Filing summary
Issuer discrepancy: The request identifies Odysight.Ai Inc., but the supplied Form 10-Q is for ScoutCam Inc. (formerly Intellisense Solutions Inc.). The filing covers the quarter ended June 30, 2020, and was signed August 12, 2020. Financial statement amounts are in USD thousands unless noted.
Business context and reporting period
ScoutCam develops and manufactures miniature CMOS and CCD camera systems for medical and industrial applications. Its subsidiary’s micro-camera business was separated from Medigus and became ScoutCam’s operating business through a reverse recapitalization completed in December 2019. The comparative 2019 financial information is carve-out data and may not reflect costs as a standalone company.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $34 | $120 | $74 | $144 |
| Gross loss | $(117) | $(75) | $(207) | $(160) |
| Operating loss | $(936) | $(348) | $(2,445) | $(677) |
| Net loss | $(970) | $(362) | $(2,383) | $(691) |
| Net loss per share | $(0.03) | $(0.02) | $(0.08) | $(0.04) |
| Operating cash flow | $(1,140) | $(385) | $(2,277) | $(899) |
- Gross losses exceeded revenue in both periods. Six-month product cost of revenue was $281, while revenue was $74; there was no service revenue in 2020.
- At June 30, cash and cash equivalents were $3,608; current assets were $5,348 and current liabilities $1,412. Working capital was approximately $3,936. Total liabilities were $1,760, including $94 of lease liabilities. The $500 parent-company loan reported at year-end was no longer outstanding after conversion and repayment activity.
- Six-month investing cash outflow was $221, primarily for property and equipment. Financing provided $2,777, principally from $2,858 of share-and-warrant proceeds, offset by an $81 parent-company loan repayment. Cash increased by $363 to $3,608 during the half.
- Revenue and operating cash flow are small relative to operating losses and cash burn. The filing does not provide a quantified cash-runway forecast.
Material changes and notable items
- Six-month revenue fell 49%; Q2 revenue fell 72%. Management attributed the decline mainly to approximately $85 of service revenue from a customer in 2019 that did not recur in 2020.
- Six-month operating loss increased 261%. R&D rose 162% to $370, sales and marketing rose 124% to $188, and G&A rose 475% to $1,680. Management cited added staff and stock-based compensation, increased marketing, and professional fees associated with becoming an independent public company and the exchange transaction.
- Stock-based compensation was $837 for the half. Options granted during the half had an estimated total grant-date fair value of approximately $3.3 million, to be recognized over vesting periods.
- Shares outstanding increased from 26.9 million at year-end to 33.8 million at June 30. The company also reported 20.6 million outstanding warrants and 6.5 million options at June 30, presenting potential dilution.
- Contract liabilities were $672, and remaining performance obligations were $900; the company expected to recognize the RPO during the next 12 months. Inventory increased to $1,239 from $900, with no impairment reported.
Outlook, risks, and controls
- Going concern: Management stated that without additional fundraising, available resources would not support operations for one year after issuance of the financial statements, and disclosed substantial doubt about the company’s ability to continue as a going concern. Plans include commercialization and raising capital through equity, debt, strategic partnerships, or other sources; success is not assured, and failure could require curtailed or discontinued operations.
- COVID-19: The filing says the pandemic had not materially affected operations as of the financial statement discussion, but also describes disruptions to facility access and remote work and warns of potential effects on manufacturing, suppliers, sales, R&D, and fundraising. The extent of future impact was uncertain.
- No specific earnings or revenue guidance was provided. Management said additional financing would be needed to achieve growth targets.
- Disclosure controls were deemed ineffective at the reasonable-assurance level due to a material weakness involving accounting for the complex reverse recapitalization. The company hired additional finance personnel and described remediation steps; the weakness was not yet formally remediated. No resulting financial statement misstatements were identified.
- The filing reports no applicable legal proceedings and no subsequent events requiring disclosure.
Important facts for investors to verify
- Confirm whether this ScoutCam Inc. filing is the intended filing for Odysight.Ai Inc.; the issuer names do not match.
- Review current financing, cash runway, and progress toward addressing the disclosed going-concern doubt.
- Assess revenue conversion and the timing and collectability of the $900 RPO, alongside continuing negative gross margins.
- Evaluate potential dilution from outstanding warrants and options, including their exercise prices and expiration dates.
- Check subsequent filings for remediation of the material weakness and any further COVID-19 or operating impacts.