Notes
to Interim Consolidated Financial Statements
U.S.
dollars in thousands
(Except
share data)
NOTE
1 - GENERAL
|
A.
|
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.
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.
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”),
and C&RD Israel Ltd. (“Merger Sub”), an Israeli corporation and wholly-owned subsidiary of the Company, whereby
Merger Sub merged with and into Microbot Israel and Microbot Israel surviving as a wholly-owned subsidiary of the Company (the
“Merger”). Pursuant to the terms of the Merger, at the effective time of the Merger, each outstanding ordinary share
of Microbot Israel capital stock was converted into the right to receive approximately 2.9 shares of the Company’s common
stock, par value $0.01 per share, after giving effect to a one for nine reverse stock split (the “Reverse Stock Split”),
for an aggregate of 26,550,974 shares of Company’s common Stock issued to the former Microbot Israel shareholders. In addition,
all outstanding options to purchase the ordinary shares of Microbot Israel were assumed by the Company and converted into options
to purchase an aggregate of 2,614,916 shares of the Company’s common stock. Additionally, the Company issued an aggregate
of 7,802,639 restricted shares of its common stock or rights to receive the Company’s common stock, to certain advisers.
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”.
As
a result of the Merger, Microbot Israel became a wholly owned subsidiary of the Company. The transaction between the Company and
Microbot Israel was accounted for as a reverse recapitalization. As the shareholders of Microbot Israel received the largest ownership
interest in the Company, Microbot Israel was determined to be the “accounting acquirer” in the reverse recapitalization.
As a result, the historical financial statements of the Company were replaced with the historical financial statements of Microbot
Israel. Unless indicated otherwise, pre-acquisition share, options and warrants data included in these financial statements is
retroactively adjusted to reflect the Reverse Stock Split and the Merger.
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.
The
Company and its subsidiaries are collectively referred to as the “Company”. “StemCells” or “StemCells,
Inc.” refers to the Company prior to the Merger.
To
date, the Company has not generated revenues from its operations. As of June 30, 2018, the Company had cash and cash equivalent
balance of approximately $8,020, 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. Due to continuing research and development activities, the Company expects to continue to incur
net losses into 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 others. 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.
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.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
significant accounting policies applied in the preparation of the financial statements are as follows:
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 six-month period ended June 30, 2018, are not necessarily indicative of the results that may be expected for the
year ending December 31, 2018.
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.
Recent
Accounting Standards
In
May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” to provide a single comprehensive model
for entities to use in accounting for revenue arising from contracts with customers. The ASU supersedes most current revenue recognition
guidance, including industry-specific guidance. The FASB subsequently issued ASU 2015-14, ASU 2016-08 and ASU 2016-12, which clarified
the guidance, provided scope improvements and amended the effective date of ASU 2014-09. As a result, ASU 2014-09 becomes effective
for the Company in the first quarter of 2018, with early adoption permitted. The adoption of this standard did not have a material
impact on our interim consolidated statements of comprehensive loss since the Company has not yet generated revenues to date.
In
February 2016, the FASB issued ASU 2016-02 “Leases” to increase transparency and comparability among organizations
by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.
For operating leases, the ASU requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at
the present value of the lease payments, on its balance sheet. The ASU retains the current accounting for lessors and does not
make significant changes to the recognition, measurement, and presentation of expenses and cash flows by a lessee. This ASU is
effective for the Company in the first quarter of 2019, with early adoption permitted. The Company continues to evaluate the effect
of the adoption of this ASU and expects the adoption will result in an increase in the assets and liabilities on the consolidated
balance sheets for operating leases (refer to Note 5) and will likely have an insignificant impact on the consolidated statements
of comprehensive loss.
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 is currently evaluating the
effect the adoption of this ASU will have on its consolidated financial statements.
In
July 2017, the FASB issued 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”. The ASU
makes limited changes to the Board’s guidance on classifying certain financial instruments as either liabilities or equity.
