# Odysight.ai Inc.: Form 10-Q for the period ended Mar 31, 2022

- Company: [Odysight.ai Inc.](/companies/odys.md) (CIK 1577445)
- Form: 10-Q
- Filed: 2022-05-16
- Accepted by EDGAR: May 16, 2022, 07:40 ET
- Period: 2022-03-31
- Accession: 0001493152-22-013514
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1577445/000149315222013514/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1577445/000149315222013514/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-01-01 to 2022-03-31 | $2.0k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-01-01 to 2022-03-31 | $288.0k | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2022-01-01 to 2022-03-31 | −$286.0k | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-01-01 to 2022-03-31 | $954.0k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2022-01-01 to 2022-03-31 | −$2.8m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2022-01-01 to 2022-03-31 | −$2.8m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2022-01-01 to 2022-03-31 | −$0.39 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 3 months, 2022-01-01 to 2022-03-31 | −$224.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2022-01-01 to 2022-03-31 | $24.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-03-31 | $8.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-03-31 | $19.9m | us-gaap:AssetsCurrent |
| Total assets | at 2022-03-31 | $23.2m | us-gaap:Assets |
| Current liabilities | at 2022-03-31 | $2.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-03-31 | $5.6m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-03-31 | $17.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 12,111 characters.

*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, 2021. 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, 2021 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 enlarging its focus on R&D activities in the domain of I4.0 (including PdM and CBM in sectors such as the aviation, energy and automotive). The main effect of this activity was an increase in the number of employees to enable the Company to manage the anticipated increased workload and solution development.

### Comparison of the three months ended March 31, 2022 and 2021

The following table summarizes our results of operations for the three month period ended March 31, 2022 and 2021, together with the changes in those items in dollars and as a percentage:

|  | 2022 | 2021 | % Change |
| --- | ---: | ---: | ---: |
| Revenues | 2,000 | 24,000 | (92)% |
| Cost of Revenues | 288,000 | 203,000 | 42% |
| Gross Loss | (286,000) | (179,000) | 60% |
| Research and development expenses | 954,000 | 281,000 | 240% |
| Sales and marketing expense | 243,000 | 197,000 | 23% |
| General and administrative expenses | 1,286,000 | 933,000 | 38% |
| Operating Loss | (2,769,000) | (1,590,000) | 74% |

### Revenues

As a result of the nature of our target market and the current stage of our development, a substantial portion of our revenue comes from a limited number of customers.

For the three months ended March 31, 2022, ScoutCam generated revenues of $2,000, a decrease of $22,000, or 92%, from the three months ended March 31, 2021 revenues.

The decrease in revenues was primarily due to an overall decrease in the sales of the Company’s component products to occasional customers.

### Cost of Revenues

Cost of revenue is primarily comprised of cost of personnel including warehouse personnel costs, inventory write-downs, certain allocated facilities, and expenses associated with logistics and quality control.

Cost of revenues for the three months ended March 31, 2022 was $288,000, an increase of $85,000, or 42%, compared to cost of revenues of $203,000 for the three months ended March 31, 2021.

The increase was primarily due to an increase in payroll expenses due to stock-based compensation and increase in facility costs due to a lease for additional office space.

### Gross Loss

Gross loss for the three months ended March 31, 2022 was $286,000, an increase of $107,000, or 60%, compared to gross loss of $179,000 for the three months ended March 31, 2021.

The increase was primarily due to decrease in revenues and increase in cost of revenues as described above.

### Research and Development Expenses

Research and development efforts are focused on new product development and on developing additional functionality for our new and existing products. These expenses primarily consist of employee-related expenses, including salaries, benefits, and stock-based compensation expense for personnel engaged in research and development functions, consulting and professional fees related to research and development activities, prototype materials, facility costs and other allocated expenses, which include expenses for rent and maintenance of our facility, utilities, depreciation and other supplies. We expense research and development costs as incurred.

Research and development expenses for the three months ended March 31, 2022 were $954,000, an increase of $673,000, or 240%, compared to $281,000 for the three months ended March 31, 2021.

The increase was primarily due to an increase in payroll expenses (including stock-based compensation), materials and subcontractors, and because we have recently begun examining additional applications for our micro ScoutCam™ portfolio outside of the medical, defense and aerospace fields, including in sectors such as automotive, industrial non-destructing-testing industries, automotive and energy.

In addition, there was an increase in R&D payroll expenses in first quarter of 2022 due to the fact that during the first quarter of 2021 a substantial part of our payroll expenses was capitalized to contract fulfillment asset and was not recognized as expenses in profit and loss.

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.

- 18-

### Sales and Marketing Expenses

Sales and marketing expenses primarily consist of personnel costs, consulting services, promotional materials, demonstration equipment and certain allocated facility infrastructure costs.

Sales and marketing expenses for the three months ended March 31, 2022 were $243,000, an increase of $46,000, or 23%, compared to $197,000 for the three months ended March 31, 2021.

