Microbot Medical Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Financial amounts below are in U.S. dollars, in thousands, unless otherwise noted. The company is a pre-clinical medical-device developer focused on micro-robotics technologies, including the Self Cleaning Shunt (SCS) and TipCAT endoscope. It has no approved products and has generated no revenue. Its November 2016 merger was accounted for as a reverse recapitalization, with Microbot Israel as the accounting acquirer; therefore, prior-period comparisons reflect a different reporting entity and business context.
Financial results and liquidity
| Metric | Q1 2017 | Q1 2016 / prior balance date |
|---|---|---|
| Revenue | None | None to date |
| Research and development expense, net | $184 | $219 |
| General and administrative expense | $1,049 | $66 |
| Operating loss | $(1,233) | $(285) |
| Net loss | $(1,307) | $(276) |
| Basic and diluted loss per share | $(0.04) | $(0.01) |
| Cash and cash equivalents | $5,002 at March 31 | $2,709 at December 31 |
| Net cash used in operating activities | $(767) | $(293) |
| Net cash used in investing activities | $(22) | $0 |
| Net cash provided by financing activities | $3,082 | $0 |
| Current assets / current liabilities | $5,608 / $818 at March 31 | $3,315 / $783 at December 31 |
| Convertible notes, carrying amount | $245 at March 31 | $76 at December 31 |
There is no product revenue or gross margin to report. Management reported working capital of approximately $4,790 and cumulative losses of approximately $14,342 since inception. The filing does not provide a clear conventional debt-to-equity or interest-coverage measure. The convertible note had approximately $2,029 principal, bore 6% interest, and was convertible at $0.64 per share; its carrying amount was reduced by an accounting discount.
Material changes versus the comparable period
- Net loss increased to $1,307 from $276. G&A rose by $983 to $1,049, primarily reflecting public-company costs and higher professional fees; the 2016 comparison predates the merger and does not represent the same reporting business.
- Net R&D expense decreased by $35 to $184, primarily because of Israeli Innovation Authority grants, including $88 recognized against R&D expense in Q1 2017. Management expects R&D costs to increase as development advances.
- Operating cash use increased to $767 from $293. Cash nevertheless rose by $2,293, largely because of $3,290 net proceeds from a January registered stock offering, offset by operating and investing outflows and merger-related cash outflow.
- Common shares issued and outstanding were 27,251,333 at March 31, versus 26,550,974 at December 31. The January offering sold 700,000 shares for $3,500 gross proceeds; reported net proceeds were approximately $3,290.
Outlook, risks, contingencies and unusual items
- Management believed March 31 cash would fund operations for at least 12 months, including continued development of SCS and TipCAT. The company expects continuing losses and says it will need additional capital; future debt or equity financing may be unavailable, cause dilution, or impose debt-service and covenant constraints.
- The company aimed to complete pre-clinical studies required for regulatory submissions for both lead candidates within 24 months. It cautioned that timing and development costs are difficult to estimate. No specific revenue or earnings guidance was provided.
- On January 27, 2017, the company agreed with Washington University to study the effectiveness of its self-cleaning shunt. The initial study was expected to take six months and cost approximately $130; further study was planned through 2018, with costs not yet determined.
- Israeli Innovation Authority grants totaled approximately $0.9 million through March 31, 2017. Repayment is contingent on successful development and sales, with royalties of 3% of future sales up to the grant amount. A separate Technion license carries royalties of 1.5%–3% on net sales and royalties on sublicense income.
- A potential repurchase arrangement could require up to $500 of common-stock repurchases from former Israeli shareholders, subject to final agreements and only after the merger’s second anniversary; the amount is classified as temporary equity. A roughly $400 compensation commitment to a former executive was assessed by management as remote and was not accrued.
- Subsequent to quarter-end, Alpha Capital exchanged the approximately $2,029 convertible note for 3,254 Series A preferred shares. Alpha Capital then converted 700 preferred shares into 700,000 common shares, issued May 12, 2017. The filing reports 27,951,333 common shares outstanding as of that date.
- Management stated that disclosure controls and internal control over financial reporting were effective as of March 31, 2017. The filing reports no legal proceedings and no off-balance-sheet arrangements.
Most important facts for investors to verify
- Whether cash runway remains consistent with management’s stated “at least 12 months,” given operating cash use, planned development spending, and the need for future financing.
- Development progress, regulatory path, expected costs, and funding needs for SCS and TipCAT; the filing’s 24-month pre-clinical target is an aim, not a guarantee.
- The dilution and ownership impact of outstanding options, warrants, preferred stock and conversions, including the May 2017 Alpha Capital transactions.
- The filing contains conflicting derivative-warrant-liability values: the balance sheet and liability roll-forward show $225 at March 31, 2017 and $313 at December 31, 2016, while a note sentence reverses those amounts. Confirm the correct figures.
- The potential effect of contingent obligations, including the possible $500 share repurchase, grant and license royalties if sales occur, and the unaccrued former-executive commitment.