Notes
to Interim Consolidated Financial Statements
U.S.
dollars in thousands
(Except
share and per share data)
NOTE
1 - GENERAL
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A.
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Description
of business:
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Microbot
Medical Inc. (the “Company”) is a pre-clinical medical device company specializing in the research, design and
development of next generation micro-robotics assisted medical technologies targeting the minimally invasive surgery space.
The Company is primarily focused on leveraging its micro-robotic technologies with the goal of improving surgical outcomes
for patients.
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It
was incorporated on August 2, 1988 in the State of Delaware under the name Cellular Transplants, Inc. The original Certificate
of Incorporation was restated on February 14, 1992 to change the name of the Company to Cyto Therapeutics, Inc. On May 24,
2000, the Certificate of Incorporation as restated was further amended to change the name of the Company to StemCells, Inc.
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On
November 28, 2016, the Company consummated a transaction pursuant to an Agreement and Plan of Merger, dated August 15, 2016,
with Microbot Medical Ltd., a private medical device company organized under the laws of the State of Israel (“Microbot
Israel”). On the same day and in connection with the Merger, the Company changed its name from StemCells, Inc. to Microbot
Medical Inc. On November 29, 2016, the Company’s common stock began trading on the Nasdaq Capital Market under the symbol
“MBOT”.
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Prior
to the Merger, the Company was a biopharmaceutical company that conducted research, development, and commercialization of
stem cell therapeutics and related technologies. The sale of substantially all material assets relating to the stem cell business
were completed on November 29, 2016.
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The
Company and its subsidiaries are collectively referred to as the “Company”. “StemCells” or “StemCells,
Inc.” refers to the Company prior to the Merger.
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B.
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Risk
Factors:
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To
date, the Company has not generated revenues from its operations. As of March 31, 2019, the Company had cash and cash equivalent
and short-term investment balances of approximately $7,826, which management believes is sufficient to fund
its operations for more than 12 months from the date of issuance of these financial statements and sufficient to fund its
operations necessary to continue development activities of its current proposed products.
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Due
to continuing research and development activities, the Company expects to continue to incur additional losses for the foreseeable
future. The Company plans to continue to fund its current operations as well as other development activities relating to additional
product candidates, through future issuances of either debt and/or equity securities and possibly additional grants from the
Israeli Innovation Authority and other government institutions. The Company’s ability to raise additional capital in
the equity and debt markets is dependent on a number of factors, including, but not limited to, the market demand for the
Company’s stock, which itself is subject to a number of development and business risks and uncertainties, as well as
the uncertainty that the Company would be able to raise such additional capital at a price or on terms that are favorable
to the Company.
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C.
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Use
of estimates:
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The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions pertaining
to transactions and matters whose ultimate effect on the financial statements cannot precisely be determined at the time of
financial statements preparation. Although these estimates are based on management’s best judgment, actual results may
differ from these estimates.
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MICROBOT
MEDICAL INC.
NOTES
TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Cont’d)
U.S.
dollars in thousands
(Except
share data)
On
September 4, 2018, the Company filed a Certificate of Amendment to its Restated Certificate of Incorporation with the Secretary
of State of the State of Delaware to affect a one-for-15 reverse stock split of the Company’s common stock (the “Reverse
Split”). As a result of the Reverse Split, every 15 shares of the Company’s old common stock were converted into one
share of the Company’s new common stock. Fractional shares resulting from the Reverse Split were rounded up to the nearest
whole number. The Reverse Split automatically and proportionately adjusted, based on the one-for-fifteen split ratio, all issued
and outstanding shares of the Company’s common stock, as well as common stock underlying convertible preferred stock, stock
options, warrants and other derivative securities outstanding at the time of the effectiveness of the Reverse Split. The exercise
price on outstanding equity based-grants was proportionately increased, while the number of shares available under the Company’s
equity-based plans was also proportionately reduced. Share and per share data (except par value) for the periods presented reflect
the effects of the Reverse Split. References to numbers of shares of common stock and per share data in the accompanying financial
statements and notes thereto for periods ended prior to September 4, 2018 have been adjusted to reflect the Reverse Split on a
retroactive basis.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited
Interim Financial Statements
The
accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for
interim financial information and with the instructions to Form 10-Q and Article 10 of U.S. Securities and Exchange Commission
(“SEC”) regulations. Accordingly, they do not include all the information and footnotes required by GAAP for complete
financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included
(consisting only of normal recurring adjustments except as otherwise discussed).
Operating
results for the three-month period ended March 31, 2019, are not necessarily indicative of the results that may be expected for
the year ended December 31, 2019
Significant
Accounting Policies
The
significant accounting policies followed in the preparation of these unaudited interim condensed consolidated financial statements
are identical to those applied in the preparation of the latest annual audited financial statements with the exception of the
following:
Short-term
Investments
The
Company began investing excess cash in short-term investments during the first quarter of 2019.