The ASU’s objective is to improve (1) the accounting for instruments with “down-round” provisions and (2) the
readability of the guidance in ASC 480 on distinguishing liabilities from equity by replacing the indefinite deferral of certain
pending content with scope exceptions. The ASU is effective for the Company in the first quarter of 2019, with early adoption
permitted. The Company has derivative warranty liabilities as discussed in Note 4 which upon adoption of the new standard are
expected to be classified as equity.
NOTE
3 - CONVERTIBLE LOAN FROM SHAREHOLDERS
Secured
Note to Alpha Capital Anstalt
On
August 15, 2016, concurrent with the execution of the Agreement and Plan of Merger (see Note 1A), StemCells Inc. issued a 6.0%
secured note (the “Note”) to Alpha Capital Anstalt (“Alpha Capital”), in the principal amount of $2,000,
for value received, payable upon the earlier of (i) 30 days following the consummation of the Merger and (ii) December 31, 2016.
Proceeds from the Note were used for the payment of costs and expenses in connection with the Merger and operational expenses
leading to such closing.
The
Note bore interest at 6% per annum, payable monthly in arrears on the first of the month, beginning on January 1, 2017 until the
principal amount is paid in full. In addition, the Note was secured by a first priority security interest in all of the Company’s
intellectual property and certain other general assets pursuant to a Security Agreement
Securities
Exchange Agreement with Alpha Capital
As
of the effective time of the Merger, the Company entered into a Securities Exchange Agreement (the “Exchange Agreement”)
with Alpha Capital, providing for the issuance to Alpha Capital of a convertible promissory note by the Company (the “Convertible
Note”) in a principal amount of $2,029, which is equal to the principal and accrued interest under the Note, in exchange
for (a) the full satisfaction, termination and cancellation of the Note and (b) the release and termination of the Security Agreement
and the first priority security interest granted thereunder.
The
Convertible Note was convertible into the Company’s Common Stock any time after November 28, 2017 and until the maturity
date of November 28, 2019, based on a conversion price per share of $0.64, subject to adjustments as provided in the Exchange
Agreement.
NOTE
4 - DERIVATIVE WARRANT LIABILITIES
The
remaining outstanding warrants and terms as of June 30, 2018 and December 31, 2017 is as follows:
Issuance
date
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Outstanding
as of December 31, 2017
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Outstanding
as of
June 30, 2018
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Exercise
Price
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Exercisable
as of
June 30, 2018
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Exercisable
Through
|
|
|
|
|
|
|
|
|
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Series A (2013)
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57,814
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57,814
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$
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194.40
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|
|
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57,814
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October 2018
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Series A (2013)
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2,718
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2,718
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$
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183.60
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|
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2,718
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April 2023
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Series A (2015)
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10,139
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10,139
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$
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91.80
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10,139
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April 2020
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Series A (2016) (a)
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9,279
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|
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-
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$
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-
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|
|
|
-
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March 2018
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Series B (2016) (a)
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41,116
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41,116
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$
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2.70
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|
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41,116
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|
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March 2022
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a)
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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. As such anti-dilution price protection does
not meet the specific conditions for equity classification, the Company is required to classify the fair value of these warrants
as a liability, with changes in fair value to be recorded as income (loss) due to change in fair value of warrant liability.
The estimated fair value of our warrant liability at June 30, 2018 and December 31, 2017, was approximately $14 and $28, respectively.
|
As
quoted prices in active markets for identical or similar warrants are not available, the Company uses directly observable inputs
in the valuation of its derivative warrant liabilities (level 3 measurement).
The
Company uses the Black-Scholes valuation model to estimate fair value of these warrants. In using this model, the Company makes
certain assumptions about risk-free interest rates, dividend yields, volatility, expected term of the warrants and other assumptions.
Risk-free interest rates are derived from the yield on U.S. Treasury debt securities. Dividend yields are based on our historical
dividend payments, which have been zero to date. Volatility is estimated from the historical volatility of our common stock as
traded on NASDAQ. The expected term of the warrants is based on the time to expiration of the warrants from the date of measurement.
