Foresight Autonomous Holdings Ltd. — FY2018 Form 20-F
Reporting period: Fiscal year ended December 31, 2018; filed March 20, 2019. This is an annual report, not a standalone fourth-quarter report, and it does not provide separate Q4 financial results. Financial statements are prepared under U.S. GAAP and audited by Brightman Almagor Zohar & Co.
Business context
Foresight is an Israeli development-stage technology company focused on automotive safety. Its products include QuadSight, a four-camera multispectral vision system for obstacle detection, and Eye-Net, a cellular-based vehicle-to-everything collision-alert solution. The company also held an equity-method investment in rail-safety developer Rail Vision.
Key financial metrics
| Metric | FY2018 / Dec. 31, 2018 | FY2017 / Dec. 31, 2017 |
|---|---|---|
| Revenue | No meaningful product revenue reported; the company said it had not generated product-sale revenue since 2011. It recorded $40,000 of prototype sales as a reduction of R&D expense. | No product-sale revenue reported |
| Research and development expense | $8.638 million | $4.089 million |
| Marketing and sales expense | $0.987 million | $1.015 million |
| General and administrative expense | $3.696 million | $3.753 million |
| Operating loss | $13.321 million | $8.857 million |
| Net loss | $14.657 million | $15.942 million |
| Basic and diluted loss per share | $0.12 | $0.17 |
| Net cash used in operating activities | $11.473 million | $4.791 million |
| Cash and cash equivalents | $3.158 million | $9.636 million |
| Short-term deposits | $12.506 million | $12.169 million |
| Total assets / total liabilities | $24.858 million / $1.291 million | $28.035 million / $3.218 million |
Cash, cash equivalents and short-term deposits totaled $15.664 million at year-end. Current assets were $16.503 million against current liabilities of $1.291 million. The balance sheet reported no borrowings; a $2.071 million derivative warrant liability at year-end 2017 was nil at year-end 2018. No meaningful gross margin is available because product sales were negligible.
Material changes and unusual items
- R&D expense increased 111% year over year, chiefly reflecting higher payroll and subcontractor costs; the filing attributes the increase to scaling product development.
- Operating loss widened by 50%, while net loss narrowed by $1.285 million. The net-loss improvement chiefly reflects a favorable swing in warrant revaluation, from a $12.180 million expense in 2017 to $2.071 million of income in 2018, partly offset by the $2.905 million equity-method loss from the affiliate.
- Operating cash use more than doubled. Investing cash use was $6.135 million, including $5.065 million paid toward the Rail Vision investment and $0.733 million for fixed assets. Financing provided $11.367 million, mostly from share issuance.
- Ordinary shares outstanding rose from 109.5 million to 131.9 million during 2018. Financing was primarily equity-based, and further issuance may dilute existing holders.
- Foresight held 35.91% of Rail Vision at December 31, 2018. After a subsequent investment by Knorr-Bremse, Foresight reported a 29.19% stake (27.53% fully diluted).
Outlook, management commentary and risks
Management said existing cash and deposits were expected to fund current operations for the foreseeable future, but that substantial additional capital would be needed to complete development and commercialize products. The company expected no product-sale revenue in the next few years and warned that unavailable financing could force it to delay, reduce or discontinue development or commercialization. In March 2019, after year-end, it raised $6.15 million gross in an ADS offering.
QuadSight’s proof of concept was completed in Q3 2018, and four prototype systems had been sold to prospective customers for testing. Management planned additional prototype sales and sought commercial agreements with automakers and Tier 1 suppliers in 2019. Eye-Net conducted trials and planned two larger-scale trials in 2019. These are plans, not reported commercial outcomes; the company’s detection-performance statements describe product aims and should not be treated as independently established results.
Key risks include the lack of established product revenue, continued losses and cash burn, dependence on additional financing, competition and rapid technology change, automotive qualification and regulatory requirements, and potential product-liability exposure. The company said it did not maintain product-liability insurance. Other disclosed exposures include reliance on Magna for development services, foreign-exchange movements (not hedged), Israeli geopolitical and operational risks, and restrictions on transferring IIA-funded technology outside Israel. The company reported effective disclosure controls and internal control over financial reporting as of year-end; the auditor did not provide an ICFR attestation because of the emerging-growth-company exemption.
Important facts for investors to verify
- Confirm the distinction between prototype activity and recurring commercial revenue, and track conversion of evaluations into binding customer contracts.
- Assess cash runway using operating cash use, planned R&D spending, the March 2019 offering proceeds and subsequent financing needs.
- Review share and warrant dilution, including outstanding options and warrants and the terms of any later offerings.
- Check Rail Vision’s performance, Foresight’s ownership after the Knorr-Bremse investment, and the effect of the affiliate’s losses on Foresight’s results.
- Evaluate product validation, automotive certification timelines, manufacturing readiness, product-liability coverage and IIA approval or royalty obligations for technology transfers.