UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
(Mark One)
For the quarterly period ended June 30, 2021
For the transition period from to
Commission File No. 333-188920
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
Securities registered pursuant to Section 12(b) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 12, 2021, the registrant had 6,928,527shares of common stock, par value $0.001, of the registrant issued and outstanding.
As used in this Quarterly Report and unless otherwise indicated, the terms “ScoutCam,” “we,” “us,” “our,” or “our Company” refer to ScoutCam Inc. Unless otherwise specified, all dollar amounts are expressed in United States dollars.
SCOUTCAM INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information set forth in this Quarterly Report on Form 10-Q, including in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein may address or relate to future events and expectations and as such constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting our business, including many assumptions regarding future events.
Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “would,” “could,” “scheduled,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors. These statements may be found under the section of our Annual Report on Form 10-K for the year ended December 31, 2020 (filed on March 31, 2021) entitled “Risk Factors” as well as in our other public filings.
In light of these risks and uncertainties, and especially given the start-up nature of our business, there can be no assurance that the forward-looking statements contained herein will in fact occur. Readers should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
On August 9, 2021, we filed an amendment to our Articles of Incorporation in order to effect a one-for-nine reverse stock split of our common stock, par value $0.001 per share (the “Common Stock”) pursuant to which holders of our Common Stock received one share of our Common Stock for every nine shares of Common Stock held. Unless the context expressly dictates otherwise, all references to share and per share amounts referred to herein reflect the reverse stock split.
Item 1. Financial Statements
ScoutCam INC.
INTERIM FINANCIAL STATEMENTS
AS OF JUNE 30, 2021
CONSOLIDATED SCOUTCAM INC.
INTERIM CONDENSED CONSOLIATED BALANCE SHEETS
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Net loss per ordinary share (basic and
diluted, USD)
Weighted average ordinary shares (basic
and diluted, in thousands)
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Six Months Ended June 30, 2021 (Unaudited)
Additional
paid-in
Total
Shareholders’
Three Months Ended June 30, 2021 (Unaudited)
Six Months Ended June 30, 2020
Three Months Ended June 30, 2020
INTERIM CONDENSED CONOLIDATED STATEMENTS OF CASH FLOWS
Non cash activities -
45
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – GENERAL:
ScoutCam Inc. (the “Company”), formally known as Intellisense Solutions Inc. (Intellisense), was incorporated under the laws of the State of Nevada on March 22, 2013. The Company was initially engaged in the business of developing web portals to allow companies and individuals to engage in the purchase and sale of vegetarian food products over the Internet. The Company was unable to execute it original business plan, develop significant operations or achieve commercial sales. Prior to the closing of the Securities Exchange Agreement (as defined below), the Company was a “shell company”.
ScoutCam Ltd., or ScoutCam, was formed in the State of Israel on January 3, 2019 as a wholly-owned subsidiary of Medigus Ltd. (“Medigus”), an Israeli company traded on the Nasdaq Capital Market, and commenced operations on March 1, 2019. Upon incorporation, ScoutCam issued to Medigus 1,000,000 Ordinary shares with no par value. On March 2019, ScoutCam issued to Medigus an additional 1,000,000 Ordinary shares with no par value.
ScoutCam was incorporated as part of a reorganization of Medigus, which was designed to distinguish ScoutCam’s miniaturized imaging business, or the micro ScoutCam™ portfolio, from Medigus’s other operations and to enable Medigus to form a separate business unit with dedicated resources focused on the promotion of such technology. In December 2019, Medigus and ScoutCam consummated a certain Amended and Restated Asset Transfer Agreement, under which Medigus transferred and assigned certain assets and intellectual property rights related to its miniaturized imaging business to ScoutCam.
On September 16, 2019, Intellisense entered into a Securities Exchange Agreement (the “Exchange Agreement”), with Medigus, pursuant to which Medigus assigned, transferred and delivered 100% of its holdings in ScoutCam to Intellisense, in exchange for consideration consisting of shares of Intellisense’s common stock representing 60% of the issued and outstanding share capital of Intellisense immediately upon the closing of the Exchange Agreement (the “Closing”). The Closing occurred on December 30, 2019 (the “Closing Date”).
