UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
(Mark One)
For the quarterly period ended June 30, 2023
For the transition period from to
Commission File No. 333-188920
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 August 13, 2023, the registrant had 10,436,684 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 “Odysight.ai (formerly known as ScoutCam Inc.),” “we,” “us,” “our,” or “our Company” refer to Odysight.ai. Unless otherwise specified, all dollar amounts are expressed in United States dollars.
ODYSIGHT.AI 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, 2022 (filed on March 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
ODYSIGHT.AI INC. (Formerly known as ScoutCam Inc.)
INTERIM FINANCIAL STATEMENTS
AS OF JUNE 30, 2023
CONSOLIDATED ODYSIGHT.AI INC.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Six Months Ended June 30, 2023 (Unaudited)
Three Months Ended June 30, 2023 (Unaudited)
Six Months Ended June 30, 2022 (Unaudited)
Three Months Ended June 30, 2022 (Unaudited)
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
LOSS FROM EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD
Non cash activities -
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – GENERAL:
Odysight.ai.Inc (the “Company”), formerly known as ScoutCam Inc., was incorporated under the laws of the State of Nevada on March 22, 2013. Prior to the closing of the Exchange Agreement (as defined below), the Company was a non-operating “shell company”.
The Company’s wholly owned subsidiary, Odysight.ai Ltd (“Odysight.ai”.), formerly known as ScoutCam Ltd., was formed in the State of Israel on January 3, 2019, as a wholly-owned subsidiary of Medigus Ltd. (“Medigus”), an Israeli company traded on the Nasdaq Capital Market, and commenced operations on March 1, 2019.
In December 2019, Medigus and Odysight.ai consummated an asset transfer agreement, under which Medigus transferred and assigned certain assets and intellectual property rights related to its miniaturized imaging business to Odysight.ai.
On December 30, 2019, the Company and Medigus consummated a securities exchange agreement (the “Exchange Agreement”), pursuant to which Medigus delivered 100% of its holdings in Odysight.ai to the Company in exchange for shares of the Company’s common stock representing 60% of the issued and outstanding share capital of the Company immediately upon the consummation of the Exchange Agreement.
During 2020 - 2023 Medigus has decreased its holdings in the Company such that as of March 31, 2023, Medigus owned 18.45% of the Company’s outstanding common stock.
On June 1, 2023, Medigus sold all its holdings in the Company to existing shareholders and to Chairman of the Board and CEO of the Company.
On June 5, 2023, the Company filed with the Nevada Secretary of State a Certificate of Amendment to the Registrant’s Articles of Incorporation to change its name from “ScoutCam Inc.” to “Odysight.ai Inc.”, effective June 5, 2023.
The Company, through Odysight.ai, is engaged in the development, production and marketing of Predictive Maintenance (PdM) and Condition Based Monitoring (CBM) technologies, providing visual sensing and AI-based video analytics solutions for systems in the aviation, maritime, industrial non-destructing-testing industries, transportation, and energy industries. Some of the Company’s products utilize micro visualization technology in medical devices for minimally invasive medical procedures.
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, 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-based compensation, as well as in estimates used in applying the revenue recognition policy. Actual results may differ from those estimates.
NOTE 2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued):
d. Significant Accounting Policies
The significant accounting policies followed in the preparation of these unaudited interim condensed consolidated financial statements are identical to those applied in the preparation of the latest annual financial statements.
e. Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Group’s condensed consolidated financial statements.
NOTE 3 – LEASES:
In December 2020, Odysight.ai entered into a lease agreement for office space in Omer, Israel (“original space”), with the 36-month term for such agreement beginning on January 1, 2021. In March 2021, Odysight.ai entered into a lease agreement for additional office space in Omer, Israel (“additional space”), with the term for such agreement is ending December 31, 2023.
On June 25, 2023, Odysight.ai entered into an amendment to these agreements, pursuant to which the lease for the additional office space will be shortened and end on June 30, 2023 and the lease for original space will be extended for an additional five years until December 31, 2028. It was also agreed that Odysight.ai has an option to terminate the agreement for the original space after three years.
Monthly lease payments under the agreement for the original space are approximately $7thousand.
In December 2022, Odysight.ai entered into a lease agreement for office space in Ramat Gan, Israel. The agreement is for 12 months beginning on December 14, 2022 and the Company has an option to extend the lease period for an additional one year. The Company does not 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 agreement are $3thousand.
Supplemental cash flow information related to operating leases was as follows:
SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO OPERATING LEASES
As of June 30, 2023, the Company’s operating leases had a weighted average remaining lease term of 0.9 years and a weighted average discount rate of 6%.
