the Company does not recognize deferred
revenues or the related account receivable.
As
of December 31, 2019, no allowance for doubtful accounts was recorded.
|
f.
|
Property
and equipment
|
Property
and equipment is stated at cost, net of accumulated depreciation and amortization. Depreciation is calculated on a straight-line
basis over the estimated useful lives:
Machinery
and equipment – 6-10 years.
SCOUTCAM
INC. (Formerly known as Intellisense Solutions Inc.)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES (continued):
Israeli
labor law generally requires payment of severance pay upon dismissal of an employee or upon termination of employment in certain
other circumstances. Pursuant to section 14 of the Severance Compensation Act, 1963 (“Section 14”), all of the Company’s
employees in Israel are entitled to monthly deposits, at a rate of 8.33% of their monthly salary, made in their name with insurance
companies. Payments under Section 14 relieve the Company from any future severance payment obligation with respect to those employees
and, as such, the Company may only utilize the insurance policies for the purpose of disbursement of severance pay. As a result,
the Company does not recognize an asset nor liability for these employees.
The
asset and the liability for severance pay presented in the balance sheet reflects employees that began employment prior to Section
14.
The
severance pay liability of the Company to its employees that began employment prior to Section 14, based upon the number of years
of service and the latest monthly salary and is partly covered by regular deposits with recognized pension funds and deposits
with severance pay funds. Under labor agreements, these deposits are in the employees’ names and, subject to certain limitations,
are the property of the employees. The liability for employee rights upon retirement covers the severance pay liability of the
Company in accordance with labor agreements in force and based on salary components which, in the opinion of management, create
entitlement to severance pay. The Company records the obligation as if it were payable at each balance sheet date on an undiscounted
basis. The Company may only make withdrawals for the purpose of paying severance.
|
h.
|
Stock-Based
Compensation
|
The
Company measures and recognizes compensation expense for its equity classified stock-based awards, including stock-based option
awards exercisable into shares of common stock of the Parent company under its plan based on estimated fair values on the grant
date. The Company calculates the fair value of stock-based option awards on the grant date using the Black-Scholes option pricing
model. The option-pricing model requires a number of assumptions, of which the most significant are the stock price volatility
and the expected option term. For the years ended December 31, 2019, and 2018, the volatility was based on the historical stock
volatility of the Parent Company. The Company’s expected dividend rate is zero since the Company does not currently pay
cash dividends on its stocks and does not anticipate doing so in the foreseeable future. Each of the above factors requires the
Company to use judgment and make estimates in determining the percentages and time periods used for the calculation. If the Company
were to use different percentages or time periods, the fair value of stock-based option awards could be materially different.
The Company recognizes stock-based compensation cost for option awards on an accelerated basis over the employee’s requisite
service period, net of estimated forfeitures.
SCOUTCAM
INC. (Formerly known as Intellisense Solutions Inc.)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES (continued):
Inventories
include raw materials, inventory in process and finished products and are valued at the lower of cost or net realizable value.
The
cost is determined on the basis of “first in-first out” basis. Cost of purchased raw materials and inventory in process
includes costs of design, raw materials, direct labor, other direct costs and fixed production overheads. Materials and other
supplies held for use in the production of inventories are not written down below cost if the finished products in which they
will be incorporated are expected to be sold at or above cost.
The
Company regularly evaluates its ability to realize the value of inventory based on a combination of factors including the following:
forecasted sales or usage, estimated current and future market values.
Commencing
January 1, 2018, the Company’s revenues are measured according to the ASC 606, “Revenue from Contracts with Customers”
(“ASC 606”). Under ASC 606, revenues are measured according to the amount of consideration that the Company expects
to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of
third parties, such as sales taxes. Revenues are presented net of VAT.
Until
December 31, 2017 revenues were measured in accordance with ASC 605, “Revenue recognition”. The implementation of
ASC 606 did not have a material effect on the consolidated financial statements of the Company as the Company’s accounting
for revenue recognition remains substantially identical.
The
Company recognizes revenue when a customer obtains control over promised goods or services. For each performance obligation the
Company determines at contract inception whether it satisfies the performance obligation over time or satisfies the performance
obligation at a point in time.
Performance
obligations are satisfied over time if one of the following criteria is met:
(a)
the customer simultaneously receives and consumes the benefits provided by the Company’s performance; (b) the Company’s
performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or (c) the Company’s
performance does not create an asset with an alternative use to the Company and the Company has an enforceable right to payment
for performance completed to date.
If
a performance obligation is not satisfied over time, a Company satisfies the performance obligation at a point in time.