Although the transaction resulted in ScoutCam becoming a wholly owned subsidiary of Intellisense, the transaction constituted a reverse recapitalization since Medigus, the only shareholder of ScoutCam prior to the Exchange Agreement, was issued a substantial majority of the outstanding capital stock of Intellisense upon consummation of the Exchange Agreement, and also taking into account that prior to the Closing Date, Intellisense was considered as a shell corporation. Accordingly, ScoutCam is considered the accounting acquirer of the merged company.
As of June 30, 2021 Medigus holds approximately 28% of the Company.
“Group” - the Company together with ScoutCam.
ScoutCam has developed a range of micro CMOS (complementary metal-oxide semiconductor) and CCD (charge-coupled device) video cameras, including micro ScoutCam™ 1.2. These innovative cameras are suitable for both medical and industrial applications. Based on its proprietary technology, the Company designs and manufactures endoscopy and micro camera systems for partner companies.
NOTE 1 – GENERAL (continued):
On August 9, 2021, the Company amended its Articles of Incorporation to effect a 9 to 1 reverse stock split of the Company’s outstanding Common Stock.
As a result of the reverse stock split, every 9 shares of the Company’s outstanding Common Stock prior to the effect of that amendment was combined and reclassified into one share of the Company’s Common Stock. No fractional shares were issued in connection with or following the reverse split. The number of authorized capital of the Company’s Common Stock and par value of the shares remained unchanged.
All share, stock option and per share information in these condensed consolidated financial statements have been adjusted to reflect the stock split on a retroactive basis.
NOTE 2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of U.S. Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included (consisting only of normal recurring adjustments except as otherwise discussed). For further information, reference is made to the consolidated financial statements and footnotes thereto included in the Group’s Annual Report on Form 10-K for the year ended December 31, 2020.
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany balances and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The Company evaluates on an ongoing basis its assumptions, including those related to contingencies, deferred taxes, inventory impairment, stock based compensation, as well as in estimates used in applying the revenue recognition policy. Actual results may differ from those estimates.
The significant accounting policies followed in the preparation of these unaudited interim condensed consolidated financial statements are identical to those applied in the preparation of the latest annual financial statements.
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Group’s condensed consolidated financial statements.
NOTE 3 – LEASES:
ScoutCam leases office and vehicles under operating leases. On June 30, 2021, the Group’s ROU assets and lease liabilities for operating leases totaled $385 thousand.
In December 2020, ScoutCam entered into a lease agreement for office space in Omer, Israel. The agreement is for 36 months beginning on January 1, 2021. ScoutCam holds the right to terminate the lease agreement after 24 months. In March 2021, ScoutCam entered into a lease agreement for additional office space in Omer, Israel. The agreement is until December 31, 2023. ScoutCam holds the right to terminate these agreements by December 31, 2022. Monthly lease payments under the agreements are approximately $12thousand. Lease expenses recorded in the interim consolidated statements of operations were $49thousand for the six months ended June 30, 2021.
Supplemental cash flow information related to operating leases was as follows:
SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO OPERATING LEASES
Six months ended 30, 2021
As of June 30, 2021, the Company’s operating leases had a weighted average remaining lease term of 1.52years and a weighted average discount rate of 10%. Future lease payments under operating leases as of June 30, 2021 were as follows:
SCHEDULE OF MATURITIES LEASE LIABILITIES UNDER OPERATING LEASES
NOTE 4 – EQUITY:
Private placement:
Each Warrant A was exercisable into oneshare of common stock of the Company at an exercise price of USD 5.355per share during the 12month period following the allocation. Each Warrant B is exercisable into oneshare of common stock of the Company at an exercise price of USD 8.037per share during the 18month period following the allocation.
In addition, Shrem Zilberman Group Ltd. (the “Consultant”) was entitled to receive the amount representing 3%of any exercise price of each Warrant A or Warrant B that may be exercised in the future. In the event the total proceeds received as a result of exercise of Warrants will be less than $2million at the time of their expiration, the Consultant will be required to invest $250,000in the Company in return for shares of common stock of Company.
During 2020, 332,551Warrants A were exercised. 46,718unexercised Warrants A expired on December 30, 2020.
During the second quarter of 2021, 185,271Warrants B were exercised. 573,256unexercised Warrants B expired on June 30, 2021.
Each unit was comprised of two shares of common stock par value US$0.001 per share, one Warrant A (defined below) and two Warrants B (defined below).
