NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S
DOLLARS IN THOUSANDS (except shares and per share amounts)
SEPTEMBER
30, 2018
(Unaudited)
NOTE
1 ORGANIZATION AND BUSINESS
AIT
Therapeutics, Inc. (“AITT” or the “Company”) was incorporated on April 24, 2015 as KokiCare, Inc. under
the laws of the State of Delaware. On January 9, 2017, the name of the Company was changed to AIT Therapeutics, Inc
Advanced
Inhalation Therapies (AIT) Ltd. (“AIT”) was incorporated in Israel on May 1, 2011 and commenced its operations in
May 2012. On August 29, 2014, AIT established a wholly-owned subsidiary, Advanced Inhalation Therapies (AIT) Inc. (“Inc.”),
a Delaware corporation. In December 2016, through a merger transaction, AIT became a wholly-owned subsidiary of the Company.
The Company is an emerging medical device company that is developing a Nitric Oxide (“NO”) delivery
system that generates NO from ambient air.
Prior
to consummation of the merger
The
Company received a $320 cash purchase price from AIT and used the cash to (i) pay off all the liabilities of the Company as of
the closing of the merger, (ii) issue a cash dividend of $2.50 per share to its stockholders immediately prior to
the closing of the merger, and (iii) acquire 90,000 shares of its common stock, par value $0.0001 per share from
the company’s prior sole officer and director, for $25.
KokiCare
Inc. adopted its amended and restated certificate of incorporation to (i) change its name from KokiCare Inc. to AIT Therapeutics
Inc., (ii) increase its capitalization to provide for the issuance of up to 100,000,000 shares of its common stock and up to 10,000,000
shares of Preferred Stock, par value $0.0001 per share; and (iii) effect a one-for-100 reverse stock split of the common
stock. In connection with the closing of the merger, all outstanding ordinary shares, warrants and options of AIT
were converted into the rights to receive shares of AITT’s common stock, warrants for AITT’s common stock and stock
options to purchase common stock for AITT’s common stock, respectively, at a ratio of 1:1.
Reverse
merger
The
merger was accounted for as a reverse recapitalization which is outside the scope of ASC 805, “Business Combinations”.
Under reverse capitalization accounting, AIT is considered the acquirer for accounting and financial reporting purposes and acquired
the assets and assumed the liabilities of the Company. Assets acquired and liabilities assumed are reported at their historical
amounts. Consequently, the condensed consolidated financial statements of the Company reflect the operations of the acquirer for
accounting purposes together with a deemed issuance of shares, equivalent to the shares held by the former stockholders of the
legal acquirer and a recapitalization of the equity of the accounting acquirer. These condensed consolidated financial
statements include the accounts of the Company since the effective date of the reverse capitalization and the accounts of AIT
since inception.
AIT
THERAPEUTICS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S
DOLLARS IN THOUSANDS (except shares and per share amounts)
SEPTEMBER
30, 2018
(Unaudited)
NOTE
1 ORGANIZATION AND BUSINESS (continued)
Going
concern
The
accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as
a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business
for the twelve-month period following the issuance of these condensed consolidated financial statements. As shown
in the accompanying financial statements, the Company incurred negative operating cash flows of $4,108 for the six months
ended September 30, 2018 and accumulated losses of $38,033 since inception through September 30, 2018. The Company has
cash equivalent and marketable securities of $4,865 as of September 30, 2018. These conditions raise substantial doubt as to the
Company’s ability to continue as a going concern. The Company estimates that it has enough cash to operate its business
through June 30, 2019. These financial statements do not include any adjustments that might be necessary if the Company is unable
to continue as a going concern
The
Company will need to raise additional funds in order to continue our clinical trials. Insufficient funds may cause us to delay,
reduce the scope of or eliminate one or more of our development programs. The Company’s future capital needs and
the adequacy of its available funds will depend on many factors, including the cost of clinical studies and other actions
needed to obtain regulatory approval of our medical devices in development. Management plans to raise additional funds through
public or private sales of equity or debt securities or from bank or other loans or through strategic collaboration and/or licensing
agreements, to fund operations until the Company is able to generate enough revenues to cover operating costs. Financing may not
be available on acceptable terms, or at all, and our failure to raise capital when needed could materially adversely impact our
growth plans and our financial condition or results of operations. Additional equity financing, if available, may be dilutive
to our shareholders. In addition, the Company may never be able to generate sufficient revenue if any from its potential medical
devices. On August 10, 2018, the Company entered into a $20,000 purchase agreement and a registration rights agreement
with Lincoln Park Capital Fund, LLC (“LPC”), providing for the issuance of up to $20,000 of the Company’s
common stock over 36 months at the Company’s discretion, see Note 4.