SCOUTCAM
INC. (Formerly known as Intellisense Solutions Inc.)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES (continued):
The
transaction price is allocated to each distinct performance obligations on a relative standalone selling price (“SSP”)
basis and revenue is recognized for each performance obligation when control has passed. In most cases, the Company is able to
establish SSP based on the observable prices of services sold separately in comparable circumstances to similar customers and
for products based on the Company’s best estimates of the price at which the Company would have sold the product regularly
on a stand-alone basis. The Company reassesses the SSP on a periodic basis or when facts and circumstances change.
Product
Revenue
Revenues
from product sales are recognized when the customer obtains control of the Company’s product, typically upon shipment to
the customer. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from
revenues.
Service
Revenue
The
Company also generates revenues from development services. Revenue from development services is recognized over the period of
the applicable service contract. There are no long-term payment terms or significant financing components of the Company’s
contracts.
The
Company’s contract payment terms for product and services vary by customer. The Company assesses collectibility based on
several factors, including collection history.
Cost
of revenue consists of products purchased from sub-contractors, raw materials for in-house assembly line, shipping and handling
costs to customers, salary, employee-related expenses, depreciation and overhead expenses.
|
l.
|
Research
and development costs
|
Research
and development costs are expensed as incurred and includes salaries and employee-related expenses, overhead expenses, material
and third-party contractor’s charges.
Income
taxes are accounted for using the asset and liability approach under ASC-740, “Income Taxes” (“ASC-740”).
The asset and liability approach require the recognition of taxes payable or refundable for the current year and deferred tax
liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial statements
or tax returns.
The
measurement of current and deferred tax liabilities and assets is based on provisions of the relevant tax law. The measurement
of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not
expected to be realized.
ASC-740
also clarifies the accounting and reporting for uncertainties in income tax. ASC-740 prescribes a comprehensive model for the
financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken
in income tax returns.
SCOUTCAM
INC. (Formerly known as Intellisense Solutions Inc.)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES (continued):
From
time to time, the Company becomes involved in legal proceedings or is subject to claims arising in its ordinary course of business.
Such matters are generally subject to many uncertainties and outcomes are not predictable with assurance. The Company accrues
for contingencies when the loss is probable, and it can reasonably estimate the amount of any such loss. The Company is currently
not a party to any material legal or administrative proceedings and, is not aware of any material pending or threatened material
legal or administrative proceedings against the Company.
Basic
loss per share is computed by dividing net loss attributable to ordinary stockholders of the Company, by the weighted average
number of shares of common stock as described below.
In
computing the Company’s diluted earnings per share, the numerator used in the basic earnings per share computation is adjusted
for the dilutive effect, if any, of the Company’s potential shares of common stock. The denominator for diluted earnings
per share is a computation of the weighted-average number of ordinary shares and the potential dilutive shares of common stock
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, 2018. 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 (see also note 3).
The
Company adopted the new accounting standard Accounting Standards Codification 842 “Leases,” and all the related amendments,
on January 1, 2019 and used the standard’s effective date as the Company’s date of initial application. Consequently,
financial information was not updated and the disclosures required under the new standard are not provided for dates and periods
before January 1, 2019. The new standard also provides practical expedients for an entity’s ongoing accounting. The adoption
of this standard did not have a material effect on the Company’s financial statements. On January 1, 2019, the Company recognized
ROU assets of approximately USD 19 thousand and lease liabilities of approximately USD 19 thousand for its operating leases of
real estate and vehicles. The Company has elected the short-term lease exception for leases with a term of 12 months or less.
As part of this election it will not recognize right-of-use assets and lease liabilities on the balance sheet for leases with
terms less than 12 months. See also note 12.
|
q.
|
Recently
Issued Accounting Pronouncements Not Yet Adopted
|
In
June 2016, the FASB issued ASU 2016-13 “Financial Instruments-Credit Losses-Measurement of Credit Losses on Financial Instruments”
that supersedes the existing impairment model for most financial assets to a model that reflects expected credit losses and requires
consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 requires
an entity to recognize an impairment allowance equal to its current estimate of all contractual cash flows the entity does not
expect to collect. ASU 2016-13 also requires that credit losses relating to available-for-sale debt securities will be recorded
through an allowance for credit losses. The guidance will be effective for Smaller Reporting Companies (SRCs, as defined by the
SEC) for the fiscal year beginning on January 1, 2023, including interim periods within that year. We are currently evaluating
this guidance to determine the impact it may have on our consolidated financial statements.
SCOUTCAM
INC. (Formerly known as Intellisense Solutions Inc.)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 – REVERSE RECAPITALIZATION
On
December 30, 2019, Intellisense and Medigus completed the Exchange Agreement accounted for as a reverse recapitalization transaction.