In
March 2017, an institutional holder executed a cashless exercise of 768 warrants and 359 shares of Common Stock were issued in
connection therewith.
The
following table summarizes the observable inputs used in the valuation of the derivative warrant liabilities as of June 30, 2018
and December 31, 2017:
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Series
A
(2011)
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|
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Series
A
(2013)
|
|
|
Series
A
(2013)
|
|
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Series
A (2015)
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|
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Series
A
(2016)
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|
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Series
B
(2016)
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|
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Total
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Balances at December
31, 2017
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$
|
-
|
|
|
$
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-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
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(*
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)
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|
$
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28
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|
|
$
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28
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|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
expiration
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(*
|
)
|
|
|
-
|
|
|
|
(*
|
)
|
Changes in
fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(14
|
)
|
|
|
(14
|
)
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Balances at
June 30, 2018
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14
|
|
|
$
|
14
|
|
(*)
Less than 1
The
following table summarizes the observable inputs used in the valuation of the derivative warrant liabilities as of June 30, 2018
and December 31, 2017:
|
|
As
of June 30, 2018
|
|
|
As
of December 31, 2017
|
|
|
|
Series
A (2016)
|
|
|
Series
B (2016)
|
|
|
Series
A (2016)
|
|
|
Series
B (2016)
|
|
Share price
|
|
|
—
|
|
|
$
|
0.74
|
|
|
$
|
1.02
|
|
|
$
|
1.02
|
|
Exercise price
|
|
|
—
|
|
|
$
|
2.70
|
|
|
$
|
2.70
|
|
|
$
|
2.70
|
|
Expected volatility
|
|
|
—
|
|
|
|
102.8
|
%
|
|
|
60
|
%
|
|
|
119
|
%
|
Risk-free interest
|
|
|
—
|
|
|
|
2.39
|
%
|
|
|
1.24
|
%
|
|
|
1.89
|
%
|
Dividend yield
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expected life of up to (years)
|
|
|
—
|
|
|
|
3.75
|
|
|
|
0.25
|
|
|
|
4.25
|
|
Activity
in such liabilities measured on a recurring basis is as follows:
|
|
Derivative
Warrant Liabilities
|
|
As of December 31, 2017
|
|
$
|
28
|
|
Revaluation
of warrants
|
|
|
(14
|
)
|
As of June
30, 2018
|
|
$
|
14
|
|
|
|
Derivative
Warrant Liabilities
|
|
As of December 31, 2016
|
|
$
|
313
|
|
Revaluation of warrants
|
|
|
(285
|
)
|
Exercise warrants
|
|
|
(*
|
)
|
As of December
31, 2017
|
|
$
|
28
|
|
(*)
Less than 1
In
accordance with ASC-820-10-50-2(g), the Company has performed a sensitivity analysis of the derivative warrant liabilities of
the Company which are classified as level 3 financial instruments. The Company recalculated the value of warrants by applying
a +/- 5% changes to the input variables in the Black-Scholes model that vary overtime, namely, the volatility and the risk-free
rate. A 5.0% decrease or increase in volatility would not have materially changed the value of the warrants. A 5.0% decrease or
increase in the risk-free rate would not have materially changed the value of the warrants; the value of the warrants is not strongly
correlated with small changes in interest rates.
NOTE
5 - COMMITMENTS AND CONTINGENCIES
Microbot
Israel obtained from the Israeli Innovation Authority (“IIA”) grants for participation in research and development
for the years 2013 through June 30, 2018 in the total amount of approximately $1,310 and, in return, Microbot Israel is obligated
to pay royalties amounting to 3% 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.
Lease
Agreements
In
December 2016, the Company entered into car lease agreements, which will end on December 31, 2019. According to the lease agreement,
the monthly car lease payment is approximately $2.5.