In
addition to the normal risks associated with a new business venture, there can be no assurance that the Company’s research
and development will be successfully completed or that any product will be approved or commercially viable. The Company is subject
to risks common to companies in the medical device industry including, but not limited to, dependence on collaborative arrangements,
development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary
technology, and compliance with the FDA and other governmental regulations and approval requirements.
NOTE
2 SIGNIFICANT ACCOUNTING POLICIES
Presentation
The
unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles
in the United States (“US GAAP”)
for interim financial information
and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required to be presented
for complete financial statements. The accompanying condensed consolidated financial statements reflect all adjustments (consisting
only of normal recurring items) which are, in the opinion of management, necessary for a fair presentation of the results for
the interim periods presented. The accompanying condensed consolidated Balance Sheet as of March 31, 2018 has been derived from
the audited consolidated financial statements included in our Transitional Report on Form 10-KT for the three months March
31, 2018 and for the year then ended December 31, 2017, respectively. The condensed consolidated financial statements and
related disclosures have been prepared with the assumption that users of the interim financial information have read or have access
to the audited consolidated financial statements for the preceding fiscal year. Accordingly, these financial statements should
be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Transitional
Report on Form 10-KT for the three months ended March 31, 2018 and for year ended December 31, 2017, respectively, which
was filed with the United States Securities and Exchange Commission, (“SEC”), on June 15, 2018.
AIT
THERAPEUTICS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S
DOLLARS IN THOUSANDS (except shares and per share amounts)
SEPTEMBER
30, 2018
(Unaudited)
NOTE
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
Principles of Consolidation
These condensed consolidated financial statements include the accounts of the Company since the effective
date of the reverse capitalization and the accounts of AIT since inception.. All intercompany balances and transactions have been
eliminated in the accompanying condensed financial statements.
Use
of estimates
The preparation of financial statements in
conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses for the reporting period. Actual results could differ from those estimates. The Company’s
significant estimates are the valuation of warrant liabilities, stock-based compensation expenses and valuation allowance
for deferred taxes.
Cash
and cash equivalents
Cash
equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months
or less at acquisition.
Restricted
Cash
Restricted
cash are invested in bank deposit. These deposits serve as collateral for the Company’s vehicle lease.
Research
and development
Research
and development expenses are charged to the statement of comprehensive loss as incurred.
Foreign
Exchange Transactions
The
majority of AIT’s operations are currently conducted in Israel and in the United States while a significant part of AIT’s
expenses and financing activities are denominated and determined in U.S. dollars. The Company’s management believes that
the U.S. dollar is the currency of the primary economic environment in which the Company operates and expects to continue to operate
in the foreseeable future. Thus, the functional and reporting currency of the Company is the U.S. dollar. The Company’s
transactions and balances denominated in U.S. dollars are presented at their original amounts. Non-dollar transactions and balances
have been re-measured to U.S. dollars in accordance with the Accounting Standards Board (ASC) 830, “Foreign Currency Matter.
All transaction gains and losses from re-measurement of monetary balance sheet items denominated in non-dollar currencies are
reflected in the statements of comprehensive income (loss) as financial income or expenses, as appropriate, Note
5.
Stock-Based
Compensation
The
Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date
fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange
for the award - the requisite service period. The grant-date fair value of employee share options is estimated using the Black-Scholes
option pricing model. The risk-free interest rate assumptions were based upon the observed interest rates appropriate
for the expected term of the equity instruments. The expected dividend yield was assumed to be zero as the Company has not paid
any dividends since its inception and does not anticipate paying dividends in the foreseeable future. The expected volatility
was based upon its peer group. The Company routinely reviews its calculation of volatility changes in future volatility, the Company’s
life cycle, its peer group, and other factors. The Company uses the simplified method for share-based compensation to estimate
the expected term for employee option awards for share-based compensation in its option-pricing model. The Company uses the contractual
term for non- employee options to estimate the expected term, for share-based compensation in its option-pricing model. Compensation
expense for warrants granted to non-employees is determined by the fair value of the consideration received or the fair value
of the equity instruments issued, whichever is more reliably measured, and is recognized over the service period. The expense
is subsequently adjusted to fair value at the end of each reporting period until such warrants vest, and the fair value of such
instruments, as adjusted, is expensed over the related vesting period. Adjustments to fair value at each reporting date may result
in income or expense, depending upon the estimate of fair value and the amount of expense recorded prior to the adjustment. The
Company reviews its agreements and the future performance obligation with respect to the unvested warrants for its vendors or
consultants. When appropriate, the Company will expense the unvested warrants at the time when management deems the service obligation
for future services has ceased.