Marketable
debt securities are considered to be available for sale and are carried at fair value. Unrealized gains and losses net of tax,
if any, are reported as a separate component of stockholders’ equity. The cost of marketable debt securities classified
as available for sale is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion
are included in interest income. Realized gains and losses and declines in value judged to be other than temporary, if any, are
also included in other income, net. Interest on securities classified as available for sale is included in interest income. The
cost of securities sold is based on the specific identification method.
MICROBOT
MEDICAL INC.
NOTES
TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Cont’d)
U.S.
dollars in thousands
(Except
share data)
Management
evaluates whether available-for-sale securities are other-than-temporarily impaired (OTTI) on a quarterly basis. Debt securities
with unrealized losses are considered OTTI if the Company intends to sell the security or if it is more likely than not that the
Company will be required to sell such security prior to any anticipated recovery. If management determines that a security is
OTTI under these circumstances, the impairment recognized in earnings is measured as the entire difference between the amortized
cost and the then-current fair value. During the three months ended March 31, 2019, no investment OTTI losses were realized.
Fair
value of financial instruments:
The
carrying values of cash and cash equivalents, other receivable and other accounts payable and accrued liabilities approximate
their fair value due to the short-term maturity of these instruments.
The
Company measures the fair value of certain of its financial instruments (marketable debt security) on a recurring basis.
A
fair value hierarchy is used to rank the quality and reliability of the information used to determine fair values. Financial assets
and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
Level
1
- Quoted prices (unadjusted) in active markets for identical assets and liabilities.
Level
2
- Inputs other than Level 1 that are observable, either directly or indirectly, such as unadjusted quoted prices for similar
assets and liabilities, unadjusted quoted prices in the markets that are not active, or other inputs that are observable or can
be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level
3
- Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities.
Leases
In
February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) 2016-02, Leases (Topic 842). This ASU requires entities that lease assets to recognize on the balance
sheet the assets and liabilities for the rights and obligations created by leases with lease terms of more than 12 months. The
Company adopted this ASU effective January 1, 2019 using the modified retrospective application, applying the new standard to
leases in place as of the adoption date. Prior periods have not been adjusted.
Arrangements
that are determined to be leases at inception are recognized as long-term right-of-use assets (“ROU”) and lease liabilities
in the condensed consolidated balance sheet at lease commencement. Operating lease ROU assets and operating lease liabilities
are recognized based on the present value of the future fixed lease payments over the lease term at commencement date. As most
of the Company’s leases do not provide an implicit rate, the Company applies its incremental borrowing rate based on the
economic environment at commencement date in determining the present value of future payments. Lease terms may include options
to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating
leases or payments are recognized on a straight-line basis over the lease term.
MICROBOT
MEDICAL INC.
NOTES
TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Cont’d)
U.S.
dollars in thousands
(Except
share data)
Warrants
Prior
to January 1, 2019, warrants with non-standard anti-dilution provisions (referred to as down round protection) were classified
as liabilities and re-measured each reporting period. On January 1, 2019, the Company adopted the provisions of Accounting Standards
Update (“ASU”) 2017-11, which includes Part I “Accounting for Certain Financial Instruments with Down
Round Features” and Part II “Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial
Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-Controlling Interests with a Scope Exception”,
which indicates that a down round feature no longer precludes equity classification when assessing whether an investment is indexed
to an entity’s own stock. The Company used a full retrospective approach to adoption, and restated its financial statements
as of the earliest period presented. As a result of the adoption of 2017-11, the Company’s warrants were reclassified from
liabilities to shareholders’ equity.
The
cumulative effect of adoption of ASU 2017-11 resulted as follows:
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For
the three months
ended March 31, 2018
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For
the year
ended December 31, 2018
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Derivative
warrant liability
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$
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(15
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$
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(8
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Additional
paid-in capital
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$
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28
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$
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28
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Accumulated
deficit
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$
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13
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$
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20
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Refer
to Note 6 for further information regarding the outstanding warrants as of March 31, 2019.
Recent
Accounting Standards:
In
June 2016, the FASB issued ASU 2016-13 “Financial Instruments – Credit Losses” to improve information on credit
losses for financial assets and net investment in leases that are not accounted for at fair value through net income. The ASU
replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. This ASU is
effective for the Company in the first quarter of 2020, with early adoption permitted. The Company does not expect that this
standard will have a material effect on the Company’s consolidated financial statements.
In
August 2018, the FASB issued ASU 2018-13, “Changes to Disclosure Requirements for Fair Value Measurements”, which
will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard
removes, modifies, and adds certain disclosure requirements, and is effective for the Company beginning on January 1, 2020. The
Company does not expect that this standard will have a material effect on the Company’s consolidated financial statements.
NOTE
3 - SHORT-TERM INVESTMENTS
The
following table summarizes the Company’s marketable debt securities as of March 31, 2019 and December 31, 2018.
