Filing summary
Identity discrepancy: The filing is for AzurRx BioPharma, Inc., not Gridai Technologies Corp. It is a Form 10-Q for the quarter ended September 30, 2016, filed November 23, 2016.
Business context and reporting period
AzurRx is a development-stage biotechnology company working on non-systemic biologics for gastrointestinal disorders. Its pipeline included MS1819, a lipase candidate for exocrine pancreatic insufficiency, and AZ1101, an enzyme candidate targeting certain antibiotic-related infections and diarrhea. The interim financial statements are unaudited; the company cautions that nine-month results are not necessarily indicative of full-year results.
Financial highlights
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | No revenue reported | No revenue reported |
| Research and development expense | 2016: $744,309; 2015: $363,996 | 2016: $2,270,546; 2015: $1,734,484 |
| General and administrative expense | 2016: $543,721; 2015: $1,044,968 | 2016: $2,089,672; 2015: $2,625,513 |
| Net loss | 2016: $3,198,168; 2015: $1,873,929 | 2016: $8,960,139; 2015: $5,264,028 |
| Basic and diluted loss per share | 2016: $0.53; 2015: $0.52 | 2016: $1.60; 2015: $1.47 |
For the nine months, operating cash used was $2.52 million, investing cash used was $13,140, and financing provided $2.09 million. Cash fell from $581,668 at December 31, 2015 to $128,502 at September 30, 2016. No cash interest or income-tax payments were reported.
At September 30, current assets were $1.36 million versus current liabilities of $15.55 million; total liabilities were $17.95 million and stockholders’ deficit was $12.37 million. Convertible debt was $9.93 million, up from $6.44 million at year-end 2015. These figures include a $3.21 million warrant liability and $2.40 million of contingent consideration, which are not ordinary borrowings. No meaningful revenue margin was reported.
Changes, outlook and notable items
- Nine-month net loss increased by $3.70 million year over year. Management attributed higher costs primarily to increased R&D, including manufacturing additional MS1819 batches, higher interest expense from increased OID notes, and fair-value changes in warrants and contingent consideration.
- R&D spending rose while G&A declined, mainly due to lower consulting fees. Management expected both expense categories to rise as candidates advance through development and regulatory work.
- The October 14, 2016 IPO, after quarter-end, raised $5.28 million gross and approximately $3.51 million net. Concurrently, $2.642 million shares were issued on mandatory conversion of convertible debt; the conversion triggered approximately $6.423 million of beneficial-conversion-feature interest expense and approximately $254,000 of accelerated accretion. The company also issued 717,540 five-year warrants to certain noteholders in exchange for a six-month lockup agreement; their estimated $3.028 million value was to be charged to interest expense. On November 18, it repaid $362,786 of OID debt and accreted interest.
- Management said substantial additional financing would be needed for development, regulatory filings and approvals, operating losses, and potentially manufacturing and commercialization. The company also contemplated acquisitions and collaborations, potentially financed with equity, debt, or both.
- The company reported no legal proceedings and no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting. The cover page marked “No” for having filed all required reports during the preceding 12 months.
Important facts for investors to verify
- Confirm the issuer identity: this filing names AzurRx BioPharma, Inc., despite the request metadata naming Gridai Technologies Corp.
- Review the filing’s “No” response concerning timely filing of required reports and clarify the reporting history.
- Assess post-IPO liquidity against the company’s stated need for further financing and its clinical-development spending plans.
- Examine the OID note conversion terms, post-IPO dilution and warrants, and the accounting impact of conversion-related charges.
- Evaluate the assumptions behind Level 3 warrant and contingent-consideration valuations, and the contingent payments tied to product approval, sales, or a business transaction.