Investment
in marketable securities
The
Company accounts for investments in marketable securities in accordance with ASC No. 320, “Investments- Debt and equity
Securities”. Management determines the appropriate classification of its investments at the time of purchase and reevaluates
such determinations at each balance sheet date. The Company classified its investment in marketable securities as available-for-sale
securities. Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in Accumulated
other comprehensive income (loss) in shareholders’ (deficit) equity. Realized gains and losses on sales of investments
are included in financial expense, net and are derived using the specific identification method for determining the cost
of securities.
AIT
THERAPEUTICS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S
DOLLARS IN THOUSANDS (except shares and per share amounts)
SEPTEMBER
30, 2018
(Unaudited)
NOTE
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
Warrant
liabilities
The
Company accounted for warrants to purchase shares of its common stock issued to its shareholders that include down
round protective provisions, as a liability according to the provisions of
ASC 815-40, “Derivatives and Hedging
Contracts in Entity’ Own Equity”
(“ASC 815”). The Company measures the warrants at fair value by using
the Black-Scholes option model in each reporting period until they are exercised or expired, with changes in the fair values being
recognized in the Company’s condensed consolidated statements of comprehensive income (loss) as financial expense
(income), net, as a non-cash expense or income.
Income
Taxes
The
Company accounts for income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in the tax rate is recognized in income or expense in the period that the change
is effective. Tax benefits are recognized when it is probable that the deduction will be sustained. A valuation allowance is established
when it is more likely than not that all or a portion of a deferred tax asset will either expire before the Company is able to
realize the benefit, or that future deductibility is uncertain. As of September 30, 2018, and March 31, 2018, the Company recorded
a valuation allowance to the full extent of our net deferred tax assets since the likelihood of realization of the benefit does
not meet the more likely than not threshold. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly
referred to as the Tax Act. The Tax Act reduces the federal corporate income tax rate from 35% to 21%, effective January 1, 2018,
which the Company expects will positively impact its future effective tax rate and after-tax earnings in the United States. The
Company recognized a decrease related to its federal deferred tax assets and deferred tax liabilities, before the valuation allowance.
Because a change in the valuation allowance completely offsets the change in deferred taxes, there was no impact on the condensed
consolidated financial statements related to the rate change.
The
Company files a U.S. Federal income tax return, various state returns and International returns. Uncertain tax positions taken
on the Company’s tax returns will be accounted for as liabilities for unrecognized tax benefits. The Company will recognize
interest and penalties, if any, related to unrecognized tax benefits in income taxes in the statements of comprehensive income
(loss). There Company has recorded $121 and $121 in accrued expenses, for uncertain tax positions as of September 30,
2018 and March 31, 2018, respectively.
Recently
issued accounting standards
In
August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, “Disclosure Update and Simplification,”
amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the
amendments expanded the disclosure requirements on the analysis of stockholders’ equity for interim financial statements.
Under the amendments, an analysis of changes in each caption of stockholders’ equity presented in the balance sheet must
be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending
balance of each period for which a statement of comprehensive income is required to be filed. This final rule is effective on
November 5, 2018. The Company is evaluating the impact of this guidance on its condensed financial statements. The Company anticipates
its first presentation of changes in stockholders’ equity will be included in its Form 10-Q for the quarter ended June 30,
2019.
In
August 2018, the
Financial Accounting Standards Board
(“
FASB”)
issued
Accounting
Standards Update
(“
ASU”)
2018-13, “
Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair
Value Measurement
”, which adds disclosure requirements to Topic 820 for the range and weighted average of
significant unobservable inputs used to develop Level 3 fair value measurements.
The guidance is effective for the
Company’s interim and annual reporting periods beginning with the Company’s
fiscal
year ended March 31, 2021, and early adoption is permitted.
The
Company is evaluating the impact of this accounting standard update on our condensed consolidated financial
statements.