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As
of March 31, 2019
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Amortized
Cost
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Unrealized
gains
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Realized
gains
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Fair
value
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US
Treasury Bond
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$
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2,496
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$
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(*)
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$
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(*)
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$
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2,496
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Total
short-term investments
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$
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2,496
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$
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(*)
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$
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(*)
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$
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2,496
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As
of December 31, 2018
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Amortized
Cost
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Unrealized
gains
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Realized
gains
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Fair
value
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Total
short-term investments
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$
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-
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$
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-
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$
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-
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$
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-
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The
Company’s financial asset is measured at fair value on a recurring basis by level within the fair value hierarchy. The Company’s
marketable security is classified as Level 1. Other than the marketable debt security, the Company doesn’t have any other
financial assets or financial liabilities marked to market at fair value.
The
contractual maturity of the aforementioned marketable security is one year.
MICROBOT
MEDICAL INC.
NOTES
TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Cont’d)
U.S.
dollars in thousands
(Except
share data)
NOTE
4 - LEASES
On
January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”) using the modified retrospective
approach for all lease arrangements at the beginning period of adoption. Leases existing for the reporting period beginning January
1, 2019 are presented under ASU 2016-02. The Company leases office space and vehicles under operating leases. At March 31, 2019,
the Company’s ROU assets and lease liabilities for operating leases totaled $562 and $562, respectively, which
$312 were classified as current liabilities. The impact of adopting the new lease standard was not material to the Company’s
condensed consolidated statement of operations for the periods presented.
Supplemental
cash flow information related to operating leases was as follows (unaudited):
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Three
Months
Ended
March
31, 2019
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Cash
payments for operating leases
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$
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78
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As
of March 31, 2019, the Company’s operating leases had a weighted average remaining lease term of 2 years and a weighted
average discount rate of 7%. Future lease payments under operating leases as of March 31, 2019 were as follows (in millions, unaudited):
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Operating
Leases
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Remainder
of 2019
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$
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234
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2020
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284
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2021
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77
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Total
future lease payments
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$
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595
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Less
imputed interest
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(33
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Total
lease liability balance
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$
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562
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NOTE
5 - COMMITMENTS AND CONTINGENCIES
Government
Grants:
Microbot
Israel obtained from the Israeli Innovation Authority (“IIA”) grants for participation in research and development
for the years 2013 through March 31, 2019 in the total amount of approximately $1,524 and, in return, Microbot Israel is
obligated to pay royalties amounting to 3%-3.5% of its future sales up to the amount of the grant. The grant is linked to the
exchange rate of the dollar to the New Israeli Shekel and bears interest of Libor per annum.
The
repayment of the grants is contingent upon the successful completion of the Company’s research and development programs
and generating sales. The Company has no obligation to repay these grants, if the project fails, is unsuccessful or aborted or
if no sales are generated. The financial risk is assumed completely by the Government of Israel. The grants are received from
the Government on a project-by-project basis.
Microbot
Israel signed an agreement with the Technion Research and Development Foundation (“TRDF”) in June 2012 by which TRDF
transferred to Microbot Israel a global, exclusive, royalty-bearing license. As partial consideration for the license, Microbot
Israel shall pay TRDF royalties on net sales (between 1.5%-3%) and on sublicense income as detailed in the agreement.
MICROBOT
MEDICAL INC.
NOTES
TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Cont’d)
U.S.
dollars in thousands
(Except
share data)
Contract
Research Agreements
Agreement
with Washington University
On
January 27, 2017, the Company entered into a Contract Research Agreement (the “Research Agreement”) with The Washington
University (“Washington U.”), pursuant to which the parties are collaborating to determine the effectiveness of the
Company’s self-cleaning shunt.
The
study in Washington U. includes several phases. The first phase (initial research) was completed. An agreement on the second phase
was entered into in September 2018 with total expected costs of approximately $248.1.
Pursuant
to the Research Agreement, all rights, title and interest in the data, information and results obtained or arrived at by Washington
U. in the performance of its services under the Research Agreement, as well as any patentable inventions obtained or arrived at
in the performance of such services, will be jointly owned by the Company and Washington U., and each will have full right to
practice and grant licenses in joint inventions. Additionally, Washington U. granted to the Company: (a) a non-exclusive, worldwide,
royalty-free, fully paid-up, perpetual and irrevocable license to use and practice patentable inventions (other than joint inventions
and improvements to Washington U.’s animal models) obtained or arrived at by Washington U. in the provision of its services
under the Research Agreement (“University Inventions”) with respect to the self-cleaning shunt; and (b) an exclusive
option to obtain an exclusive worldwide license in University Inventions, on terms to be negotiated between the parties.
Agreement
with Wayne State University
On
September 12, 2016, the Company entered into a research agreement (the “WSU Agreement”) with Wayne State University
(“WSU.”), pursuant to which the parties are collaborating to determine the efficacy of the Company’s self-cleaning
shunt.