Future lease payments under operating leases as of June 30, 2023 were as follows:
SCHEDULE OF MATURITIES LEASE LIABILITIES UNDER OPERATING LEASES
NOTE 4 – EQUITY:
Private Placement
On March 16, 2023, the Company consummated a Stock Purchase Agreements for a private placement with (i) Moshe Arkin through his individual retirement account and (ii) The Phoenix Insurance Company Ltd. and Shotfut Menayot Israel – Phoenix Amitim, in connection with the sale and issuance of an aggregated amount of 3,294,117units (collectively, the “Units”), at a purchase price of $4.25per Unit, and for an aggregated purchase price of $14,000,000. Each Unit consists of: (i) one share of the Company’s common stock with par value of $0.001per share (the “Common Stock”) and (ii) one warrant to purchase one share of Common Stock with an exercise price of $5.50(the “Warrants”). The Warrants are immediately exercisable and will expire three years from the date of issuance and will be subject to customary adjustments.
Warrants:
As of June 30, 2023, the Company had the following outstanding warrants to purchase common stock:
SCHEDULE OF STOCK WARRANTS OUTSTANDING TO PURCHASE COMMON STOCK
NOTE 4 – EQUITY (continued):
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 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 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 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 additional1,000,000 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 six months ended June 30, 2023, the Company granted 57,000 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-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 six months ended June 30, 2023, based on their fair value as of the grant date, is estimated to be approximately $142 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 six months ended June 30, 2023:
SCHEDULE OF STOCK OPTION ACTIVITY
Restricted stock unit (“RSU”) activity
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 following table summarizes RSU activity for the three months ended June 30, 2023:
The following table sets forth the total stock-based payment expenses resulting from options granted, included in the statements of operation and comprehensive income:
SCHEDULE OF TOTAL SHARE-BASED PAYMENT EXPENSES
NOTE 5 – REVENUES:
SCHEDULE OF DISAGGREGATION OF REVENUE
Contract fulfillment assets and Contract liabilities:
The Company’s contract fulfillment assets and contract liabilities as of June 30, 2023 and December 31, 2022 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.
The change in contract fulfillment assets:
The change in contract 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 June 30, 2023, the total RPO amounted to $2.9 million, which the Company expects to recognize over the expected manufacturing term of the product.
NOTE 6 – ODYSIGHT.AI INC. (Formerly known as ScoutCam Inc.)
NOTE 6 - INVENTORY:
Composed as follows:
SCHEDULE OF INVENTORY
During the period ended June 30, 2023, 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.
NOTE 8 – RELATED PARTIES
a. Balances with related parties:
SCHEDULE OF BALANCES WITH RELATED PARTIES
Total compensation during the six months ended June 30, 2023 and June 30, 2022 were approximately $29 thousands and $55 thousands, respectively.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company received approval from the Israel Innovation Authority (previously the Office of the Chief Scientist), (the “IIA”) to support and enhance the Company’s production line and capabilities in the next 12 months until May 2024. Pursuant to the agreement with the IIA relating to the program, the Company has to pay royalties of 3% to the IIA up to the amount IIA funding received and the accrued interest repayment of the grant is contingent upon the Company successfully completing its enhancement plans and generating sales from the enhancements preformed. The Company has no obligation to repay these grants if its enhancement plans are not completed or aborted or if it generates no sales. The Company had not yet started the enhancement plan as of June 30, 2023.
On June 12, 2023, the Company received an advance from the IIA in the amount of NIS 357 thousand (approximately $96 thousand), which was recorded as a short term liability in the other account payable account, since the Company may need to repay this advance to IIA in case its enhancement plans will not be completed or aborted.
NOTE 10 – SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. The Company identified no subsequent events as of the date that the financial statements were issued.
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, 2022. 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, 2022 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 activities during last few months were:
Comparison of the Six months ended June, 2023 and 2022
The following table summarizes our results of operations for the six month period ended June 30, 2023 and 2022, together with the changes in those items in dollars and as a percentage:
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 six months ended June 30, 2023, we generated revenues of $977,000, an increase of $605,000, or 163%, compared to revenues of $372,000 for the six months ended June 30, 2022.
The increase in revenues was primarily due to the completion of development of the product relating to our miniature camera solution with a Fortune 500 company during the second quarter of 2022 and moving to production stage. Total revenues recorded from our miniature camera solution with the Fortune 500 company for the six months ended June 30, 2023 amounted to approximately $933,000 compared to $327,000 for the six months ended June 30, 2022.
