Nano-X Imaging Ltd. — Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2020. The filing is an annual Form 20-F, not a standalone fourth-quarter filing; quarterly Q4 results are not separately presented. Financial statements are prepared under U.S. GAAP and audited by PwC Israel.
Business context
Nano-X is an Israeli development-stage medical-imaging company developing the Nanox.ARC digital X-ray system and Nanox.CLOUD software platform. Its proposed models include pay-per-scan Subscription, one-time Sales, and Licensing models. The company had no approved product for sale and generated no product revenue through December 31, 2020.
- The company had developed working prototypes of the Nanox.ARC and Nanox.CLOUD but had not achieved commercial-scale production.
- Nano-X targeted shipment of 1,000 systems by the first quarter of 2022 and deployment of approximately 15,000 systems by the end of 2024, subject to regulatory clearance, manufacturing and market acceptance.
- As of December 31, 2020, the company had 50 employees: 40 in Israel, six in Japan and four in Korea.
Financial performance and liquidity
| U.S. dollars in thousands, except per-share data | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | None | None | No product revenue in either period |
| Research and development | 9,210 | 2,717 | +6,493 |
| Marketing | 12,445 | 1,556 | +10,889 |
| General and administrative | 22,268 | 18,298 | +3,970 |
| Total operating expenses | 43,923 | 22,571 | +21,352 |
| Operating loss | (43,923) | (22,571) | Loss increased |
| Net loss | (43,815) | (22,563) | Loss increased by 21,252 |
| Basic and diluted loss per share | (1.23) | (0.90) | More negative |
| Net cash used in operating activities | (21,487) | (5,524) | Use increased |
| Net cash used in investing activities | (13,937) | (125) | Use increased |
| Net cash provided by financing activities | 240,991 | 13,861 | Primarily equity financing |
- Cash and cash equivalents: $213.5 million at December 31, 2020, compared with $8.1 million at December 31, 2019. Cash, cash equivalents and restricted cash totaled $213.8 million.
- Working capital: Approximately $215.3 million at year-end 2020 versus a working-capital deficiency of approximately $10.6 million in 2019.
- Equity: Shareholders’ equity was $230.7 million at year-end 2020 versus a capital deficiency of $8.8 million in 2019. The accumulated deficit was $84.4 million.
- Debt: The company reported no debt outstanding. Recorded liabilities primarily consisted of operating lease liabilities and other current obligations.
- Cash runway: Management stated that cash on hand was expected to fund operating expenses and capital expenditures for at least twelve months from issuance of the financial statements, but noted that actual cash needs could be higher than expected.
- Non-cash expense: Share-based compensation was $24.8 million in 2020, including $6.1 million related to warrants issued to business-development service providers.
Material changes versus 2019
- Operating expenses increased 95%, driven by higher research and development, marketing, personnel, professional-services and public-company costs.
- Marketing expense increased substantially, including $9.3 million of share-based compensation; $6.1 million related to warrants issued under an amended finder agreement.
- Research and development expense increased 239% as the company expanded development of the Nanox System.
- The August 2020 IPO generated approximately $169 million of net proceeds. The company also raised approximately $71 million of net proceeds from private placements and related share issuances.
- A $17.8 million related-party liability arising from the asset purchase from Nanox Imaging PLC was settled through the issuance of 1,109,245 ordinary shares in January 2020.
- Investing cash use increased primarily because of land and equipment purchases in Korea in preparation for manufacturing.
- Property and equipment increased to $14.0 million from $0.2 million, including approximately $6.2 million of land purchased in Korea and $5.3 million of production-line prepayments.
- Shares outstanding increased to 46.1 million from 27.2 million, reflecting financing, warrant exercises and the related-party settlement.
Guidance, outlook, risks and unusual items
- Regulatory: In 2020, Nano-X submitted and revised a 510(k) application for the single-source Nanox Cart X-Ray System. The filing states that FDA clearance was received on April 1, 2021, after the reporting period. The multi-source Nanox.ARC and Nanox.CLOUD were still subject to additional regulatory submissions and clearances.
- Manufacturing: The company entered into a three-year contract manufacturing agreement with FoxSemicon Integrated Technology, a Foxconn subsidiary, with a stated minimum of 1,000 Nanox Systems per year. Mass production, supplier capacity, quality and regulatory compliance remained unproven.
- Commercial commitments: Nine MSaaS agreements contemplated deployment of 5,150 systems across 13 regions and approximately $180.9 million of minimum annual fees, including payments to partners. These arrangements were conditional on regulatory approvals, acceptance testing and standby letters of credit or financial guarantees; the filing cautions that enforceability and collectability are not assured.
- COVID-19: Travel restrictions, laboratory disruptions, supplier shutdowns and limitations on partner visits delayed development, manufacturing preparation, regulatory work and business development.
- Financing: Nano-X expects continuing losses and negative operating cash flow and may require additional equity, debt, collaboration or licensing financing. Additional equity could dilute shareholders; financing may not be available on acceptable terms.
- Litigation: Consolidated securities class-action complaints filed in September 2020 alleged securities-law violations against the company and certain officers and a director. The company believes the claims are without merit, but stated that it could not estimate a potential loss.
- Internal controls: Disclosure controls and procedures were ineffective at December 31, 2020 because of a material weakness involving insufficient U.S. GAAP and SEC-reporting personnel. Remediation included hiring finance personnel, implementing an ERP system, developing accounting policies and strengthening monitoring controls; remediation was not yet complete.
- Tax and shareholder risks: The company believed it was technically a passive foreign investment company for 2020 and possibly later years, which could create adverse U.S. tax consequences. It had never paid dividends and had no immediate plans to do so.
Investor verification priorities
- Verify the distinction between the fiscal-year filing and any separately reported 2020 fourth-quarter results.
- Confirm the status and commercial scope of the April 2021 FDA clearance, and distinguish the cleared single-source system from the still-pending multi-source Nanox.ARC and Nanox.CLOUD.
- Assess whether MSaaS counterparties obtained the required standby letters of credit or financial guarantees and whether the agreements remain enforceable after regulatory and acceptance conditions.
- Reconcile cash usage, projected manufacturing and deployment costs, and the company’s stated twelve-month liquidity assessment against current operating plans.
- Monitor remediation of the material weakness and subsequent auditor or management assessments of internal-control effectiveness.
- Review the securities class-action litigation for developments, potential exposure and insurance coverage.
- Evaluate dilution from outstanding warrants, options and future equity financing, including the reported 7.8 million investor and employee/non-employee awards outstanding at year-end.
- Test whether production capacity, unit cost estimates, reimbursement, market adoption and regulatory approvals support the 1,000-unit and 15,000-unit deployment targets.