The
study in WSU includes several phases. The first phase (initial research) was completed. An agreement on the second phase was entered
into in April 2018 with total expected costs of approximately $130.
Pursuant
to the WSU Agreement, WSU shall own all data generated by the research and the Company shall have unrestricted free right to use
and disclose all the results, information and material generated from the WSU Agreement.
Rights
to inventions, improvements or discoveries, whether or not patentable or copyrightable made solely by the employees of the Company
in the course of performance of the workplan agreed upon between the Company and WSU shall belong to the Company.
Rights
to inventions, improvements or discoveries, whether or not patentable or copyrightable made solely by the employees of WSU in
the course of performance of the workplan agreed upon between the Company and WSU shall belong to WSU. WSU shall grant the Company
with a worldwide non-exclusive, perpetual, royalty-free license to university inventions to use and practice patentable inventions.
Rights
to inventions, improvements or discoveries, whether or not patentable or copyrightable made by at least one employee of WSU and
one employee of the Company in the course of performance of the workplan agreed upon between the Company and WSU shall belong
to WSU and the Company jointly. Both the Company and WSU will be free to use and license to others the rights of joint inventions
for any and all purposes without consultation or obligation to the other party. WSU granted the Company a first option to negotiate
an exclusive license to use and practice WSU inventions and its interest in the joint inventions as detailed in the WSU Agreement.
MICROBOT
MEDICAL INC.
NOTES
TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Cont’d)
U.S.
dollars in thousands
(Except
share data)
Sabby
Litigation
The Company is named
as the defendant in a lawsuit (the “Matter”), captioned Sabby Healthcare Master Fund Ltd. and Sabby Volatility Warrant
Master Fund Ltd., Plaintiffs, against Microbot Medical Inc., Defendant, in the Supreme Court of the State of New York, County
of New York (the “Court”) (Index No. 654581/2017). The complaint alleged, among other things, that the Company breached
multiple representations and warranties contained in the Securities Purchase Agreement (the “SPA”) related to the
Company’s June 8, 2017 equity financing (the “Financing”) of which the Plaintiffs participated. The complaint
sought rescission of the SPA and return of the Plaintiffs’ $3,375 purchase price with respect to the Financing, and damages
in an amount to be determined at trial, but alleged to exceed $1,000. A trial was held on February 11, 2019. On February
28, 2019, the Court issued a Decision and Order After Trial to rescind the SPA. The rescission would require the Plaintiffs to
transfer back to the Company the shares they purchased in the Financing, and for the Company to return to Plaintiffs their purchase
price of $3,375. On March 27, 2019, the Company filed a Notice of Appeal and an Undertaking to stay execution of the judgment
pending appeal.
In
accordance with New York law, in order to move forward with the appeal and to stay the lower court’s judgment, the Company
placed approximately $4,200 (including estimated interest and fees) in escrow with a surety bonding agent on March
26, 2019 in accordance with provisions set forth in the judgment from the Matter, which represents the judgment amount, plus interest
and the fee to the bonding company. Accordingly, the Company recorded additional expenses of $25 with respect to interest from
the judgement date and up until March 31, 2019.
Tolling
and Standstill Agreement
On
April 4, 2018, Microbot entered into a Tolling and Standstill Agreement with Empery Asset Master, Ltd., Empery Tax Efficient LP,
Empery Tax Efficient II LP, and Hudson Bay Master Fund, Ltd., the other investors in the Financing (“Other Investors”).
Pursuant to the Tolling Agreement, among other things, (a) the Other Investors agree not to bring any claims against Microbot
arising out of the Matter, (b) the parties agree that if Microbot reaches an agreement to settle the claims asserted by the Sabby
Funds in the above suit, Microbot will provide the same settlement terms on a pro rata basis to the Other Investors, and the Other
Investors will either accept same or waive all of their claims and (c) the parties froze in time the rights and privileges of
each party as of the effective date of the Tolling Agreement, until (i) an agreement to settle the suit is executed; (ii) a judgment
in the suit is obtained; or (iii) the suit is otherwise dismissed with prejudice.
No
provision has been recorded with respect to the Tolling Agreement since no settlement was reached with respect to the Matter.
Agreement
with CardioSert Ltd.
On
January 4, 2018, Microbot Israel entered into an agreement with CardioSert Ltd. (“CardioSert”) to acquire certain
patent-protected technology owned by CardioSert (the “Technology”).
Pursuant
to the Agreement, Microbot Israel made an initial payment of $50 to CardioSert and had 90-days to elect to complete the acquisition.
At the end of the 90-day period, at Microbot Israel’s sole option, CardioSert shall assign and transfer the Technology to
Microbot Israel and Microbot Israel shall pay to CardioSert additional amounts and securities as determined in the agreement.
