As filed with the Securities and Exchange
Commission on June 29, 2016
Registration No. 333-210760
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO.6
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
InspireMD, Inc.
(Exact name of registrant as specified
in its charter)
Delaware
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3841
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26-2123838
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(State or other jurisdiction
of incorporation or organization)
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(Primary Standard
Industrial Classification Code Number)
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(I.R.S. Employer
Identification Number)
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321 Columbus Avenue
Boston, Massachusetts 02116
(857) 305-2410
(Address, including zip code, and telephone
number, including area code, of registrant’s principal executive offices)
James Barry, Ph.D.
President and Chief Executive Officer
InspireMD, Inc.
321 Columbus Avenue
Boston, Massachusetts 02116
(857) 305-2410
(Name, address, including zip code, and
telephone number, including area code, of agent for service)
Copies of all communications, including
communications sent to agent for service, should be sent to:
Rick A. Werner, Esq.
Haynes and Boone, LLP
30 Rockefeller Plaza, 26
th
Floor
New York, New York 10112
Tel. (212) 659-7300
Fax (212) 884-8234
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Ralph
V. De Martino
Cavas S. Pavri
Schiff Hardin LLP
901 K Street NW Suite 700
Washington, D.C. 20001
Phone (202) 778-6400
Fax: (202) 778-6460
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Approximate date
of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933 check the following box.
x
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration statement number of the earlier effective registration statement
for the same offering.
¨
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering.
¨
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering.
¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
Large accelerated filer
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Accelerated filer
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Non-accelerated filer
¨
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Smaller reporting company
x
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(Do not check if a smaller reporting company)
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Title of Each Class of Securities
to be Registered
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Proposed
Maximum
Aggregate Offering
Price
(1)
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Amount
of
Registration Fee
(2)
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Series B Convertible Preferred Stock, $0.0001 par value
per share
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$
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14,700,026.00
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$
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1,480.29
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Common stock, $0.0001 par value per share, issuable
upon conversion of Series B Convertible Preferred Stock
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—
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(3)
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Common stock, $0.0001
par value per share, issuable as dividends upon conversion of Series B Convertible Preferred Stock
(4)
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$
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11,025,019.50
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$
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1,110.22
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Warrants to purchase shares of Common Stock, $0.0001 par value per share
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—
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(5)
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Common Stock, $0.0001 par value per share,
issuable upon exercise of warrants
(6)
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$
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9,535,152.00
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$
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960.19
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Placement Agent’s Unit Purchase Option
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Units underlying Unit Purchase Option
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—
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—
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Series B Convertible
Preferred Stock, par value $0.0001 per share, included in Unit Purchase Option
(7)
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$
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643,106.25
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$
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64.76
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Common stock, par value $0.0001 per share, issuable
upon conversion of Series B Convertible Preferred Stock included in Unit Purchase Option
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—
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(3)
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Common stock, $0.0001
par value per share, issuable as dividends upon conversion of Series B Convertible Preferred Stock included in Unit Purchase
Option
(4)
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$
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385,863.75
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$
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38.86
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Warrants to purchase
Common Stock included in Unit Purchase Option
(7)
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—
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(5)
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Common
stock, par value $0.0001 per share, issuable upon exercise of warrants included in Unit Purchase Option
(6)
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$
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333,720.00
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$
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33.61
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Total
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$
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36,622,887.50
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$
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3,687.93
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(8)
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(1)
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Estimated solely for the purpose of calculating
the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. The fee table assumes offering
price of $37 per share of Series B Convertible Preferred Stock, which is based on the closing price of the registrant’s
common stock on June 28, 2016.
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(2)
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Pursuant
to Rule 416 under the Securities Act of 1933, as amended, this registration statement
also covers any additional securities that may be offered or issued in connection with
any stock split, stock dividend or similar transaction.
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(3)
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No fee is
required pursuant to Rule 457(i) under the Securities Act of 1933, as amended.
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(4)
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The
holders of Series B Convertible Preferred Stock will be entitled to receive cumulative
dividends at the rate per share of 15% per annum of the stated value per share, until
the fifth anniversary of the date of issuance of the Series B Convertible Preferred Stock.
The dividends become payable, at the registrant’s option, in either cash, out of
any funds legally available for such purpose, or in shares of common stock, (i) upon
any conversion of the Series B Convertible Preferred Stock, (ii) on each such other date
as the registrant’s board of directors may determine, subject to written consent
of the holders of Series B Convertible Preferred Stock holding a majority of the then
issued and outstanding Series B Convertible Preferred Stock, (iii) upon liquidation,
dissolution or winding up of the registrant, and (iv) upon occurrence of a fundamental
transaction, including any merger or consolidation, sale of all or substantially all
of the registrant’s assets, exchange or conversion of all of the registrant’s
common stock by tender offer, exchange offer or reclassification; provided, however,
that if Series B Convertible Preferred Stock is converted into shares of common stock
at any time prior to the fifth anniversary of the date of issuance of the Series B Convertible
Preferred Stock, the holder will receive a make-whole payment in an amount equal to all
of the dividends that, but for the early conversion, would have otherwise accrued on
the applicable shares of Series B Convertible Preferred Stock being converted for the
period commencing on the conversion date and ending on the fifth anniversary of the date
of issuance, less the amount of all prior dividends paid on such converted Series B Convertible
Preferred Stock before the date of conversion. Make-whole payments are payable at the
registrant’s option in either cash, out of funds legally available for such purpose,
or in shares of common stock. The fee table assumes a conversion price of $0.37 and the
stated value per share of $37.
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(5)
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No fee is
required pursuant to Rule 457(g) under the Securities Act of 1933, as amended.
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(6)
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There will be issued a warrant to purchase
100 shares of common stock for every one share of Series B Convertible Preferred Stock offered. We currently estimate that the
initial warrant exercise price will be between $0.20 and $0.24 per share of common stock, and the fee table assumes a warrant
exercise price of $0.24 per share of common stock.
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(7)
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Represents
shares of Series B Convertible Preferred Stock and warrants to purchase common stock
included in a unit purchase option to purchase up to 3.5% of the securities sold in this
offering (excluding any shares of common stock to be paid as dividends on the Series
B Convertible Preferred Stock) at an exercise price equal to 125% of the public offering
price of the Series B Convertible Preferred Stock.
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The registrant hereby amends this registration
statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment
which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission acting pursuant
to said Section 8(a), may determine.
The information in this
preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek
an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY
PROSPECTUS
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SUBJECT
TO COMPLETION
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DATED
JUNE 29, 2016
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InspireMD, Inc.
397,298
Shares of Series B Convertible Preferred Stock
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39,729,800 Shares
of Common Stock Underlying the Series B Convertible Preferred Stock
Warrants
to Purchase 39,729,800 Shares of Common Stock
39,729,800 Shares of Common
Stock Underlying the Warrants
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We are offering up to 397,298 shares of
our Series B Convertible Preferred Stock (the “Preferred Stock”) and warrants to purchase up to 39,729,800 shares
of our common stock (and the shares of common stock issuable from time to time upon conversion of the Preferred Stock and payment
of dividends accrued on the Preferred Stock in shares of common stock upon conversion of the Preferred Stock and the shares of
common stock upon exercise of the warrants). Each share of Preferred Stock we sell in this offering will be accompanied by a warrant
to purchase 100 shares of common stock. We currently estimate that the initial warrant exercise price will be between $0.20 and
$0.24 per share of common stock. The shares of Preferred Stock and warrants will be issued separately but can only be purchased
together in this offering. Each warrant will be immediately exercisable and will expire on the five year anniversary of the date
of issuance.
Our common stock is traded on the NYSE
MKT under the symbol “NSPR.” Following completion of this offering, we intend to apply to list the warrants on the
NYSE MKT. No assurance can be given that such listing will be approved. We do not intend to apply for listing of the Preferred
Stock on any securities exchange, and we do not expect that the Preferred Stock will be quoted on the NYSE MKT. On June 28, 2016,
the last reported sale price of our common stock as reported on the NYSE MKT was $0.37 per share.
We have retained Dawson James Securities,
Inc. to act as placement agent in connection with this offering and to use its “best efforts” to solicit offers to
purchase the Preferred Stock and the warrants. We have agreed to pay the placement agent a cash fee equal to 9.0% of the gross
proceeds of the offering. There are no minimum purchase requirements. We may not sell the entire amount of the securities being
offered pursuant to this prospectus. The placement agent is not purchasing or selling any securities pursuant to this offering,
nor are we requiring any minimum purchase or sale of any specific number of securities. Because there is no minimum offering amount
required as a condition to the closing of this offering, the actual public offering amount, placement agent fees and proceeds
to us are not presently determinable and may be substantially less than the maximum amounts set forth below. See “Plan of
Distribution” beginning on page 89 of this prospectus for more information regarding these arrangements.
Investing in our Preferred Stock and
warrants (and the common stock underlying such securities) involves a high degree of risk. See “Risk Factors” beginning
on page 7 of this prospectus before making a decision to purchase our securities.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal offense.
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Per
Share
(1)
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Total
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Public offering price
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$
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$
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Placement agent fees
(2)
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$
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$
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Proceeds, before expenses, to us
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$
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$
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(1)
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Per share price
represents the offering price for one share of Preferred Stock and a warrant to purchase
100 shares of common stock. The price of a share of Preferred Stock and accompanying
warrant in this prospectus assumes a public offering price of $37 per share (which is
100 times $0.37, the last reported sales price of our common stock on June 28, 2016).
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(2)
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In addition,
we have agreed to reimburse the placement agent for certain offering-related expenses
and to issue the placement agent or its designees an option to purchase a number of shares
of Preferred Stock and warrants to purchase common stock up to 3.5% of the securities
sold in this offering, which option shares, warrants and underlying common stock are
also being offered pursuant to this prospectus. See “Plan of Distribution”
for more information.
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Because there is no minimum offering amount
required as a condition to closing this offering, we may sell fewer than all of the securities offered hereby, which may significantly
reduce the amount of proceeds received by us, and investors in this offering will not receive a refund in the event that we do
not sell an amount of securities sufficient to pursue the business goals outlined in this prospectus. In addition, because there
is no escrow account and no minimum offering amount in this offering, investors could be in a position where they have invested
in our company, but we are unable to fulfill our objectives due to a lack of interest in this offering. Also, any proceeds from
the sale of securities offered by us will be available for our immediate use, despite uncertainty about whether we would be able
to use such funds to effectively implement our business plan. See “Risk Factors” for more information. The offering
will be terminated by July 10, 2016, and may not be extended.
Certain of our directors have indicated
an interest in purchasing an aggregate of up to approximately $1,250,000 in Preferred Stock and accompanying
warrants in this offering at the offering price. However, because indications of interest are not binding agreements or commitments
to purchase, these directors may determine to purchase fewer shares than they indicate an interest in purchasing or not to purchase
any shares in this offering.
Affiliates and associated persons of Dawson
James Securities, Inc. may invest in this offering on the same terms and conditions as the public investors participating in this
offering.
The
placement agent expects to deliver the shares of Preferred Stock and warrants against payment in New York, New York on or about
, 2016.
DAWSON JAMES SECURITIES, INC.
The
date of this prospectus is
, 2016
TABLE OF CONTENTS
You should rely only on the information
contained in this prospectus. We have not authorized any other person to provide you with different information. If anyone provides
you with different or inconsistent information, you should not rely on it. We are not making an offer to sell these securities
in any jurisdiction where offer or sale is not permitted. You should assume that the information appearing in this prospectus
is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations
and prospects may have changed since that date.
Unless otherwise indicated, information
contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and
market position, market opportunity and market share, is based on information from our own management estimates and research,
as well as from industry and general publications and research, surveys and studies conducted by third parties. Management estimates
are derived from publicly available information, our knowledge of our industry and assumptions based on such information and knowledge,
which we believe to be reasonable. Our management estimates have not been verified by any independent source, and we have not
independently verified any third-party information. In addition, assumptions and estimates of our and our industry’s future
performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described
in “Risk Factors.” These and other factors could cause our future performance to differ materially from our assumptions
and estimates. See “Cautionary Note Regarding Forward-Looking Statements.”
This prospectus contains references to
our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names
referred to in this prospectus may appear without the
®
or
TM
symbols, but such references are not intended
to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the
applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names,
trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
PROSPECTUS
SUMMARY
This summary highlights selected information
contained in greater detail elsewhere in this prospectus or incorporated by reference into this prospectus. This summary may not
contain all of the information that you should consider before investing in the Preferred Stock and the warrants. You should read
this entire prospectus carefully, including the sections entitled “Risk Factors” and “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” and our historical financial statements and related notes
included elsewhere in this prospectus before making an investment decision. In this prospectus, unless the context requires otherwise,
all references to “we,” “our” and “us” refer to InspireMD, Inc., a publicly traded Delaware
corporation, and its direct and indirect subsidiaries, including InspireMD Ltd., unless the context requires otherwise.
Unless otherwise indicated, all information
in this prospectus reflects a one-for-ten reverse stock split of our common stock that occurred on October 1, 2015.
Overview
We are a medical device company focusing
on the development and commercialization of our proprietary MicroNet™ stent platform technology for the treatment of complex
vascular and coronary disease. A stent is an expandable “scaffold-like” device, usually constructed of a metallic
material, that is inserted into an artery to expand the inside passage and improve blood flow. Our MicroNet, a micron mesh sleeve,
is wrapped over a stent to provide embolic protection in stenting procedures.