Pursuant to the Exchange Agreement, Intellisense issued to Medigus 16,130,952 share. Upon such issuance, ScoutCam Ltd. became
a wholly-owned subsidiary of Intellisense On December 31, 2019, Intellisense Solutions Inc. changed its name to ScoutCam Inc.
Immediately
prior to the Closing Date the Company’s outstanding common stock was comprised of 3,927,346 shares of common stock $0.001
par value, of which 1,352,666 shares were issued immediately prior to the Closing Date as part of the conversion of promissory
notes to related parties and the exercise of warrants by related parties, employees and service providers.
Also
on the Closing Date, 3,413,312 units, each comprised of two shares of common stock par value USD 0.001 per share, one Warrant
A (as defined below) and two Warrants B (as defined below), were issued to investors as part of the financing transaction that
the Company was obligated to secure prior to the closing. The immediate gross proceeds 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 the12
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.
While
ScoutCam Inc. was the legal acquirer, ScoutCam Ltd. was treated as the acquiring company for accounting purposes as the Exchange
Agreement was accounted for as a reverse recapitalization which is equivalent to the issuance of 10,753,969 shares by ScoutCam
Ltd, for the net monetary assets of ScoutCam Inc. As a result, the financial statements of the Company prior to the Closing Date
are the historical financial statements of ScoutCam Ltd. The financial statements of the Company after the Closing Date reflect
the results of the operations of ScoutCam Ltd. and ScoutCam Inc. on a combined basis. The net acquired assets of the Company as
of the Closing Date was $3,040 thousands. There were no fair value adjustments necessary to perform as the carrying values of
the net acquired assets approximated fair value. Further, given the nature of the operations of ScoutCam Inc. prior to the Closing
Date, there were no intangible assets, including goodwill, established as a result of the Exchange Agreement.
Under
the Exchange Agreement, the number of shares of common stock and USD amount for common stock is based on the nominal value and
the shares of common stock issued by ScoutCam Inc. (reflecting the legal structure of ScoutCam Inc. as the legal acquirer) on
the Closing Date plus shares of common stock issued by ScoutCam Inc. as part of the Exchange Agreement as described above. Historical
stockholders’ equity reflects the accounting acquirer, except for share number and USD amount adjusted for the shares exchange
ratio pursuant to the Exchange Agreement amounting to 8.065.
NOTE
4 – INVENTORY:
Composed
as follows:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
USD in thousands
|
|
Raw materials and supplies
|
|
|
24
|
|
|
|
38
|
|
Work in progress
|
|
|
316
|
|
|
|
43
|
|
Finished goods
|
|
|
560
|
|
|
|
-
|
|
|
|
|
900
|
|
|
|
81
|
|
During
the years ended 2019 and 2018, no impairment occurred.
SCOUTCAM
INC. (Formerly known as Intellisense Solutions Inc.)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
5 – PROPERTY AND EQUIPMENT, NET:
Property,
plant and equipment, net consisted of the following:
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
USD
in thousands
|
|
Cost:
machinery and equipment
|
|
|
132
|
|
|
|
286
|
|
Less:
accumulated deprecation
|
|
|
(73
|
)
|
|
|
(273
|
)
|
Total
property and equipment, net
|
|
|
59
|
|
|
|
13
|
|
Depreciation
expenses were USD 6 thousand and USD 5 thousand in the years ended December 31, 2019 and 2018, respectively.
NOTE
6 – OTHER ACCRUED EXPENSES:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
USD in thousands
|
|
Unpaid recapitalization transaction costs
|
|
|
89
|
|
|
|
-
|
|
IRS (see note 7b)
|
|
|
73
|
|
|
|
-
|
|
Accrued expenses
|
|
|
390
|
|
|
|
32
|
|
|
|
|
552
|
|
|
|
32
|
|
NOTE
7 – INCOME TAXES:
The
Company and its subsidiary are taxed under the domestic tax laws of the jurisdiction of incorporation of each entity (United States
and Israel).
Income
from Israel was taxed at the corporate tax rate of 23%.
ScoutCam
Inc. was incorporated in the United States and is subject to the Federal and State tax laws established in the United States.