In
May 2017, the Company entered into an office lease agreement effective from February 1, 2018, with a term ending on December 31,
2020. According to the lease agreement, the monthly office lease payment is approximately $14.
In
January 2018, the Company entered into an office lease agreement, with a term ending on December 31, 2021. According to the lease
agreement, the monthly office lease payment is approximately $4.
Compensation
Liability
The
Company incurred compensation commitments of approximately $400 to a former executive that management estimates as remote that
this amount will ever be paid out and therefore is not reflected in these consolidated financial statements.
Contract
Research Agreement
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. The parties are in the final
stage of planning the next phase, including the related various costs.
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.
Litigation
The
Company is named as the defendant in a lawsuit, captioned Sabby Healthcare Master Fund Ltd. and Sabby Volatility Warrant Master
Fund Ltd., Plaintiffs, against Microbot Medical Inc., Defendant, pending in the Supreme Court of the State of New York, County
of New York. The complaint alleges, among other things, that the Company breached multiple representations and warranties contained
in the Securities Purchase Agreement (the “SPA”) related to the June 8, 2017 equity financing of the Company (the
“Financing”), of which the Plaintiffs participated. The complaint seeks 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 million.
On August 3, 2018, both Plaintiffs and Defendant
filed motions for summary judgment.
Due
to the early stage in the ligation process, management is unable to assess the likelihood of the claim and the amount of potential
damages, if any, to be awarded. Management believes that the claims made against it are without merit and intends to vigorously
defend itself against these claims.
Tolling
and Standstill Agreement
On
April 4, 2018, the Company entered into a Tolling and Standstill Agreement (the “Tolling 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 (the “Other Investors”). Pursuant to the Tolling Agreement, among other things, (a) the Other Investors
agree not to bring any claims against the Company arising out of the Matter, (b) the parties agree that if the Company reaches
an agreement to settle the claims asserted by the Sabby Funds in the above suit, the Company 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.
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 has 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 100,000 common shares
estimated of $74. (see note 6).
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.
Agreement
with Simon Sharon
Effective
as of April 1, 2018, the Company hired Simon Sharon as the Company’s Chief Technology Officer. Pursuant to the terms thereof,
among other things, Mr. Sharon is entitled to options to purchase 150,000 shares of the Company’s common stock, subject
and pursuant to the Company’s 2017 Equity Incentive Plan. Such options have not been issued as of June 30, 2018.
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”), is convertible, at the option of the holder, into 1,000 shares
of Common Stock, and confer upon the holder dividend rights on an as converted basis.
Exercise
of Warrants
On
March 2017, an institutional holder exercised, in a cashless transaction, 768 warrants and 359 shares of Common Stock were issued
in connection therewith.
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 Stock
and 1,000,000 shares of undesignated preferred stock, par value $0.01 (the “Preferred Stock”). As of June 30,
2018, the Company had 42,120,127 shares of Common Stock issued and outstanding, and 2,464 shares of Series A Convertible Preferred
Stock issued and outstanding.
On
December 27, 2016, the Company exchanged 9,735,925 shares 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 700,000 shares of Common Stock in a registered direct offering for $5.00 per share
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 3,750,000 shares of Common Stock, at a
purchase price per share of $2.70. The gross proceeds to the Company was $10,125 before deducting placement agent fees and offering
expenses of $922.
Employee
Stock Option Grant
In
September 2014, Microbot Israel’s board of directors approved a grant of 403,592 stock options (1,167,693 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 $0.8 ($0.28 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 500,000 stock options (1,447,223 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 a result, the Company recognized compensation expenses in the amount of $675
included in general and administrative expenses. 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 $1.35 ($0.47 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 1,812,712 shares
of Common Stock to Mr. Harel Gadot, the Company’s Chairman of the Board, President and CEO, at an exercise price per share
of $1.05. 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 in the amount of $339 and $0 included in general and administrative expenses for the period ended June 30,
2018 and 2017, respectively.