Our CGuard™ carotid embolic prevention
system (“CGuard EPS”) combines our MicroNet mesh and a self-expandable nitinol stent in a single device for use in
carotid artery applications. Our CGuard EPS received CE mark approval in the European Union in March 2013, and we launched its
release on a limited basis in October 2014. In January 2015, a new version of CGuard, with a rapid exchange delivery system, received
CE mark approval in Europe and in September 2015, we announced the full market launch of CGuard EPS in Europe through a distribution
agreement with Penumbra, Inc. In September 2015, we also received regulatory approval to commercialize CGuard EPS in Argentina
and Colombia. Following the receipt of such regulatory approval, we launched CGuard EPS in Argentina in the first quarter of 2016
and Colombia in the fourth quarter of 2015.
Our MGuard™ Prime™ Embolic
Protection System (“MGuard Prime EPS”) is marketed for use in patients with acute coronary syndromes, notably acute
myocardial infarction (heart attack) and saphenous vein graft coronary interventions (bypass surgery). MGuard Prime EPS combines
the MicroNet with a bare-metal cobalt-chromium based stent and, together with our first generation MGuard stent combining the
MicroNet with a bare-metal stainless steel stent, unless otherwise indicated, we refer to both kinds of bare-metal stents as MGuard
coronary products. We market and sell MGuard Prime EPS for the treatment of coronary disease in the European Union. MGuard Prime
EPS received CE mark approval in the European Union in October 2010 for improving luminal diameter and providing embolic protection.
However, as a result of a shift in industry preferences away from bare-metal stents in favor of drug-eluting (drug-coated) stents,
in 2014 we decided to curtail further development of this product in order to focus on the development of a drug-eluting stent
product, MGuard DES™. Due to limited resources, though, our efforts have been limited to testing drug-eluting stents manufactured
by potential partners for compatibility and incorporating our MicroNet in-house onto a drug-eluting stent manufactured by a potential
partner.
We are also developing a neurovascular
flow diverter, which is an endovascular device that directs blood flow away from cerebral aneurysms in order to ultimately seal
the aneurysms. Our flow diverter would utilize an open cell, highly flexible metal scaffold to which MicroNet would be attached.
We have commenced initial pre-clinical testing of this product in both simulated bench models and standard in vivo pre-clinical
models.
We also intend to develop a pipeline of
other products and additional applications by leveraging our MicroNet technology to new applications to improve peripheral vascular
and neurovascular procedures, such as the treatment of the superficial femoral artery disease, vascular disease below the knee
and neurovascular stenting to open diseased vessels in the brain.
Presently, none of our products may be
sold or marketed in the United States.
During the first quarter of 2015, we implemented
a cost reduction/focused spending plan. The plan has four components: (i) reducing headcount; (ii) limiting the focus of clinical
and development expenses to only carotid and neurovascular products; (iii) limiting sales and marketing expenses to those related
to the CGuard™ EPS stent launch; and (iv) reducing all other expenses (including conferences, travel, promotional expenses,
executive cash salaries, director cash fees, rent, etc.). In addition, we decided to alter our commercial strategy by using third
party distributors to drive future sales, as opposed to direct sales to hospitals and clinics, which had previously been our focus.
Recent
Developments
On March 21, 2016, we sold 1,900,000 shares
of our common stock and warrants to purchase 950,000 shares of our common stock in a public offering. Each purchaser received
a warrant to purchase one half of one share of common stock for each share of common stock that it purchased in the offering.
The warrants are exercisable immediately and have a term of exercise of 5 years from the date of issuance and an exercise price
of $0.59. This offering resulted in gross proceeds to us of approximately $1.1 million, before deducting the underwriting discount
and estimated offering expenses.
On March 21, 2016, we sold 1,033,051 shares
of our common stock and warrants to purchase 516,526 shares of our common stock in a private placement. Each purchaser received
a warrant to purchase one half of one share of common stock for each share of common stock that it purchased in the private placement.
The warrants are exercisable immediately and have a term of exercise of 5 years from the date of issuance and an exercise price
of $0.59. This private placement resulted in gross proceeds to us of approximately $0.6 million, before deducting placement agent
fees and estimated offering expenses.
These sales of securities on March 21,
2016, resulted in aggregate net proceeds to us of approximately $1.4 million, after deducting underwriting discount, placement
agent fees and other offering expenses.
Growth Strategy
Our primary business objective is to utilize
our proprietary technology to become the industry standard for treatment of complex vascular and coronary disease and to provide
a superior solution to the common acute problems caused by current stenting procedures, such as restenosis, embolic showers and
late thrombosis. We are pursuing the following business strategies in order to achieve this objective.
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Grow
our presence in existing and new markets for CGuard EPS.
We have fully launched
CGuard EPS in most European and Latin American countries, through a combination of distributor
sales organizations as well as a partnership with Penumbra, Inc., a global interventional
therapies company focused on the neuro and peripheral vascular specialties, to distribute
CGuard EPS in Europe in 18 European countries. We are also pursuing additional registrations
and contracts in other countries in Europe, Asia and Latin America.
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Continue
to leverage MicroNet technology to develop additional applications for interventional
cardiologists and vascular surgeons.
In addition to the applications described
above, we believe that we will eventually be able to utilize our proprietary technology
to address imminent market needs for new product innovations to significantly improve
patients’ care. We continue to broadly develop and protect intellectual property
using our mesh technology. Examples of some areas include peripheral vascular disease,
neurovascular disease, renal artery disease, and bifurcation disease.
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Establish
relationships with collaborative and development partners to fully develop and market
our existing and future products.
We are seeking strategic partners for collaborative
research, development, marketing, distribution, or other agreements, which could assist
with our development and commercialization efforts for CGuard EPS and our NGuard flow
diverter, as well as future efforts with MGuard Prime EPS, MGuard DES, and other potential
products that are based on our MicroNet technology.
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Continue
to protect and expand our portfolio of patents.
Our MicroNet technology and
the use of patents to protect it are critical to our success. We own numerous patents
for our MicroNet technology. Twelve separate patent applications have been filed in the
United States some of which have corresponding patent applications and/or issued patents
in Canada, China, Europe, Israel, India, and South Africa. We believe these patents and
patent applications collectively cover all of our existing products, and may be useful
for protecting our future technology developments. We intend to aggressively continue
patenting new technology, and to actively pursue any infringement covered by any of our
patents. We believe that our patents, and patent applications once allowed, are important
for maintaining the competitive differentiation of our products and maximizing our return
on research and development investments.
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Resume
development and successfully commercialize the next generation of drug-eluting stent
incorporating MicroNet.
While we have limited the focus of product development
to carotid and neurovascular products, if we resume development of our coronary products,
we plan to evaluate opportunities to further develop a drug-eluting stent that incorporates
MicroNet.
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Risks
Associated with Our Business
Our ability to operate our business and
achieve our goals and strategies is subject to numerous risks as discussed more fully in the section titled “Risk Factors,”
including, without limitation:
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our
history of recurring losses and negative cash flows from operating activities, significant
future commitments and the uncertainty regarding the adequacy of our liquidity to pursue
our complete business objectives, and substantial doubt regarding our ability to continue
as a going concern;
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•
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our
need to raise additional capital to meet our business requirements in the future and
such capital raising may be costly or difficult to obtain and could dilute out stockholders’
ownership interests;
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our
ability to generate revenues from our products and obtain and maintain regulatory approvals
for our products;
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our
ability to adequately protect our intellectual property;
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our
dependence on a single manufacturing facility and our ability to comply with stringent
manufacturing quality standards and to increase production as necessary;
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the
risk that the data collected from our current and planned clinical trials may not be
sufficient to demonstrate that the our technology is an attractive alternative to other
procedures and products;
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intense
competition in our industry, with competitors having substantially greater financial,
technological, research and development, regulatory and clinical, manufacturing, marketing
and sales, distribution and personnel resources than we do;
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entry
of new competitors and products and potential technological obsolescence of our products;
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loss
of a key customer or supplier;
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technical
problems with our research and products and potential product liability claims;
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adverse
economic conditions;
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adverse
federal, state and local government regulation, in the United States, Europe, Israel
and other foreign jurisdictions;
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price
increases for supplies and components;
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inability
to carry out research, development and commercialization plans; and
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loss
or retirement of key executives and research scientists.
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Corporate Information
We were organized in the State of Delaware
on February 29, 2008. Our principal executive offices are located at 321 Columbus Avenue, Boston, Massachusetts 02116. Our telephone
number is (857) 305-2410. Our website address is
www.inspire-md.com
. Information accessed through our website is not incorporated
into this prospectus and is not a part of this prospectus.
The
Offering
Issuer
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InspireMD, Inc.
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Securities offered by us in this offering
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Up to 397,298 shares of our Preferred Stock, par value $0.0001 per share (39,729,800 shares
of common stock issuable upon conversion of the Preferred Stock and payment of all dividends accrued on the Preferred Stock
in an aggregate of 29,797,350 shares of common stock upon conversion of the Preferred Stock at an assumed conversion price
of $0.37 and an assumed stated value per share of $37).
(1)
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A warrant to purchase 100 shares of common stock will be issued for
every one share of Preferred Stock sold in this offering (39,729,800 shares of our common
stock issuable upon exercise of the warrants).
(1)
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Preferred Stock offered by us
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Up to 397,298 shares of our Preferred Stock will be offered in this
offering. This prospectus also relates to the offering of the shares of common stock issuable
upon conversion of the Preferred Stock.
(1)
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Conversion
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Our Preferred Stock is convertible into shares of our
common stock at a conversion price equal to the public offing price per share, or $ ,
subject to adjustment as provided in the certificate of designation, at any time at the
option of the holder prior to the fifth anniversary of the date of issuance, at which
time all shares of outstanding Preferred Stock shall automatically and without any further
action by the holder be converted into shares of our common stock at the then effective
conversion price, provided that the holder will be prohibited from converting Preferred
Stock into shares of our common stock if, as a result of such conversion, the holder,
together with its affiliates, would own more than 4.99% of the total number of shares
of our common stock then issued and outstanding. However, any holder may increase or
decrease such percentage to any other percentage not in excess of 9.99%, provided that
any increase in such percentage shall not be effective until 61 days after such notice
to us.
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The Preferred Stock, to the extent that
it has not been converted previously, is subject to full ratchet anti-dilution price protection upon the issuance of equity or
equity-linked securities at an effective common stock purchase price of less than the conversion price then in effect, subject
to adjustment as provided in the certificate of designation.
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Liquidation preference
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In the event of our liquidation, dissolution, or winding up, holders
of our Preferred Stock will be entitled to receive the amount of cash, securities or other
property to which such holder would be entitled to receive with respect to such shares of
Preferred Stock if such shares had been converted to common stock immediately prior to such
event (without giving effect for such purposes to any beneficial ownership limitation), subject
to the preferential rights of holders of any class or series of our capital stock specifically
ranking by its terms senior to the Preferred Stock as to distributions of assets upon such
event, whether voluntarily or involuntarily.
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Voting Rights
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The holders of the Preferred Stock have no voting rights, except
as required by law. Any amendment to our certificate of incorporation, bylaws or certificate of designation that adversely affects
the powers, preferences and rights of the Preferred Stock requires the approval of the holders of a majority of the shares of
Preferred Stock then outstanding.
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Dividends
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The holders
of Preferred Stock will be entitled to receive cumulative dividends at the rate per share of 15% per
annum of the stated value per share, until the fifth anniversary of the date of issuance of the Preferred
Stock. The dividends become payable, at our option, in either cash, out of any funds legally available
for such purpose, or in shares of common stock, (i) upon any conversion of the Preferred Stock, (ii)
on each such other date as our board of directors may determine, subject to written consent of the
holders of Preferred Stock holding a majority of the then issued and outstanding Preferred Stock, (iii)
upon our liquidation, dissolution or winding up, and (iv) upon occurrence of a fundamental transaction,
including any merger or consolidation, sale of all or substantially all of our assets, exchange or
conversion of all of our common stock by tender offer, exchange offer or reclassification; provided,
however, that if Preferred Stock is converted into shares of common stock at any time prior to the
fifth anniversary of the date of issuance of the Preferred Stock, the holder will receive a make-whole
payment in an amount equal to all of the dividends that, but for the early conversion, would have otherwise
accrued on the applicable shares of Preferred Stock being converted for the period commencing on the
conversion date and ending on the fifth anniversary of the date of issuance, less the amount of all
prior dividends paid on such converted Preferred Stock before the date of conversion. Make-whole payments
are payable at our option in either cash, out of funds legally available for such purpose, or in shares
of common stock.
With respect to any dividend payments
and make-whole payments paid in shares of common stock, the number of shares of common stock to be issued to a holder
of Preferred Stock will be an amount equal to the quotient of (i) the amount of the dividend payable to such holder divided
by (ii) the conversion price then in effect.
Our loan and security agreement
with Hercules Capital, Inc. (formerly Hercules Technology Growth Capital, Inc.), dated October 23, 2013, as amended, prohibits
us from paying cash dividends or distributions on our capital stock.
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Warrants offered by us
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Warrants to purchase up to 39,729,800 shares of our common stock.
Each warrant will be immediately exercisable, have an assumed exercise price of $0.22 per
share of common stock, the midpoint of the exercise price range on the front cover of this
prospectus, and will expire five years from the date of issuance. We, with the consent of
the warrant holders holding all of the then outstanding warrants, may increase the exercise
price, shorten the expiration date and amend all other warrant terms. We may lower
the exercise price or extend the expiration date without the consent of investors. See “Description
of Securities” for more information. This prospectus also relates to the offering of
the shares of common stock issuable upon exercise of the warrants.