In
June 2018, the FASB issued ASU No. 2018-07,
Stock-based Compensation: Improvements to Nonemployee Share-based Payment
Accounting
, which amends the existing accounting standards for share-based payments to nonemployees. This ASU aligns much
of the guidance on measuring and classifying nonemployee awards with that of awards to employees. Under the new guidance, the
measurement of nonemployee equity awards is fixed on the grant date. This ASU becomes effective in the first quarter of fiscal
year
2020 and early adoption is permitted but no
earlier than an entity’s adoption date of Topic 606. Entities will apply the ASU by recognizing a cumulative-effect adjustment
to retained earnings as of the beginning of the annual period of adoption.
The Company is
evaluating of evaluating the impact of this accounting standard update on our condensed consolidated financial statements.
In
May 2017, the FASB issued ASU 2017-09 (“ASU 2017-09”), Compensation—Stock Compensation (Topic 718): Scope of
Modification Accounting. This standard provides clarity and reduces both (1) diversity in practice and (2) cost and complexity
when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based
payment award.
The Company adopted the standard commencing
April 1, 2018
. The impact of the adoption was immaterial to
our
condensed consolidated financial statements.
In
July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and
Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features. II. Replacement
of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests with a Scope Exception. This ASU affects all entities that issue financial instruments (for
example, warrants or convertible instruments) that include down round features. Part I of this ASU relates to the recognition,
measurement, and earnings per share of certain freestanding equity-classified financial instruments that include down round features
affect entities that present earnings per share in accordance with the guidance in Topic 260, Earnings Per Share, while in Part
II does not have an accounting effect. This update is effective for public business entities for fiscal years (and interim
periods within those fiscal years) beginning after December 15, 2018, early adoption is permitted for Part 1. The Company
is in the process of evaluating the impact of this accounting standard update on our condensed consolidated financial statements.
In
February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), which generally requires
companies to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet. This
update is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. The
Company is evaluating the effect that this guidance will have on our condensed consolidated financial statements and related disclosures.
In
November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU
2016-18), which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in
cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash
flows.
The Company adopted the standard commencing January 1, 2018
.
The impact of the adoption was immaterial to our condensed consolidated financial statements.
NOTE
3 FAIR VALUE MEASUREMENT
The
Company’s financial instruments primarily include cash, warrant liabilities and accounts payable. Due to the short-term
nature of cash, cash equivalent, restricted cash and accounts payable the carrying amounts of these assets and liabilities approximate
their fair value. Warrant liabilities are recorded at fair value at each period end. Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants
at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the
valuation methodologies in measuring fair value:
AIT
THERAPEUTICS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S
DOLLARS IN THOUSANDS (except shares and per share amounts)
SEPTEMBER
30, 2018
(Unaudited)
NOTE
3 FAIR VALE MEASUREMENT (continued)
Fair
value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction
between market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority
to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair
value hierarchy is as follows:
|
Level
1 -
|
quoted
prices in active markets for identical assets or liabilities;
|
|
|
|
|
Level
2 -
|
inputs
other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar
assets or liabilities, quoted prices for identical or similar assets or liabilities in 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; or
|
|
|
|
|
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.
|
The
Company accounted for the warrants issued to accredited shareholders included, among others, down round protective provisions
as a non-current liability according to provisions of ASC 815. The Company will measure the warrants at fair value in each reporting
period until they are exercised or expired, with changes in the fair value being recognized in the Company’s statement of
comprehensive income (loss) as financial income or expense, as appropriate. Under ASC 820, the warrants are classified
as Level 3 and marketable securities invested in mutual funds are classified as Level 1: There has been no transfer
between any levels during the period.