On
September 14, 2017, the board of directors approved a grant of stock options to purchase an aggregate of up to 1,087,627 shares
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 $1.29. 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 in the amount of $231 and $0 included in general and administrative expenses for
the period ended June 30, 2018 and 2017 respectively.
On
December 6, 2017, the board of directors approved a grant of 190,475 stock options to purchase an aggregate of up to 190,475 shares
of Common Stock to certain of its directors, at an exercise price per share of $1.05. 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 $41 and
$0 included in general and administrative expenses for the period ended June 30, 2018 and 2017 respectively.
On
December 28, 2017, the board of directors approved a grant of 990,543 stock options to purchase an aggregate of up to 990,543
shares of Common Stock to certain of its employees, at an exercise price per share of $1.02. 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 $211
and $0 included in general and administrative expenses and research and development expenses for the period ended June 30, 2018
and 2017 respectively.
In
November 2017, certain
employees and consultant exercised 471,794 options to purchase 471,794 shares of common stock at an exercise
price of $0.001 per share.
In
February 2018, an employee exercised options to purchase 37,300 shares of common stock at an exercise price of $0.001 per share.
A
summary of the Company’s option activity related to options to employees and directors, and related information is as follows:
|
|
For
the six months ended June 30, 2018
|
|
|
|
Number
of stock options
|
|
|
Weighted
average
exercise price
|
|
|
Aggregate
intrinsic value
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning
of period
|
|
|
6,224,479
|
|
|
$
|
0.78
|
|
|
$
|
1,859
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(37,300)
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at
end of period
|
|
|
6,187,179
|
|
|
$
|
0.78
|
|
|
$
|
1,231
|
|
Vested and expected-to-vest
at end of period
|
|
|
3,075,354
|
|
|
$
|
0.46
|
|
|
$
|
1,221
|
|
|
|
For
the year ended December 31, 2017
|
|
|
|
Number
of stock options
|
|
|
Weighted
average
exercise price
|
|
|
Aggregate
intrinsic value
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period
|
|
|
2,614,916
|
|
|
$
|
0.13
|
|
|
$
|
3,739
|
|
Granted
|
|
|
4,081,357
|
|
|
|
1.1
|
|
|
|
-
|
|
Exercised
|
|
|
(471,794
|
)
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at end of period
|
|
|
6,224,479
|
|
|
$
|
0.78
|
|
|
$
|
1,859
|
|
Vested and expected-to-vest
at end of period
|
|
|
2,143,122
|
|
|
$
|
0.13
|
|
|
$
|
1,375
|
|
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 June
30, 2018 and December 31, 2017 respectively.
The
stock options outstanding as of June 30, 2018 and December 31, 2017, separated by exercise prices, are as follows:
|
|
|
Stock
options outstanding as of June 30, 2018
|
|
|
Stock
options outstanding as of December 31, 2017
|
|
|
Weighted
average remaining contractual life – years as of June 30, 2018
|
|
|
Weighted
average remaining contractual life – years as of December 31, 2017
|
|
|
Stock
options exercisable as of June 30, 2018
|
|
|
Stock
options exercisable as of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.28
|
|
|
|
1,167,693
|
|
|
|
1,167,693
|
|
|
|
7.50
|
|
|
|
8.0
|
|
|
|
1,167,693
|
|
|
|
1,167,693
|
|
|
1.05
|
|
|
|
2,003,187
|
|
|
|
2,003,187
|
|
|
|
9.25
|
|
|
|
9.75
|
|
|
|
481,990
|
|
|
|
-
|
|
|
1.29
|
|
|
|
1,087,627
|
|
|
|
1,087,627
|
|
|
|
9.25
|
|
|
|
9.75
|
|
|
|
271,907
|
|
|
|
-
|
|
|
1.02
|
|
|
|
990,543
|
|
|
|
990,543
|
|
|
|
9.50
|
|
|
|
10
|
|
|
|
215,636
|
|
|
|
-
|
|
|
(*
|
)
|
|
|
938,129
|
|
|
|
975,429
|
|
|
|
8.25
|
|
|
|
8.75
|
|
|
|
938,129
|
|
|
|
975,429
|
|
|
|
|
|
|
6,187,179
|
|
|
|
6,224,479
|
|
|
|
8.80
|
|
|
|
9.3
|
|
|
|
3,075,354
|
|
|
|
2,143,122
|
|
Compensation
expense recorded by the Company in respect of its stock-based employee compensation awards in accordance with ASC 718-10 for the
six-months ended June 31, 2018 and the year ended December 31, 2017 was $822 and $254, respectively.