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Common stock outstanding immediately before this offering
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10,701,320 shares
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Common
stock outstanding immediately after this offering
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80,228,470 shares (assuming sale of all shares covered by this prospectus,
conversion of 397,298 shares of Preferred Stock into 39,729,800 shares of common stock and payment of all dividends accrued
on the Preferred Stock in an aggregate of 29,797,350 shares of common stock upon conversion of the Preferred Stock at an assumed
conversion price of $0.37 and an assumed stated value per share of $37, and no exercise of any of the warrants offered hereby).
(1)
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Use of proceeds
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We estimate that our net proceeds from this offering will be approximately
$13,235,000, after deducting estimated placement agent fees and other estimated offering expenses
payable by us (assuming the sale of all shares covered by this prospectus and no exercise
of any of the warrants offered hereby).
(1)
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We plan to use the
net proceeds of this offering (i) to pay an aggregate amendment fee of $117,333 to holders of our currently outstanding warrants
with an exercise price of $72.00 per share, as consideration for entering into an amendment to the securities purchase agreement,
dated April 5, 2012, as amended, to remove certain provisions prohibiting issuance of securities containing anti-dilution
protective provisions, and (ii) to conduct sales activities related to CGuard EPS and MGuard Prime EPS and develop our pipeline
of new products. Any balance of the net proceeds will be used for general corporate purposes. See “Use of Proceeds.”
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Dividend policy
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We have not declared or paid any cash or other dividends on our capital
stock, and we do not expect to declare or pay any cash or other dividends in the foreseeable
future other than on the Preferred Stock. See “Dividend Policy.”
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Risk factors
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You should carefully
read and consider the information beginning on page 7 of this prospectus set forth under the heading “Risk Factors”
and all other information set forth in this prospectus and the documents incorporated herein and therein by reference before
deciding to invest in our Preferred Stock and warrants.
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NYSE MKT symbol for common stock
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NSPR.
Following
completion of this offering, we intend to apply to list the warrants on the NYSE MKT. No assurance can be given
that such listing will be approved.
The Preferred Stock
will not be listed on the NYSE MKT or any other exchange or trading market. There is no established trading market for the
Preferred Stock or warrants. We do not expect any such trading market to develop for the Preferred Stock. An
active trading market for our warrants may not develop following the completion of this offering or, if developed, may not
be sustained.
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(1)
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Based on an assumed offering price of $37
per share of Preferred Stock (which is 100 times $0.37, the last reported sales price of our common stock on June 28, 2016).
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The number of shares to be outstanding
immediately before and immediately after this offering is based on 10,701,320 shares of our common stock outstanding as of June
28, 2016 and excludes as of that date:
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91,399
shares of common stock issuable upon the exercise of currently outstanding warrants with
an exercise price of $72.00 per share;
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65,912
shares of common stock issuable upon the exercise of currently outstanding warrants with
an exercise price of $30.00 per share;
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16,836
shares of common stock issuable upon the exercise of currently outstanding warrants with
an exercise price of $29.70 per share;
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313,100
shares of common stock issuable upon the exercise of currently outstanding warrants to
purchase one-half of one share of common stock with an exercise price for two warrants
of $17.50 per full share;
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3,436,973
shares of common stock issuable upon the exercise of currently outstanding warrants with
an exercise price of $5.50 per share;
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1,466,526
shares of common stock issuable upon the exercise of currently outstanding warrants with
an exercise price of $0.59 per share;
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146,653
shares of common stock issuable upon the exercise of currently outstanding warrants with
an exercise price of $0.7375 per share;
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shares
of common stock issuable upon the exercise of currently outstanding warrant issued to
Hercules Capital, Inc. on June 13, 2016, equal to $182,399.30, divided by (i) the lowest
effective price per share, determined on a common stock-equivalent basis, for which our
equity securities are sold and issued by us in an equity financing in which we receive
unrestricted aggregate gross cash proceeds of at least $7.5 million, subject to adjustment
from time to time in accordance with the terms of the warrant agreement, or (ii) if such
equity financing shall not have been consummated on or before July 30, 2016, or if, prior
to the consummation of such equity financing, there shall be a transaction involving
a change of control or a dissolution, liquidation or winding-up, then the closing price
of a share of our common stock on June 13, 2016, subject to adjustment thereafter from
time to time;
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2,781,000
shares of common stock issuable upon conversion of the Preferred Stock and exercise of
the warrants to purchase common stock included in the unit purchase option that we have
agreed to issue to the placement agent or its designees in this offering, assuming the
sale of all shares covered by this prospectus, at a price per share equal to 125% of
the public offering price in this offering;
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1,042,875
shares of common stock issuable as cumulative dividends upon conversion of the Preferred
Stock included in the unit purchase option that we have agreed to issue to the placement
agent or its designees in this offering, assuming the sale of all shares covered by this
prospectus;
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1,056,852
shares of common stock issuable upon the exercise of currently outstanding options with
exercise prices ranging from $0.0001 to $84.00 and having a weighted average exercise
price of $8.64 per share;
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10,122
shares of common stock available for future issuance under our 2011 UMBRELLA Option Plan;
and
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10,212,129
shares of common stock available for future issuance under our 2013 Long-Term Incentive
Plan.
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Unless otherwise stated, all information
contained in this prospectus assumes no exercise of the warrants issued in this offering.
Certain of our directors have indicated
an interest in purchasing an aggregate of up to approximately $1,250,000 in Preferred Stock and accompanying
warrants in this offering at the offering price. However, because indications of interest are not binding agreements or commitments
to purchase, these directors may determine to purchase fewer shares than they indicate an interest in purchasing or not to purchase
any shares in this offering.
RISK FACTORS
An investment in our securities involves
a high degree of risk. Before deciding whether to invest in our securities, you should consider carefully the risks described
below, together with other information in this prospectus, the information and documents incorporated by reference, and in any
free writing prospectus that we have authorized for use in connection with this offering. If any of these risks actually occurs,
our business, financial condition, results of operations or cash flow could be seriously harmed. This could cause the trading
price of our common stock to decline, resulting in a loss of all or part of your investment. The risks and uncertainties described
below are not the only ones facing us. Additional risks and uncertainties not presently known to us, or that we currently see
as immaterial, may also harm our business. Please also read carefully the section below entitled “Cautionary Note Regarding
Forward-Looking Statements.”
Risks Related to Our Business
We have a history of net losses
and may experience future losses.
We have yet to establish any history of
profitable operations. We reported a net loss of $15.6 million for the fiscal year ended December 31, 2015 and had a net loss
of approximately $25 million during the fiscal year ended December 31, 2014. As of March 31, 2016, we had an accumulated deficit
of $126 million. We expect to incur additional operating losses for the foreseeable future. There can be no assurance that we
will be able to achieve sufficient revenues throughout the year or be profitable in the future.
The report of our independent registered
public accounting firm contains an explanatory paragraph as to our ability to continue as a going concern, which could prevent
us from obtaining new financing on reasonable terms or at all.
Because we have had recurring losses and
negative cash flows from operating activities, substantial doubt exists regarding our ability to remain as a going concern at
the same level at which we are currently performing. Accordingly, the report of Kesselman & Kesselman, our independent registered
public accounting firm, with respect to our financial statements at December 31, 2015, includes an explanatory paragraph expressing
substantial doubt about our ability to continue as a going concern. The doubts regarding our potential ability to continue as
a going concern may adversely affect our ability to obtain new financing on reasonable terms or at all.
We will need to raise additional
capital to meet our business requirements in the future and such capital raising may be costly or difficult to obtain and could
dilute out stockholders’ ownership interests.
In order to fully realize all of our business
objectives, absent any non-dilutive funding from a strategic partner or some other strategic transactions, we will need to raise
additional capital following the completion of this offering, which additional capital may not be available on reasonable terms
or at all. For instance, we will need to raise additional funds to accomplish the following:
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development
of our current and future products.
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pursuing
growth opportunities, including more rapid expansion;
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making
capital improvements to improve our infrastructure;
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hiring
and retaining qualified management and key employees;
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responding
to competitive pressures;
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complying
with regulatory requirements such as licensing and registration; and
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maintaining
compliance with applicable laws.
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Any additional capital raised through
the sale of equity or equity-backed securities may dilute our stockholders’ ownership percentages and could also result
in a decrease in the market value of our equity securities.
The terms of any securities issued by
us in future capital transactions may be more favorable to new investors, and may include preferences, superior voting rights
and the issuance of warrants or other derivative securities, which may have a further dilutive effect on the holders of any of
our securities then outstanding.
Furthermore, any additional debt or equity
financing that we may need may not be available on terms favorable to us, or at all. In connection with this offering, we will
enter into a placement agency agreement with Dawson James Securities, Inc., which will contain a restriction on sales of our capital
stock by us for a period of 180 days after the date of the placement agency agreement. If we are unable to obtain such additional
financing on a timely basis, we may have to curtail our development activities and growth plans and/or be forced to sell assets,
perhaps on unfavorable terms, which would have a material adverse effect on our business, financial condition and results of operations,
and ultimately could be forced to discontinue our operations and liquidate, in which event it is unlikely that stockholders would
receive any distribution on their shares. Further, we may not be able to continue operating if we do not generate sufficient revenues
from operations needed to stay in business.
In addition, we may incur substantial
costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance
fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection
with certain securities we issue, such as convertible notes and warrants, which may adversely impact our financial condition.
The voluntary field action of our
MGuard Prime EPS we initiated in 2014 could continue to have a significant adverse impact on us.
The manufacturing and marketing of medical
devices involves an inherent risk that our products may prove to be defective and cause a health risk even after regulatory clearances
have been obtained. Medical devices may also be modified after regulatory clearance is obtained to such an extent that additional
regulatory clearance is necessary before the device can be further marketed. In these events, we may voluntarily implement a recall
or market withdrawal or may be required to do so by a regulatory authority.
On April 30, 2014 we initiated a voluntary
field corrective action of our MGuard Prime EPS to address the issue of stent retention following reports of MGuard Prime EPS
stent dislodgements in patients. Although there have been no reports of death or serious injury as a result of such dislodgements,
we decided to suspend shipments of the MGuard Prime EPS and implement a field corrective action to enhance the reliability and
performance of the affected product units in the field. We received European regulatory approval to resume manufacturing and distribution
of our MGuard Prime EPS stent with a modified stent securement process, and we began shipping products to new customers in our
direct markets in Western Europe in late September 2014. We completed the full re-launch of MGuard Prime EPS in 2015, with the
exception of Russia.
As a result of our voluntary field action,
we are subject to numerous risks and uncertainties, including the following:
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although
we resumed manufacturing and distribution of our MGuard Prime EPS stent with a modified
stent securement process, our suspension of shipments has and may continue to adversely
impact revenue;
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we
are more susceptible to claims such as product liability claims, distributor claims and
class action lawsuits as a result of the reported product malfunction and voluntary field
action, which could significantly increase our costs and may have a material adverse
effect on our business, financial condition and results of operations;
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our
decision to implement the voluntary field action and discontinue shipments, and any additional
action related to such decision, may harm our reputation or the market’s perception
of our products, which could have a negative impact on our future sales and our ability
to generate profits.
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In the European Economic Area, we must
comply with the EU Medical Device Vigilance System. Under this system, manufacturers are required to take Field Safety Corrective
Actions (“FSCAs”) to reduce a risk of death or serious deterioration in the state of health associated with the use
of a medical device that is already placed on the market. A FSCA may include the recall, modification, exchange, destruction or
retrofitting of the device. FSCAs must be communicated by the manufacturer or its legal representative to its customers and/or
to the end users of the device through Field Safety Notices.
Any adverse event involving our products
could result in other future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as
inspection or enforcement action. Adverse events, such as the MGuard Prime EPS stent dislodgements, have been reported to us in
the past, and we cannot guarantee that they will not occur in the future. Any corrective action, whether voluntary or involuntary,
as well as defending ourselves in a lawsuit, would require the dedication of our time and capital, distract management from operating
our business and could harm our reputation and financial results.
In addition to the foregoing, since we
initiated our voluntary field action we have received a demand from one distributor that we refund approximately $160,000 in lieu
of receiving refitted product and a demand from a second distributor to provide unspecified compensation for pre-paid goods subject
to the voluntary field action, related costs and any third claims. We do not believe that these distributors are entitled to any
compensation or refunds due to the voluntary field action and we intend to defend ourselves against any such claims, however,
regarding the demand from the second distributor, we believe that a loss from any related future proceedings that could range
from a minimal amount up to 1,075,000 Euros is reasonably possible. While we are disputing these claims, should an action be filed
we could be forced to pay damages which could result in a material adverse effect on our business.
We expect to derive our revenue
from sales of our MGuard Prime EPS and CGuard EPS stent products and other products we may develop, such as NGuard. If we fail
to generate revenue from these sources, our results of operations and the value of our business would be materially and adversely
affected.
We expect our revenue to be generated
from sales of our MGuard Prime EPS and CGuard EPS stent products and other products we may develop. Future sales of CGuard EPS
will be subject to the receipt of regulatory approvals and commercial and market uncertainties that may be outside our control.
In addition, sales of MGuard Prime EPS have been hampered by weakened demand for bare metal stents, which may never improve, and
we may not be successful in developing a drug-eluting stent product. In addition, there may be insufficient demand for other products
we are seeking to develop, such as NGuard. If we fail to generate expected revenues from these products, our results of operations
and the value of our business and securities would be materially and adversely affected.
If we are unable to obtain and maintain
intellectual property protection covering our products, others may be able to make, use or sell our products, which would adversely
affect our revenue.
