Business context and reporting period
This is AIT Therapeutics, Inc.’s unaudited Form 10-Q for the three months ended March 31, 2017—not a filing under the name Beyond Air, Inc. The company is an emerging biopharmaceutical developer of a 160 ppm nitric oxide formulation and delivery system for respiratory infections, including bronchiolitis and NTM. It reported no product revenue. A January 2017 reverse merger was accounted for as a reverse recapitalization, with AIT treated as the accounting acquirer.
Financial results and liquidity
Amounts are in U.S. dollars in thousands, except per-share data.
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $1,439 | $224 |
| General and administrative expense | $2,121 | $274 |
| Operating loss | $3,560 | $923 |
| Net financial expense | $2,717 | $339 |
| Net loss | $6,283 | $1,273 |
| Basic and diluted loss per share | $1.12 | $0.58 |
| Operating cash used | $2,212 | $190 |
Margins are not meaningful because the company had no revenue. At March 31, 2017, cash and cash equivalents were $7,141, current assets $7,318, current liabilities $1,640, total liabilities $6,526, and stockholders’ equity $872. The company had $27 of bank debt, $208 of current loans from related parties and others, and no remaining convertible notes following their conversion into shares. A $4,886 liability related to warrants was reported as non-current. Accumulated deficit was $19,856.
Financing activities provided $9,666 of net cash, primarily reflecting $9,889 of net proceeds from issuing units. Investing activities used $320, including $295 related to the reverse merger and $25 for property and equipment. Cash increased from $7 at December 31, 2016 to $7,141 at quarter end.
Material changes and unusual items
- Operating expenses increased substantially year over year. R&D expense rose mainly due to a $500 intellectual-property purchase, a $480 warrant issued to a service provider, and higher clinical-trial and contractor costs. G&A rose mainly due to stock-based compensation, director compensation and transaction-related legal, accounting, and payroll costs.
- Net financial expense included $1,031 of amortization of the convertible notes’ beneficial conversion feature, $2,434 of expense for additional investor warrants, $457 of warrant-related issuance costs, and a $1,308 gain from warrant revaluation. The warrants are measured at fair value using Level 3 inputs, so future changes may affect reported earnings.
- Q1 financing included a private placement and a March unit issuance. The company also converted $3,955 of convertible notes and accrued interest into common shares. Common shares outstanding were 6,290,663 at March 31 and 6,290,664 as of May 15, 2017.
- The 2016 comparison included $425 of costs related to an aborted IPO; no such cost was reported in Q1 2017.
Outlook, risks and contingencies
- Management expected R&D spending to increase with planned and ongoing clinical activity, including a Phase II study of NTM Abscessus in Israel, for which initial documentation had recently been filed, and an ongoing Israeli Phase III study for infants with bronchiolitis. The filing gives no revenue or earnings guidance and states product revenue is not expected for several years.
- The filing says losses and negative operating cash flows raise substantial doubt about the company’s ability to continue as a going concern. Continued operations depend on raising additional funds; the company disclosed no commitments for future external funding.
- Product candidates and delivery systems require regulatory review and approval or clearance; the filing notes no FDA-approved 160 ppm antimicrobial nitric oxide system. Clinical, regulatory, financing, manufacturing, and commercialization costs are material risks.
- A patent license requires 5% royalties on licensed-product revenue, subject to at least $50 annually during the royalty period; no royalties were accrued because there was no revenue. The company also faces potential development and sales milestone payments tied to regulatory approval under an intellectual-property option agreement.
- About 6% of expenses were denominated in Israeli shekels; the company did not hedge foreign-exchange exposure. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Investor verification points
- Confirm the issuer identity: this filing is for AIT Therapeutics, Inc.; the supplied company metadata names Beyond Air, Inc.
- Assess cash runway and the need, timing, and terms of further financing, in light of the going-concern warning and quarterly operating cash use.
- Verify the progress, enrollment, costs, and regulatory plans for the NTM and bronchiolitis clinical studies.
- Review the warrant liability’s valuation assumptions and potential dilution, and check whether the resale registration statement was subsequently declared effective.
- Confirm the timing and potential amounts of intellectual-property milestone and royalty obligations.