Business context and reporting period
This is ScoutCam Inc.’s unaudited Form 10-Q for the three months ended March 31, 2023. The filing describes a business developing and selling predictive-maintenance and condition-monitoring technologies, with applications including aviation, maritime, industrial, transportation and energy markets, as well as micro-visualization products for medical devices. The request metadata names Odysight.Ai Inc., but the filing itself identifies the registrant as ScoutCam Inc.; verify the issuer identity.
Financial performance and position
Unless noted otherwise, amounts below are in U.S. dollars; financial statement figures were reported in thousands.
- Revenue: $303,000, versus $2,000 in Q1 2022. Approximately $288,000 came from the Fortune 500 healthcare customer program. Revenue included $106,000 of development-service revenue recognized over the estimated seven-year manufacturing term and $182,000 of product revenue from that program.
- Gross profit and margins: Gross loss was $247,000 versus $286,000. Gross margin was approximately -81% in Q1 2023, compared with -14,300% in Q1 2022; the prior-period percentage is distorted by its very small revenue base.
- Operating and net loss: Operating loss was $2.779 million, compared with $2.769 million. Net loss was $2.686 million versus $2.788 million; basic and diluted loss per share was $0.37 versus $0.39.
- Expenses: R&D increased 47% to $1.398 million; sales and marketing fell 28% to $176,000; general and administrative expense fell 26% to $958,000.
- Cash flow: Operating activities used $2.474 million, versus $224,000 in Q1 2022. Investing activities used $12.015 million, primarily reflecting investment in short-term deposits; financing activities provided $13.977 million from share and warrant issuance. Period-end cash and cash equivalents were $9.583 million.
- Liquidity and liabilities: Short-term deposits were $15.005 million, bringing cash and deposits to approximately $24.6 million. Current assets were $25.906 million and current liabilities $2.620 million. Total liabilities were $5.088 million, including contract liabilities and operating lease liabilities; the filing reports no borrowings. Accumulated deficit was $27.448 million.
- Contract position: Remaining performance obligations were $3.4 million, expected to be recognized over the product’s estimated manufacturing term. Contract liabilities totaled $3.416 million.
Material changes versus the prior comparable period
- Revenue rose by $301,000, primarily following the move of the Fortune 500 customer-specific miniature-camera project into production; the company reported no revenue from that program in Q1 2022.
- Cost of revenue rose 91% to $550,000, driven mainly by materials for increased product supply. Gross loss narrowed by $39,000, but remained substantial relative to revenue.
- R&D expense increased by $444,000, attributed to hiring and higher materials, subcontractor, rent and maintenance costs as the company expanded its Industry 4.0 focus.
- Operating loss was broadly unchanged. Lower sales and marketing and G&A costs partly offset higher R&D spending.
- Operating cash use increased from $224,000 to $2.474 million. The prior-period figure benefited from a $1.6 million increase in contract liabilities, which did not recur; Q1 2023 also included a $15 million investment in short-term deposits and a $14 million private placement.
- On March 16, 2023, the company issued 3,294,117 units at $4.25 each for an aggregate purchase price of $14 million. Each unit included one common share and one warrant exercisable at $5.50. Shares outstanding increased from 7,121,737 at year-end to 10,432,518 at March 31, 2023.
Outlook, commentary and risks
- Management stated that cash and cash resources were expected to fund the operating plan for at least 12 months from the filing date. It also expects significant ongoing R&D, commercialization and public-company costs, says additional funding will be required, and expects to remain unprofitable for the foreseeable future.
- Management expects R&D spending to increase as product development and hiring continue, and expects sales and marketing expense to increase as efforts in the Industry 4.0 market expand. No quantified revenue or earnings guidance was provided.
- Management noted that a substantial portion of revenue comes from a limited number of customers. The reported quarter’s revenue was heavily tied to one Fortune 500 customer program.
- The company had accumulated a $27.4 million deficit. It cautioned that further financing may dilute shareholders and that inability to obtain funding could require delaying, reducing or eliminating development or commercialization efforts.
- The filing reports no material changes to the risk factors in the 2022 Form 10-K, no material pending legal claims identified by management, and no subsequent events identified through issuance of the financial statements. Management concluded disclosure controls were effective at quarter-end.
Important facts for investors to verify
- Confirm that this ScoutCam Inc. filing is the intended filing for Odysight.Ai Inc., given the issuer-name discrepancy in the request.
- Review customer concentration, the customer-specific program’s production scale-up, and the timing and accounting basis for recognizing its development and product revenue.
- Assess whether the $3.4 million of remaining performance obligations will convert to revenue on the expected schedule and at sustainable margins.
- Verify cash-burn assumptions behind management’s 12-month liquidity statement, the availability and terms of short-term deposits, and the company’s future financing needs.
- Evaluate dilution from the March 2023 share and warrant issuance and the potential impact of outstanding warrants and equity awards.