Our ability to protect our products from
unauthorized or infringing use by third parties depends substantially on our ability to obtain and maintain valid and enforceable
patents. Similarly, the ability to protect our trademark rights might be important to prevent third party counterfeiters from
selling poor quality goods using our designated trademarks/trade names. Due to evolving legal standards relating to the patentability,
validity and enforceability of patents covering medical devices and pharmaceutical inventions and the scope of claims made under
these patents, our ability to enforce patents is uncertain and involves complex legal and factual questions. Accordingly, rights
under any of our pending patent applications and patents may not provide us with commercially meaningful protection for our products
or may not afford a commercial advantage against our competitors or their competitive products or processes. In addition, patents
may not be issued from any pending or future patent applications owned by or licensed to us, and moreover, patents that may be
issued to us now or in the future may not be valid or enforceable. Further, even if valid and enforceable, our patents may not
be sufficiently broad to prevent others from marketing products like ours, despite our patent rights.
The validity of our patent claims depends,
in part, on whether prior art references exist that describe or render obvious our inventions as of the filing date of our patent
applications. We may not have identified all prior art, such as U.S. and foreign patents or published applications or published
scientific literature, that could adversely affect the patentability of our pending patent applications. For example, some material
references may be in a foreign language and may not be uncovered during examination of our patent applications. Additionally,
patent applications in the United States are maintained in confidence for up to 18 months after their filing. In some cases, however,
patent applications remain confidential in the U.S. Patent and Trademark Office for the entire time prior to issuance as a U.S.
patent. Patent applications filed in countries outside the U.S. are not typically published until at least 18 months from their
first filing date. Similarly, publication of discoveries in the scientific or patent literature often lags behind actual discoveries.
Therefore, we cannot be certain that we were the first to invent, or the first to file patent applications relating to, our stent
technologies. In the event that a third party has also filed a U.S. patent application covering our stents or a similar invention,
we may have to participate in an adversarial proceeding, known as an interference, declared by the U.S. Patent and Trademark Office
to determine priority of invention in the United States It is possible that we may be unsuccessful in the interference, resulting
in a loss of some portion or all of our position in the United States.
In addition, statutory differences in
patentable subject matter depending on the jurisdiction may limit the protection we obtain on certain of the technologies we develop.
The laws of some foreign jurisdictions do not offer the same protection to, or may make it more difficult to effect the enforcement
of, proprietary rights as in the United States, risk that may be exacerbated if we move our manufacturing to certain countries
in Asia. If we encounter such difficulties or are otherwise precluded from effectively protecting our intellectual property rights
in any foreign jurisdictions, our business prospects could be substantially harmed.
We may initiate litigation to enforce
our patent rights on any patents issued on pending patent applications, which may prompt adversaries in such litigation to challenge
the validity, scope, ownership, or enforceability of our patents. Third parties can sometimes bring challenges against a patent
holder to resolve these issues, as well. If a court decides that any such patents are not valid, not enforceable, not wholly owned
by us, or are of a limited scope, we may not have the right to stop others from using our inventions. Also, even if our patent
rights are determined by a court to be valid and enforceable, they may not be sufficiently broad to prevent others from marketing
products similar to ours or designing around our patents, despite our patent rights, nor do they provide us with freedom to operate
unimpeded by the patent and other intellectual property rights of others that may cover our products. We may be forced into litigation
to uphold the validity of the claims in our patent portfolio, as well as our ownership rights to such intellectual property, and
litigation is often an uncertain and costly process.
We also rely on trade secret protection
to protect our interests in proprietary know-how and for processes for which patents are difficult to obtain or enforce. We may
not be able to protect our trade secrets adequately. In addition, we rely on non-disclosure and confidentiality agreements with
employees, consultants and other parties to protect, in part, trade secrets and other proprietary technology. These agreements
may be breached and we may not have adequate remedies for any breach. Moreover, others may independently develop equivalent proprietary
information, and third parties may otherwise gain access to our trade secrets and proprietary knowledge. Any disclosure of confidential
data into the public domain or to third parties could allow competitors to learn our trade secrets and use the information in
competition against us.
If our manufacturing facilities
are unable to provide an adequate supply of products, our growth could be limited and our business could be harmed.
We currently manufacture our MGuard Prime
EPS and CGuard EPS products at our facility in Tel Aviv, Israel. If there were a disruption to our existing manufacturing facility,
we would have no other means of manufacturing our MGuard Prime EPS or CGuard EPS stents until we were able to restore the manufacturing
capability at our facility or develop alternative manufacturing facilities. If we were unable to produce sufficient quantities
of our MGuard Prime EPS or CGuard EPS stents to meet market demand or for use in our current and planned clinical trials, or if
our manufacturing process yields substandard stents, our development and commercialization efforts would be delayed.
Additionally, any damage to or destruction
of our Tel Aviv facility or its equipment, prolonged power outage or contamination at our facility would significantly impair
our ability to produce either MGuard Prime EPS or Cguard EPS stents.
Finally, the production of our stents
must occur in a highly controlled, clean environment to minimize particles and other yield and quality-limiting contaminants.
In spite of stringent quality controls, weaknesses in process control or minute impurities in materials may cause a substantial
percentage of defective products in a lot. If we are unable to maintain stringent quality controls, or if contamination problems
arise, our clinical development and commercialization efforts could be delayed, which would harm our business and results of operations.
Pre-clinical and clinical trials
will be lengthy and expensive, and any delay or failure of clinical trials could prevent us from commercializing our MicroNet
products, which would materially and adversely affect our results of operations and the value of our business.
As part of the regulatory process, we
must conduct clinical trials for each product candidate to demonstrate safety and efficacy to the satisfaction of the regulatory
authorities, including, if we seek in the future to sell our products in the United States, the U.S. Food and Drug Administration.
Clinical trials are subject to rigorous regulatory requirements and are expensive and time-consuming to design and implement.
They require the enrollment of a large number of patients, and suitable patients may be difficult to identify and recruit, which
may cause a delay in the development and commercialization of our product candidates. In some trials, a greater number of patients
and a longer follow-up period may be required. Patient enrollment in clinical trials and the ability to successfully complete
patient follow-up depends on many factors, including the size of the patient population, the nature of the trial protocol, the
proximity of patients to clinical sites, the eligibility criteria for the clinical trial and patient compliance. For example,
patients may be discouraged from enrolling in our clinical trials if the trial protocol requires them to undergo extensive post-treatment
procedures or follow-up to assess the safety and efficacy of our products, or they may be persuaded to participate in contemporaneous
clinical trials of competitive products. In addition, patients participating in our clinical trials may die before completion
of the trial or suffer adverse medical events unrelated to or related to our products. Delays in patient enrollment or failure
of patients to continue to participate in a clinical trial may cause an increase in costs and delays or result in the failure
of the clinical trial.
In addition, the length of time required
to complete clinical trials for pharmaceutical and medical device products varies substantially according to the degree of regulation
and the type, complexity, novelty and intended use of a product, and can continue for several years and cost millions of dollars.
The commencement and completion of clinical trials for our existing products and those under development may be delayed by many
factors, including governmental or regulatory delays and changes in regulatory requirements, policy and guidelines or our inability
or the inability of any potential licensee to manufacture or obtain from third parties materials sufficient for use in preclinical
studies and clinical trials. In addition, market demand may change for products being tested due to the length of time needed
to complete requisite clinical trials. For example, we decided to discontinue our MASTER II trial notwithstanding the resources
we had spent on the trial due to the change in market demand for bare metal stents.
Physicians may not widely adopt
our products unless they determine, based on experience, long-term clinical data and published peer reviewed journal articles,
that the use of our stents provides a safe and effective alternative to other existing treatments for coronary artery disease
and carotid artery disease.
We believe that physicians will not widely
adopt our products unless they determine, based on experience, long-term clinical data and published peer reviewed journal articles,
that the use of our products provide a safe and effective alternative to other existing treatments for the conditions we are seeking
to address.
If we fail to demonstrate safety and efficacy
that is at least comparable to existing and future therapies available on the market, our ability to successfully market our products
will be significantly limited. Even if the data collected from clinical studies or clinical experience indicate positive results,
each physician’s actual experience with our products will vary. Clinical trials conducted with our products may involve
procedures performed by physicians who are technically proficient and are high-volume stent users of such products. Consequently,
both short-term and long-term results reported in these clinical trials may be significantly more favorable than typical results
of practicing physicians, which could negatively affect rates of adoptions of our products. We also believe that published peer-reviewed
journal articles and recommendations and support by influential physicians regarding our products will be important for market
acceptance and adoption, and we cannot assure you that we will receive these recommendations and support, or that supportive articles
will be published.
Physicians currently consider drug-eluting
stents to be the industry standard for treatment of coronary artery disease. None of our current coronary products is a drug-eluting
stent, and this may adversely affect our business.
Our ability to attract customers depends
to a large extent on our ability to provide goods that meet the customers’ and the market’s demands and expectations.
If we do not have a product that is expected by the market, we may lose customers. The market demand has shifted away from bare
metal stents in favor of drug-eluting stents. Our MGuard Prime EPS is a bare-metal stent product, and we have noticed a reduction
in the sales level of MGuard Prime EPS compared to the sales level we had in the past. Such sales may never recover and we do
not currently have the resources to develop a drug-eluting stent product. Our failure to provide industry standard devices could
adversely affect our business, financial condition and results of operations.
Our products are based on a new
technology, and we have only limited experience in regulatory affairs, which may affect our ability or the time required to navigate
complex regulatory requirements and obtain necessary regulatory approvals, if such approvals are received at all. Regulatory delays
or denials may increase our costs, cause us to lose revenue and materially and adversely affect our results of operations and
the value of our business.
Because our products are new and long-term
success measures have not been completely validated, regulatory agencies may take a significant amount of time in evaluating product
approval applications. Treatments may exhibit a favorable measure using one metric and an unfavorable measure using another metric.
Any change in accepted metrics may result in reconfiguration of, and delays in, our clinical trials. Additionally, we have only
limited experience in filing and prosecuting the applications necessary to gain regulatory approvals, and our clinical, regulatory
and quality assurance personnel are currently composed of only five employees. As a result, we may experience delays in connection
with obtaining regulatory approvals for our products.
In addition, the products we and any potential
licensees license, develop, manufacture and market are subject to complex regulatory requirements, particularly in the United
States, Europe and Asia, which can be costly and time-consuming. There can be no assurance that such approvals will be granted
on a timely basis, if at all. Furthermore, there can be no assurance of continued compliance with all regulatory requirements
necessary for the manufacture, marketing and sale of the products we will offer in each market where such products are expected
to be sold, or that products we have commercialized will continue to comply with applicable regulatory requirements. If a government
regulatory agency were to conclude that we were not in compliance with applicable laws or regulations, the agency could institute
proceedings to detain or seize our products, issue a recall, impose operating restrictions, enjoin future violations and assess
civil and criminal penalties against us, our officers or employees and could recommend criminal prosecution. Furthermore, regulators
may proceed to ban, or request the recall, repair, replacement or refund of the cost of, any device manufactured or sold by us.
Furthermore, there can be no assurance that all necessary regulatory approvals will be obtained for the manufacture, marketing
and sale in any market of any new product developed or that any potential licensee will develop using our licensed technology.
Even if our products are approved
by regulatory authorities, if we or our suppliers fail to comply with ongoing regulatory requirements, or if we experience unanticipated
problems with our products, these products could be subject to restrictions or withdrawal from the market.
Any regulatory approvals that we receive
for our products will require surveillance to monitor the safety and efficacy of the product and may require us to conduct post-approval
clinical studies. In addition, if a regulatory authority approves our products, the manufacturing processes, labeling, packaging,
distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for our products will
be subject to extensive and ongoing regulatory requirements.
Moreover, if we obtain regulatory approval
for any of our products, we will only be permitted to market our products for the indication approved by the regulatory authority,
and such approval may involve limitations on the indicated uses or promotional claims we may make for our products. In addition,
later discovery of previously unknown problems with our products, including adverse events of unanticipated severity or frequency,
or with our suppliers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other
things:
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restrictions
on the marketing or manufacturing of our product candidates, withdrawal of the product
from the market, or voluntary or mandatory product recalls;
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fines,
warning letters, or untitled letters;
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holds
on clinical trials;
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refusal
by the regulatory authority to approve pending applications or supplements to approved
applications filed by us or suspension or revocation of license approvals;
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product
seizure or detention, or refusal to permit the import or export of our product candidates;
and
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injunctions,
the imposition of civil penalties or criminal prosecution.
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The applicable regulatory authorities’
policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval
of our products. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation
or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements
or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing
approval that we may have obtained and we may not achieve or sustain profitability.
Further, healthcare laws and regulations
may change significantly in the future. Any new healthcare laws or regulations may adversely affect our business. A review of
our business by courts or regulatory authorities may result in a determination that could adversely affect our operations. In
addition, the healthcare regulatory environment may change in a way that restricts our operations.
We are subject to federal, state
and foreign healthcare laws and regulations and implementation of or changes to such healthcare laws and regulations could adversely
affect our business and results of operations.
In both the United States and certain
foreign jurisdictions, there have been a number of legislative and regulatory proposals in recent years to change the healthcare
system in ways that could impact our ability to sell our products. If we are found to be in violation of any of these laws or
any other federal or state regulations, we may be subject to administrative, civil and/or criminal penalties, damages, fines,
individual imprisonment, exclusion from federal health care programs and the restructuring of our operations. Any of these could
have a material adverse effect on our business and financial results. Since many of these laws have not been fully interpreted
by the courts, there is an increased risk that we may be found in violation of one or more of their provisions. Any action against
us for violation of these laws, even if we ultimately are successful in our defense, will cause us to incur significant legal
expenses and divert our management’s attention away from the operation of our business.