On
April 10, 2018, Microbot delivered an Exercise Notice to CardioSert Ltd., notifying it that Microbot elected to exercise the option
to acquire the Technology owned by CardioSert and therefore made an additional cash payment of $250 and 6,738 shares of common
stock (100,000 shares of common stock before the Reverse Split) estimated of $74.
MICROBOT
MEDICAL INC.
NOTES
TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Cont’d)
U.S.
dollars in thousands
(Except
share data)
The
agreement may be terminated by Microbot Israel at any time for convenience upon 90-days’ notice. The agreement may be terminated
by CardioSert in case the first commercial sale does not occur by the third anniversary of the date of signing of the agreement
except if Microbot Israel has invested more than $2,000 in certain development stages, or the first commercial sale does not occur
within 50 months. In each of the above termination events, or in case of breach by Microbot Israel, CardioSert shall have the
right to buy back the Technology from Microbot Israel for $1.00, upon 60 days prior written notice, but only 1 year after such
termination. Additionally, the agreement may be terminated by either party upon breach of the other (subject to cure).
CardioSert
agreed to assist Microbot Israel in the development of the Technology for a minimum of one year, for a monthly consultation fee
of NIS 40,000 covering up to 60 consulting hours per month.
Yehezkel
(Hezi) Himelfarb Resignation
Effective
as of February 1, 2019, Yehezkel (Hezi) Himelfarb, a member of the Board of Directors of the Company, and the Company’s
Chief Operating Officer, resigned from all positions with the Company. Effective as of February 1, 2019, Mr. Himelfarb also resigned
from his position as General Manager of Microbot Medical Ltd., a wholly-owned subsidiary of the Company. As a result of Mr. Himelfarb
providing certain post-resignation transition services to the Company and the terms of his employment agreement, Mr. Himelfarb
will continue to be paid his full salary and certain benefits.
NOTE
6 - SHARE CAPITAL
Each
share of the Series A Convertible Preferred Stock, par value $0.01 per share, issued by the Company in December 2016 and in May
2017 (the “Series A Convertible Preferred Stock”), was convertible, at the option of the holder, into 67 shares of
common stock (1,000 shares of common stock before the Reverse Split), and conferred upon the holder dividend rights on an as converted
basis. On December 12, 2018, the Company filed a Certificate of Elimination with respect to its Series A Convertible Preferred
Stock and as of March 31, 2019, the Company did not have any Series A Convertible Preferred Stock issued or outstanding.
See
Note 5 – “Commitment s and Contingencies-Agreement with CardioSert Ltd.,” with respect to the issuance
of 6,738 shares of the Company’s common stock
Share
Capital Developments
The
authorized capital stock consists of 221,000,000 shares of capital stock, which consists of 220,000,000 shares of common par value
$0.01 (the “Preferred Stock”). As of March 31, 2019, the Company had 4,307,666 shares of common stock issued
and outstanding.
On
December 27, 2016, the Company exchanged 655,962 shares (9,735,925 shares before the Reverse Split) or rights to acquire shares
of its common stock, for 9,736 shares of a newly designated class of Series A Convertible Preferred Stock.
On
January 5, 2017, the Company entered into a definitive securities purchase agreement with an institutional investor (the “Purchaser”)
for the purchase and sale of an aggregate of 47,163 shares (700,000 shares before the Reverse Split) of common stock in a registered
direct offering for $74.00 per share ($5.00 per share before the Reverse Split) or gross proceeds of $3,500. The Company paid
the placement agent a fee of $210 plus reimbursement of out-of-pocket expenses, as well as other offering-related expenses.
On
June 5, 2017, the Company entered into a Securities Purchase Agreement with certain institutional investors (the “Investors”)
providing for the issuance and sale by the Company to the Investors of an aggregate of 252,652 shares (3,750,000 shares before
the Reverse Split) of common stock, at a purchase price per share of $40.50 ($2.70 before the Reverse Split). The gross proceeds
to the Company was $10,125 before deducting placement agent fees and offering expenses of $922. See Note 4 – “Commitments
and Contingencies-Litigation” with respect to certain rescission rights awarded to two affiliated Investors.
MICROBOT
MEDICAL INC.
NOTES
TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Cont’d)
U.S.
dollars in thousands
(Except
share data)
On
January 14, 2019, the Company entered into a Securities Purchase Agreement with an accredited institutional investor providing
for the issuance and sale by the Company to the purchaser of an aggregate of (i) 330,000 shares of the Company’s common
stock, at a purchase price per share of $6.50 and (ii) 125,323 pre-funded warrants each to purchase one share of common stock,
at a purchase price per Pre-Funded Warrant of $6.49. The gross proceeds to the Company were approximately $3.0 million. The closing
of the offering took place on January 15, 2019. The pre-funded warrants were exercised in full in January 2019.
On
January 15, 2019, the Company entered into a Securities Purchase Agreement with certain accredited institutional investors providing
for the issuance and sale by the Company to the purchasers of an aggregate of 590,000 shares of the Company’s common stock,
at a purchase price per share of $10.00. The gross proceeds to the Company were approximately $5.9 million. The closing of the
offering took place on January 17, 2019.