Each Warrant A was exercisable into oneshare of common stock of the Company at an exercise price of USD 5.355per share during the 12month period following the allocation.
Each Warrant B is exercisable into oneshare of common stock of the Company at an exercise price of USD 8.037per share during the 18month period following the allocation.
The gross proceeds from the issuance of all securities offered amounted to approximately USD 948 thousands. After deducting issuance costs, the Company received proceeds of approximately USD 909 thousand.
During 2021, all Warrants A were exercised.
Each Warrant A is exercisable into oneshare of common stock of the Company at an exercise price of USD 5.355per share during the 18month period following the allocation.
Each Warrant B is exercisable into oneshare of common stock of the Company at an exercise price of USD 8.037per share during the 24month period following the allocation.
The gross proceeds from the issuance of all securities offered amounted to approximately USD 2 million. After deducting issuance costs, the Company received proceeds of approximately USD 1.9 million.
During February 2021, 37,349Warrants A were exercised.
On June 23, 2020, (the “Conversion Date”), the Company entered into and consummated a Side Letter Agreement with Medigus, whereby the parties agreed to convert, at a conversion price of $4.356,an outstanding line of credit previously extended by Medigus to the ScoutCam, which as of the Conversion Date was $381,136, into (a) 87,497shares of the Company’s common stock, (b) warrants to purchase 43,749shares of common stock with an exercise price of $5.355(Warrant A), and (c) warrants to purchase 87,497shares of common stock with an exercise price of $8.037(Warrant B). As the conversion price represented the same unit price as in the March 2020 and May 2020 private placements, no finance expenses have been recorded in statement of operations as a result of the conversion.
Each Warrant A is exercisable into oneshare of common stock of the Company at an exercise price of USD 5.355per share during the 12months period following the allocation.
Each Warrant B is exercisable into oneshare of common stock of the Company at an exercise price of USD 8.037per share during the 18months period following the allocation.
During June 2021, all Warrants A were exercised.
On March 22, 2021, the Company undertook to issue to certain investors (the “Investors”)2,469,156units (the “Units”) in exchange for an aggregate purchase price of $20million. Each Unit consists of (i) one share of the Company’s common stock and (ii) one warrant to purchase one share of common stock with an exercise price of USD 10.35per share (the “Warrant March 2021” and the “Exercise Price”). Each Warrant is exercisable until the close of business on March 31, 2026.
Pursuant to the terms of the Warrant March 2021, following April 1, 2024, if the closing price of the common stock equals or exceeds 135% of the Exercise Price (subject to appropriate adjustments for stock splits, stock dividends, stock combinations and other similar transactions after the issue date of the Warrants) for any thirty (30) consecutive trading days, the Company may force the exercise of the Warrants, in whole or in part, by delivering to the Investors a notice of forced exercise.
As of June 30, 2021, the Company had the following outstanding warrants to purchase common stock :
SCHEDULE OF STOCK WARRANTS OUTSTANDING TO PURCHASE COMMON STOCK
Exercise Price
Per Share ($)
Number of
Shares
of common
stock
Underlying
Warrants
NOTE 4 – EQUITY (continued):
Share-based compensation to employees, directors and service providers:
In February 2020, the Company’s Board of Directors approved the 2020 Share Incentive Plan (the “Plan”). The Plan initially included a pool of 580,890shares of common stock for grant to Company employees, consultants, directors and other service providers. On March 15, 2020, the Company’s Board of Directors approved an increase to the Company’s option pool pursuant to the Plan by an additional 64,099shares of Common Stock. On June 22, 2020, the Company’s Board of Directors approved an increase to the Company’s option pool pursuant to the Plan by an additional401,950shares of common stock. During the second quarter of 2021, the Company’s Board of Directors approved an increase to the Company’s option pool pursuant to the Plan by an additional 777,778shares of common stock.
The Plan is designed to enable the Company to grant options to purchase ordinary shares and RSUs under various and different tax regimes including, without limitation: (i) pursuant and subject to Section 102 of the Israeli Tax Ordinance or any provision which may amend or replace it and any regulations, rules, orders or procedures promulgated thereunder and to designate them as either grants made through a trustee or not through a trustee; and (ii) pursuant and subject to Section 3(i) of the Israeli Tax Ordinance.
