Microbot Medical Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; balance-sheet comparisons are to December 31, 2018. Amounts are in U.S. dollars; financial-statement amounts are in thousands unless otherwise noted.
Business context
Microbot is a pre-clinical medical-device company developing micro-robotics technologies for minimally invasive procedures. Its lead candidate is the Self-Cleaning Shunt for hydrocephalus; it also describes development programs based on CardioSert and TipCAT. The company had not generated operating revenue and reported no revenue for the quarter.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Revenue | None | None reported |
| Research and development expense, net | $587 | $496; increased $91 |
| General and administrative expense | $1,329 | $1,019; increased $310 |
| Operating loss | $(1,916) | $(1,515) |
| Net loss | $(1,961) | $(1,482) |
| Net loss per share, basic and diluted | $(0.48) | $(0.50) |
| Net cash used in operating activities | $(2,723) | $(1,194) |
| Net cash used in investing activities | $(2,496) | $(133) |
| Net cash provided by financing activities | $9,562 | None |
At March 31, cash and cash equivalents were $5.357 million, short-term investments were $2.496 million, and restricted cash was $4.249 million. The company reported working capital of $8.668 million, versus $1.071 million at year-end. Total liabilities were $4.679 million, including $562,000 of operating lease liabilities; the filing reports no other conventional borrowings. No gross margin is reported because there were no sales.
Three January 2019 equity offerings generated approximately $11.37 million in gross proceeds. Net cash from financing activities was $9.562 million. Common shares outstanding rose from 3,012,343 at December 31 to 4,307,666 at March 31.
Material changes and unusual items
- Operating expenses and net loss increased year over year, while reported loss per share narrowed to $0.48 from $0.50.
- Management attributed higher R&D expense mainly to reduced participation from the Israeli Innovation Authority (IIA); higher G&A expense primarily reflected legal costs related to litigation.
- The company placed approximately $4.2 million in escrow, including estimated interest and fees, to stay enforcement of an adverse Sabby judgment while appealing. The amount is included in restricted cash and materially limits freely available cash pending the appeal.
- The company adopted lease accounting guidance effective January 1, 2019, recognizing $562,000 of operating lease assets and liabilities at quarter-end. It also adopted ASU 2017-11 retrospectively, reclassifying warrants with down-round provisions from liabilities to equity.
Outlook, commentary and risks
Management expected available cash and short-term investments to fund operations for more than 12 months from issuance of the financial statements and to support continued development of current products. The company nevertheless expects continued losses and negative operating cash flows; it anticipates R&D spending may increase as programs advance and trials begin. Future operations may require additional equity, debt or grants, with no assurance that financing will be available on acceptable terms; equity financing could dilute shareholders.
The Sabby court ordered rescission of the 2017 financing, requiring return of the investors’ $3.375 million purchase price in exchange for their shares. The company appealed, and management said it could not assess the likelihood of success. A loss could require additional payments, reduce funds available for development and prompt earlier fundraising; other investors may also assert related claims under a tolling agreement. Separately, after quarter-end, the company sued Alliance Investment Management seeking approximately $480,000 of alleged short-swing profits. IIA grants totaling approximately $1.524 million carry conditional royalties of 3%–3.5% on future sales up to the grant amount, plus interest; repayment is contingent on successful commercialization.
The company identified foreign-exchange exposure because some expenses are payable in currencies other than the U.S. dollar, and noted that cash held at financial institutions may exceed federally insured limits. Management reported disclosure controls and internal control over financial reporting were effective as of March 31, 2019.
Important facts for investors to verify
- Current status and potential financial outcome of the Sabby appeal, escrow, and any related investor claims.
- Unrestricted cash availability and the company’s actual cash runway, considering operating burn and litigation-related restrictions.
- Progress, costs, timelines and regulatory or clinical milestones for the Self-Cleaning Shunt and other development programs.
- Terms and effects of further financing, including potential dilution and the outstanding warrants and options.
- Whether the post-quarter Alliance claim results in a recovery; the filing states the amount sought is an estimate, not a realized gain.