(EDGAR Online via COMTEX) -- 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.
The Company's primary business activity during last few months was the completion of R&D 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.
Other major activities were the following:
- expanding marketing activities, including the recruitment of a Director of Business Development in the US, and launching a multi-platform digital marketing campaign;
The following table summarizes our results of operations for the three month period ended March 31, 2021 and 2020, together with the changes in those items in dollars and as a percentage:
2021 2020 % Change Revenues 24,000 40,000 (40 )% Cost of Revenues 203,000 130,000 56 % Gross Loss (179,000 ) (90,000 ) 99 % Research and development expenses 333,000 255,000 31 % Sales and marketing expense 145,000 52,000 179 % General and administrative expenses 933,000 1,112,000 (16 )% Operating Loss (1,590,000 ) (1,509,000 ) 5 %
For the three months ended March 31, 2021, ScoutCam generated revenues of $24,000, a decrease of $16,000 from the three months ended March 31, 2020.
The decrease in revenues was primarily due to an overall decrease in the sales of the Company's component products to occasional customers.
Cost of Revenues
Cost of revenues for the three months ended March 31, 2021 was $203,000, an increase of $73,000 compared to cost of revenues of $130,000 for the three months ended March 31, 2020.
The increase in cost of revenues was due to an increase in payroll expenses as a result of hiring additional production employees and the establishment of an engineering department as part of our ongoing transition from R&D to production.
Gross loss for the three months ended March 31, 2021 was $179,000, an increase of $89,000 compared to gross loss of $90,000 for the three months ended March 31, 2020.
Research and Development Expenses
Research and development expenses for the three months ended March 31, 2021, were $333,000, an increase of $78,000, or 31%, compared to $255,000 for the three months ended March 31, 2020. The increase was primarily due to increase in materials and subcontractors. The increase was primarily due to an increase in research and development activities as described under "Overview".
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Sales and Marketing Expenses
Sales and marketing expenses for the three months ended March 31, 2021, were $145,000, an increase of $93,000, or 179%, compared to $52,000 for the three months ended March 31, 2020. The increase was primarily due to an increase in marketing activities as described under "Overview".
General and Administrative Expenses
General and Administrative expenses for the three months ended March 31, 2021, were $933,000, a decrease of $179,000, or 16%, compared to $1,112,000 for the three months ended March 31, 2020. The decrease was primarily due to a decrease in share - based compensation expenses (see note 4 to our interim condensed financial statements as of March 31, 2021), which was partially offset by an increase in payroll expenses due to the hiring of additional employees.
We incurred an operating loss of $1,590,000 for the three months ended March 31, 2021, an increase of $81,000, or 5%, compared to operating loss of $1,509,000 for the three months ended March 31, 2020. The increase in operating loss was due to an $89,000 increase in gross loss, $78,000 increase in research and development expenses, and $93,000 increase in sales and marketing expenses, which collectively were partially offset by a $179,000 decrease in administrative and general expenses.
Liquidity and Capital Resources
We generated liquidity primarily from fund raising and warrant exercises as described in Note 9 of our interim condensed financial statements as of March 31, 2021.
As of March 31, 2021, our total assets were $26,429,000. 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 and increase of receivables on account of issuance of shares due to fundraising activities, as described in Note 4 of our interim condensed financial statements as of March 31, 2021. As of March 31, 2021, our total liabilities were $4,093,000. 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 other accrued compensation expenses.
Since incorporation through March 31, 2021, we incurred accumulated deficit of approximately $7.9 million. Our cash and cash equivalents as of March 31, 2021, as well as the proceeds from issuance of ordinary shares and warrants in the private offering as detailed in Note 4, 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 until we become profitable.
Cash Flows The following table sets forth the significant sources and uses of cash for the periods set forth below (in dollars): 2021 2020 Cash used in Operating Activity (774,000 ) (1,137,000 ) Cash used in Investing Activity (117,000 ) (185,000 ) Cash provided by Financing Activity 10,281,000 828,000
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For the three months ended March 31, 2021, net cash flows used in operating activities was $774,000, due primarily to a net loss of $1,606,000, partially offset by change in operating asset and liabilities of approximately $724,000.
For the three months ended March 31, 2021, net cash flows used in investing activities was $117,000, due primarily to the purchase of property and equipment.
For the three months ended March 31, 2021, net cash flows provided by financing activities was $10,281,000, due primarily to proceeds from the issuance of shares and warrants equivalent to approximately $9,500,000 and proceeds from exercise from warrants of approximately $781,000.
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.
Off-Balance Sheet Arrangements
Since April 4, the Subsidiary leases additional offices in Omer, Israel, with a total of approximately 549 gross square meters. The rental payments are linked to the Israeli CPI.
May 14, 2021
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