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:
|
|
Six
months ended June 30, 2018
|
|
|
Year
ended
December 31, 2017
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
109
|
%
|
|
|
122.5
|
%
|
Risk-free interest
|
|
|
2.39
|
%
|
|
|
1.64
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected life of up to (years)
|
|
|
2.75
|
|
|
|
6.25
|
|
Shares
issued to service provider
In
connection with the Merger, the Company issued an aggregate of 7,802,639 restricted shares of its Common Stock to certain advisors.
The fair value of the award of approximately $10,000 was estimated based on the share price of the Common Stock of $1.28 as of
the date of grant. The portion of the expense in excess of the cash and other current assets acquired in the Merger, in the amount
of $7,300 was included in general and administrative expenses in the Statements of Comprehensive Loss.
During
2017, the Company issued an aggregate of 120,000 nonrefundable shares of Common Stock to a consultant as part of investor relations
services. The Company recorded expenses of approximately $225 with respect to the issuance of these shares included in general
and administrative expenses.
On
May 24, 2018, the Company issued an aggregate of 100,000 nonrefundable shares 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.
Securities
Exchange Agreement with Alpha Capital
On
December 16, 2016, the Company entered into a Securities Exchange Agreement with Alpha Capital, pursuant to which Alpha Capital
exchanged 9,736,000 shares of common stock or rights to acquire shares of the common stock held by it, for 9,736 shares of a newly
designated class of Series A Convertible Preferred Stock, par value $0.01 per share (the “Preferred Stock”). The common
stock and common stock underlying the rights to acquire common stock include all of the shares of common stock issued or issuable
to Alpha Capital pursuant to the Merger. The 9,735,925 shares of common stock and the rights to acquire common stock were cancelled
and the Company’s issued and outstanding shares of Common Stock were reduced to 26,518,315.
On
May 9, 2017, the Company entered into a Securities Exchange Agreement with Alpha Capital pursuant to which the Company agreed
to issue 3,254 shares of the Series A Convertible Preferred Stock, in exchange for the full satisfaction, termination and cancellation
of the outstanding 6% convertible promissory note of the Company in the principal amount of approximately $2,029 issued on November
28, 2016 and held by Alpha Capital. The Series A Convertible Preferred Stock is the same series of securities as the Company’s
existing Series A Convertible Preferred Stock issued in December 2016. As a result of the extinguishment of the convertible note
and issuance of the preferred shares, the Company recorded a financial loss in the amount of $2,360
.
During
the year ended December 31, 2017, the holder of the Series A Convertible Preferred Stock converted 8,990 shares of the
Series A Convertible Preferred Stock for 8,990,000 shares of Common Stock, pursuant to the terms of conversion of the Series A
Convertible Preferred Stock.
For
the six-months ended June 30, 2018, the holder of the Series A Convertible Preferred Stock converted 3,000 shares
of the Series A Convertible Preferred Stock for 3,000,000 shares of Common Stock, pursuant to the terms of conversion of
the Series A Convertible Preferred Stock.
Repurchase
of Shares
The
Company intends to enter into a definitive agreement with up to three Israeli shareholders, one of which is a director 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 is 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 repurchase 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.
