Business context and reporting period
The supplied filing is ScoutCam Inc.’s Form 10-K for the year ended December 31, 2019—not a standalone fourth-quarter report. The filing identifies the registrant as ScoutCam Inc. (formerly Intellisense Solutions Inc.), while the request metadata names Odysight.Ai Inc.; verify the filing-company match before relying on this summary. ScoutCam develops and sells customized miniature imaging systems for medical and industrial uses. On December 30, 2019, it acquired ScoutCam Ltd. in a reverse recapitalization; ScoutCam Ltd. is the accounting acquirer. The comparative 2018 and 2019 results include carve-out financial information from Medigus and may not reflect standalone costs or operations.
Financial results and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $309,000 | $391,000 |
| Gross profit (loss) | ($233,000) | $170,000 |
| Research and development | $274,000 | $183,000 |
| Sales and marketing | $183,000 | $270,000 |
| General and administrative | $1.117 million | $240,000 |
| Operating loss | ($1.807 million) | ($523,000) |
| Net loss | ($1.829 million) | ($524,000) |
| Net cash used in operations | ($1.799 million) | ($454,000) |
Revenue fell 21%. Gross margin shifted from approximately 43% to negative 75%, reflecting product/service mix and higher payroll and allocated costs. Product revenue was $188,000 versus $174,000; service revenue declined to $121,000 from $217,000. Management attributed cost increases partly to the reorganization and employee costs moving between expense categories.
At December 31, 2019, cash and cash equivalents were $3.245 million, total assets $4.757 million, total liabilities $2.235 million, and shareholders’ equity $2.522 million. Current liabilities were $1.910 million, including a $500,000 Medigus loan bearing 4% interest, contract liabilities of $502,000, and accrued expenses. The loan was scheduled for monthly repayment beginning January 2020. Cash flow from financing was $5.104 million, including approximately $3.3 million gross proceeds from a December private placement, Medigus contributions and loan proceeds, and recapitalization-related cash. The company reported no off-balance-sheet arrangements.
Changes, outlook, risks and unusual items
- Operating loss increased by $1.284 million year over year; G&A rose sharply due to payroll, professional services, company formation and acquisition costs. The comparison is affected by the carve-out and employee transfers, so reported expense changes are not necessarily like-for-like.
- Management and the auditor stated that recurring losses and operating cash outflows raise substantial doubt about the company’s ability to continue as a going concern. Management said further financing was needed for at least the next 12 months and planned to pursue equity, debt or strategic funding; there is no assurance financing will be obtained. Failure to secure funds or commercialize products could require reduced activity or cessation of operations.
- Remaining performance obligations were $906,000 at year-end, which the company expected to recognize in 2020. This is not a guarantee of collection or future sales.
- Two major customers were expected to account for most near-term revenue. The company also depends on a limited supplier base, including a sole supplier for certain miniature CMOS sensors, and has limited manufacturing capacity.
- The filing reports one material weakness in financial reporting controls, related to complex reverse-recapitalization accounting. Management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2019; remediation was underway but not assured.
- Other notable matters include a $73,000 IRS-related accrued balance, including penalties and interest associated with late 2013–2014 tax filings; the filing also says U.S. tax returns for 2015–2018 had not yet been filed. COVID-19 was identified as a possible operational risk. The OTC Pink shares had no regular trading market, and Medigus owned approximately 60% of shares at year-end.
- Subsequent to year-end, the company reported a March 2020 private placement with approximately $948,000 gross proceeds and substantial option grants under a new incentive plan, both potential sources of dilution. The filing also describes a contingent 10% share issuance to Medigus if sales reach $33 million within three years after closing.
Important facts for investors to verify
- Confirm that this ScoutCam Inc. 2019 filing is the intended filing for the Odysight.Ai request and confirm the relevant reporting period.
- Review the audited financial statements and subsequent filings for cash runway, repayment of the Medigus loan, financing raised after year-end, and whether the going-concern uncertainty was resolved.
- Assess customer concentration, the status and commercial terms of customer projects, and whether the $906,000 of reported remaining performance obligations converted to revenue and cash.
- Check progress in remediating the material weakness, and confirm the status of outstanding U.S. tax returns and the IRS balance.
- Review the private-placement warrants, contingent Medigus shares, and subsequent option grants to understand potential dilution and ownership changes.