During the six months ended June 30, 2021, the Company granted 567,687options pursuant to the Plan.
The fair value of each option was estimated as of the date of grant or reporting period using the Black-Scholes option-pricing model, using the following assumptions:
SCHEDULE OF SHARE-BASED PAYMENT AWARD, STOCK OPTIONS, VALUATION ASSUMPTIONS
Six months
ended
June 30, 2021
The cost of the benefit embodied in the options granted during the six months ended June 30, 2021, based on their fair value as at the grant date, is estimated to be approximately $3,784thousands. These amounts will be recognized in statements of operations over the vesting period.
The following table summarizes stock option activity for the six months ended June 30, 2021:
SCHEDULE OF STOCK OPTIONS ACTIVITY
For the
Six months ended
Amount of
options
Weighted average
exercise price
The following table sets forth the total share-based payment expenses resulting from options granted, included in the statements of operation:
SCHEDULE OF TOTAL SHARE-BASED PAYMENT EXPENSES
NOTE 5 – REVENUES:
Contract fulfillment assets and Contract liabilities:
The Company’s contract fulfillment assets and contract liabilities as of June 30, 2021 and December 31, 2020 were as follows:
SCHEDULE OF CONTRACT LIABILITIES
December 31,
Remaining Performance Obligations
Remaining Performance Obligations (“RPO”) represents contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. As of June 30, 2021, the total RPO amounted to $2.7million, which the Company expects to recognize over the expected manufacturing term of the product under development.
NOTE 6 – INVENTORY:
Composed as follows:
SCHEDULE OF INVENTORY
During the period ended June 30, 2021, no impairment occurred.
NOTE 7 – LOSS PER SHARE
Basic loss per share is computed by dividing net loss attributable to ordinary shareholders of the Company, by the weighted average number of ordinary shares as described below.
In computing the Company’s diluted loss per share, the numerator used in the basic loss per share computation is adjusted for the dilutive effect, if any, of the Company’s potential shares of common stock. The denominator for diluted loss per share is a computation of the weighted-average number of ordinary shares and the potential dilutive ordinary shares outstanding during the period.
NOTE 8 – RELATED PARTIES
On May 30, 2019, ScoutCam Ltd. entered into an intercompany agreement with Medigus (the “Intercompany Agreement”) according to which ScoutCam Ltd. agreed to hire and retain certain services from Medigus. The agreed upon services provided under the Intercompany Agreement included: (1) lease of office space and clean room based on actual space utilized by ScoutCam Ltd. and in shared spaces according to employee ratio; (2) utilities such as electricity water, IT and communication services based on employee ratio; (3) car services, including car rental, gas usage, payment for toll roads based on 100% of expense incurred from a ScoutCam Ltd. employee car; (4) external accountant services at a price of USD 6,000per annum; (5) directors and officers insurance at a sum of 1/3 of Medigus cost; (6) CFO services at a sum of 50% of Medigus company CFO employer cost; (7) every direct expense of ScoutCam Ltd. that is paid by Medigus in its entirety subject to approval of such direct expenses in advance; and (8) any other mutual expense that is borne by the parties according to the Respective portion of the Mutual Expense
In addition, ScoutCam Ltd.’s employees provide support services to Medigus.
On April 20, 2020, ScoutCam Ltd. entered into an amended and restated intercompany services agreement with Medigus.
Balances with related parties:
SCHEDULE OF BALANCES WITH RELATED PARTIES
NOTE 9 – SUBSEQUENT EVENTS
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Readers are advised to review the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2020. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements”. You should review the “Risk Factors” section of our Annual Report for the fiscal year ended December 31, 2020 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
The Company’s primary business activity during last few months was the completion of R&D in connection with a customer-specific project and the transition to the production stage with respect to a contract with a Fortune 500 Multinational Healthcare Corporation, while expanding the R&D team to enable additional projects in parallel. The main effect of this activity was the increase in the number of employees to enable the Company to manage the anticipated increased workload. In addition, the Company has enlarged its focus on I4.0 activities.
Other major activities were the following:
Comparison of the six months ended June 30, 2021 and 2020
The following table summarizes our results of operations for the six months period ended June 30, 2021, and 2020, together with the changes in those items in dollars and as a percentage:
Revenues
For the six months ended June 30, 2021, we generated revenues of $298,000, an increase of $224,000 from the six months ended June 30, 2020.