Failure to obtain regulatory approval
in foreign jurisdictions will prevent us from marketing our products in such jurisdictions.
We market our products in international
markets. In order to market our products in other foreign jurisdictions, we must obtain separate regulatory approvals from those
obtained in the United States and Europe. The approval procedure varies among countries and can involve additional testing, and
the time required to obtain approval may differ from that required to obtain CE mark or U.S. Food and Drug Administration approval.
Foreign regulatory approval processes may include all of the risks associated with obtaining CE mark or U.S. Food and Drug Administration
approval in addition to other risks. We may not obtain foreign regulatory approvals on a timely basis, if at all. CE mark approval
does not ensure approval by regulatory authorities in other countries. We may not be able to file for regulatory approvals and
may not receive necessary approvals to commercialize our products in certain markets.
We operate in an intensely competitive
and rapidly changing business environment, and there is a substantial risk our products could become obsolete or uncompetitive.
The medical device market is highly competitive.
We compete with many medical device companies in the United States and globally in connection with our current products and products
under development. We face competition from numerous pharmaceutical and biotechnology companies in the therapeutics area, as well
as competition from academic institutions, government agencies and research institutions. When we commercialize our products,
we expect to face intense competition from Boston Scientific Corporation, Guidant Corporation, Medtronic, Inc., Abbott Vascular
Devices, Johnson & Johnson, Terumo Corporation, Covidien Ltd., Cordis Corporation and others. Most of our current and potential
competitors, including but not limited to those listed above, have, and will continue to have, substantially greater financial,
technological, research and development, regulatory and clinical, manufacturing, marketing and sales, distribution and personnel
resources than we do. There can be no assurance that we will have sufficient resources to successfully commercialize our products,
if and when they are approved for sale. The worldwide market for stent products is characterized by intensive development efforts
and rapidly advancing technology. Our future success will depend largely upon our ability to anticipate and keep pace with those
developments and advances. Current or future competitors could develop alternative technologies, products or materials that are
more effective, easier to use or more economical than what we or any potential licensee develop. If our technologies or products
become obsolete or uncompetitive, our related product sales and licensing revenue would decrease. This would have a material adverse
effect on our business, financial condition and results of operations.
We may become subject to claims
by much larger and better capitalized competitors seeking to invalidate our intellectual property or our rights thereto.
Based on the prolific litigation that
has occurred in the stent industry and the fact that we may pose a competitive threat to some large and well-capitalized companies
that own or control patents relating to stents and their use, manufacture and delivery, we believe that it is possible that one
or more third parties will assert a patent infringement claim against the manufacture, use or sale of our stents based on one
or more of these patents. These companies also own patents relating to the use of drugs to treat restenosis, stent architecture,
catheters to deliver stents, and stent manufacturing and coating processes and compositions, as well as general delivery mechanism
patents like rapid exchange that might be alleged to cover one or more of our products. A number of stent-related patents are
owned by very large and well-capitalized companies that are active participants in the stent market. In addition, it is possible
that a lawsuit asserting patent infringement, misappropriation of intellectual property, or related claims may have already been
filed against us of which we are not aware. As the number of competitors in the stent market grows and as the geographies in which
we commercially market grow in number and scope, the possibility of patent infringement by us, and/or a patent infringement or
misappropriation claim against us, increases.
These companies have maintained their
position in the market by, among other things, establishing intellectual property rights relating to their products and enforcing
these rights aggressively against their competitors and new entrants into the market. All of the major companies in the stent
and related markets, including Boston Scientific Corporation, C.R. Bard, Inc., W.L. Gore & Associates, Inc. and Medtronic,
Inc., have been repeatedly involved in patent litigation relating to stents since at least 1997. The stent and related markets
have experienced rapid technological change and obsolescence in the past, and our competitors have strong incentives to stop or
delay the introduction of new products and technologies. We may pose a competitive threat to many of the companies in the stent
and related markets. Accordingly, many of these companies will have a strong incentive to take steps, through patent litigation
or otherwise, to prevent us from commercializing our products. Such litigation or claims would divert attention and resources
away from the development and/or commercialization of our product and product development, and could result in an adverse court
judgment that would make it impossible or impractical to sell our products in one or more territories.
If we fail to maintain or establish
satisfactory agreements or arrangements with suppliers or if we experience an interruption of the supply of materials from suppliers,
we may not be able to obtain materials that are necessary to develop our products.
We depend on outside suppliers for certain
raw materials. These raw materials or components may not always be available at our standards or on acceptable terms, if at all,
and we may be unable to locate alternative suppliers or produce necessary materials or components on our own.
Some of the components of our products
are currently provided by only one vendor, or a single-source supplier. For MGuard Prime EPS and CGuard EPS, we depend on MeKo
Laserstrahl-Materialbearbeitung for the laser cutting of the stent, Natec Medical Ltd. for the supply of catheters, and Biogeneral
Inc. for the fiber. We may have difficulty obtaining similar components from other suppliers that are acceptable to the U.S. Food
and Drug Administration or foreign regulatory authorities if it becomes necessary.
If we have to switch to a replacement
supplier, we will face additional regulatory delays and the interruption of the manufacture and delivery of our stents for an
extended period of time, which would delay completion of our clinical trials or commercialization of our products. In addition,
we will be required to obtain prior regulatory approval from the U.S. Food and Drug Administration or foreign regulatory authorities
to use different suppliers or components that may not be as safe or as effective. As a result, regulatory approval of our products
may not be received on a timely basis or at all.
We may be exposed to product liability
claims and insurance may not be sufficient to cover these claims.
We may be exposed to product liability
claims based on the use of any of our products, or products incorporating our licensed technology, in clinical trials. We may
also be exposed to product liability claims based on the sale of any such products following the receipt of regulatory approval.
Product liability claims could be asserted directly by consumers, health-care providers or others. We have obtained product liability
insurance coverage; however such insurance may not provide full coverage for our future clinical trials, products to be sold,
and other aspects of our business. Insurance coverage is becoming increasingly expensive and we may not be able to maintain current
coverage, or expand our insurance coverage to include future clinical trials or the sale of products incorporating our licensed
technology if marketing approval is obtained for such products, at a reasonable cost or in sufficient amounts to protect against
losses due to product liability or at all. A successful product liability claim or series of claims brought against us could result
in judgments, fines, damages and liabilities that could have a material adverse effect on our business, financial condition and
results of operations. We may incur significant expense investigating and defending these claims, even if they do not result in
liability. Moreover, even if no judgments, fines, damages or liabilities are imposed on us, our reputation could suffer, which
could have a material adverse effect on our business, financial condition and results of operations.
We face risks associated with litigation
and claims.
We may, in the future, be involved in
one or more lawsuits, claims or other proceedings. These suits could concern issues including contract disputes, employment actions,
employee benefits, taxes, environmental, health and safety, personal injury and product liability matters. In November 2015, we
received written communication from a service provider to remit payment amounting to $1,965,000. Given the preliminary stage,
our management and legal counsel cannot estimate the outcome of any legal proceedings or settlements related to this communication,
however we believe that neither a court loss nor settlement are probable.
On April 26, 2016, Microbanc, LLC and
Todd Spenla of Microbanc filed suit in New York State Supreme Court against us seeking approximately $2.2 million and 9% of the
amount of stock and warrants sold in 2011 and 2012 in alleged damages relating to certain alleged finders’ fees. See
“Business — Legal Proceedings” for more information. Due to the uncertainties of litigation, however, we can
give no assurance that we will prevail on any claims made against us in any such lawsuit. Also, we can give no assurance that
any other lawsuits or claims brought in the future will not have an adverse effect on our financial condition, liquidity or operating
results.
The successful management of operations
depends on our ability to attract and retain talented personnel.
We depend on the expertise of our senior
management and research personnel, which would be difficult to replace. The loss of the services of any of our senior management
could compromise our ability to achieve our objectives. Furthermore, recruiting and retaining qualified personnel will be crucial
to future success. There can be no assurance that we will be able to attract and retain necessary personnel on acceptable terms
given the competition among medical device, biotechnology, pharmaceutical and healthcare companies, universities and non-profit
research institutions for experienced management, scientists, researchers, sales and marketing and manufacturing personnel. If
we are unable to attract, retain and motivate our key personnel, our operations may be jeopardized and our results of operations
may be materially and adversely affected.
We are an international business,
and we are exposed to various global and local risks that could have a material adverse effect on our financial condition and
results of operations.
We operate globally and develop and manufacture
products in multiple countries. Consequently, we face complex legal and regulatory requirements in multiple jurisdictions, which
may expose us to certain financial and other risks. International sales and operations are subject to a variety of risks, including:
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foreign
currency exchange rate fluctuations;
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greater
difficulty in staffing and managing foreign operations;
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greater
risk of uncollectible accounts;
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longer
collection cycles;
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logistical
and communications challenges;
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potential
adverse changes in laws and regulatory practices, including export license requirements,
trade barriers, tariffs and tax laws;
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changes
in labor conditions;
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burdens
and costs of compliance with a variety of foreign laws;
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political
and economic instability;
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the
escalation of hostilities in Israel, which could impair our ability to manufacture our
products;
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increases
in duties and taxation;
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foreign
tax laws and potential increased costs associated with overlapping tax structures;
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greater
difficulty in protecting intellectual property;
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the
risk of third party disputes over ownership of intellectual property and infringement
of third party intellectual property by our products; and
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general
economic and political conditions in these foreign markets.
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Further, in the past, the State of Israel
and Israeli companies have been subjected to an economic boycott. Several countries still restrict business and trade activity
with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating
results, financial condition or the expansion of our business.
International markets are also affected
by economic pressure to contain reimbursement levels and healthcare costs. Profitability from international operations may be
limited by risks and uncertainties related to regional economic conditions, regulatory and reimbursement approvals, competing
products, infrastructure development, intellectual property rights protection and our ability to implement our overall business
strategy. We expect these risks will increase as we pursue our strategy to expand operations into new geographic markets. We may
not succeed in developing and implementing effective policies and strategies in each location where we conduct business. Any failure
to do so may harm our business, results of operations and financial condition.
If we fail to obtain an adequate
level of reimbursement for our products by third party payors, there may be no commercially viable markets for our product candidates
or the markets may be much smaller than expected.
The availability and levels of reimbursement
by governmental and other third party payors affect the market for our product candidates. The efficacy, safety, performance and
cost-effectiveness of our product candidates and of any competing products will determine the availability and level of reimbursement.
Reimbursement and healthcare payment systems in international markets vary significantly by country, and include both government
sponsored healthcare and private insurance. To obtain reimbursement or pricing approval in some countries, we may be required
to produce clinical data, which may involve one or more clinical trials, that compares the cost-effectiveness of our products
to other available therapies. We may not obtain international reimbursement or pricing approvals in a timely manner, if at all.
Our failure to receive international reimbursement or pricing approvals would negatively impact market acceptance of our products
in the international markets in which those approvals are sought.
We believe that future reimbursement may
be subject to increased restrictions both in the U.S. and in international markets. There is increasing pressure by governments
worldwide to contain health care costs by limiting both the coverage and the level of reimbursement for therapeutic products and
by refusing, in some cases, to provide any coverage for products that have not been approved by the relevant regulatory agency.
Future legislation, regulation or reimbursement policies of third party payors may adversely affect the demand for our products
currently under development and limit our ability to sell our product candidates on a profitable basis. In addition, third party
payors continually attempt to contain or reduce the costs of healthcare by challenging the prices charged for healthcare products
and services. If reimbursement for our products is unavailable or limited in scope or amount or if pricing is set at unsatisfactory
levels, market acceptance of our products would be impaired and future revenues, if any, would be adversely affected.
In the United States and in the
European Union, our business could be significantly and adversely affected by healthcare reform legislation and other administration
and legislative proposals.
The Patient Protection and Affordable
Care Act and the Health Care and Education Reconciliation Act were enacted into law in the United States in March 2010. Certain
provisions of these acts are not yet fully implemented, it may be a number of years before certain provisions are fully implemented,
there remain to be programs and requirements for which the details have not yet been fully established or consequences not fully
understood, and it is unclear what the full impacts will be from the legislation. The legislation levies a 2.3% excise tax, that
began on January 1, 2013, on all sales of any U.S. medical device listed with the U.S. Food and Drug Administration under Section
510(j) of the Federal Food, Drug, and Cosmetic Act and 21 C.F.R. Part 807, unless the device falls within an exemption from the
tax, such as the exemption governing direct retail sale of devices to consumers or for foreign sales of these devices. If we commence
sales of our MGuard Prime EPS or CGuard EPS stent in the United States, this new tax may materially and adversely affect our business
and results of operations. The legislation also focuses on a number of Medicare provisions aimed at improving quality and decreasing
costs. Uncertainties remain regarding what negative unintended consequences these provisions will have on patient access to new
technologies. The Medicare provisions include value-based payment programs, increased funding of comparative effectiveness research,
reduced hospital payments for avoidable readmissions and hospital acquired conditions, and pilot programs to evaluate alternative
payment methodologies that promote care coordination (such as bundled physician and hospital payments). Additionally, the provisions
include a reduction in the annual rate of inflation for hospitals which started in 2011 and the establishment of an independent
payment advisory board to recommend ways of reducing the rate of growth in Medicare spending. We cannot predict what healthcare
programs and regulations will be implemented or changed at the federal or state level in the United States, or the effect of any
future legislation or regulation. However, any changes that lower reimbursements for our products or reduce medical procedure
volumes could adversely affect our business plan to introduce our products in the United States.
