Microbot Medical (MBOT): A ~$250 Million Market Cap ... Irrational Exuberance At Its Best!

Microbot Medical ( MBOT )  is an Israel-organized reverse-merger company with a massive  quarter-of-a-billion-dollar valuation, five employees ... and  experimental products that can't be validated for several years.

When reality kicks in, we believe investors will beat feet, sending the stock plunging to a fraction of today's price.

Microbot  is a pre-human-trial medical device company. One product idea is the  SCS, a self-cleaning shunt to treat hydrocephalus or fluid on the brain.  The second candidate is TipCat, a semi-disposable endoscope for use in  colonoscopy. 

What's up with Microbot and why do we believe this stock is precariously positioned? Investors may find other viewpoints here . Meanwhile, let's examine those issues... 

*Loser + Loser Does Not Equal A Winner

In order to buy into a stock like this, investors need to believe that a loser can buy a loser and generate a winner. 

For a while, the market apparently bought into that notion.

Last  May, StemCells financials and stock had been struggling for some time  and further analysis of its "Pathway" spinal injury therapy study  results turned out negative. So the California company terminated the study and began to wind down operations. 

Then,  about six weeks ago, the company merged with an Israel-organized  private company Microbot Medical (Microbot Israel), changed the company  name from StemCells to Microbot Medical and installed Microbot Israel leaders. 

Microbot Medical pulled a 1-for-9 reverse stock split just before the merger closed. Microbot Israel holders received 26.6 million shares ... significantly diluting the other shareholders.

The  day after the reverse merger, on Nov. 29, Microbot sold StemCells' stem  lines, intellectual property and other assets for $4 million. 

Microbot had what it needed by the time the smoke cleared: about $2.8 million and a listing on the Nasdaq.

Leading  up to the close of the merger in late November, StemCells shares  rocketed in one week from about $7 to over $12 (the stock briefly spiked  over 500% when merger plans were disclosed in August). 

(See attached chart)

But the stock quickly reversed once the deal was completed. Shares dropped back to $7 and kept falling to below $6. 

The market seemed surprised by what happened next ... 

*Selling Stock Cheap

Just last Thursday, Microbot jumped up and tapped into its shelf registration to sell 700,000 shares .

Initially, the stock price rose. Investors, it seemed, had bought into Microbot's chirpy, opaque press release presented early that morning:

http://www.thestreetsweeper.org/ckfinder/userfiles/images/mbot%20pr.PNG 

But the stock plummeted the next morning following the after-hours release of the 8-K showing the stock was sold for $5 ... a fraction of the $7.70 to $9.10 that many investors had just forked out. 

(See attached chart)

*Cut-Rate Warrants, Convertibles

Meanwhile,  certain investors had been getting Microbot stock for pennies on the  dollar compared with average retail investors. Here are the highlights  on those cheap convertibles and warrants:

1. Under merger plans in August, the company eliminated the anti-dilution price protection for 2016 warrants.

2. Institutions have turned in most of their warrants for stock at just $0.30 per share.

"As  part of our obligations under the Merger Agreement with Microbot, in  August 2016, we negotiated with certain institutional holders of our  2016 Series A and Series B Warrants to have such holders surrender their  2016 Series B Warrants in exchange for a reduced exercise price of  $0.30 per share on their existing 2016 Series A Warrants and the  elimination of the anti-dilution price protection in the 2016 Series A  Warrants. As a result of the exchange, the exercise price for all  outstanding 2011 Series A Warrants and 2016 Series A and Series B  Warrants was reset to $0.30 per share. Subsequent to the reset of the  exercise price, an aggregate of 531,814 (from an outstanding aggregate  of 578,081) 2011 Series A Warrants were exercised. For the exercise of  these warrants, we issued 531,814 shares of our common stock."

3. A $2 million note may be converted into Microbot stock at a $0.64 conversion price .

"The  Convertible Note is convertible into the Company’s common stock any  time after November 28, 2017 until the maturity date of November 28,  2019, based on a conversion price of $0.64, subject to adjustments as  provided in the Convertible Note and the other terms and the conditions  specified in the Convertible Note."

The  dilution potential continues to loom over investors as Microbot  attempts to advance its product candidates. The company will likely be  forced to continue selling stock and securing convertible debt because  it has failed to generate revenue and will likely have no real revenue stream for years... if ever.

*Alpha Capital Anstalt

Meantime, virtually no big institutions are interested in Microbot. The company's institutional ownership is a poor 00.58% . 

But  there is one large investor - Alpha Capital Anstalt - which holds a  Microbot note convertible to stock at under a dollar per share.