The increase in revenues was primarily due to revenues from A.M. Surgical. Total revenues recorded from A.M. Surgical during the six months ended June 30, 2021 amounted to approximately $200,000. We did not record any revenue from A.M. Surgical during the six months ended June 30, 2020.
Cost of Revenues
Cost of revenues for the six months ended June 30, 2021 was $610,000, an increase of $329,000 compared to cost of revenues of $281,000 for the six months ended June 30, 2020. The increase was primarily due to an increase in materials as a result of an increase in revenues and an increase in payroll expenses as a result of hiring additional employees as part of the transition to the production stage with respect to a contract with a Fortune 500 Multinational Healthcare Corporation.
Gross Loss
Gross loss for the six months ended June 30, 2021, was $312,000, an increase of $105,000 compared to gross loss of $207,000 for the six months ended June 30, 2020.
Research and Development Expenses
Research and development expenses for the six months ended June 30, 2021 were $754,000, an increase of $384,000, or 104%, compared to $370,000 for the six months ended June 30, 2020. The increase was primarily due to (i) an increase in payroll expenses and materials and subcontractors and (ii) an increase in research and development activities, including the development of new products and the improvement of existing technology. We recently begun examining additional applications for our micro ScoutCam™ portfolio outside of the medical, defense and aerospace fields, including sectors such as, inter alia, automotive, industrial non-destructing-testing industries, and predictive maintenance (i.e. Industry 4.0) based on Internet of Things (IoT). We plan to further expand the activity in these non-medical spaces.
We expect that our research and development expenses will increase as we continue to develop our products and service and recruit additional research and development employees to the I4.0 domain.
Sales and Marketing Expenses
Sales and marketing expenses for the six months ended June 30, 2021, were $293,000, an increase of $105,000, or 56%, compared to $188,000 for the six months ended June 30, 2020. The increase was primarily due to an expanding marketing activity, including the recruitment of a Director of Business Development in the US, and launching a multi-platform digital marketing campaign.
We expect that our selling and marketing expenses will increase as we continue to increase our selling and marketing efforts.
General and Administrative Expenses
General and Administrative expenses for the six months ended June 30, 2021 were $2,328,000, an increase of $648,000, or 39%, compared to $1,680,000 for the six months ended June 30, 2020. The increase was primarily due to:
Operating loss
We incurred an operating loss of $3,687,000 for the six months ended June 30, 2021, an increase of $1,242,000, or 51%, compared to operating loss of $2,445,000 for the six months ended June 30, 2020. The increase in operating loss was due to $105,000 increase in gross loss, $384,000 increase in research and development expenses, and $105,000 increase in sales and marketing expenses and $648,000 increase in administrative and general expenses.
Cash Flows
The following table sets forth the significant sources and uses of cash for the periods set forth below (in dollars):
Operating Activities
For the six months ended June 30, 2021, net cash flows used in operating activities was $3,054,000, due primarily to a net loss of $3,694,000, partially offset by share based compensation of $635,000.
Investing Activities
For the six months ended June 30, 2021, net cash flows used in investing activities was $170,000, due to the purchase of property and equipment.
Financing Activities
For the six months ended June 30, 2021, net cash flows provided by financing activities was $21,622,000, due to proceeds from the issuance of shares and warrants equivalent to approximately $19,118,000 and proceeds from exercise from warrants of approximately $2,504,000.
Comparison of the three months ended June 30, 2021 and 2020
The following table summarizes our results of operations for the three months period ended June 30, 2021, and 2020, together with the changes in those items in dollars and as a percentage:
For the three months ended June 30, 2021, we generated revenues of $274,000, an increase of $240,000 from the three months ended June 30, 2020.
The increase in revenues was primarily due to revenues from A.M. Surgical. Total revenues recorded from A.M. Surgical during the three month ended June 30, 2021 amounted to approximately $200,000. We did not record any revenue from A.M. Surgical during the three months ended June 30, 2020.
Cost of revenues for the three months ended June 30, 2021, was $407,000, an increase of $256,000 compared to cost of revenues of $151,000 for the three months ended June 30, 2020. The increase was primarily due to an increase in materials as a result of an increase in revenues and an increase in payroll expenses as a result of hiring additional employees as part of the transition to the production stage with respect to a contract with a Fortune 500 Multinational Healthcare Corporation.
