Microbot Medical Inc. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. Amounts below are in U.S. dollars unless stated otherwise; financial statement amounts are in thousands. The filing was signed August 14, 2017.
Business context
Microbot is a pre-clinical medical-device company developing micro-robotics-assisted technologies for minimally invasive surgery. Its lead candidates are the Self Cleaning Shunt for hydrocephalus and Normal Pressure Hydrocephalus, and TipCAT, a self-propelling endoscope initially intended for colonoscopy. Neither candidate is approved for sale, and the company has generated no product revenue. Management aimed to complete pre-clinical studies required for regulatory submissions for both candidates within 24 months.
Financial performance and position
| Metric | Three months ended June 30, 2017 | Three months ended June 30, 2016 | Six months ended June 30, 2017 | Six months ended June 30, 2016 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development, net | $377 | $44 | $561 | $263 |
| General and administrative | $885 | $74 | $1,934 | $140 |
| Operating loss | $(1,262) | $(118) | $(2,495) | $(403) |
| Financing expense, net | $2,246 | $46 | $2,320 | $37 |
| Net loss | $(3,508) | $(164) | $(4,815) | $(440) |
| Basic and diluted loss per share | $(0.09) | $(0.01) | $(0.13) | $(0.02) |
At June 30, 2017, cash and cash equivalents were $13.078 million, versus $2.709 million at December 31, 2016; restricted cash was $27,000. Total assets were $13.719 million, current liabilities $768,000, and total liabilities $806,000. The balance sheet reported no convertible-note balance at June 30, compared with $76,000 at year-end, and a $38,000 derivative warrant liability, down from $313,000. Management reported net working capital of approximately $12.855 million. No cash-flow or operating margin was reported; the company had no revenue.
For the first half, operating cash use was $2.198 million and investing cash use was $55,000; financing provided $12.622 million, principally from common-stock issuance. The cash flow statement reports a $10.369 million increase in cash. Shareholders’ equity was $12.413 million, versus $1.696 million at year-end. Common shares reported outstanding at June 30 were 34.305 million in the equity statement; the cover page reports 34.805 million at August 11.
Material changes versus the prior comparable period
- First-half net loss rose to $4.815 million from $440,000. Operating loss increased to $2.495 million from $403,000, reflecting higher R&D and especially public-company and professional costs in G&A.
- First-half financing expense increased to $2.320 million from $37,000. The company recorded a $2.364 million financing loss related to extinguishing the convertible note in exchange for Series A preferred shares; changes in warrant fair value also affected financing expense.
- Cash rose substantially following January and June 2017 stock offerings. The offerings raised approximately $12.701 million net in aggregate, according to MD&A.
- In May, Alpha Capital’s approximately $2.029 million convertible note was exchanged for 3,254 Series A preferred shares. Those shares are convertible at the holder’s option into common stock at 1,000 shares per preferred share; 3,254 preferred shares were converted during the period.
Outlook, risks, contingencies and unusual items
- Management expected significant expenses and losses for the foreseeable future and believed available cash would fund operations for at least 12 months and support continued development of SCS and TipCAT. Future funding may be needed through debt, equity or grants; financing availability is not assured and equity issuance could dilute shareholders.
- Development schedules and costs are uncertain. The company cautioned that it could reduce spending, delay supplier payments, liquidate assets, or suspend or curtail research programs if it cannot obtain adequate funding.
- A New York lawsuit by two investors in the June 2017 financing alleges breaches of representations and warranties. Plaintiffs seek rescission and return of $3.375 million, plus damages stated to exceed $1 million. The company disputes the claims and intends to defend them, but management could not assess the likelihood or amount of any loss; no assurance is given that an adverse outcome would not be material.
- The company disclosed approximately $400,000 of potential compensation commitments to a former executive, assessed by management as remote and not accrued. It also described a possible repurchase of up to $500,000 of common stock from certain former Israeli shareholders, subject to final agreements and only after the merger’s second anniversary.
- Israeli Innovation Authority grants totaled approximately $0.9 million and may require royalties of 3% of future sales up to the grant amount. A Technion license also carries royalties on net sales and sublicense income. A Washington University study of the self-cleaning shunt was expected to cost approximately $130,000 initially.
- Management reported effective disclosure controls and internal control over financial reporting as of June 30, 2017. Cash balances at financial institutions exceeded federally insured limits; foreign-currency movements could affect expenses.
Most important facts for investors to verify
- Whether the stated cash runway remains adequate as development spending increases, and whether additional financing will be required.
- The status and potential financial exposure of the Sabby litigation, including the requested rescission and damages.
- The dilution implications of common shares, convertible preferred shares, outstanding options and warrants, and any future financing.
- The cash-flow presentation: the cash flow statement reports a $10.369 million first-half cash increase, while MD&A reports $10.396 million; the filing text does not reconcile the difference.
- The share-count disclosures: June 30 common shares are presented with differing classifications in the filing, and the cover page gives a later August 11 figure. Confirm the number of common shares outstanding and the treatment of temporary equity.