On
December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act reduces the corporate tax rate
to 21 percent from 35 percent, among other things.
|
b.
|
ScoutCam
Inc. did not timely file its tax return for 2013-2014 and therefore the IRS imposed penalties in the amount of USD 60 thousand
(approximately $73 thousands including interest).
|
ScoutCam
Inc. has not yet filed tax returns for 2015-2018.
|
c.
|
Israel
tax loss carryforwards
|
As
of December 31, 2019 the Company has accumulated losses for tax purposes that were generated in Israel. These losses may be carried
forward and offset against taxable income in the future for an indefinite period. A full valuation allowance was created against
the Company’s deferred tax assets generated in Israel. Management currently believes that it is more likely than not that
the deferred taxes generated in Israel will not be realized in the foreseeable future.
SCOUTCAM
INC. (Formerly known as Intellisense Solutions Inc.)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 – RELATED PARTIES:
|
a.
|
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.
|
The
total expenses for year ended December 31, 2019 amounted to USD 329 thousand. As of December 31, 2019 the balance with Medigus
amounting to USD 73 thousand represents amounts to be utilized against future services.
In
addition, ScoutCam Ltd.’s employees provide support services to Medigus.
|
b.
|
On
June 3, 2019, the Parent Company executed a capital contribution on account of additional paid in capital into ScoutCam Ltd.
of an aggregate amount of USD 720 thousand.
|
|
|
|
|
c.
|
On
August 27, 2019, the Parent Company provided ScoutCam Ltd. with a line of credit in the aggregate amount of USD 500 thousand
and, in exchange, ScoutCam Ltd. agreed to grant the Parent Company a capital note that will bear an annual interest rate of
4%. The repayment of the credit line amount shall be spread over one year in monthly payments beginning January 2020. The
said note is presented in the consolidated balance sheet within “Loan from Parent Company”.
|
|
|
|
|
d.
|
On
July 31, 2019, ScoutCam Ltd. and Prof. Benad Goldwasser entered into a consulting agreement, whereby Prof. Goldwasser agreed
to serve as chairman of the board of directors of ScoutCam Ltd., effective retroactively to March 1, 2019, in consideration
for, inter alia, a monthly fee of $10,000 and options representing 5% of our fully-diluted share capital as of the
Closing Date.
|
|
|
|
|
e.
|
On
September 3, 2019, a certain Asset Transfer Agreement, by and between ScoutCam Ltd. and the Parent Company dated May 28, 2019,
became effective. According to the Asset Transfer Agreement the Company transferred certain assets (property and equipment)
with a nil carrying amount to the Parent Company in consideration of USD 168 thousand. The assets were then sold to a third
party. The excess of the said consideration over the carrying amount was directly recorded to shareholders’ equity.
|
|
|
|
|
f.
|
During
December 2019, the Company entered into a consulting agreement with Shrem Zilberman Group Ltd. (the “Consultant”)
in the amount of USD 165 thousand (see also note 9b). A director of the Company is related to one of the Consultant’s
shareholders.
|
|
|
|
|
g.
|
On
February 12, 2020, the Company’s Board of Directors authorized the allotment of options to purchase 2,235,691 shares
of Common Stock of the Company to Professor Benad Goldwasser, the Company’s Chairman of the Board, and options to purchase
1,865,346 shares of Common Stock of the Company to certain officers of the Company. Each option is convertible into one share
of common stock of the Company of $0.001 par value at an exercise price of $0.29. See also note 13b.
|
NOTE
9 – EQUITY:
|
a.
|
As
discussed in note 3, the Recapitalization is accounted for as a reverse recapitalization with ScoutCam Inc. as the legal acquirer
and ScoutCam Ltd. as the accounting acquirer. Under the Recapitalization, the USD amount for shares of common stock is based
on the nominal value and the shares of common stock issued by ScoutCam Inc. (reflecting the legal structure of ScoutCam Inc.
as the legal acquirer) on the Recapitalization Date plus shares of common stock issued by the Company as part of the Recapitalization
as described above. Historical stockholders’ equity reflects the accounting acquirer’s share number and USD amount
adjusted for the exchange ratio determined in the Recapitalization.
|
SCOUTCAM
INC. (Formerly known as Intellisense Solutions Inc.)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
9 – EQUITY (continued):
|
b.
|
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, the Company’s Consultant (see also note 8f) 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.
NOTE
10 – REVENUES:
|
a.
|
Disaggregation
of Revenues:
|
The
following table present the Company’s revenues disaggregated by revenue type for the years ended December 31, 2019 and 2018:
|
|
Year ended on December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
USD in thousands
|
|
Products
|
|
|
188
|
|
|
|
174
|
|
Services
|
|
|
121
|
|
|
|
217
|
|
|
|
|
309
|
|
|
|
391
|
|
Revenues
from products are recognized at a point of time and revenues from services are recognized over time.