As
of September 30, 2018, and March 31, 2018, financial assets and liabilities measured at fair value on a recurring basis are categorized
in the table below based upon the lowest level of significant input to the valuations:
|
|
As
of September 30, 2018
|
|
|
|
|
As
of March 31, 2018
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Assets
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual
funds
|
|
$
|
3,937
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
3,937
|
|
|
Mutual
funds
|
|
$
|
7,698
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
7,698
|
|
Short-term
bond
fund
|
|
|
612
|
|
|
|
0
|
|
|
|
0
|
|
|
|
612
|
|
|
Short-term
bond fund
|
|
|
606
|
|
|
|
0
|
|
|
|
|
|
|
|
606
|
|
|
|
$
|
4,549
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
4,549
|
|
|
Total
|
|
$
|
8,304
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
8,304
|
|
|
|
As
of September 30, 2018
|
|
|
|
|
As
of March 31, 2018
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
liabilities
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
9,029
|
|
|
$
|
9,029
|
|
|
Warrant
liabilities
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
5,678
|
|
|
$
|
5,678
|
|
The
Company used the Black-Scholes option pricing model to value the warrant liabilities with the following assumptions to
estimate the fair value as of September 30, 2018 and March 31, 2018 as follows:
|
|
September
30, 2018
|
|
|
March
31, 2018
|
|
|
|
(Unaudited)
|
|
|
|
|
Risk-free
interest rate
|
|
|
2.93%-2.94
|
%
|
|
|
2.49%-2.51
|
%
|
Expected
volatility
|
|
|
81.23
|
%
|
|
|
84.54
|
%
|
Expected
life (in years)
|
|
|
3.29
- 3.50
|
|
|
|
3.79
- 4.00
|
|
Dividend
yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
Fair
value per warrant liability
|
|
|
$
2.46 - 2.53
|
|
|
|
$
1.55 - 1.59
|
|
The
changes in Level 3 fair value measurements associated with the warrant liabilities at fair value on a recurring basis as of September
30, 2018 is as follows:
|
|
Number
of
warrants
|
|
|
Fair
value of
liability
related
to
warrants
|
|
|
|
|
|
|
|
|
Balance
as of April 1, 2018
|
|
|
3,635,270
|
|
|
$
|
5,678
|
|
Change
in fair value of warrant liabilities
|
|
|
-
|
|
|
|
3,351
|
|
|
|
|
|
|
|
|
|
|
Balance
as of September 30, 2018
|
|
|
3,635,270
|
|
|
$
|
9,029
|
|
AIT
THERAPEUTICS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S
DOLLARS IN THOUSANDS (except shares and per share amounts)
SEPTEMBER
30, 2018
(Unaudited)
NOTE
4 SHAREHOLDER’S EQUITY (DEFICIT)
On
February 16, 2018, the Company entered into a Securities Purchase Agreement with several accredited shareholders. The Company
issued warrants to purchase 4,599,604 shares of its common stock, par value $0.0001 per share at a purchase price of $0.01 per
underlying warrant share. The warrants are comprised of an aggregate of (i) 2,299,802 Tranche A Warrants to purchase shares of
common stock at an exercise price of $4.25 per share exercisable within three days from the issue date of the Tranche A Warrants
and (ii) an equal number of Tranche B Warrants to purchase shares of common stock at an exercise price of $4.25 per share for
the Tranche B Warrant, exercisable within three years from the issue date of the warrants. In connection with the February 2018,
stock offering, the Company’s Board of Directors approved the issuance of warrants to purchase common stock with an exercise
price of $4.25 per share. Immediately following the closing, all the shareholders in this offering exercised the full amount of
their Tranche A Warrants resulting in net proceed of $8,734, which includes offering costs of $1,086
In February, the Board of Directors repriced outstanding options to purchase common stock issued in 2017 to
$4.25 per share. The Company accounted for the change in option exercise price as a modification pursuant to ASC 718. Accordingly,
additional stock-based compensation of $59 was recorded based upon the fair value of the modified award in excess of the fair value
of the original award measured immediately before its terms have been modified based on current circumstances and is recognized
as a stock-based compensation expense over the remaining vesting period.
On
August 10, 2018, the Company entered into a $20,000 Purchase Agreement (commonly known as At The Market Offering, or ATM)
with LPC. Pursuant to the terms of the Purchase Agreement, the Company may sell and issue LPC and LPC is obligated to purchase
up to $20,000 in value of shares of common stock from time to time over three years. The Company also entered into a registration
rights agreement with whereby the Company agreed to file a registration statement with the SEC and the shares
of the Company’s common stock that may be issued to LPC under the terms of the Purchase Agreement. The Company may
direct LPC, at its sole discretion, and subject to certain conditions, to purchase up to 10,000 shares of common stock on any
business day, provided that at least one business day has passed since the most recent purchase. The amount of a purchase may
be increased under certain circumstances provided, however that LPC cannot make any single purchase that exceeds $750.
The purchase price of shares of common stock related to the future funding will be based on the then prevailing market prices
of such shares at the time of sales as described in the Purchase Agreement. The Company filed a registration statement with the
SEC and it was accepted on October 12, 2018.
Following
the execution of the Purchase Agreement on August 10, 2018, the Company issued and sold to LPC 117,000 shares of common stock
at $4.50 per shares for gross proceeds of $527 and incurred offering costs in excess of the amount raised of $546,
which was charged to additional paid in capital and was a onetime occurrence. The Company is not obligated to have any
future sales with LPC under the Purchase Agreement. On October 28, 2018, the Company sold 10,000 shares from the Purchase
Agreement. There are $19,428 in value of shares available under the Purchase Agreement with LPC based upon certain trading
limitations over the remaining term of the agreement as of the date of these financial statements are issue, see
Note 9.