On
January 23, 2019 the Company entered into a Securities Purchase Agreement with accredited institutional investors providing for
the issuance and sale by the Company to the purchasers of an aggregate of 250,000 shares of the Company’s common stock,
at a purchase price per share of $9.875. The gross proceeds to the Company were approximately $2.47 million. The closing of the
offering took place on January 25, 2019.
Employee
Stock Option Grant
In
September 2014, Microbot Israel’s board of directors approved a grant of 26,906 stock options (403,592 stock options before
the Reverse Split) (77,846 stock options as retroactively adjusted to reflect the Merger) to its CEO, through MEDX Venture Group
LLC. Each option was exercisable into an ordinary share, at an exercise price of $12.00 ($0.80 before the Reverse Split) ($4.20
as retroactively adjusted to reflect the Merger). The stock options were fully vested at the date of grant.
On
May 2, 2016, Microbot Israel’s board of directors approved a grant of 33,333 stock options (500,000 stock options before
the Reverse Split) (96,482 as retroactively adjusted to reflect the Merger) to certain of its employees and directors. Each stock
option was exercisable into an ordinary share, NIS 0.001 par value, of Microbot Israel, at an exercise price equal to the ordinary
share’s par value. The stock options were fully vested at the date of grant. As the exercise price of the stock options
is nominal, Microbot Israel estimated the fair value of the options as equal to the Company’s share price of $20.25 ($1.35
before the Reverse Split) ($7.05 as retroactively adjusted to reflect the Merger) at the date of grant.
On
September 12, 2017, the Company adopted the 2017 Equity Incentive Plan (the “Plan”), which Plan authorizes, among
other things, the grant of options to purchase shares of common stock to directors, officers and employees of the Company and
to other individuals.
On
September 14, 2017, the board of directors approved a grant of stock options to purchase an aggregate of up to 120,848 shares
(1,812,712 shares before the Reverse Split) of common stock to Mr. Harel Gadot, the Company’s Chairman of the Board, President
and CEO, at an exercise price per share of $15.75 ($1.05 before the Reverse Split). The stock options vest over a period of 3-5
years as outlined in the option agreements. As a result, the Company recognized compensation expenses for the three months ended
March 31 2019 and 2018 in total amount of $120 and $219 respectively included in general and administrative expenses.
MICROBOT
MEDICAL INC.
NOTES
TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Cont’d)
U.S.
dollars in thousands
(Except
share data)
On
September 14, 2017, the board of directors approved a grant of stock options to purchase an aggregate of up to 72,508 shares (1,087,627
shares before the Reverse Split) of common stock to Mr. Hezi Himelfarb, the Company’s General Manager, COO and a member
of the Board, at an exercise price per share of $19.35 ($1.29 before the Reverse Split). The grant was subject to the Israeli
Tax Authority’s approval of the plan which occurred on October 14, 2017. In accordance with the option agreement, the options
vest for period of 3 years starting from the grand date. As a result, the Company recognized compensation expenses for the three
months ended March 31 2019 and 2018 in total amount of $108 and $108 respectively included in general and administrative expenses.
On
December 6, 2017, the board of directors approved a grant of 12,698 stock options (190,475 stock options before the Reverse Split)
to purchase an aggregate of up to 12,698 shares of common stock to certain of its directors, at an exercise price per share of
$15.75 ($1.05 before the Reverse Split). The stock options vest over a period of 3 years as outlined in the option agreements.
As a result, the Company recognized compensation expenses for the three months ended March 31 2019 and 2018 in total amount of
$13 and $15 respectively included in general and administrative expenses.
On
December 28, 2017, the board of directors approved a grant of 66,036 stock options (990,543 stock options before the Reverse Split)
to purchase an aggregate of up to 66,036 shares of common stock to certain of its employees, at an exercise price per share of
$15.3 ($1.02 before the Reverse Split). The stock options vest over a period of 3 years as outlined in the option agreements.
As a result, the Company recognized compensation expenses for the three months ended March 31 2019 and 2018 in total amount of
$39 and $71 respectively included in general and administrative expenses and research and development expenses.
On
November 2017, certain employees and consultant exercised 31,453 options (471,794 options before the Reverse Split) to 31,453
ordinary shares at exercise price of 0.001 NIS.
In
February 2018, an employee exercised options to purchase 2,487 shares (37,300 shares before the Reverse Split) of common stock
at an exercise price of $0.001 per share.
On
August 13, 2018, the board of directors approved a grant of stock options to purchase an aggregate of up to 10,000 shares (150,000
shares before the Reverse Split) of common stock to Mr. Simon Sharon, the company’s CTO, at an exercise price per share
of $9 ($0.6 before the Reverse Split). The grant was subject to the Israeli Tax Authority’s approval of the plan which occurred
on October 14, 2017. In accordance with the option agreement, the options vest for period of 3 years starting from the grand date.
