ScoutCam Inc. — Form 10-Q Summary
Entity and period: The supplied filing is for ScoutCam Inc., not Odysight.Ai Inc. It reports the quarter and nine months ended September 30, 2020; financial statements are unaudited and amounts are in USD thousands unless stated otherwise.
Business context and reporting period
ScoutCam develops and manufactures miniature camera and imaging systems for medical and industrial applications. It is pursuing a business-to-business model focused on larger integration and development projects. The company became an independent public company through a December 2019 reverse recapitalization with Medigus Ltd.; 2019 comparative figures include carve-out financial data and may not represent results as a standalone business.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $12 | $128 | $86 | $272 |
| Gross loss | $(141) | $(8) | $(348) | $(168) |
| Operating loss | $(1,028) | $(357) | $(3,473) | $(1,055) |
| Net loss | $(1,027) | $(366) | $(3,410) | $(1,073) |
| Operating cash flow | $(433) | $(381) | $(2,710) | $(1,280) |
Revenue fell 91% in Q3 and 68% for the first nine months year over year. Nine-month R&D expense was $514 (up 138%), sales and marketing was $302 (up 132%), and general and administrative expense was $2,309 (up 327%). The filing attributes cost increases mainly to hiring, share-based compensation, increased R&D activity, marketing, and professional services associated with becoming independent.
At September 30, 2020, cash and cash equivalents were $3,150, current assets $4,940, current liabilities $1,971, total assets $5,636, and total liabilities $2,324. Shareholders’ equity was $3,312. Inventory was $1,483, including a $50 impairment provision. Lease liabilities totaled $112. The $500 parent-company loan reported at December 31, 2019 was no longer outstanding; the filing describes repayment and conversion of parent-company debt. No other conventional borrowing balance is clearly reported.
For the first nine months, investing cash use was $249, mainly for property and equipment; financing provided $2,777, including $2,858 from share-and-warrant issuances, offset by $81 in parent-loan repayments. Cash declined by $95 over the period, ending at $3,150. The filing reports a basic and diluted loss per share of $0.03 for Q3 and $0.11 for the nine-month period.
Material changes and notable items
- Revenue contracted sharply as COVID-19 affected operations and the company reduced sales to occasional customers while concentrating on larger projects.
- Two major customers were identified as driving most current and near-term forecast revenue: an international biopharma company developing a visualization component for an invasive surgical device, and an orthopedic medical-device company.
- Remaining performance obligations were $3.3 million at September 30, 2020, which the company expected to recognize over the next 12 months. This is contracted, unrecognized revenue, not a guarantee of future results.
- Share-based compensation expense was $927 for the first nine months. The company granted 6.49 million options at a $0.29 exercise price and reported 20.56 million outstanding warrants at September 30, 2020, creating potential dilution. The filing also reports 968,733 shares issued on warrant exercises after period-end.
- Common shares outstanding were 33,764,128 at September 30, 2020 and 34,732,861 as of November 10, 2020.
Outlook, risks, and controls
Management stated that, without additional fundraising, the company would not have sufficient resources to support operations—including product development, manufacturing, and marketing—for one year after issuance of the financial statements. The filing therefore identifies substantial doubt about the company’s ability to continue as a going concern. Management plans to commercialize products and seek equity, debt, strategic-partner capital, or other financing, but gives no assurance that adequate funding will be obtained; failure could require reduced activity or cessation of operations.
Management said COVID-19 had materially affected and could continue to affect manufacturing, sales, workforce, fundraising, travel, marketing, and R&D. The company also disclosed a material weakness in internal control over financial reporting related to complex reverse-recapitalization accounting. Disclosure controls were deemed ineffective as of September 30, 2020. Remediation efforts included hiring finance personnel and strengthening review of complex transactions; the weakness would not be considered remediated until controls operated effectively and were tested for a sufficient period.
Important facts for investors to verify
- Confirm the filing belongs to the intended issuer: the document names ScoutCam Inc., whereas the request identifies Odysight.Ai Inc.
- Assess the company’s funding runway and whether subsequent financing was secured to address the stated going-concern doubt.
- Review conversion of the $3.3 million RPO into recognized revenue, including timing, customer concentration, and project execution risk.
- Evaluate the continuing impact of COVID-19 and the causes of the steep revenue decline and negative gross margins.
- Quantify potential dilution from outstanding warrants, options, and subsequent warrant exercises.
- Check whether the disclosed material weakness was subsequently remediated and whether disclosure controls became effective.