Issuance
of restricted shares
On
January 13, 2017, the Company issued 492,624 restricted shares to a director of the Company, of which 246,312 were to vest on
the six-month anniversary of the grant date and the remaining vest on the 18-month anniversary of the grant date. During the three
months ended June 30, 2017, 246,312 (50%) of the restricted shares were cancelled. For the six months ended September 30, 2018
and 2017, the Company recorded stock-based compensation expenses of $0 and $844, respectively due to the cancellation of such
shares. There was no stock-based compensation expense for the three months ended September 30, 2018 and 2017, respectively.
Stock
option plan
The Company has an amended and restated Incentive Option Plan (the “2013 Plan”), that grants options,
restricted stock units and
restricted
shares to officers, directors, employees, and non-employees for shares of the Company’s stock. The options vesting terms
are generally between two to four years and expire up to ten years after the grant date. Certain options will be accelerated upon
fulfillment of certain conditions. On August 2, 2018, the Board of Directors authorized the increase of an additional 1,033,324
shares to a total of 1,500,000 shares for issuance under the 2013 Plan.
AIT
THERAPEUTICS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S
DOLLARS IN THOUSANDS (except shares and per share amounts)
SEPTEMBER
30, 2018
(Unaudited)
NOTE
4 SHAREHOLDERS’ EQUITY (DEFICIT) (continued)
As
of September 30, 2018, 105,028 options are available for future grants.
A
summary of the Company’s options for the six months ended September 30, 2018 is as follows:
|
|
Number
Of Options
|
|
|
Weighted
Average
Exercise price
|
|
|
Weighted
Average Remaining Contractual
Life
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding as of April 1, 2018
|
|
|
510,904
|
|
|
$
|
4.32
|
|
|
|
8.96
|
|
Granted
|
|
|
927,000
|
|
|
|
4.25
|
|
|
|
|
|
Exercised
|
|
|
(9,601
|
)
|
|
|
4.25
|
|
|
|
|
|
Forfeited
|
|
|
(33,333
|
)
|
|
|
4.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding as of September 30, 2018
|
|
|
1,394,970
|
|
|
$
|
4.29
|
|
|
|
8.8
|
|
Options
exercisable as of September 30, 2018
|
|
|
444,136
|
|
|
$
|
4.29
|
|
|
|
8.5
|
|
As of September 30, 2018, the aggregate intrinsic value of outstanding and exercisable
options was and $132 and $27, respectively
.
The aggregate intrinsic value of options exercised during the period was $40.
As of September 30, 2018, the Company has unrecognized stock-based compensation expense of approximately $2,168 related to unvested
stock options over the weighted average remaining service period of 2.3 years. The weighted average fair value of options granted
during the six months ends ended September 30, 2018 and 2017 was approximately $2.72 per share and $1.76 per share, respectively,
on the date of grant using the Black-Scholes option pricing model with the following assumption
:
|
|
September 30, 2018
|
|
|
|
|
|
Risk-free interest rate
|
|
|
2.54%-3.05
|
%
|
Expected volatility
|
|
|
80.68% - 81.23
|
%
|
Expected term (in years)
|
|
|
5.0 - 9.9
|
|
Dividend yield
|
|
|
0
|
%
|
AIT
THERAPEUTICS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S
DOLLARS IN THOUSANDS (except shares and per share amounts)
SEPTEMBER
30, 2018
(Unaudited)
NOTE
4 SHAREHOLDER’S (DEFICIT) EQUITY (continued)
Stock-based
compensation
The
following summarizes the components of stock-based compensation expense which includes common stock, stock options, warrants and
restricted stock in the condensed consolidated statements of comprehensive income (loss) for the six and three months
ended September 30, 2018 and 2017, respectively:
|
|
Six
Months Ended
|
|
|
Three
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
96
|
|
|
$
|
73
|
|
|
$
|
27
|
|
|
$
|
76
|
|
General
and administrative
|
|
|
826
|
|
|
|
2,213
|
|
|
|
815
|
|
|
|
389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stock-based compensation expense
|
|
$
|
922
|
|
|
$
|
2,286
|
|
|
$
|
842
|
|
|
$
|
465
|
|
Warrants
On
September 7, 2016, AIT entered into an Option Agreement (the “Option Agreement”) with a third party whereby AIT acquired
the Option to purchase certain intellectual property assets and rights (the “Option”) for $25. AIT exercised the Option
in January 2017 and paid an exercise price of $500 and, on January 13, 2017 AIT issued to the third party a warrant (the “Third
Party Warrant”) to purchase up to 178,570 ordinary shares of AIT at an exercise price of $4.80 per share for each share
of common stock. This warrant was exchanged for a warrant to acquire the same number of shares of the common stock of the
Company upon consummation of the merger. On May 10, 2018, the Company issued to the third-party additional warrants to purchase
up to 29,763 ordinary shares of the Company at an exercise price of $4.80 per share for each share. The warrant expires in September
2023. For the six months ended September 2018 and 2017, the Company recorded stock-based compensation expense of $56 and $0
to research and development expenses, respectively and is included in the table above. There was no stock stock-based
compensation expense for the three months ended September 30, 2018 and 2017, respectively, see Note 7, commitment
s
and contingencies.
