Business Context and Reporting Period
This Form 8-K, filed on January 20, 2017, reports the completion of a reverse merger between AIT Therapeutics, Inc. (formerly KokiCare, Inc.) and Advanced Inhalation Therapies, Ltd. (AIT Ltd.) on January 13, 2017. The transaction was accounted for as a reverse acquisition, with AIT Ltd. deemed the accounting acquirer. Consequently, the combined company abandoned its former healthcare software business to pursue AIT Ltd.'s biopharmaceutical operations, focusing on a proprietary 160 ppm nitric oxide (NO) delivery system for respiratory infections. The company changed its name to AIT Therapeutics, Inc. and effected a 100-to-1 reverse stock split.
Key Financial Metrics
Revenue: The company has generated no revenue to date and does not expect to generate significant revenue until regulatory approval and commercialization are achieved.
Profitability: The company has incurred significant losses since inception. For the nine months ended September 30, 2016, the net comprehensive loss was $2.746 million. The accumulated deficit as of September 30, 2016, was approximately $12.6 million.
Cash Flow and Liquidity: As of September 30, 2016, cash and cash equivalents totaled $20,000. Net cash used in operating activities for the nine months ended September 30, 2016, was $415,000. Financing activities provided $303,000 during the same period.
Debt and Capital Structure: Immediately following the merger, the company had 6,163,043 shares of common stock outstanding. Additionally, there were options to purchase 538,573 shares and warrants to acquire approximately 1,701,616 shares. The company recently closed approximately $10.2 million in financing from investors in connection with the merger.
Material Changes
- Corporate Structure: Transitioned from a shell company (KokiCare) to an operating biopharmaceutical entity via reverse merger.
- Capitalization: Completed a 100-to-1 reverse stock split and declared a $2.50 per share cash dividend to stockholders of record as of January 9, 2017.
- Management: Former management of KokiCare resigned; new executive officers and directors from AIT Ltd. were appointed, including Amir Avniel as CEO and Ron Bentsur as Executive Chairman.
- Financial Position: The company raised approximately $10.2 million in new equity financing immediately prior to the merger closing.
Guidance, Outlook, and Risks
Outlook: Management anticipates utilizing approximately $16 million for clinical trial activities over the next 36 months and an additional $3 million for the development and manufacture of the delivery system. The company expects to continue incurring significant losses for the foreseeable future.
Going Concern: The independent registered public accounting firm's report for the year ended December 31, 2015, expressed substantial doubt about the company's ability to continue as a going concern. Management estimates that without additional capital, the company may not continue operations through the first quarter of 2017.
Risks and Contingencies:
- Regulatory Approval: No products are approved. Success depends on FDA approval of the NO formulation and delivery system, which faces uncertainty regarding classification (Class II vs. Class III device) and clinical trial outcomes.
- Capital Requirements: The company requires substantial additional funding to continue operations and has no current source of revenue.
- Intellectual Property: Reliance on non-exclusive licenses from third parties (CareFusion, Pulmonox) and the risk of patent challenges.
- Market Liquidity: Common stock is quoted on the OTC Pink Current Information tier; there is no active trading market, and shares are subject to Rule 144 resale restrictions for 12 months post-merger.
Investor Verification Checklist
- Verify the company's current cash runway and the status of the $10.2 million financing closing.
- Confirm the FDA's classification of the NO delivery system (510(k) vs. PMA) and the timeline for the planned Phase 3 clinical trials.
- Review the terms of the non-exclusive license agreements with CareFusion and Pulmonox, specifically regarding milestone payments and termination rights.
- Assess the impact of the 12-month Rule 144 restriction on the liquidity of shares issued in the merger.
- Monitor the company's ability to raise additional capital given the "substantial doubt" regarding its going concern status.