Business context and reporting period
This Form 10-K is for the fiscal year ended December 31, 2016, filed by AIT Therapeutics, Inc., formerly KokiCare, Inc. The filing does not appear to be for Beyond Air, Inc.; investors should verify the issuer and filing identity. It reports KokiCare’s pre-merger results, not the operating results of Advanced Inhalation Therapies Ltd. (AIT Ltd.). KokiCare had been planning healthcare-management software and had not materially begun operations. The December 2016 transaction was accounted for as a reverse merger, with AIT Ltd. as the accounting acquirer; the merger closed January 13, 2017.
Financial results and liquidity
- Revenue: $0 in 2016 and $0 from inception through December 31, 2015. No meaningful margin comparison is available.
- Net loss: $68,247 in 2016 versus $10,399 in the 2015 inception period. Basic and diluted loss per share was $0.66 and $0.10, respectively.
- Expenses: General and administrative expense was $67,148 in 2016 versus $10,291 in 2015, including professional fees of $64,443 and $9,542. The filing attributes much of the 2016 legal-fee increase to merger work. Interest expense was $895, plus $204 related-party interest, in 2016.
- Cash flow: Operating activities provided $1,908 in 2016, compared with $9,567 used in the 2015 inception period. The 2016 operating cash inflow reflected increases in payables and other liabilities despite the net loss. Financing activities used $7,400 in 2016 and provided $15,100 in 2015; there were no investing cash flows in either period.
- Cash and liquidity: Cash was $41 at December 31, 2016, down from $5,533 a year earlier. Working capital was a deficit of $73,546, versus positive working capital of $4,809 in 2015. Current assets were $67 and current liabilities $73,613 at year-end.
- Debt and liabilities: Total liabilities were $73,613 at year-end, consisting of accounts payable of $41,706, other current liabilities of $28,994, and related-party note and accrued interest of $2,913. The related-party note was repaid in January 2017. The 2016 non-related notes were retired during 2016.
Material changes and subsequent events
Losses increased as professional fees rose and the company remained pre-revenue. KokiCare’s year-end cash and working-capital position deteriorated substantially from 2015. After year-end, the company changed its name, effected a 1-for-100 reverse stock split, and completed the merger with AIT Ltd. The filing states that AIT Ltd. investors invested approximately $10 million in connection with the merger. AIT Ltd.’s operating financials are not included in the reported 2016 results. The filing also describes a $320,000 cash purchase price paid immediately before closing, used to pay liabilities, distribute a $2.50-per-share dividend, and repurchase 90,000 post-split shares from the former principal stockholder for $25,000.
Outlook, risks and unusual items
The filing provides no quantified revenue or earnings guidance. Management said it intended to commence operations, generate revenue, and raise additional funds, but gave no assurance these objectives would be achieved. The auditor highlighted recurring losses and the absence of revenue from planned operations as raising substantial doubt about the company’s ability to continue as a going concern. The financial statements contain no adjustments for that uncertainty.
Management reported ineffective disclosure controls and internal control over financial reporting at December 31, 2016, citing inadequate segregation of duties, undocumented controls, and weaknesses in the control environment, including no independent directors or audit committee financial expert at that time. Management said it believed the post-merger organization had personnel to address these weaknesses. Other identified risks include regulatory approvals, market development, retaining qualified personnel, and funding operating needs. The filing reports no current legal proceedings and no material off-balance-sheet arrangements.
Key facts investors should verify
- Confirm that this AIT Therapeutics/KokiCare filing is the intended filing; its issuer does not match the request metadata identifying Beyond Air, Inc.
- Review the merger closing disclosures and the approximately $10 million financing, including the securities issued and obligations assumed.
- Obtain post-merger financial statements and liquidity information for AIT Ltd.; they are not represented by KokiCare’s 2016 results.
- Assess the going-concern warning, the company’s funding needs, and its ability to execute the operating plan.
- Check whether the identified material weaknesses were remediated and whether later filings report effective controls.
- Confirm the post-merger dividend and share repurchase amounts and their treatment in subsequent financial reporting.