Gross loss for the three months ended June 30, 2021, was $133,000, an increase of $16,000 compared to gross loss of $117,000 for the three months ended June 30, 2020.
Research and development expenses for the three months ended June 30, 2021 were $421,000, an increase of $306,000, or 266%, compared to $115,000 for the three months ended June 30, 2020. The increase was primarily due to (i) an increase in payroll expenses, materials and subcontractors; and (ii) an increase in research and development activities, including the development of new products and the improvement of existing technology. We recently began examining additional applications for our micro ScoutCam™ portfolio outside of the medical, defense and aerospace fields, including sectors such as automotive, industrial non-destructing-testing industries, and predictive maintenance (i.e. Industry 4.0) based on Internet of Things (IoT). We plan to further expand the activity in these non-medical spaces.
We expect that our research and development expenses will increase as we continue to develop our products and service, and recruit additional research and development employees.
Sales and marketing expenses for the three months ended June 30, 2021 were $148,000, an increase of $12,000, or 9%, compared to $136,000 for the three months ended June 30, 2020.
General and Administrative expenses for the three months ended June 30, 2021 were $1,395,000, an increase of $827,000, or 146%, compared to $568,000 for the three months ended June 30, 2020. The increase was primarily due to:
We incurred an operating loss of $2,097,000 for the three months ended June 30, 2021, an increase of $1,161,000, or 124%, compared to operating loss of $936,000 for the three months ended June 30, 2020. The increase in operating loss was due to $16,000 increase in gross loss, $306,000 increase in research and development expenses, and $12,000 increase in sales and marketing expenses and $827,000 increase in administrative and general expenses.
For the three months ended June 30, 2021, net cash flows used in operating activities were $2,280,000, due primarily to a net loss of $2,088,000 and change in operating asset and liabilities of approximately $698,000, partially offset by share based compensation of $556,000.
For the three months ended June 30, 2021, net cash flows used in investing activities were $53,000, due to the purchase of property and equipment.
For the three months ended June 30, 2021, net cash flows provided by financing activities were $11,341,000, due to proceeds from the issuance of shares and warrants equivalent to approximately $9,618,000 and proceeds from exercise from warrants of approximately $1,723,000.
Future Funding Requirements
The Company believes that it will require additional financing in order to provide the capital it needs to achieve its growth targets.
Liquidity and Capital Resources
We generated liquidity primarily from fund raising and warrant exercises as described in Note 4 of our interim condensed financial statements as of June 30, 2021.
As of June 30, 2021, our total assets were $25,548,000. As of December 31, 2020, our total assets were $5,895,000. The increase of assets was mainly due to an increase of cash and cash equivalents due to fundraising activities and warrants exercise, as described in Note 4 of our interim condensed financial statements as of June 30, 2021.
As of June 30, 2021, our total liabilities were $3,066,000. As of December 31, 2020, our total liabilities were $1,931,000. The increase of liabilities was mainly due to an increase of accounts payables, contract liabilities and operating lease liabilities.
Since our incorporation through June 30, 2021, we incurred accumulated deficit of approximately $10 million. The management believes that our cash and cash resources as of June 30, 2021 will allow us to fund our operating plan through at least the next 12 months. However, we expect to continue to incur significant research and development expenses and other costs related to our ongoing operations; and in order to continue our future operations, we will need to obtain additional funding at least until such time that we become profitable.
Off-Balance Sheet Arrangements
None.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a smaller reporting company, we are not required to provide the information requested by this Item.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Exchange Act Rule 13a-15(e). Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
No change in our internal control over financial reporting, as defined in Exchange Act Rule 13a-15(e), occurred during the fiscal quarter ended June 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may become involved in legal proceedings relating to claims arising from the ordinary course of business. Our management believes that there are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse effect on our results of operations, financial condition or cash flows.
ITEM 1A. RISK FACTORS.
There have been no material changes from the information set forth in “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31,2020 as filed with the SEC on March 31, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
There have been no unregistered sales of equity securities in addition to the sales provided under Form 8-K as filed with the SEC during the recent fiscal quarter ended June 30, 2021.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS.
(a) The following documents are filed as exhibits to this Quarterly Report or incorporated by reference herein.
Exhibit
Number
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.