Cost of Revenues
Cost of revenue is primarily comprised of cost of personnel including warehouse personnel costs, certain allocated facilities, and expenses associated with logistics and quality control.
Cost of revenues for the six months ended June 30, 2023 was $1,327,000, an increase of $478,000, or 56%, compared to cost of revenues of $849,000 for the six months ended June 30, 2022.
The increase was primarily due to an increase in material costs due to an increase in the number of products sold and supplied to the Fortune 500 company.
Gross Loss
Gross loss for the six months ended June 30, 2023 was $350,000, a decrease of $127,000, or 27%, compared to gross loss of $477,000 for the six months ended June 30, 2022.
The decrease was primarily due to increase in revenues partially offset by 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 six months ended June 30, 2023 were $2,753,000, an increase of $778,000, or 39%, compared to $1,975,000 for the six months ended June 30, 2022.
The increase was primarily due to an increase in payroll expenses from additional employee recruitments, as result of enlarging our focus on R&D activities in the domain of I4.0.
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 primarily consist of payroll expenses, consulting services, promotional materials, exhibitions ,demonstration equipment, and certain allocated facility infrastructure costs.
Sales and marketing expenses for the six months ended June 30, 2023 were $669,000, an increase of $223,000, or 50%, compared to $446,000 for the six months ended June 30, 2022.
The increase was primarily due to recent rebranding activities (including expenses related to the changing of the name of the Company which include among other designing a new logo and promotional materials). In addition, during June 2023 the Company participated on Paris Air Show, the world’s premier and largest event dedicated to the aviation and space industry.
This increase was partially offset by a decrease in payroll expenses (including stock-based compensation) due to the resignation of our VP Business Development during the fourth quarter of 2022.
We expect that our selling and marketing expenses will increase as we expand our selling and marketing efforts in the I4.0 domain.
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, public relations, accounting, auditing, tax services, and insurance costs.
General and administrative expenses for the six months ended June 30, 2023 were $2,126,000, a decrease of $326,000, or 13%, compared to $2,452,000 for the six months ended June 30, 2022.
The decrease was primarily due to stock-based compensation vesting of options and to a decrease in D&O insurance costs.
Operating loss
We incurred an operating loss of $5,898,000 for the six months ended June 30, 2023, an increase of $548,000, compared to operating loss of $5,350,000 for the six months ended June 30, 2022.
The increase in operating loss was primarily due to an increase in expenses related to research and development and sales and marketing expenses, partially offset by a decrease in general and administrative expenses, each as described above.
Cash Flows
The following table sets forth the significant sources and uses of cash for the periods set forth below (in dollars):
Operating Activities
Our primary uses of cash from operating activities have been for payroll expenses, research and development costs, manufacturing costs, marketing and promotional expenses, professional services cost and costs related to our facilities. We expect that our cash flows from operating activities will continue to increase due to an expected increase of expenses of our business and our working capital requirements.
During the six months ended June 30, 2023, cash used in operating activities was $5.1 million, consisting of net loss of $5.5 million, an unfavorable net change in operating assets and liabilities of $0.3 million, partially offset by a non-cash benefit of $0.8 million. Our non-cash benefit consisted primarily of non-cash charges for stock-based compensation. The net change in our operating assets and liabilities primarily reflects cash outflows from changes in contract liability and other current assets, was partially offset by inflows from changes in account payables and other accounts payables.
During the six months ended June 30, 2022, cash used in operating activities was $2.4 million, consisting of net loss of $5.6 million, partially offset by a non-cash benefit of $1.5 million, a favorable net change in operating assets and liabilities of $1.3 million and loss from exchange differences on cash and cash equivalents of $0.3 million. Our non-cash benefit consisted primarily of non-cash charges of $1.5 million for stock-based compensation. The net change in our operating assets and liabilities primarily reflects cash inflows from changes in contract liability of $1.4 million.
Investing Activities
During the six months ended June 30, 2023, cash used in investing activities was $15.6 million, consisting mainly of investment, net on short-term deposits.
For the six months ended June 30, 2022, net cash flows provided by investing activities was $1.5 million consisting mainly of withdrawal of short terms deposits.
Financing Activities
During the six months ended June 30, 2023, cash provided by financing activities was $13.9 million, consisting of cash proceeds from issuance of shares and warrants, net of issuance costs.
Comparison of the three months ended June 30, 2023 and 2022
The following table summarizes our results of operations for the three months period ended June 30, 2023, and 2022, together with the changes in those items in dollars and as a percentage:
For the three months ended June 30, 2023, we generated revenues of $674,000, an increase of $304,000, or 82%, from the three months ended June 30, 2022.
