AzurRx BioPharma, Inc. — Q1 2017 Form 10-Q
Period: Three months ended March 31, 2017; filed May 12, 2017. The filing identifies the issuer as AzurRx BioPharma, Inc., not Gridai Technologies Corp. The company is a development-stage biotech focused on non-systemic biologics for gastrointestinal disorders, including MS1819 and AZ1101.
Financial performance and position
| Metric | Q1 2017 / March 31, 2017 | Comparable period / December 31, 2016 |
|---|---|---|
| Revenue | None; company reported it was not generating revenue | None reported |
| Research and development expense | $534,137 | $685,575 in Q1 2016 |
| General and administrative expense | $2,174,355 | $661,641 in Q1 2016 |
| Operating loss | $2,808,492 | $1,347,216 in Q1 2016 |
| Net loss | $2,809,366; $0.29 per share | $1,991,320; $0.42 per share in Q1 2016 |
| Operating cash flow | $(1,165,430) | $(636,546) in Q1 2016 |
| Cash | $531,931 | $1,773,525 at December 31, 2016 |
| Working capital | Deficit of approximately $903,000 | — |
| Total liabilities | $3,952,725, including $77,855 notes payable and $1,300,000 contingent consideration | $3,540,840 at December 31, 2016 |
| Stockholders’ equity | $1,471,015 | $3,213,002 at December 31, 2016 |
No revenue or gross margin was reported, so revenue-based margins are not applicable. Cash used in investing activities was $585; cash used in financing activities was $77,332, mainly repayment of notes. The filing gives no debt ratio or other formal liquidity ratio.
Changes and notable items
- Net loss increased by about $818,000 year over year despite lower R&D expense. G&A rose about $1.51 million, primarily due to noncash equity compensation and costs of being a public company.
- Q1 2017 interest expense fell to $874 from $713,680 in Q1 2016, as the prior-period convertible notes were no longer outstanding. The contingent-consideration liability increased by $100,000, recorded as expense.
- Cash declined by approximately $1.24 million during the quarter. The company said existing cash was expected to fund operations only through September 2017.
- On April 11, 2017, the company issued Lincoln Park Capital a $1 million, 12% senior secured original-issue-discount convertible debenture. The stated amount due is $1.12 million, due by November 10, 2017 or shortly after receipt of specified tax credits; the company may extend maturity to July 11, 2018, subject to conditions. The financing also included a warrant for 164,256 shares and security tied to the tax credit. Net proceeds were approximately $915,000.
Outlook, risks and controls
Management expects R&D and G&A costs to increase as candidates advance through development and regulatory work. Additional financing will be needed; management said inadequate funding could require delaying, curtailing, or eliminating programs. The company stated that its losses, negative operating cash flows, working-capital deficit, and funding dependence raise substantial doubt about its ability to continue as a going concern through May 2018. The interim statements include no adjustments for the outcome of that uncertainty.
The company disclosed material weaknesses in internal control over financial reporting and concluded that disclosure controls and procedures were not effective. It reported no legal proceedings. The filing also notes a potential €1 million payment to Mayoly upon U.S. FDA approval of MS1819, for which no contingent liability had been recorded.
Key facts for investors to verify
- Issuer identity: the supplied request names Gridai Technologies Corp., but the filing is for AzurRx BioPharma, Inc.
- Whether the company obtained funding beyond the April 2017 debenture, and its cash runway and ability to meet the debenture repayment terms.
- Receipt and timing of the French R&D tax credits supporting the debenture maturity and extension provisions.
- Clinical, regulatory, and financing milestones for MS1819 and AZ1101, and the assumptions behind contingent-consideration valuation.
- Remediation of the disclosed material weaknesses in internal controls.