Microbot Medical Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020; filed August 14, 2020. Amounts below are in U.S. dollars, in thousands, except per-share and share data.
Business context
Microbot is a pre-clinical medical-device company developing minimally invasive surgical technologies, including the Self Cleaning Shunt, Liberty robotic system, ViRob and TipCAT platforms. The company has not generated operating revenue and expects continued research and development spending and losses.
Financial results and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| Research and development expense | $669 | $741 | $1,360 | $1,364 |
| General and administrative expense | $1,215 | $804 | $2,687 | $2,097 |
| Operating loss | $(1,884) | $(1,545) | $(4,047) | $(3,461) |
| Net loss | $(1,855) | $(1,542) | $(4,060) | $(3,503) |
| Basic and diluted loss per share | $(0.26) | $(0.36) | $(0.57) | $(0.83) |
Revenue-based margins are not meaningful because the company reported no revenue. For the six months, operating cash used was $3,888, compared with $3,200 in 2019. Investing activities provided $2,445, primarily from sale of marketable securities; financing activities used $3,375, reflecting repayment related to litigation. Cash, cash equivalents and restricted cash totaled $28,311 at June 30, 2020, including $28,233 of cash and cash equivalents and $78 of restricted cash. Net working capital was approximately $27,917.
Total liabilities were $1,518, including $855 of operating lease liabilities; the filing reports no other borrowings. Total assets were $29,907 and stockholders’ equity was $28,389. Outstanding common shares were 7,103,260 at June 30, 2020.
Changes versus comparable periods and balance-sheet date
- Q2 operating loss increased 22% year over year; six-month operating loss increased 17%. Six-month net loss increased 16%.
- Six-month R&D expense was essentially flat year over year, while G&A rose $590, or about 28%, mainly due to salaries, insurance, rent and share-based compensation, partly offset by lower legal and travel costs.
- Six-month operating cash use increased by $688 year over year. Cash, cash equivalents and restricted cash declined by $4,818 from the start of 2020.
- Compared with December 31, 2019, current assets declined to $28,768 from $35,936 and current liabilities declined to $851 from $4,826. The company paid approximately $3,700 to resolve the Sabby financing dispute; the related $3,604 provision was no longer on the June 30 balance sheet.
- Share count declined from 7,185,628 at year-end, largely reflecting cancellation of 83,333 treasury shares following the Sabby payment. Weighted-average shares were higher year over year, contributing to lower loss per share despite increased net loss.
Outlook, commentary, risks and unusual items
- Management stated that cash should fund operations for at least 12 months from the report’s issuance and, in its MD&A, estimated funding for at least 24 months absent an adverse outcome in the pending investor litigation. The filing does not provide formal revenue or earnings guidance.
- Management expects continued losses and anticipates that R&D and G&A expenses may increase as product development advances, staffing expands and public-company costs continue. Additional debt or equity financing or grants may be pursued; financing could dilute shareholders or impose debt obligations and covenants.
- Empery and Hudson Bay investors seek rescission of the 2017 financing and return of $6,750 plus interest. The company’s motion to dismiss was pending, and management said it could not assess its likelihood of success after the adverse Sabby judgment. An unfavorable result could reduce available runway.
- In separate Alliance/Mona litigation, the company seeks approximately $468 in short-swing trading profits. Alliance’s summary-judgment motion and the company’s motions concerning Mona’s claims were pending; the parties were scheduled to appear in court October 13, 2020. Mona’s counterclaim alleges securities-law violations and claims a trading loss of about $151.
- COVID-19 could delay clinical or development work, restrict access to trial sites, impede monitoring, and disrupt suppliers and materials. The ultimate effects were uncertain.
- In February 2020, CEO Harel Gadot’s annual salary was increased from $360 to $450, his target annual bonus rose from 40% to 60% of salary, and he received a one-time bonus equal to 60% of the new salary. He was also granted 166,666 options at $9.64; $505 of related compensation expense was recognized in the first half.
- Microbot Israel has received approximately $1,500 of Israeli Innovation Authority grants, repayable through royalties of 3%–3.5% of future sales up to the grant amount, subject to grant terms. Restrictions apply to transferring grant-funded technology outside Israel.
- Management reported disclosure controls and procedures were effective as of June 30, 2020, with no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Cash runway assumptions, including the potential impact and timing of the $6,750-plus-interest investor lawsuit.
- Development milestones, clinical or preclinical plans, and the operational effects of COVID-19 on trials, suppliers and timelines.
- G&A growth, especially executive compensation and share-based compensation, and the expected pace of cash burn.
- Status and potential outcomes of the Sabby-related and Alliance/Mona litigation, including any additional payments or recoveries.
- Potential dilution from future capital raises, outstanding options and warrants, and conditions attached to Israeli Innovation Authority grants.