Business context and reporting period
This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2022. The filing is by ScoutCam Inc. (the registrant named in the filing), which operates through its wholly owned Israeli subsidiary and develops miniature-camera and AI-based imaging solutions for predictive maintenance and condition monitoring. Management reported that a miniature-camera solution for a Fortune 500 customer completed verification and validation and moved from development into production during 2022.
Financial performance and liquidity
Amounts below are in USD thousands except per-share data. Q3 refers to the three months ended September 30; YTD refers to the nine months ended September 30.
| Metric | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 |
|---|---|---|---|---|
| Revenue | 134 | 23 | 506 | 321 |
| Gross loss | (296) | (188) | (773) | (500) |
| Operating loss | (2,325) | (2,566) | (7,675) | (6,253) |
| Net loss | (2,244) | (2,562) | (7,804) | (6,256) |
| Net loss per share, basic and diluted | $(0.32) | $(0.37) | $(1.10) | $(1.05) |
| Cash used in operating activities | (1,709) | (1,650) | (4,107) | (4,704) |
YTD gross margin remained negative: revenue of $506 thousand was below cost of revenue of $1.279 million. As of September 30, cash and cash equivalents were $2.586 million and short-term deposits were $12.579 million, totaling approximately $15.2 million, versus $19.6 million at December 31, 2021. Current assets were $16.104 million and current liabilities $2.556 million. Total liabilities were $5.289 million, including $277 thousand of operating lease liabilities and $3.753 million of contract liabilities; the filing reports no conventional borrowings. Accumulated deficit was $23.098 million, and shareholders’ equity was $13.728 million.
Changes versus comparable periods
- YTD revenue increased 58% to $506 thousand, mainly reflecting approximately $433 thousand of revenue from the Fortune 500 customer’s miniature-camera solution. This was partly offset by no 2022 revenue from A.M. Surgical, which contributed approximately $200 thousand in YTD 2021, and lower component-product sales.
- YTD R&D expense rose 153% to $3.023 million, principally due to staffing, stock-based compensation, materials, subcontractors, broader product applications and facility costs. YTD operating loss widened 23% to $7.675 million.
- For Q3, revenue increased to $134 thousand from $23 thousand; operating loss narrowed 9% to $2.325 million, mainly because lower G&A and sales and marketing expenses more than offset higher R&D costs and gross loss.
- YTD operating cash use declined to $4.107 million from $4.704 million, helped in part by a $1.333 million increase in contract liabilities. Investing cash use was $1.587 million, including net investment of $1.5 million in short-term deposits. No financing cash was raised in YTD 2022; YTD 2021 included $21.527 million of financing inflows.
Outlook, risks and notable items
- Management said cash and short-term deposits were expected to fund the operating plan for more than 12 months from issuance of the financial statements. It also expects significant additional R&D and commercialization spending, says substantial additional funding will be needed, and cautions that future financing may dilute shareholders or may not be available on acceptable terms. Management expects the company to remain unprofitable for the foreseeable future.
- Revenue is concentrated among a limited number of customers. The filing identifies the Fortune 500 customer as a major source of 2022 revenue and notes the start of production, but does not provide a quantified production or sales forecast.
- Contract liabilities, including advance billings, were $3.753 million; the company identified this as remaining performance obligations expected to be recognized over the product’s expected manufacturing term. YTD recognition included $211 thousand of deferred development-service revenue and $222 thousand from product sales.
- In July 2022, the company reached an agreement with the Israeli Tax Authority reducing the additional tax amount associated with a VAT audit from approximately $229 thousand to approximately $100 thousand; the filing cites cancellation of a related provision as a factor in lower G&A expense.
- CEO Yovav Sameah’s employment was to end October 18, 2022, and Yehu Ofer was appointed CEO effective that date. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It reported no material pending legal proceedings and no material changes to previously disclosed risk factors.
Investor verification points
- Confirm the registrant and corporate identity: this supplied filing names ScoutCam Inc., while the request metadata names Odysight.Ai Inc.
- Verify the Fortune 500 customer relationship, production ramp, customer concentration and timing and amount of future revenue recognition.
- Assess cash runway using operating cash burn, restricted or accessible status of short-term deposits, and the company’s stated need for substantial future funding.
- Track gross losses, R&D spending and whether production revenue can cover manufacturing and operating costs.
- Review the terms and future recognition schedule for the $3.753 million of contract liabilities and the outcome of the Israeli tax settlement.