Business context and reporting period
The filing is ScoutCam Inc.’s Form 10-K for the fiscal year ended December 31, 2020—not a quarterly report. Although the request identifies Odysight.Ai Inc., the filing names ScoutCam Inc. as the registrant. ScoutCam develops, manufactures and markets miniature imaging components and custom visualization systems, primarily for business customers in medical and industrial markets. Its financial statements include ScoutCam Ltd.; comparative periods are carve-out financial statements and may not reflect the costs or results of a standalone company.
Financial results and position
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $491,000 | $309,000 |
| Cost of revenue | $994,000 | $542,000 |
| Gross profit (loss) | $(503,000) | $(233,000) |
| Operating loss | $(4.706 million) | $(1.807 million) |
| Net loss | $(4.667 million) | $(1.829 million) |
| Cash used in operating activities | $(4.187 million) | $(1.799 million) |
Revenue grew 59%, but cost of revenue rose 83%; gross margin was approximately negative 102% in 2020. Operating expenses included $725,000 in research and development, $443,000 in sales and marketing, and $3.035 million in general and administrative expenses. Net loss per share was $0.15, compared with $0.11 in 2019.
At December 31, 2020, cash and cash equivalents were $3.373 million, total assets were $5.895 million, and total liabilities were $1.931 million. Current assets were $4.029 million against current liabilities of $772,000. The balance sheet showed no loan from the parent at year-end; lease liabilities totaled $107,000. Financing activities provided $4.506 million, including $2.858 million from share and warrant issuance and $1.729 million from warrant exercises. The company reported $1.130 million of contract fulfillment assets and $848,000 of contract liabilities.
Material changes versus the prior period
- Revenue increased by $182,000, primarily because sales to Customer A rose to approximately $383,000 from $85,000. That customer represented about 78% of 2020 revenue.
- Gross loss widened by $270,000; operating loss increased by $2.899 million. Higher staffing, research and development, marketing, professional services, and share-based compensation contributed to increased costs.
- Cash used in operations rose by $2.388 million. Cash at year-end increased by $128,000, supported by financing proceeds despite substantial operating outflows.
- Management reported 27 employees at year-end in its operating discussion; elsewhere the filing describes 32 full-time or near-full-time employees. The filing does not reconcile these figures.
Outlook, risks and unusual items
Management and the independent auditor disclosed substantial doubt about the company’s ability to continue as a going concern without additional funding. Management said existing resources were insufficient to fund operations for at least 12 months after the financial statements’ issuance and planned to pursue equity, debt, strategic partnerships and commercialization. The filing gives no quantified operating guidance.
As of December 31, 2020, remaining performance obligations were $2.9 million, expected to be recognized over the manufacturing term of the product under development. For 2020, development-service billings were deferred because the services were assessed as not distinct from the related manufacturing obligation. The auditor identified the assessment of development-services revenue and contract liabilities as a critical audit matter.
On March 22, 2021, the company undertook to issue 22,222,223 units for an aggregate $20 million; each unit included one common share and one warrant. The filing states that the placement had not closed by the financial statements’ issuance date, and management therefore excluded its proceeds from its going-concern assessment. The transaction is subsequent to the reporting period and should not be treated as year-end cash.
Key risks include continuing losses and financing needs; customer and product concentration; COVID-19 effects on manufacturing, sales, hiring, travel and fundraising; reliance on a limited supplier base, including a sole supplier for certain miniature CMOS sensors; competition, regulatory and commercialization uncertainty; and political, security and currency risks related to operations in Israel. The company also disclosed a thinly traded OTCQB stock, potential dilution from warrants and equity awards, and a CEO transition effective after year-end. Management said a previously identified material weakness in internal control over financial reporting was remediated in 2020; disclosure controls were deemed effective at a reasonable-assurance level.
Important facts for investors to verify
- Confirm the registrant’s identity and reporting period: this filing is for ScoutCam Inc. and the year ended December 31, 2020.
- Verify the status, closing conditions, net proceeds and share dilution from the $20 million March 2021 private placement.
- Assess runway and financing needs against the going-concern disclosure and the reported $3.373 million year-end cash balance.
- Review the timing and collectibility of the $2.9 million remaining performance obligations, including the $848,000 contract-liability balance and $1.130 million contract fulfillment asset.
- Evaluate concentration in Customer A, manufacturing economics, supplier alternatives and the path to positive gross margins.
- Reconcile employee counts and review post-year-end share issuance, warrant exercises, outstanding warrants and equity awards for dilution.