ScoutCam Inc. — Q1 2020 Form 10-Q
Company identification: The supplied filing is for ScoutCam Inc., not Odysight.Ai Inc. ScoutCam was formerly Intellisense Solutions Inc.; investors should verify the issuer and filing attribution. Unless otherwise stated, figures below are in USD thousands.
Business context and reporting period
The unaudited quarter ended March 31, 2020 covers ScoutCam’s miniaturized camera and imaging business, including products for medical and industrial applications. The business was carved out of Medigus and became part of the public company through a reverse recapitalization completed in December 2019. The filing was signed June 22, 2020; ScoutCam said COVID-19-related remote work and disrupted accounting processes delayed its preparation.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $40 | $24 |
| Cost of revenue | $130 | $109 |
| Gross loss | $(90) | $(85) |
| Research and development | $255 | $87 |
| Sales and marketing | $52 | $41 |
| General and administrative | $1,112 | $116 |
| Operating loss | $(1,509) | $(329) |
| Net loss | $(1,413) | $(329) |
| Basic and diluted loss per share | $(0.05) | $(0.02) |
| Operating cash used | $(1,137) | $(514) |
Net financing income of $96, principally an exchange-rate gain on cash, reduced the 2020 operating loss to the reported net loss. Cash and cash equivalents were $2,847 at March 31, 2020, down from $3,245 at year-end 2019. Investing activities used $185, primarily for property and equipment; financing provided $828, including $909 net proceeds from a share-and-warrant issuance and $81 of repayments to the parent. Cash decreased by $398 overall.
At quarter-end, total assets were $4,676, total liabilities $1,957, and shareholders’ equity $2,719. Current assets were $4,207 versus current liabilities of $1,620. The company reported a $378 loan from its parent and $72 of operating lease liabilities. Management disclosed substantial doubt about the company’s ability to continue as a going concern without additional financing within one year after the financial statements’ issuance.
Material changes, outlook, and risks
- Revenue rose 67% from the prior-year quarter, primarily from increased component-product sales to occasional customers. Revenue remained far below cost of revenue, resulting in a gross loss.
- Operating loss increased by $1,180, mainly due to higher general and administrative expense, R&D, and sales and marketing costs. Management attributed expense growth to additional employees, share-based compensation, severance-related items, and professional services associated with becoming an independent public company.
- Q1 included $682 of recognized share-based compensation. Options granted during the quarter had an estimated grant-date fair value of approximately $2.9 million, to be recognized over their vesting period. The company also issued 1,960 thousand shares in Q1 and had 13.2 million shares underlying outstanding warrants at March 31, creating potential dilution.
- Remaining performance obligations were $900, which the company expected to recognize over the next 12 months. Contract liabilities were $546, largely advance payments for development services.
- On May 18, 2020, after quarter-end, ScoutCam issued units for approximately $2 million gross proceeds. The filing does not state the net proceeds from this issuance.
- Management said further financing was needed to achieve growth targets and fund operations, with possible sources including equity, debt, or strategic partnerships; it gave no assurance that financing would be secured. Failure to commercialize products or obtain funding could force activity reductions or cessation of operations.
- COVID-19 disrupted access to facilities and professional advisers and delayed the filing. The company also cited potential supply-chain, workforce, research, and capital-raising impacts. Its 2019 comparative figures are carve-out data and may not reflect the costs or results of a standalone company.
- Management reported disclosure controls were ineffective at March 31 because of a material weakness involving complex reverse-recapitalization accounting. It said additional accounting personnel and review procedures were being implemented; the weakness would not be considered remediated until controls operated effectively and were tested for a sufficient period.
Important facts for investors to verify
- Whether this ScoutCam filing is correctly associated with the requested Odysight.Ai issuer.
- The company’s latest cash position, subsequent funding, financing terms, and expected cash runway given the going-concern warning.
- Potential dilution from outstanding warrants, the May 2020 issuance, and the option plan.
- Progress on revenue growth, conversion of the $900 RPO, and improvement in gross margins.
- Whether the disclosed internal-control material weakness has been remediated and whether COVID-19 continues to affect operations or reporting.