NOTE
7 - BASIC AND DILUTED NET LOSS PER SHARE
The
basic and diluted net loss per share and weighted average number of common shares used in the calculation of basic and diluted
net loss per share are as follows (in thousands, except share and per share data):
|
|
Three
months ended
June 30,
|
|
|
Six
months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to
shareholders of the Company
|
|
$
|
(1,893
|
)
|
|
$
|
(3,508
|
)
|
|
$
|
(3,362
|
)
|
|
$
|
(4,815
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable
to shareholders of preferred shares
|
|
|
(76
|
)
|
|
|
(938
|
)
|
|
|
(185
|
)
|
|
|
(1,279
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss used
in the calculation of basic net loss per share
|
|
$
|
(1,817
|
)
|
|
$
|
(2,570
|
)
|
|
$
|
(3,177
|
)
|
|
$
|
(3,536
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per
share
|
|
$
|
(0.04
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of common shares
|
|
|
42,831,416
|
|
|
|
29,108,410
|
|
|
|
42,146,315
|
|
|
|
28,165,518
|
|
As
the inclusion of common share equivalents in the calculation would be anti-dilutive for all periods presented, diluted net loss
per share is the same as basic net loss per share.
NOTE
8 - TAXES ON INCOME
The
Company is subject to income taxes under the Israeli and U.S. tax laws:
Corporate
tax rates
The
Company is subject to Israeli corporate tax rate of 23% from 2018.
The
Company is subject to a Federal tax rate of 21% starting from 2018.
On
December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act
(the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to,
(1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition
tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends
from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled
foreign corporations; (5) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be
realized; (6) creating the base erosion anti-abuse tax (BEAT), a new minimum tax; (7) creating a new limitation on deductible
interest expense; and (8) changing rules related to uses and limitations of NOL carryforwards created in tax years beginning after
December 31, 2017.
The
SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement
period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC
740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting
under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete
but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company
cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the
basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.
As
of June 30, 2018, the Company’s assessment of the Tax Act is incomplete, and the Company has not yet been able to make reasonable
estimates of the effects. Therefore, no provisional adjustments were recorded.
For
the six and three-month periods ended June 30, 2018, the Company generated net operating losses in Israel of approximately
$1,170 and $776, respectively, which may be carried forward and offset against taxable income in the future for
an indefinite period.
For
the six and three-month periods ended June 30, 2018, the Company generated net operating losses in the U.S. of approximately
$1,416 and $694, respectively. Net operating losses in the United States are available through 2035. Utilization of U.S.
net operating losses may be subject to substantial annual limitation due to the “change in ownership” provisions of
the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating
losses before utilization.
The
Company is still in its development stage and has not yet generated revenues, therefore, it is more likely than not that sufficient
taxable income will not be available for the tax losses to be utilized in the future. Therefore, a valuation allowance was recorded
to reduce the deferred tax assets to its recoverable amounts.
|
|
As
of June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Net
operating loss carry-forward
|
|
$
|
491,965
|
|
|
$
|
485,830
|
|
|
|
|
|
|
|
|
|
|
Total deferred
tax assets
|
|
$
|
103,313
|
|
|
$
|
111,740
|
|
Valuation
allowance
|
|
|
(103,313
|
)
|
|
|
(111,740
|
)
|
Net
deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Reconciliation
of Income Taxes:
The
following is a reconciliation of the taxes on income assuming that all income is taxed at the ordinary statutory corporate tax
rate in Israel and the effective income tax rate:
|
|
As
of June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Net loss as reported
in the statements of operations
|
|
$
|
3,362
|
|
|
$
|
4,815
|
|
Statutory tax rate
|
|
|
23
|
%
|
|
|
24
|
%
|
Income tax under statutory
tax rate
|
|
|
773
|
|
|
|
1,156
|
|
Change in
valuation allowance
|
|
|
(773
|
)
|
|
|
(1,156
|
)
|
Actual
income tax
|
|
$
|
-
|
|
|
$
|
-
|
|