Business context and reporting period
Microbot Medical Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2017. It is a pre-clinical medical-device company developing micro-robotics technologies, with no approved products or product revenue. Its lead candidates are the Self Cleaning Shunt for hydrocephalus and TipCAT, an endoscope initially intended for colonoscopy. Management aimed to complete required pre-clinical studies for both within 21 months.
Comparative results should be read in light of the November 2016 merger, accounted for as a reverse recapitalization; Microbot Israel is the accounting acquirer and its historical financial statements are presented.
Financial performance and position
Amounts below are in U.S. dollars, millions, except per-share data. Revenue and gross margin are not applicable because the company has not generated revenue.
| Metric | Nine months 2017 | Nine months 2016 | Three months 2017 | Three months 2016 |
|---|---|---|---|---|
| Research and development, net | $0.900 | $0.603 | $0.339 | $0.340 |
| General and administrative | $2.830 | $1.120 | $0.896 | $0.305 |
| Operating loss | $(3.730) | $(1.723) | $(1.235) | $(0.645) |
| Financing income (expenses), net | $(2.272) | $(0.241) | $0.048 | $(0.007) |
| Net loss | $(6.002) | $(1.964) | $(1.187) | $(0.652) |
Basic and diluted loss per share was $(0.15) for the nine months and $(0.03) for the third quarter of 2017. The filing reports 2016 third-quarter loss per share inconsistently: the statements show $(0.08), while the detailed per-share note shows $(0.03).
For the nine months, operating cash outflow was $3.547 million, investing cash outflow was $0.055 million, and financing cash inflow was $12.622 million. Cash and cash equivalents ended the period at $11.729 million, versus $2.709 million at December 31, 2016. Working capital was approximately $11.694 million. At September 30, total liabilities were $0.546 million, including $0.507 million of current liabilities; the convertible note balance was zero and the derivative warrant liability was $0.039 million.
Material changes versus the prior comparable period
- Nine-month net loss increased to $6.002 million from $1.964 million. Management attributed higher operating costs to increased R&D payroll, materials and professional services, and higher public-company and professional fees.
- Nine-month financing expense increased to $2.272 million, primarily reflecting a $2.360 million loss recorded when the convertible note was extinguished in exchange for Series A preferred stock, partly offset by the change in warrant-liability fair value.
- Financing activities provided $12.622 million in cash, mainly from common-stock issuance. The January and June 2017 offerings generated approximately $12.701 million net proceeds, as described in MD&A.
- Common shares issued and outstanding were 37,005,333 at September 30, compared with 26,550,974 at December 31, 2016; the filing reports 38,605,333 shares outstanding at November 10, 2017. Preferred-stock conversions added 1.6 million common shares from October 4 through October 25.
Outlook, risks and unusual items
Management believed available cash would fund operations for at least 12 months from issuance of the financial statements and support continued development of SCS and TipCAT. It expects significant expenses and losses to continue for several years and anticipates additional capital may be needed. Future debt or equity financing, and possibly additional Israeli Innovation Authority grants, may be unavailable or dilutive; spending reductions or program delays could result if funding is insufficient.
The company received approximately $1.183 million in Israeli Innovation Authority grants through September 30, 2017. Repayment is contingent on successful development and sales, with royalties of 3% of future sales up to the grant amount, plus interest and currency linkage. A Technion license also carries royalties on net sales and sublicense income.
A lawsuit by two investors in the June 2017 financing alleges breaches of representations and warranties and seeks rescission and return of their $3.375 million purchase price, plus damages exceeding $1 million. The company disputes the claims and intends to defend itself; management could not assess the likelihood or amount of any loss at this early stage.
Other disclosed commitments include a planned Washington University study of the self-cleaning shunt, expected to cost about $0.130 million initially, and a possible share repurchase of up to $0.500 million for certain former shareholders, subject to definitive agreements. Management reported effective disclosure controls and internal control over financial reporting as of September 30, 2017.
Most important facts for investors to verify
- Cash runway assumptions, projected development spending and the timing of any additional financing.
- Progress and timing of pre-clinical studies for SCS and TipCAT, and whether the stated 21-month target remains achievable.
- Status, potential exposure and any developments in the Sabby lawsuit.
- Share dilution from preferred conversions, outstanding options and future financing; confirm the reported share counts and subsequent issuances.
- The third-quarter 2016 loss-per-share discrepancy between the statements and note, and the accounting and cash implications of the convertible-note extinguishment.