NOTE
5 FINANCIAL EXPENSE, NET
A
summary of the financial income, for the six and three month ended September 30, 2018 and 2017, respectively is as following
:
|
|
Six
Months Ended
|
|
|
Three
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Financial
expenses, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
fees and other
|
|
$
|
9
|
|
|
$
|
6
|
|
|
$
|
3
|
|
|
$
|
4
|
|
Dividend
income
|
|
|
(64
|
)
|
|
|
-
|
|
|
|
(29
|
)
|
|
|
-
|
|
Foreign
currency loss (gain)
|
|
|
(1
|
)
|
|
|
(34
|
)
|
|
|
2
|
|
|
|
4
|
|
Change
in fair value of warrant liabilities
|
|
|
3,351
|
|
|
|
4,933
|
|
|
|
2,074
|
|
|
|
5,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,295
|
|
|
$
|
4,905
|
|
|
$
|
2,050
|
|
|
$
|
5,092
|
|
AIT
THERAPEUTICS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S
DOLLARS IN THOUSANDS (except shares and per share amounts)
SEPTEMBER
30, 2018
(Unaudited)
NOTE
6 BASIC AND DILUTED NET LOSS PER COMMON SHARE
The
computation of net loss per common share, basic and diluted, for the six and three months ended September 30, 2018 is as
follows:
|
|
Six
Months Ended
|
|
|
Three
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Net
loss attributable to holders of common stock
|
|
$
|
7,
464
|
|
|
$
|
10,029
|
|
|
$
|
4,
463
|
|
|
$
|
7,149
|
|
Weighted
average number of common shares used in computing basic and diluted net loss per commons share
|
|
|
8,420,281
|
|
|
|
6,143,579
|
|
|
|
8,440,457
|
|
|
|
6,045,515
|
|
Net
loss per share of common stock, basic and diluted
|
|
$
|
0.89
|
|
|
$
|
1.63
|
|
|
$
|
0.53
|
|
|
$
|
1.18
|
|
The
following potentially
dilutive
securities are not included in the calculation of diluted net loss per share attributable to common stockholders because to do
so would be anti-dilutive:
|
|
Six
Months Ended
|
|
|
Three
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Common
stock warrants
|
|
|
6,143,405
|
|
|
|
85,474
|
|
|
|
6,143,405
|
|
|
|
85,474
|
|
Common
stock options
|
|
|
1,394,972
|
|
|
|
548,721
|
|
|
|
1,394,972
|
|
|
|
548,721
|
|
Restricted
shares
|
|
|
-
|
|
|
|
246,312
|
|
|
|
-
|
|
|
|
246,312
|
|
Total
|
|
|
7,538,377
|
|
|
|
880,507
|
|
|
|
7,538,377
|
|
|
|
880,507
|
|
NOTE
7 COMMITMENTS AND CONTINGENCIES
On
October 22, 2013, AIT entered into a patent license agreement with a third party, pursuant to which AIT agreed to pay to the third
party a non-refundable upfront fee of $150 and is obligated to pay 5% royalties of any licensed product revenues, but at least
$50 per annum during the royalty period as defined in the agreement. As of September 30, 2018, AIT did not record any revenues
and therefore no royalties were paid or accrued.