As a result, the Company recognized compensation expenses for the three months ended March 31 2019 and 2018 in total amount of
$11 and $0 respectively included in research and development expenses.
On
January 21, 2019, the board of directors approved a grant of 11,630 stock options to purchase an aggregate of up to 11,630 shares
of common stock to certain of its directors, at an exercise price per share of $8.60. The stock options vest over a period of
3 years as outlined in the option agreements. As a result, the Company recognized compensation expenses in the amount of $24 included
in general and administrative expenses for the three months ended March 31, 2019.
MICROBOT
MEDICAL INC.
NOTES
TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Cont’d)
U.S.
dollars in thousands
(Except
share data)
A
summary of the Company’s option activity related to options to employees and directors, and related information is as follows:
|
|
For
the three months ended March 31, 2019
|
|
|
|
Number
of stock options
|
|
|
Weighted
average exercise price
|
|
|
Aggregate
intrinsic value
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of period
|
|
|
398,308
|
|
|
$
|
11.50
|
|
|
$
|
108
|
|
Granted
|
|
|
11,630
|
|
|
|
8.6
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at end of period
|
|
|
409,938
|
|
|
$
|
11.38
|
|
|
$
|
761
|
|
Vested
at end of period
|
|
|
265,989
|
|
|
$
|
8.95
|
|
|
$
|
761
|
|
|
|
For
the year ended December 31, 2018
|
|
|
|
Number
of stock options
|
|
|
Weighted
average exercise price
|
|
|
Aggregate
intrinsic value
|
|
Outstanding
at beginning of period
|
|
|
414,965
|
|
|
$
|
11.70
|
|
|
$
|
1,859
|
|
Granted
|
|
|
10,000
|
|
|
|
9
|
|
|
|
-
|
|
Exercised
|
|
|
(2,487
|
)
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
(24,170
|
)
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at end of period
|
|
|
398,308
|
|
|
$
|
11.50
|
|
|
$
|
108
|
|
Vested
at end of period
|
|
|
245,010
|
|
|
$
|
8.45
|
|
|
$
|
108
|
|
The
aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the fair market value
of the common stock and the exercise price, multiplied by the number of in-the-money stock options on those dates that would have
been received by the stock option holders had all stock option holders exercised their stock options on those dates.) as of March
31, 2019 and December 31, 2018 respectively.
The
stock options outstanding as of March 31, 2019 and December 31, 2018, separated by exercise prices, are as follows:
Exercise
price
$
|
|
Stock
options
outstanding
as of March
31, 2019
|
|
|
Stock
options
outstanding
as of
December 31, 2018
|
|
|
Weighted
average
remaining
contractual
life – years
as of March
31, 2019
|
|
|
Weighted
average
remaining
contractual
life – years
as of
December
31, 2018
|
|
|
Stock
options
exercisable
as of March
31, 2019
|
|
|
Stock
options
exercisable
as of
December
31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.20
|
|
|
77,846
|
|
|
|
77,846
|
|
|
|
6.75
|
|
|
|
7.00
|
|
|
|
77,846
|
|
|
|
77,846
|
|
15.75
|
|
|
133,546
|
|
|
|
133,546
|
|
|
|
8.50
|
|
|
|
8.75
|
|
|
|
61,387
|
|
|
|
53,752
|
|
8.6
|
|
|
11,630
|
|
|
|
-
|
|
|
|
9.75
|
|
|
|
-
|
|
|
|
2,905
|
|
|
|
-
|
|
9.00
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
9.50
|
|
|
|
9.75
|
|
|
|
2,500
|
|
|
|
-
|
|
19.35
|
|
|
72,508
|
|
|
|
72,508
|
|
|
|
8.50
|
|
|
|
8.75
|
|
|
|
34,442
|
|
|
|
29,003
|
|
15.30
|
|
|
41,866
|
|
|
|
41,866
|
|
|
|
8.75
|
|
|
|
9.00
|
|
|
|
24,367
|
|
|
|
21,867
|
|
(*)
|
|
|
62,542
|
|
|
|
62,542
|
|
|
|
7.50
|
|
|
|
7.75
|
|
|
|
62,542
|
|
|
|
62,542
|
|
|
|
|
409,938
|
|
|
|
398,308
|
|
|
|
6.75
|
|
|
|
7.00
|
|
|
|
265,989
|
|
|
|
245,010
|
|
(*) Less
than $0.01.
Compensation
expense recorded by the Company in respect of its stock-based employee compensation awards in accordance with ASC 718-10 for the
three months ended March 31, 2019 and 2018 was $ 315 and $412, respectively.
MICROBOT
MEDICAL INC.