On September 26, 2012, the European Commission
adopted a package of legislative proposals designed to replace the existing regulatory framework governing medical devices in
the European Union. These proposals are currently being reviewed by the European Parliament and the Council and may undergo significant
amendments as part of the legislative process. If adopted by the European Parliament and the Council in their present form, these
proposed revisions would, among other things, impose stricter requirements on medical device manufacturers and strengthen the
supervising competences of the competent authorities of European Union Member States and the notified bodies. As a result, if
and when adopted, the proposed new legislation could prevent or delay the CE marking of our products under development or impact
our ability to modify our currently CE marked products on a timely basis. The regulation of advanced therapy medicinal products
is also in continued development in the European Union, with the European Medicines Agency publishing new clinical or safety guidelines
concerning advanced therapy medicinal products on a regular basis. Any of these regulatory changes and events could limit our
ability to form collaborations and our ability to continue to commercialize our products, and if we fail to comply with any such
new or modified regulations and requirements it could adversely affect our business, operating results and prospects.
Risks Related to Operating in Israel
We anticipate being subject to fluctuations
in currency exchange rates because we expect a substantial portion of our revenues will be generated in Euros and U.S. dollars,
while a significant portion of our expenses will be incurred in New Israeli Shekels.
We expect a substantial portion of our
revenues will be generated in U.S. dollars and Euros, while a significant portion of our expenses, principally salaries and related
personnel expenses, is paid in New Israeli Shekels, or NIS. As a result, we are exposed to the risk that the rate of inflation
in Israel will exceed the rate of devaluation of the NIS in relation to the Euro or the U.S. dollar, or that the timing of this
devaluation will lag behind inflation in Israel. Because inflation has the effect of increasing the dollar and Euro costs of our
operations, it would therefore have an adverse effect on our dollar-measured results of operations. The value of the NIS, against
the Euro, the U.S. dollar, and other currencies may fluctuate and is affected by, among other things, changes in Israel’s
political and economic conditions. Any significant revaluation of the NIS may materially and adversely affect our cash flows,
revenues and financial condition. Fluctuations in the NIS exchange rate, or even the appearance of instability in such exchange
rate, could adversely affect our ability to operate our business.
If there are significant shifts
in the political, economic and military conditions in Israel and its neighbors, it could have a material adverse effect on our
business relationships and profitability.
Our sole manufacturing facility and certain
of our key personnel are located in Israel. Our business is directly affected by the political, economic and military conditions
in Israel and its neighbors. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred
between Israel and its Arab neighbors. A state of hostility, varying in degree and intensity, has caused security and economic
problems in Israel. Although Israel has entered into peace treaties with Egypt and Jordan, and various agreements with the Palestinian
Authority, there has been a marked increase in violence, civil unrest and hostility, including armed clashes, between the State
of Israel and the Palestinians since September 2000. The establishment in 2006 of a government in the Gaza Strip by representatives
of the Hamas militant group has created heightened unrest and uncertainty in the region. In mid-2006, Israel engaged in an armed
conflict with Hezbollah, a Shiite Islamist militia group based in Lebanon, and in June 2007, there was an escalation in violence
in the Gaza Strip. From December 2008 through January 2009 and again in November and December 2012, Israel engaged in an armed
conflict with Hamas, which involved missile strikes against civilian targets in various parts of Israel and negatively affected
business conditions in Israel. In July 2014, Israel launched an additional operation against Hamas operatives in the Gaza strip
in response to Palestinian groups launching rockets at Israel. Recent political uprisings and social unrest in Syria are affecting
its political stability, which has led to the deterioration of the political relationship between Syria and Israel and have raised
new concerns regarding security in the region and the potential for armed conflict. Similar civil unrest and political turbulence
is currently ongoing in many countries in the region. The continued political instability and hostilities between Israel and its
neighbors and any future armed conflict, terrorist activity or political instability in the region could adversely affect our
operations in Israel and adversely affect the market price of our shares of common stock. In addition, several countries restrict
doing business with Israel and Israeli companies have been and are today subjected to economic boycotts. The interruption or curtailment
of trade between Israel and its present trading partners could adversely affect our business, financial condition and results
of operations.
In addition, some of our officers or key
employees may be called to active duty at any time under emergency circumstances for extended periods of time. See “—
Our operations could be disrupted as a result of the obligation of certain of our personnel residing in Israel to perform military
service.”
Our operations could be disrupted
as a result of the obligation of certain of our personnel residing in Israel to perform military service.
Some of our officers and employees reside
in Israel and may be required to perform annual military reserve duty. Currently, all male adult citizens and permanent residents
of Israel under the age of 40 (or older, depending on their position with the Israeli Defense Forces reserves), unless exempt,
are obligated to perform military reserve duty annually and are subject to being called to active duty at any time under emergency
circumstances. Our operations could be disrupted by the absence for a significant period of one or more of our key officers and
employees due to military service. Any such disruption could have a material adverse effect on our business, results of operations
and financial condition.
We may not be able to enforce covenants
not-to-compete under current Israeli law.
We have non-competition agreements with
most of our employees, many of which are governed by Israeli law. These agreements generally prohibit our employees from competing
with us or working for our competitors for a specified period following termination of their employment. However, Israeli courts
are reluctant to enforce non-compete undertakings of former employees and tend, if at all, to enforce those provisions for relatively
brief periods of time in restricted geographical areas and only when the employee has unique value specific to that employer’s
business and not just regarding the professional development of the employee. Any such inability to enforce non-compete covenants
may cause us to lose any competitive advantage resulting from advantages provided to us by such confidential information.
We may become subject to claims
for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation and adversely
affect our business.
A significant portion of our intellectual
property has been developed by our Israeli employees in the course of their employment for us. Under the Israeli Patent Law, 5727-1967
(the “Israeli Patent Law”), inventions conceived by an employee during the term and as part of the scope of his or
her employment with a company are regarded as “service inventions,” which belong to the employer, absent a specific
agreement between the employee and employer giving the employee service invention rights. The Israeli Patent Law also provides
that if there is no such agreement between an employer and an employee, the Israeli Compensation and Royalties Committee (the
“C&R Committee”), a body constituted under the Israeli Patent Law, shall determine whether the employee is entitled
to remuneration for his inventions. The C&R Committee (decisions of which have been upheld by the Israeli Supreme Court) has
held that employees may be entitled to remuneration for their service inventions despite having specifically waived any such rights.
Further, the C&R Committee has not yet set specific guidelines regarding the method for calculating this remuneration or the
criteria or circumstances under which an employee’s waiver of his right to remuneration will be disregarded. We generally
enter into intellectual property assignment agreements with our employees pursuant to which such employees assign to us all rights
to any inventions created in the scope of their employment or engagement with us. Although our employees have agreed to assign
to us service invention rights and have specifically waived their right to receive any special remuneration for such assignment
beyond their regular salary and benefits, we may face claims demanding remuneration in consideration for assigned inventions.
As a consequence of such claims, we could be required to pay additional remuneration or royalties to our current or former employees,
or be forced to litigate such claims, which could negatively affect our business.
It may be difficult for investors
in the United States to enforce any judgments obtained against us or some of our directors or officers.
The majority of our assets are located
outside the U.S. In addition, certain of our officers are nationals and/or residents of countries other than the U.S., and all
or a substantial portion of such persons’ assets are located outside the U.S. As a result, it may be difficult for investors
to enforce within the United States any judgments obtained against us or any of our non-U.S. officers, including judgments predicated
upon the civil liability provisions of the securities laws of the U.S. or any state thereof. Additionally, it may be difficult
to assert U.S. securities law claims in actions originally instituted outside of the U.S. Israeli courts may refuse to hear a
U.S. securities law claim because Israeli courts may not be the most appropriate forums in which to bring such a claim. Even if
an Israeli court agrees to hear a claim, it may determine that the Israeli law, and not U.S. law, is applicable to the claim.
Further, if U.S. law is found to be applicable, certain content of applicable U.S. law must be proved as a fact, which can be
a time-consuming and costly process, and certain matters of procedure would still be governed by the Israeli law. Consequently,
you may be effectively prevented from pursuing remedies under U.S. federal and state securities laws against us or any of our
non-U.S. directors or officers.
The tax benefits that are currently
available to us under Israeli law require us to satisfy specified conditions. If we fail to satisfy these conditions, we may be
required to pay increased taxes and would likely be denied these benefits in the future.
InspireMD Ltd. has been granted a “Beneficiary
Enterprise” status by the Investment Center in the Israeli Ministry of Industry Trade and Labor, and we are therefore eligible
for tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959. The main benefit is a two-year exemption
from corporate tax, commencing when we begin to generate net income derived from the beneficiary activities in facilities located
in Israel, and a reduced corporate tax rate for an additional five years, depending on the level of foreign investment in each
year. In addition, under the January 1, 2011 amendment to the Israeli Law for the Encouragement of Capital Investments, 1959,
a uniform corporate tax rate of 16% applies to all qualifying income of “Preferred Enterprise,” which we may be able
to apply as an alternative tax benefit.
The tax benefits available to a Beneficiary
Enterprise or a Preferred Enterprise are dependent upon the fulfillment of conditions stipulated under the Israeli Law for the
Encouragement of Capital Investments, 1959 and its regulations, as amended, which include, among other things, maintaining our
manufacturing facilities in Israel. If we fail to comply with these conditions, in whole or in part, the tax benefits could be
cancelled and we could be required to refund any tax benefits that we received in the past. If we are no longer eligible for these
tax benefits, our Israeli taxable income would be subject to regular Israeli corporate tax rates. The standard corporate tax rate
for Israeli companies in 2015 is 26.5% and in 2016 is 25% of taxable income. The termination or reduction of these tax benefits
would increase our tax liability, which would reduce our profits.
In addition to losing eligibility for
tax benefits currently available to us under Israeli law, if we do not maintain our manufacturing facilities in Israel, we will
not be able to realize certain tax credits and deferred tax assets, if any, including any net operating losses to offset against
future profits.
The tax benefits available to Beneficiary
Enterprises may be reduced or eliminated in the future. This would likely increase our tax liability.
The Israeli government may reduce or eliminate
in the future tax benefits available to Beneficiary enterprises and Preferred Enterprises. Our Beneficiary Enterprise status and
the resulting tax benefits may not continue in the future at their current levels or at any level. The 2011 amendment regarding
Preferred Enterprise may not be applicable to us or may not fully compensate us for the change. The termination or reduction of
these tax benefits would likely increase our tax liability. The amount, if any, by which our tax liability would increase will
depend upon the rate of any tax increase, the amount of any tax benefit reduction, and the amount of any taxable income that we
may earn in the future.
Risks Related to Our Common Stock and this Offering
Our stock price has been and may
continue to be volatile, which could result in substantial losses for investors.
The market price of our common stock has
been and is likely to continue to be highly volatile and could fluctuate widely in response to various factors, many of which
are beyond our control, including the following:
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technological
innovations or new products and services by us or our competitors;
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additions
or departures of key personnel;
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our
ability to execute our business plan;
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operating
results that fall below expectations;
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loss
of any strategic relationship;
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economic,
political and other external factors; and
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period-to-period
fluctuations in our financial results.
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In addition, the securities markets have
from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular
companies. These market fluctuations may also significantly affect the market price of our common stock.
Because there is no minimum required
for the offering to close, investors in this offering will not receive a refund in the event that we do not sell an amount of
securities sufficient to pursue the business goals outlined in this prospectus.
We have not specified a minimum offering
amount nor have or will we establish an escrow account in connection with this offering. Because there is no escrow account and
no minimum offering amount, investors could be in a position where they have invested in our company, but we are unable to fulfill
our objectives due to a lack of interest in this offering. Further, because there is no escrow account in operation and no minimum
investment amount, any proceeds from the sale of securities offered by us will be available for our immediate use, despite uncertainty
about whether we would be able to use such funds to effectively implement our business plan. Investor funds will not be returned
under any circumstances whether during or after the offering.
A continued low trading price could lead the NYSE MKT to
take actions toward delisting our common stock, including immediately suspending trading in our common stock.
Pursuant to Section 1003(f)(v) of the
NYSE MKT Company Guide (the “Company Guide”), the NYSE MKT could take action to delist our common stock in the event
that our common stock trades at levels viewed as abnormally low for a substantial period of time. Our stock has traded at prices
less than $1.00 for much of the past several months. In addition, the NYSE MKT has advised us that its policy is to immediately
suspend trading in shares of, and commence delisting procedures with respect to, a listed company if the market price of its shares
falls below $0.06 per share at any time during the trading day. The closing price of our common stock on the NYSE MKT on June
28, 2016 was $0.37 per share, and the significant dilutive effect of this offering may result in our stock trading below this
threshold and lead NYSE MKT to immediately suspend trading in our common stock.
Even if we complete this offering,
our common stock could be delisted from the NYSE MKT if we fail to regain compliance with the NYSE MKT’s continued listing
standards on the schedule required by the NYSE MKT.
On January 20, 2015, we received a notice
indicating that we do not meet certain of the NYSE MKT’s continued listing standards as set forth in Part 10 of the Company
Guide. Specifically, we were not in compliance with Section 1003(a)(i), Section 1003(a)(ii) and Section 1003(a)(iii) of the Company
Guide because we reported stockholders’ equity of less than $2 million, $4 million, and $6 million, respectively, as of
September 30, 2014 and had net losses in our five most recent fiscal years. In addition, the NYSE MKT indicated that we were not
in compliance with Section 1003(a)(iv) of the Company Guide because we have sustained losses that are substantial in relation
to our overall operations or our existing financial resources, or our financial condition has become impaired such that it appears
questionable, in the opinion of the NYSE MKT, as to whether we will be able to continue operations and/or meet our obligations
as they mature. As a result, we have become subject to the procedures and requirements of Section 1009 of the Company Guide.