The increase in revenues was primarily due to the completion of development of the product relating to our miniature camera solution with a Fortune 500 company and moving to production stage. Total revenues recorded from our miniature camera solution with the Fortune 500 company for the three months ended June 30, 2023 amounted to approximately $645,000, compared to $327,000 for the three months ended June 30, 2022.
Cost of revenues for the three months ended June 30, 2023 was $777,000, an increase of $216,000, or 39%, compared to cost of revenues of $561,000 for the three months ended June 30, 2022.
Gross loss for the three months ended June 30, 2023 was $103,000, a decrease of $88,000, or 46%, compared to gross loss of $191,000 for the three months ended June 30, 2022.
The decrease was primarily due to increase in revenues partially offset by increase in cost of revenues, both as described above.
Research and development expenses for the three months ended June 30, 2023 were $1,355,000, an increase of $334,000, or 33%, compared to $1,021,000 for the three months ended June 30, 2022.
Sales and marketing expenses for the three months ended June 30, 2023 were $493,000, an increase of $290,000, or 143%, compared to $203,000 for the three months ended June 30, 2022.
The increase was primarily due to recent rebranding activities (including mainly expenses related to the changing of the name of the Company which include among other designing a new logo and promotional materials). In addition, during June 2023 the Company participated in the Paris Air Show, the world’s premier and largest event dedicated to the aviation and space industry.
General and administrative expenses for the three months ended June 30, 2023 were $1,168,000, an increase of $2,000, compared to $1,166,000 for the three months ended June 30, 2022.
We incurred an operating loss of $3,119,000 for the three months ended June 30, 2023, an increase of $538,000, compared to operating loss of $2,581,000 for the three months ended June 30, 2022.
The increase in operating loss was primarily due to increases in expenses related to research and development and sales and marketing expenses.
Our primary use of cash from operating activities have been for payroll expenses, research and development costs, manufacturing costs, marketing and promotional expenses, professional services cost and costs related to our facilities. We expect that our cash flows from operating activities will continue to be increase due to the expected increase in spending on our business and our working capital requirements.
During the three months ended June 30, 2023, cash used in operating activities was $2.6 million, consisting of net loss of $2.9 million, a favorable net change in operating assets and liabilities of $0.1 million and a non-cash benefit of $0.2 million. Our non-cash benefit consisted primarily of non-cash charges of $0.3 million for stock-based compensation.
During the three months ended June 30, 2022, cash used in operating activities was $2.2 million, consisting of net loss of $2.8 million and an unfavorable net change in operating assets and liabilities of $0.4 million partially offset by a non-cash benefit of $0.7 million, and loss from exchange differences on cash and cash equivalents of $0.3 million. Our non-cash benefit consisted primarily of non-cash charges of $0.7 million for stock-based compensation. The net change in our operating assets and liabilities primarily reflects cash inflows from changes in inventory of $0.4 million.
For the three months ended June 30, 2023, net cash flows used in investing activities was $3.5 million, consisting mainly of investment, net on short-term deposits.
For the three months ended June 30, 2022, net cash flows provided by investing activities was $1.5 million consisting mainly of withdrawal of short terms deposits.
For the three months ended June 30, 2023, net cash flows used in financing activities was $64,000, consisting of issuance expenses.
Liquidity and Capital Resources
As of June 30, 2023, we had cash and cash equivalents of $3.3 million and $18.7 million of short-term deposits compared to cash and cash equivalents $10.1 million and $3.0 million of short-term deposits as of December 31, 2022. In addition, as of June 30, 2023 we incurred an accumulated deficit of approximately $30.3 million, compared to $24.8 million as of December 31, 2022.
Our primary sources of liquidity to date have been from fund raisings 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, as of August 14, 2023, will allow us to fund our operating plan through 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.
Off-Balance Sheet Arrangements
None.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a smaller reporting company, we are not required to provide the information requested by this Item.
Item 4. Controls and Procedures.
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 June 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may become involved in legal proceedings relating to claims arising from the ordinary course of business. Our management believes that there are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse effect on our results of operations, financial condition or cash flows.
ITEM 1A. RISK FACTORS.
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 31,2022 as filed with the SEC on March 28, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
There have been no unregistered sales of equity securities in addition to the sales provided under Form 8-K as filed with the SEC during the recent fiscal quarter ended June 30, 2023.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS.
(a) The following documents are filed as exhibits to this Quarterly Report or incorporated by reference herein.
Exhibit
Number
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.