The increase was primarily due to an increase in payroll expenses (including stock-based compensation) due to the recruitment of a VP Business Development in Industry 4.0.

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 primarily consist of salaries and other related costs, including stock-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs, as well as professional fees for legal, patent, consulting, investor, and public relations, accounting, auditing, tax services and insurance costs.

General and Administrative expenses for the three months ended March 31, 2022 were $1,286,000, an increase of $353,000, or 38%, compared to $933,000 for the three months ended March 31, 2021.

The increase was primarily due to an increase of $511,000 in share based compensation due to new option grants, partially offset by a decrease in IP expenses.

### Operating loss

We incurred an operating loss of $2,769,000 for the three months ended March 31, 2022, an increase of $1,179,000, or 74%, compared to operating loss of $1,590,000 for the three months ended March 31, 2021.

The increase in operating loss was primarily due to increases in expenses related to general and administrative, research and development, and sales and marketing, as described above.

### Liquidity and Capital Resources

As of March 31, 2022, we had cash and cash equivalents of $8.3 million and $11 million of short-term deposits compared to cash and cash equivalents $8.6 million and 11 million of short-term deposits as of December 31, 2021. In addition, as of March 31, 2022 we incurred an accumulated deficit of approximately $18.1 million, compared to $15.3 million as of December 31, 2021.

Our primary sources of liquidity to date have been from fund raising and warrant exercises.

### Additional Cash Requirements

We plan to continue to invest for long-term growth, and therefore we expect that our expenses will increase. We currently believe that our existing cash and cash equivalents and short-term deposits will be sufficient to meet our anticipated cash needs for at least the next 12 months. We expect our expenses will increase in connection with our ongoing activities, particularly as we continue the research and development and the scale up process of our I4.0 solutions. We expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Furthermore, we will continue to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. We may raise these funds through equity financing, debt financing or other sources, which may result in further dilution in the equity ownership of our common stock. There is no assurance that we will be able to maintain operations at a level sufficient for investors to obtain a return on their investment in our common stock, or that we will be able to raise sufficient capital required to implement our business plan on acceptable terms, if at all. Even if we are successful in raising sufficient capital to implement our business plan, we will, most likely, continue to be unprofitable for the foreseeable future. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

- 19-

### Cash Flows

The following table sets forth the significant sources and uses of cash for the periods set forth below (in dollars):

|  | Three month ended March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Cash used in Operating Activity | (224,000) | (774,000) |
| Cash used in Investing Activity | (24,000) | (117,000) |
| Cash provided by Financing Activity | - | 10,281,000 |

### Operating Activities

Our primary uses of cash from operating activities have been for headcount-related expenditures, research and development costs, manufacturing costs, marketing and promotional expenses, professional services cost and costs related to our facilities. Our cash flows from operating activities will continue to be affected due to the expected increase of spending on our business and our working capital requirements.

During the three months ended March 31, 2022, cash used in operating activities was $0.2 million, consisting of net loss of $2.8 million, partially offset by a non-cash benefit of $0.8 million and a favorable net change in operating assets and liabilities of $1.7 million. Our non-cash benefit consisted primarily of non-cash charges of $0.8 million for stock-based compensation. The net change in our operating assets and liabilities primarily reflects cash inflows from changes in contract liability of $1.6 million.

During the three months ended March 31, 2021, cash used in operating activities was $0.8 million, consisting of net loss of $1.6 million, partially offset by a non-cash benefit of $0.1 million and a favorable net change in operating assets and liabilities of $0.7 million. Our non-cash benefit consisted primarily of stock-based compensation expense of $0.1 million. The net change in our operating assets and liabilities primarily reflects cash inflows from the changes in contract liability of $0.7 million, account payables of $0.4 million and other accrued expenses of $0.1 million, partially offset by cash outflows from changes in contract fulfillment assets of $0.2 million, inventory and other current assets of $0.2 million.

### Investing Activities

During the three months ended March 31, 2022, cash used in investing activities was $24,000, consisting of purchases of property and equipment.

During the three months ended December 31, 2021, cash used in investing activities was $117,000, consisting of purchases of property and equipment.

### Financing Activities

During the three months ended March 31, 2021, cash provided by financing activities was $10.3 million, consisting primarily of $9.5 million from cash proceeds from issuance of shares and warrants and $0.8 million proceeds from exercise of warrants.

- 20-

### Off-Balance Sheet Arrangements

None.

## Controls and procedures

As filed, 819 characters.

#### Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Exchange Act Rule 13a-15(e). Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

No change in our internal control over financial reporting, as defined in Exchange Act Rule 13a-15(e), occurred during the fiscal quarter ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

- 21-

## Risk factors

As filed, 202 characters.

There have been no material changes from the information set forth in “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31,2021 as filed with the SEC on March 30, 2022.

Filed May 16, 2022.
Source: SEC EDGAR, the filing index for accession 0001493152-22-013514. Last ingested by Listed: Nov 3, 2026, 19:34 ET. No prices; not investment advice.