The Lichtenstein-based firm has invested in some big losers , including the last three investments preceding Microbot:

**In  mid-November, the firm bought nearly 5% of deep sea transportation  company FreeSeas (FREEF). The next week, Alpha increased its ownership  to 7.4%. The chart below shows how the stock has dropped to zero since  then.

(See attached chart)

**Last  May, as shares of home testing products distributor Decision  Diagnostics (DECN) traded around the year's high, Alpha Capital Anstalt  bought nearly 10% of the company. The chart below shows Decision's  decisively downward trajectory since that time.

(See attached chart)

**Last  March, the firm claimed a nearly 10% stake in beer and tavern food  company Harrison Vickers and Waterman Inc. (HVCW). The chart below shows  how HVCW has gone to zero.

(See attached chart)

So that track record suggests investors can take no comfort in Alpha Capital investing in this company.

*Underreported: Market Valuation

Meanwhile,  Microbot's market valuation is much higher than currently shown on  various financial sites - meaning the stock is much more expensive than  it seems at first glance.

Yahoo , Stock Market Watch and others show outstanding shares at 26.6 million. But recent company filings state the actual number of outstanding shares is 36.2 million .

So, at recent levels, this company with an idea that may or may not work is supposedly worth an astonishing $250 million.

The picture changes when we consider the looming stock, options, warrants and loan that can be converted to common stock:

(See attached chart)

(Source: Company SEC filing page S-4 , TheStreetSweeper)

Investors  can see that Microbot goes from 26.6 million shares to somewhere around  42 million outstanding shares, resulting in stock potentially getting  watered down by more than 50%. At recent levels, the value would approach a preposterous

 $280 million.

*Losing Out To Competitors

Meanwhile, Microbot wants to enter its TipCat product idea into the highly competitive reusable colonscopes market. 

Fierce rivals there include dominate players:

*Pentax

*Fuji

*Olympus

Other rivals include companies producing disposable, self-propelled colonoscopes:

*GI View 

*SMART Medical Systems

Microbot hopes to enter its SCS product idea into the smart shunt or smart catheter field, also incredibly competitive.

Advanced smart shunt designs for hydrocephalus are underway at these top research facilities:

*New Jersey Institute of Technology

*Wayne State University

Many shunt systems are already in use, including:

*Aesculap        *Integra           *Sophysa

*Codman         *Medtronic

*Alcyone: After numerous bench and animal studies, Alcyone Lifesciences  announced clinical use of its ReFlow cough-reflex mimicking system last  August. It has filed for US Food and Drug Administration pre-market  approval. 

Many competitors  enjoy massive research and development funding, good reputations and  established relationships with doctors and insurance companies. Rivals  have also set up distributor networks and can offer rebates, discounts  and other incentives to doctors.

But Microbot merely hopes to begin SCS human studies by December 2018 and maybe a full human trial by December 2019. It hopes the first TipCat human studies will begin about December 2018 and perhaps a full clinical trial by December 2020 . 

So rivals have already blown away Microbot ... before it can even get out the gate. 

*Conclusion

Microbot is an extremely risky stock that's precariously positioned to get hammered, thanks to issues including:

 * Years in the making.  Microbot is an Israel-organized reverse-merger company offering an  untested medical device idea that will take years to prove … or  disprove.

* Absurd valuation. A quarter-of-a-billion-dollar market valuation for such an early-stage company is something we haven’t seen in years.

*Misrepresented. Share count is incorrect on Yahoo and other sites, consequently the market cap appears much lower than the actual figure.

* No track record . A company needs more than just an idea to justify a market cap that's even one-tenth of Microbot’s valuation.

* Low warrant price .  As Microbot trades around $7, warrants have been exercised for just 30  cents and a $2 million note may be converted into stock at just 64 cents  per share … an absolute insult to investors’ intelligence.

*Extreme competitors. Microbot  hopes its first full clinical trial can begin in about three years. But  already, major world-class rivals have established products placed with  healthcare providers.

* More of the same.  We believe shares in this five-employee company will mirror the  plunging stock of recent investments handled by a significant Microbot  investor.

We expect the stock to quickly collapse by 50% and later drop to under $1 per share.

*  Important Disclosure: The owners of TheStreetSweeper hold a short  position in MBOT and stand to profit on any future declines in the stock  price.

* Editor's Note: As a matter of policy,  TheStreetSweeper prohibits members of its editorial team from taking  financial positions in the companies that they cover. To contact Sonya  Colberg, the author of this story, please send an email to scolberg@thestreetsweeper.org.