NOTES
TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Cont’d)
U.S.
dollars in thousands
(Except
share data)
The
fair value of the stock options is estimated at the date of grant using Black-Scholes options pricing model with the following
weighted-average assumptions:
|
|
Three
months ended
March
31, 2019
|
|
|
Year ended
December 31, 2018
|
|
|
|
|
|
|
|
|
Expected
volatility
|
|
|
144.4
|
%
|
|
|
99.4
|
%
|
Risk-free
interest
|
|
|
1.64
|
%
|
|
|
2.39
|
%
|
Dividend
yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected
life of up to (years)
|
|
|
6.37
|
|
|
|
5.24
|
|
Shares
issued to service provider
On
May 24, 2018 the Company issued an aggregate of 6,738 nonrefundable shares (100,000 nonrefundable shares before the Reverse Split)
of common stock to CardioSert as part of certain patent acquisition. The Company recorded expenses of approximately $74 with respect
to the issuance of these shares included in research and development expenses.
Warrants
The
remaining outstanding warrants and terms as of March 31, 2019 and December 31, 2018 are as follows:
Issuance
date
|
|
Outstanding
as of
December 31, 2018
|
|
|
Outstanding
as of
March 31, 2019
|
|
|
Exercise
Price
|
|
|
Exercisable
as of
March 31, 2019
|
|
|
Exercisable
Through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
A (2013)
|
|
|
181
|
|
|
|
181
|
|
|
$
|
2,754
|
|
|
|
181
|
|
|
|
April
2023
|
|
Series
A (2015)
|
|
|
676
|
|
|
|
676
|
|
|
$
|
1,377
|
|
|
|
676
|
|
|
|
April
2020
|
|
Series
B (2016) (a)
|
|
|
2,741
|
|
|
|
2,741
|
|
|
$
|
40.5
|
|
|
|
2,741
|
|
|
|
March
2022
|
|
These
warrants contain a full ratchet anti-dilution price protection so that, in most situations upon the issuance of any common stock
or securities convertible into common stock at a price below the then-existing exercise price of the outstanding warrants, the
warrant exercise price will be reset to the lower common stock sales price.
Prior
to January 1, 2019, warrants with non-standard anti-dilution provisions (referred to as down round protection) were classified
as liabilities and re-measured each reporting period. On January 1, 2019, the Company adopted the provisions of ASU 2017-11,
which indicates that a down round feature no longer precludes equity classification when assessing whether an investment is indexed
to an entity’s own stock. The Company used a full retrospective approach to adoption, and restated its financial statements
as of the earliest period presented. (See note 2)
MICROBOT
MEDICAL INC.
NOTES
TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Cont’d)
U.S.
dollars in thousands
(Except
share data)
Repurchase
of Shares
The
Company had intended to enter into a definitive agreement with up to three Israeli shareholders, some of whom are directors of
the Company, that were former shareholders of Microbot Israel, pursuant to which the Company would repurchase, at a discount on
the fair value of the share at the date of repurchase, up to $500 of common stock held by them, in the aggregate, if and to the
extent such shareholders are unable to sell enough of their shares to cover certain of their Israeli tax liabilities resulting
from the Merger. Such repurchase(s), if any, would occur only after the two-year anniversary of the Merger. The transaction would
have been subject to negotiating final terms and entering into definitive agreements with such shareholders.
The
Company evaluated whether an embedded derivative that requires bifurcation exists within such shares that may be subject to repurchase.
The Company concluded the fair value of such derivative instrument would be nominal and, in any case, would represent an asset
to the Company as (a) the settlement requires acquiring the shares at a discount on the fair market value of the share at the
time of re purchase and in no circumstances the acquisition price will be higher than approximately one dollar per share (representing
25% discount on the fair market value of the share at the merger closing date) and (b) it is assumed that the selling shareholders
would use such right as last resort as such repurchase at a discount on the fair market value of such shares results in a loss
to be incurred by the selling shareholders.
In
accordance with ASC 480-10-S99-3A (formerly EITF D-98), the Company classified the maximum amount it may be required to pay in
the event the repurchase right is exercised ($500) as temporary equity.
As
of December 31, 2018, the Company determined that no obligation remained to enter into any such definitive agreement as the two-year
anniversary of the Merger was in November 2018 and therefore there was no liability for the Company to repurchase any shares from
the three Israeli shareholders.
NOTE
7 - SUBSEQUENT EVENTS
Alliance
Litigation
On
April 28, 2019, the Company brought an action against Alliance Investment Management, Ltd. (“Alliance”) in the Southern
District of New York under Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78p(b), to compel Alliance to disgorge
short swing profits realized by Alliance from purchases and sales of the Company’s securities within a period of less than
six months, while Alliance was a beneficial owner of more than 10% of the Company’s outstanding common stock and a statutory
“insider” for purposes of the statute. The case is Microbot Medical Inc. v. Alliance Investment Management, Ltd.,
No. 19-cv-3782-GBD (SDNY). The amount of profits we are seeking to divest is estimated to be approximately $480,000.