In order to maintain our listing on the
NYSE MKT, we submitted a plan of compliance to the NYSE MKT on February 19, 2015 addressing how we intend to regain compliance
with Section 1003(a)(iii) of the Company Guide (which should also make us in compliance with Section 1003(a)(i) and Section(a)(ii)
by having stockholders’ equity of greater than $2 million and $4 million, respectively) by July 20, 2016 and Section 1003(a)(iv)
of the Company Guide by June 1, 2015. On March 9, 2015, we closed a public offering of our common stock and warrants that resulted
in net proceeds of approximately $12.5 million after deducting placement agent fees and other estimated offering expenses. In
light of this, the NYSE MKT determined that the continued listing deficiency with respect to Section 1003(a)(iv) of the Company
Guide has been resolved. In addition, the NYSE MKT has accepted our plan to gain compliance with the Section 1003(a)(iii) of the
Company Guide by July 20, 2016.
We believe, based on our current estimate,
we will be required to complete one or more offerings that will provide us with gross proceeds of at least $14.6 million prior
to July 20, 2016, in order to regain compliance with Section 1003(a)(iii) of the Company Guide and demonstrate to NYSE MKT that
our estimated stockholder’s equity will be at least $6 million as of September 30, 2016. The foregoing assumes our net loss
for each quarter ending June 30, 2016, and September 30, 2016, is consistent with our current projections, of which there is no
assurance. Even if the net proceeds from this offering provide us with sufficient stockholders’ equity to regain compliance
with Section 1003(a)(iii) of the Company Guide by July 20, 2016, we will be subject to ongoing review for compliance with NYSE
MKT requirements, and there can be no assurance that we will continue to remain in compliance with this standard. If we do
not regain compliance by July 20, 2016, or fail to remain in compliance as of September 30, 2016, or anytime thereafter, with
Section 1003(a)(iii) of the Company Guide, or if we do not maintain our progress consistent with the plan during the applicable
plan period, the NYSE MKT will initiate delisting proceedings. As this is a best efforts offering, we can provide no assurance
that the net proceeds from this offering will provide us with sufficient stockholders’ equity to regain compliance and remain
in compliance with Section 1003(a)(iii) of the Company Guide. We are not required to raise any minimum amount of proceeds from
this offering and we may choose to complete this offering at a level that will not satisfy the requirements of Section 1003(a)(iii)
of the Company Guide. If the NYSE MKT sought to delist us, the market price and liquidity of our common stock could be adversely
affected. If those proceedings resulted in delisting of our common stock and resulting cessation of trading of the stock on the
NYSE MKT, we believe that the market price and liquidity of our common stock would be adversely affected.
Our management team may invest or
spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a significant return.
Our management will have broad discretion
over the use of proceeds from this offering. We intend to use the net proceeds of this offering to pay an aggregate amendment
fee of $117,333 to holders of our currently outstanding warrants with an exercise price of $72.00 per share, as consideration
for entering into an amendment to the securities purchase agreement, dated April 5, 2012, as amended, to remove certain provisions
prohibiting issuance of securities containing anti-dilution protective provisions and to conduct sales activities related to CGuard
EPS and MGuard Prime EPS and for general corporate purposes. However, our management will have broad discretion in the application
of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance
the value of our common stock. The failure by management to apply these funds effectively could result in financial losses that
could have a material adverse effect on our business, cause the price of our common stock to decline and delay the development
of our product candidates.
If you purchase the Preferred Stock
sold in this offering and assuming its conversion into shares of our common stock, you will experience immediate and substantial
dilution in your investment.
Since the price per share of our Preferred
Stock being offered in this offering exceeds the net tangible book value per share of our common stock outstanding prior to this
offering, you will suffer immediate and substantial dilution with respect to the net tangible book value of the Preferred Stock
you purchase in this offering, assuming conversion of the Preferred Stock into shares of our common stock. After giving effect
to the sale by us all 397,298 shares of Preferred Stock covered by this prospectus, based on a public offering price of $37 per
share of Preferred Stock and accompanying warrant (which is equal to $0.37 per share on an as-converted-to-common stock basis)
and deducting estimated placement agent fees and other estimated offering expenses payable by us and assuming conversion of the
Preferred Stock into shares of our common stock and payment of all dividends accrued on the Preferred Stock in shares of common
stock upon conversion of the Preferred Stock at an assumed conversion price of $0.37 and an assumed stated value per share of
$37, you will experience immediate dilution of $0.25 per share of common stock, representing the difference between our as adjusted
net tangible book value per share of common stock as of March 31, 2016 and the public offering price. If any outstanding options
or warrants are exercised, you could experience further dilution. For the purpose of this calculation, the entire purchase price
for the shares of Preferred Stock and accompanying warrants is being allocated to the shares of Preferred Stock, and shares issuable
upon exercise of the warrants have not been included. Furthermore, the exercise of outstanding warrants and options may result
in further dilution of your investment. See the section entitled “Dilution” on page 29 below for a more detailed illustration
of the dilution you will incur if you participate in this offering.
Purchasers in this offering may
experience additional dilution in the book value of their investment in the future.
We are not restricted from issuing additional
securities in the future, including shares of common stock, securities that are convertible into or exchangeable for, or that
represent the right to receive, common stock or substantially similar securities. The issuance of these securities may cause further
dilution to our stockholders. In order to raise additional capital, we may in the future offer such additional securities at prices
that may not be the same as the price per share in this offering. We cannot assure you that we will be able to sell shares or
other securities in any other offering at a price per share that is equal to or greater than the price per share paid by investors
in this offering, and investors purchasing shares or other securities in the future could have rights superior to existing stockholders,
including investors who purchase securities in this offering. The price per share at which we sell additional shares of our common
stock or securities convertible into common stock in future transactions may be higher or lower than the price per share in this
offering. The exercise of outstanding stock options and the vesting of outstanding restricted stock units may also result in further
dilution of your investment.
Because our offering will be conducted
on a best efforts basis, there can be no assurance that we can raise the money we need.
The placement agent is offering the securities
on a “best efforts” basis with no minimum, and the placement agent is under no obligation to purchase any securities
for their own account. The placement agent is not required to sell any specific number or dollar amount of securities in this
offering but will use its best efforts to sell the securities offered in this prospectus. As a “best efforts” offering,
there can be no assurance that the offering contemplated hereby will ultimately be consummated. If the offering is not consummated
or we receive less than the maximum proceeds, our business plans and prospects for the current fiscal year could be adversely
affected.
There is no public market for the
Preferred Stock or the warrants being offered in this offering.
The Preferred Stock and the warrants are
new issues of securities with no established trading market. Following completion of this offering, we intend to apply to list
the warrants on the NYSE MKT. No assurance can be given that such listing will be approved. The Preferred Stock will not be listed
on any securities exchange and we do not expect the Preferred Stock to be quoted on any quotation system. There is no established
trading market for the Preferred Stock or warrants. An active trading market for our warrants may not develop following the completion
of this offering or, if developed, may not be sustained. A trading market for the Preferred Stock is not expected to develop,
and even if a market develops for the Preferred Stock, it may not provide meaningful liquidity. The absence of a trading market
or liquidity for the Preferred Stock or the warrants may adversely affect their value.
The certificate of designation for our Preferred Stock
contains anti-dilution provisions that may result in the reduction of the conversion price for the Preferred Stock in the future.
This feature may result in an indeterminate number of shares of common stock being issued upon conversion.
The certificate of designation for our
Preferred Stock contains anti-dilution provisions, which provisions require the lowering of the conversion price to the purchase
price of future offerings. If in the future we issue securities for less than the conversion price of our Preferred Stock, we
will be required to further reduce the relevant conversion price, which will result in a greater number of shares of common stock
being issuable upon conversion, which in turn will have a greater dilutive effect on our shareholders. In addition, as there is
no floor price on the conversion price, we cannot determine the total number of shares issuable upon conversion. As such, it is
possible that we will not have sufficient available shares to satisfy the conversion of the Preferred Stock if we enter into a
future transaction that lowers the conversion price. If we do not have sufficient available shares for any Preferred Stock conversions,
we will be required to increase our authorized shares, which may not be possible and will be time consuming and expensive. The
potential for such issuances may depress the price of our common stock regardless of our business performance. We may find it
more difficult to raise additional equity capital while our Preferred Stock is outstanding.
The Preferred Stock provides for the payment of dividends
in cash or in shares of our common stock, and we may not be permitted to pay such dividends in cash, which will require us to
have shares of common stock available to pay the dividends.
Each share of Preferred Stock will be
entitled to receive cumulative dividends at the rate per share of 15% per annum of the state value per share, until the fifth
anniversary of the date of issuance of the Preferred Stock. The dividends are payable, at our discretion, in cash, out of any
funds legally available for such purpose, or in pay-in-kind shares of common stock calculated based on the conversion price, subject
to adjustment as provided in the certificate of designation. The conversion price is subject to reduction if in the future we
issue securities for less than the conversion price of our Preferred Stock. As there is no floor price on the conversion price,
we cannot determine the total number of shares issuable upon conversion or in connection with the dividend. As such, it is possible
that we will not have sufficient available shares to pay the dividend in common stock, which would require the payment of the
dividend in cash. We will not be permitted to pay the dividend in cash unless we are legally permitted to do so under Delaware
law, which requires cash to be available from surplus or net profits neither of which we currently have available. Additionally,
we are also subject to certain restrictions pursuant to our loan and security agreement with Hercules Capital, Inc., which prohibits
us from paying cash dividends or distributions on our capital stock. As such, we do not expect to have cash available to pay the
dividends on our Preferred Stock or to be permitted to make such payments under our loan agreements, and will be relying on having
available shares of common stock to pay such dividends, which will result in dilution to our shareholders. If we do not such available
shares, we may not be able to satisfy our dividend obligations.
We are subject to financial reporting
and other requirements that place significant demands on our resources.
We are subject to reporting and other
obligations under the Securities Exchange Act of 1934, as amended, including the requirements of Section 404 of the Sarbanes-Oxley
Act of 2002. Section 404 requires us to conduct an annual management assessment of the effectiveness of our internal controls
over financial reporting. These reporting and other obligations place significant demands on our management, administrative, operational,
internal audit and accounting resources. Any failure to maintain effective internal controls could have a material adverse effect
on our business, operating results and stock price. Moreover, effective internal control is necessary for us to provide reliable
financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage
our business as effectively as we would if an effective control environment existed, and our business and reputation with investors
may be harmed.
There are inherent limitations in
all control systems, and misstatements due to error or fraud may occur and not be detected.
The ongoing internal control provisions
of Section 404 of the Sarbanes-Oxley Act of 2002 require us to identify of material weaknesses in internal control over financial
reporting, which is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes
in accordance with accounting principles generally accepted in the United States. Our management, including our chief executive
officer and chief financial officer, does not expect that our internal controls and disclosure controls will prevent all errors
and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there
are resource constraints and the benefit of controls must be relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any,
in our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty
and that breakdowns can occur because of simple errors or mistakes. Further, controls can be circumvented by individual acts of
some persons, by collusion of two or more persons, or by management override of the controls. The design of any system of controls
is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future conditions. Over time, a control may be inadequate because
of changes in conditions, such as growth of the company or increased transaction volume, or the degree of compliance with the
policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due
to error or fraud may occur and not be detected.
In addition, discovery and disclosure
of a material weakness, by definition, could have a material adverse impact on our financial statements. Such an occurrence could
discourage certain customers or suppliers from doing business with us, cause downgrades in our future debt ratings leading to
higher borrowing costs and affect how our stock trades. This could in turn negatively affect our ability to access public debt
or equity markets for capital.
Delaware law and our corporate charter
and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.
Our board of directors is authorized to
issue shares of preferred stock in one or more series and to fix the voting powers, preferences and other rights and limitations
of the preferred stock. Accordingly, we may issue shares of preferred stock with a preference over our common stock with respect
to dividends or distributions on liquidation or dissolution, or that may otherwise adversely affect the voting or other rights
of the holders of common stock. Issuances of preferred stock, depending upon the rights, preferences and designations of the preferred
stock, may have the effect of delaying, deterring or preventing a change of control, even if that change of control might benefit
our stockholders. In addition, we are subject to Section 203 of the Delaware General Corporation Law. Section 203 generally prohibits
a public Delaware corporation from engaging in a “business combination” with an “interested stockholder”
for a period of three years after the date of the transaction in which the person became an interested stockholder, unless (i)
prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested stockholder; (ii) the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining
the number of shares outstanding (a) shares owned by persons who are directors and also officers and (b) shares owned by employee
stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent to the date of the transaction, the business combination
is approved by the board and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder.
Section 203 could delay or prohibit mergers
or other takeover or change in control attempts with respect to us and, accordingly, may discourage attempts to acquire us even
though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market
price.
Offers or availability for sale
of a substantial number of shares of our common stock may cause the price of our common stock to decline.
Sales of a significant number of shares
of our common stock in the public market could harm the market price of our common stock and make it more difficult for us to
raise funds through future offerings of common stock. Our stockholders and the holders of our options and warrants may sell substantial
amounts of our common stock in the public market. The availability of these shares of our common stock for resale in the public
market has the potential to cause the supply of our common stock to exceed investor demand, thereby decreasing the price of our
common stock.
