Beyond Air, Inc. quarterly report, Q3 FY2017

Business context and reporting period

For the quarter ended September 30, 2017, the filing is for AIT Therapeutics, Inc. (not Beyond Air, Inc.). AIT was a clinical-stage company developing a 160 ppm nitric oxide formulation and delivery system for respiratory infections. The January 2017 reverse merger with Advanced Inhalation Therapies Ltd. was accounted for as a reverse recapitalization; AIT Ltd. was the accounting acquirer.

Financial results and liquidity

Amounts below are in U.S. dollars, thousands, except per-share data. The company reported no revenue in the quarter or nine-month period and remained unprofitable.

Margins are not meaningful because the company had no revenue. Operating cash used was $5,313 for the first nine months of 2017, versus $415 in the comparable 2016 period. Investing activities used $2,403, primarily for $2,000 of marketable securities, equipment and the merger; financing provided $9,461, primarily from equity and warrant unit issuances.

At September 30, 2017, cash and cash equivalents were $1,752 and marketable securities were $2,005, for combined liquidity of $3,757. Current liabilities were $1,126. Convertible notes had been converted into equity and the bank loan repaid; $30 of related-party and other loans remained. Total liabilities were $10,945, including a $9,819 warrant liability, and stockholders’ deficiency was $6,866. The accumulated deficit was $29,885.

Material changes versus the prior comparable period

• Operating expenses increased substantially as clinical-development activity, personnel and public-company costs expanded. Nine-month R&D expense rose to $3,223 from $573; G&A expense rose to $5,461 from $523.
• Nine-month net loss increased to $16,312 from $2,746. Financial expense included $3,625 of warrant revaluation expense, $2,434 related to additional investor warrants and $1,031 of convertible-note beneficial-conversion-feature amortization.
• Cash and marketable securities increased from $7 of cash and no marketable securities at December 31, 2016, largely reflecting financing. Common shares outstanding rose to 6,097,254 from 2,207,449.

Outlook, risks and unusual items

• Management expected existing cash to fund operating expenses and capital requirements through the first quarter of 2018, but said the estimate depended on assumptions that could prove incorrect. The company had no commitments for additional funding and stated that substantial doubt existed about its ability to continue as a going concern.
• Management expected R&D expense to increase with a Phase II study of 160 ppm NO for NTM Mycobacterium abscessus and a Phase III study for infants with bronchiolitis. The filing gave no specific regulatory or commercialization timetable.
• The main risks include clinical-trial execution and enrollment, regulatory approval, reliance on third parties for trials and manufacturing, intellectual-property protection, and the need to raise additional capital. The company had no approved products and did not expect product revenue in the next several years.
• Investor warrants with down-round protections were classified as a liability and remeasured each reporting period using Level 3 fair-value inputs. This produced substantial financial expense and volatility in reported losses.
• On November 1, 2017, the company entered a letter of intent to acquire an exclusive global license and related assets from NitricGen for nitric oxide delivery systems. Proposed consideration included $2,000 in milestone-dependent payments, sales royalties and warrants for 100,000 shares; completion and terms remained subject to the LOI.
• The company reported effective disclosure controls at September 30, 2017 and no material change in internal control over financial reporting during the quarter. It reported no off-balance-sheet arrangements.

Important facts for investors to verify

• Confirm the issuer identity and corporate history: this 10-Q names AIT Therapeutics, Inc., not Beyond Air, Inc.
• Review the cash-burn assumptions behind the stated runway through Q1 2018, the going-concern disclosure and the absence of committed future financing.
• Track clinical-trial progress, enrollment, results and regulatory requirements for the NTM and bronchiolitis programs.
• Assess the warrant liability’s valuation assumptions and the potential effect of future remeasurement on reported earnings and equity.
• Check the status and final terms of the NitricGen LOI, including milestone payments, royalties and share warrants.