AIT
THERAPEUTICS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S
DOLLARS IN THOUSANDS (except shares and per share amounts)
SEPTEMBER
30, 2018
(Unaudited)
NOTE
7 COMMITMENTS AND CONTINGENCIES (continued)
On
September 7, 2016, AIT entered into an Option Agreement (the “Option Agreement”) with a third party whereby AIT acquired
the Option to purchase certain intellectual property assets and rights (the “Option”) for $25 AIT issued to the third
party a warrant (the “Third Party Warrant”) to purchase up to 178,570 ordinary shares of AIT at an exercise price
of $4.80 for each share. This warrant was exchanged for a warrant to acquire the same number of shares of the Company’s
common stock upon consummation of the merger. On May 10, 2018, the Company issued to the third-party additional warrants
to purchase up to 29,763 shares of the Company at an exercise price of $4.80 per share for each share of common stock.
The warrant is exercisable, in whole or in part, until the seventh anniversary of the original issuance date of January 13, 2017.
See warrants for the compensation expense recorded for this warrant issuance. Additionally, AIT is required to make certain one-time
development and sales milestone payments to the third party, starting from the date on which AIT receives regulatory approval
for the commercial sale of its first product candidate.
On January 31, 2018 the Company entered into an agreement (“Agreement”)
with NitricGen, Inc. (“NitricGen”) to acquire a global, exclusive, transferable license and associated assets including
intellectual property, know-how, trade secrets and confidential information from NitricGen related to NO delivery systems (“Delivery
System”). The Company agreed to pay NitricGen a total of $2,000 in several future payments depending on achieving certain
milestones, as defined in the Agreement, and to pay NitricGen royalties on sales of the Delivery System
.
In addition, the Company agreed to grant to NitricGen warrants to purchase 100,000 shares of the Company’s
common stock at an exercise price of $6.90 per share. As of September 30, 2018, the Company has not achieved any of these milestones.
On
March 16, 2018, Empery Asset Master, Ltd., Empery Tax Efficient, LP and Empery Tax Efficient II, LP, (collectively, “Empery”),
filed a complaint in the Supreme Court of the State of New York, relating to the notice of adjustment of both the exercise price
of and the number of warrant shares issuable under warrants issued to Empery in January 2017. The Empery Suit alleges that, as
a result of certain circumstances in connection with the February 2018 Offering, the January 2017 Warrants issued to Empery provide
for adjustments to both the exercise price of the warrants and the number of warrant shares issuable upon such exercise. Empery
seeks monetary damages and declaratory relief under theories of breach of contract or contract reformation predicated on mutual
mistake. The Company intends to vigorously defend all claims.
Given
the early stage of the litigation, it is not possible to determine or assess the probability of any particular outcome.
Certain officer agreements contain a change
of control provision for payment of severance arrangements.
In
March and April, 2018, the Company entered into two new office lease agreements, which will expire on April 2021 and June 2023,
respectively. Future minimum commitments for each of the fiscal years ending March 31, are as follows:
Year
Ended
March 31,
|
|
Operating
Leases
|
|
2019
|
|
$
|
40
|
|
2020
|
|
|
81
|
|
2021
|
|
|
83
|
|
2022
|
|
|
65
|
|
2023
|
|
|
65
|
|
2024
|
|
|
16
|
|
|
|
|
|
|
Total
|
|
$
|
350
|
|
Rent
expense for the three months ended September 30, 2018 and 2017 was $23 and $21, respectively. Rent expense for the six months
ended September 30, 2018 and 2017 was $50 and $18, respectively. On June 30, 2017 the Company recorded a credit $18 associated
with rent for the Israeli facility.
AIT
THERAPEUTICS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S
DOLLARS IN THOUSANDS (except shares and per share amounts)
SEPTEMBER
30, 2018
(Unaudited)
NOTE
8: SUBSEQUENT EVENTS
On
November 1, 2018, the Board of Directors (the “Board”) of AIT Therapeutics, Inc. (the “Company”) appointed
Douglas Beck, CPA as Chief Financial Officer of the Company, effective November 1, 2018. Mr. Beck was also designated as the Company’s
principal accounting officer and will succeed Stephen DiPalma as Chief Financial Officer and principal accounting officer. Mr.
DiPalma has resigned from his interim position, effective November 1, 2018. His resignation is not the result of any disagreement
with the Company. Mr. Beck was issued 85,000 options to purchase common stock at $4.25 per share. The options vest over four years
and expires in ten years.
On
October 28, 2018, the Company received gross proceeds of $46 from the sale of 10,000 shares of the Company’s
common stock at $4.567 per share. LPC purchased the Company’s common stock pursuant per the terms of the Purchase
Agreement.