The
Company’s contract liabilities as of December 31, 2019 and 2018 were as follows:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
USD in thousands
|
|
The change in deferred revenues:
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
200
|
|
|
|
8
|
|
Deferred revenue relating to new sales
|
|
|
387
|
|
|
|
200
|
|
Revenue recognition during the period
|
|
|
(85
|
)
|
|
|
(8
|
)
|
Balance at end of year
|
|
|
502
|
|
|
|
200
|
|
Contract
liabilities include advance payments, which are primarily related to advanced billings for development services.
Revenue
recognized in 2018 that was included in deferred revenue balance as of January 1, 2018 was USD 8 thousand.
There
was no revenue recognized in 2019 that was included in deferred revenue balance as of December 31, 2018.
SCOUTCAM
INC. (Formerly known as Intellisense Solutions Inc.)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 – REVENUES (continued):
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 December 31, 2019 the total RPO amounted
to USD 906 thousand, which the Company expects to recognize during financial year 2020.
NOTE
11 – ENTITY WIDE DISCLOSURES:
ASC
280, “Segment Reporting,” establishes standards for reporting information about operating segments. The Company manages
its business based on one operating segment and derives revenues from sales of products and services developing minimally invasive
endosurgical tools and highly innovative imaging solutions.
|
a.
|
Revenues
by geographical area (based on the location of customers)
|
The
following is a summary of revenues within geographic areas:
|
|
Year
ended on
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
USD
in thousands
|
|
United
States
|
|
|
142
|
|
|
|
300
|
|
United
Kingdom
|
|
|
33
|
|
|
|
24
|
|
South
Korea
|
|
|
-
|
|
|
|
7
|
|
Israel
|
|
|
67
|
|
|
|
12
|
|
Other
|
|
|
67
|
|
|
|
48
|
|
|
|
|
309
|
|
|
|
391
|
|
Set
forth below is a breakdown of Company’s revenue by major customers (major customer –revenues from these customers
constituted at least 10% of total revenues in a certain year):
|
|
Year ended on
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
USD in thousands
|
|
Customer A
|
|
|
85
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
Customer B
|
|
|
30
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
Customers C
|
|
|
33
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
Customer D – Parent company
|
|
|
36
|
|
|
|
|
|
SCOUTCAM
INC. (Formerly known as Intellisense Solutions Inc.)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
12 – LEASES
The
Company’s leases relate to vehicles leases and to short term lease of Company’s offices.
The
components of lease expenses during the periods presented were as follows:
|
|
Year
ended
December
31, 2019
|
|
|
|
USD
in thousands
|
|
Operating
lease expenses
|
|
|
29
|
|
Short-term
lease expenses
|
|
|
60
|
|
Total
lease expenses
|
|
|
89
|
|
Supplemental
cash flow information related to operating leases during the period presented was as follows:
|
|
Year
ended
December 31, 2019
|
|
|
|
USD
in thousands
|
|
Cash
paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating
cash flows from operating leases
|
|
|
29
|
|
ROU
assets obtained in exchange for lease liabilities:
|
|
|
|
|
Operating
leases
|
|
|
55
|
|
Lease
term and discount rate related to operating leases as of the period presented were as follows:
|
|
December
31, 2019
|
|
|
|
USD
in thousands
|
|
Weighted-average
remaining lease term (in years)
|
|
|
1.4
|
|
Weighted-average
discount rate
|
|
|
10
|
%
|
The
maturities of lease liabilities under operating leases as of December 31, 2019 are as follows:
|
|
USD in thousands
|
|
2020
|
|
|
25
|
|
2021
|
|
|
21
|
|
2022
|
|
|
14
|
|
Total undiscounted lease payments
|
|
|
60
|
|
Less: Imputed interest
|
|
|
(7
|
)
|
Total lease liabilities
|
|
|
53
|
|
SCOUTCAM
INC. (Formerly known as Intellisense Solutions Inc.)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
13 – SUBSEQUENT EVENTS:
|
a.
|
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.
|
b.
|
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.
|
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
March 19, 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. For a discussion of options granted to related parties,
see Note 8g.
|
c.
|
On
March 15, 2020, the Company’s Board of Directors approved, among other things: (i) an increase to the Company’s
option pool pursuant to the Plan by an additional 576,888 shares of Common Stock for future grants to employees, consultants,
directors and other service providers of the Company; (ii) a quarterly fee of $4,000 payable to each of the Company’s
directors, excluding Professor Benad Goldwasser; and (iii) the allotment of options to purchase 576,888 shares of Common Stock
of the Company to each of the Company’s directors, excluding Professor Benad Goldwasser. Each option granted to the
Company’s directors is convertible into one share of Common Stock at an exercise price of $0.29.
|