In addition, the fact that our stockholders,
option holders and warrant holders can sell substantial amounts of our common stock in the public market, whether or not sales
have occurred or are occurring, could make it more difficult for us to raise additional financing through the sale of equity or
equity-related securities in the future at a time and price that we deem reasonable or appropriate.
If securities and/or industry analysts
fail to continue publishing research about our business, if they change their recommendations adversely or if our results of operations
do not meet their expectations, our stock price and trading volume could decline.
The trading market for our common stock
will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or
more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the
financial markets, which in turn could cause our stock price or trading volume to decline. In addition, it is likely that in some
future period our operating results will be below the expectations of securities analysts or investors. If one or more of the
analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, our stock price could
decline.
Aspects of the tax treatment of
the securities may be uncertain.
The tax treatment of the Preferred Stock
and the warrants is uncertain and may vary depending upon whether you are an individual or a legal entity and whether or not you
are domiciled in the United States. In the event you are a non-U.S. investor, you should consult your tax advisors as to the consequences,
under the tax laws of the country where you are resident for tax purposes, of acquiring, holding and disposing of the Preferred
Stock and the warrants.
Risks Related to our Indebtedness
Our obligations under our $10 million
principal term loan are secured by all of our assets, so if we default on those obligations, the lender could foreclose on our
assets. As a result of these security interests, such assets would only be available to satisfy claims of our general creditors
or to holders of our equity securities if we were to become insolvent at a time when the value of such assets exceeded the amount
of our indebtedness and other obligations. In addition, the existence of these security interests may adversely affect our financial
flexibility.
The lender under our $10 million principal
term loan has a security interest in all of our assets and those of InspireMD Ltd., our wholly-owned subsidiary. As a result,
if we default under our obligations to the lender, the lender could foreclose on its security interests and liquidate some or
all of these assets, which would harm our business, financial condition and results of operations.
In the event of a default in connection
with our bankruptcy, insolvency, liquidation, or reorganization, the lender would have a prior right to substantially all of our
assets to the exclusion of our general creditors. In that event, our assets would first be used to repay in full all indebtedness
and other obligations secured by the lender, resulting in all or a portion of our assets being unavailable to satisfy the claims
of any unsecured indebtedness. Only after satisfying the claims of any unsecured creditors would any amount be available for our
equity holders.
The pledge of these assets and other restrictions
may limit our flexibility in raising capital for other purposes. Because substantially all of our assets are pledged under the
$10 million principal term loan, our ability to incur additional secured indebtedness or to sell or dispose of assets to raise
capital may be impaired, which could have an adverse effect on our financial flexibility.
Our loan and security agreement contains
customary events of default. In addition, an event of default will include the occurrence of a circumstance that would reasonably
be expected to have a material adverse effect upon (i) our business, operations, properties, assets, prospects or condition (financial
or otherwise), (ii) our ability to perform our obligations under the agreement and any related loan documents or (iii) the collateral,
the lender’s liens on the collateral or the priority of such liens.
We have a substantial amount of
indebtedness, which may adversely affect our cash flow and our ability to operate our business.
Pursuant to the terms of our loan and
security agreement, the lender made a term loan to us and InspireMD Ltd. in aggregate amount of $10 million. We are required to
make monthly payments of interest and principal in the amount of approximately $380,000 per month. The current principal amount
of the loan as of April 1, 2016 was approximately $3.6 million. On June 13, 2016, the parties to the loan and security agreement
entered into an amendment to the loan and security agreement to provide a deferral of payment of principal for a four month period
beginning May 1, 2016. However, the deferral is subject to the satisfaction of certain interest only period extension conditions,
including us raising net cash proceeds of at least $10 million from the sale of our equity securities with investors acceptable
to the lender on or prior to June 30, 2016. The term loan under the loan and security agreement, as amended, matures on (i) April
1, 2017, if we do not complete such sale of our equity securities and the lender does not waive such condition to complete such
sale prior to June 30, 2016, or (ii) June 1, 2017, if we complete such sale of our equity securities, or if the lender waives
such condition to complete such sale of our equity securities, prior to June 30, 2016.
The terms of our term loan could have
negative consequences to us, such as:
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we
may be unable to obtain additional financing to fund working capital, operating losses,
capital expenditures or acquisitions on terms acceptable to us, or at all;
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the
amount of our interest expense may increase because our term loan has a variable rate
of interest at any time that the prime rate, as reported in the Wall Street Journal,
is above 5.5%;
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we
will need to use a substantial portion of our cash flows to pay principal and interest
on our term loan, which will reduce the amount of money we have for operations, working
capital, capital expenditures, expansion, acquisitions or general corporate or other
business activities;
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we
may have a higher level of debt than some of our competitors, which may put us at a competitive
disadvantage;
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we
may be unable to refinance our indebtedness on terms acceptable to us, or at all; and
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we
may be more vulnerable to economic downturns and adverse developments in our industry
or the economy in general.
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Our ability to meet our expenses and debt
obligations will depend on our future performance, which will be affected by financial, business, economic, regulatory and other
factors. We will be unable to control many of these factors, such as economic conditions. We cannot be certain that our earnings
will be sufficient to allow us to pay the principal and interest on our debt and meet any other obligations. If we do not have
enough money to service our debt, we may be required, but unable to refinance all or part of our existing debt, sell assets, borrow
money or raise equity on terms acceptable to us, if at all, and the lender could foreclose on its security interests and liquidate
some or all of our assets.
Our loan and security agreement
contains covenants that could limit our financing options and liquidity position, which would limit our ability to grow our business.
Covenants in our loan and security agreement
impose operating and financial restrictions on us. These restrictions prohibit or limit our ability, and the ability of InspireMD
Ltd., to, among other things:
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pay
cash dividends to our stockholders;
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redeem
or repurchase our common stock or other equity;
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incur
additional indebtedness;
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permit
liens on assets;
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make
certain investments (including through the acquisition of stock, shares, partnership
or limited liability company interests, any loan, advance or capital contribution);
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sell,
lease, license, lend or otherwise convey an interest in a material portion of our assets;
and
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cease
making public filings under the Securities Exchange Act of 1934, as amended.
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These restrictions may limit our ability
to obtain additional financing, withstand downturns in our business or take advantage of business opportunities. Moreover, additional
debt financing we may seek, if permitted, may contain terms that include more restrictive covenants, may require repayment on
an accelerated schedule or may impose other obligations that limit our ability to grow our business, acquire needed assets, or
take other actions we might otherwise consider appropriate or desirable.
CAUTIONARY NOTE
REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the information incorporated
by reference herein and therein contain “forward-looking statements,” which include information relating to future
events, future financial performance, strategies, expectations, competitive environment and regulation. Words such as “may,”
“should,” “could,” “would,” “predicts,” “potential,” “continue,”
“expects,” “anticipates,” “future,” “intends,” “plans,” “believes,”
“estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements.
Forward-looking statements should not be read as a guarantee of future performance or results and will probably not be accurate
indications of when such performance or results will be achieved. Forward-looking statements are based on information we have
when those statements are made or our management’s good faith belief as of that time with respect to future events, and
are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed
in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited
to:
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our
history of recurring losses and negative cash flows from operating activities, significant
future commitments and the uncertainty regarding the adequacy of our liquidity to pursue
our complete business objectives, and substantial doubt regarding our ability to continue
as a going concern;
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our
need to raise additional capital to meet our business requirements in the future and
such capital raising may be costly or difficult to obtain and could dilute out stockholders’
ownership interests;
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•
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our
ability to generate revenues from our products and obtain and maintain regulatory approvals
for our products;
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•
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our
ability to adequately protect our intellectual property;
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•
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our
dependence on a single manufacturing facility and our ability to comply with stringent
manufacturing quality standards and to increase production as necessary;
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•
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the
risk that the data collected from our current and planned clinical trials may not be
sufficient to demonstrate that the our technology is an attractive alternative to other
procedures and products;
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•
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intense
competition in our industry, with competitors having substantially greater financial,
technological, research and development, regulatory and clinical, manufacturing, marketing
and sales, distribution and personnel resources than we do;
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•
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entry
of new competitors and products and potential technological obsolescence of our products;
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•
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loss
of a key customer or supplier;
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•
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technical
problems with our research and products and potential product liability claims;
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•
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adverse
economic conditions;
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•
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adverse
federal, state and local government regulation, in the United States, Europe or Israel;
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•
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price
increases for supplies and components;
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•
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inability
to carry out research, development and commercialization plans; and
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•
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loss
or retirement of key executives and research scientists.
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The foregoing does not represent an exhaustive
list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with
that may cause our actual results to differ from those anticipated in our forward-looking statements. You should review carefully
the section entitled “Risk Factors” beginning on page 7 of this prospectus for a discussion of these and other risks
that relate to our business and investing in our securities. The forward-looking statements contained or incorporated by reference
in this prospectus are expressly qualified in their entirety by this cautionary statement. We do not undertake any obligation
to publicly update any forward-looking statement to reflect events or circumstances after the date on which any such statement
is made or to reflect the occurrence of unanticipated events.
USE OF PROCEEDS
We estimate that the net proceeds from
the sale of the securities offered under this prospectus, after deducting estimated placement agent fees and other estimated offering
expenses payable by us, will be approximately $13,235,000 if we sell the maximum amount of Preferred Stock and warrants offered
hereby. However, this is a best efforts offering with no minimum, and we may not sell all or any of the securities; as a
result, we may receive significantly less in net proceeds, and the net proceeds received may not be sufficient to continue to
operate our business. If a warrant holder elects to exercise the warrants issued in this offering, we may also receive proceeds
from the exercise of the warrants. If all of these warrants were to be exercised at an assumed exercise price of $0.22 per share,
the midpoint of the exercise price range on the front cover of this prospectus, then we would receive net proceeds of approximately
$8,740,556. We expect to use these proceeds, if any, for operations and general working capital requirements at the time of such
exercise. We cannot predict when or if the warrants will be exercised. It is possible that the warrants may expire and may never
be exercised.
We intend to use the net proceeds from
this offering (i) to pay an aggregate amendment fee of $117,333 to holders of our currently outstanding warrants with an exercise
price of $72.00 per share, as consideration for entering into an amendment to the securities purchase agreement, dated April 5,
2012, as amended, to remove certain provisions prohibiting issuance of securities containing anti-dilution protective provisions,
and (ii) to conduct sales activities related to CGuard
EPS and MGuard Prime EPS and develop our pipeline of new products. Any balance of the net proceeds will be used for general corporate
purposes.
Investors are cautioned, however, that
expenditures may vary substantially from these uses. Investors will be relying on the judgment of our management, who will have
broad discretion regarding the application of the proceeds of this offering. The amounts and timing of our actual expenditures
will depend upon numerous factors, including the amount of cash generated by our operations, the amount of competition we face
and other operational factors. We may find it necessary or advisable to use portions of the proceeds from this offering for other
purposes.
From time to time, we evaluate these and
other factors and we anticipate continuing to make such evaluations to determine if the existing allocation of resources, including
the proceeds of this offering, is being optimized. Circumstances that may give rise to a change in the use of proceeds include:
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a
change in development plan or strategy;
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•
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the
addition of new products or applications;
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•
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delays
or difficulties with our clinical trials;
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•
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negative
results from our clinical trials;
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•
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difficulty
obtaining regulatory approval;
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•
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failure
to achieve sales as anticipated; and
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•
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the
availability of other sources of cash including cash flow from operations and new bank
debt financing arrangements, if any.
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Until we use the net proceeds of this
offering, we will hold such funds in cash or invest the funds in short-term, investment grade, interest-bearing securities.
A $10 increase or decrease in the anticipated
public offering price of $37 per share of Preferred Stock and the accompanying warrant would increase or decrease the net proceeds
to us from this offering by approximately $3,615,000, assuming we sell the maximum amount of Preferred Stock and warrants offered
hereby and after deducting estimated placement agent fees and other estimated offering expenses payable by us. Similarly, any
increase or decrease in the number of shares of Preferred Stock and accompanying warrants that we sell in the offering will increase
or decrease our net proceeds in proportion to such increase or decrease, as applicable, multiplied by the offering price per share
of Preferred Stock and the accompanying warrant, less estimated placement agent fees and other estimated offering expenses payable
by us. The information discussed above is illustrative only and will adjust based on the actual public offering price, the number
of securities sold and other terms of this offering determined at pricing.
PRICE RANGE OF OUR
COMMON STOCK
Our common stock has been quoted on the
NYSE MKT since April 11, 2013 under the symbol “NSPR.” Prior to that date, it was traded on the OTC Bulletin Board.
The following table sets forth the intra-day
high and low sales price per share for our common stock, as reported on the NYSE MKT, for the periods indicated. The sales prices
for our common stock prior to October 1, 2015, are adjusted for the one-for-ten reverse stock split of our common stock that occurred
on such date:
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Common Stock
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High
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Low
|
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Fiscal Year Ending December 31, 2016
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Second quarter (through June 28, 2016)
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$
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0.62
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$
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0.31
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First quarter
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$
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0.95
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$
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0.39
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Fiscal Year Ended December 31, 2015
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Fourth quarter
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$
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2.12
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$
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0.63
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Third quarter
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$
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3.20
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$
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1.50
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Second quarter
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$
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4.20
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|
$
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1.90
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First quarter
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$
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10.10
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$
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2.30
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Fiscal Year Ended December 31, 2014
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Fourth quarter
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$
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22.30
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$
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7.00
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Third quarter
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$
|
30.20
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$
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18.10
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Second quarter
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$
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32.50
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|
|
$
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17.90
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First quarter
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$
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38.00
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$
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24.80
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The closing price of our common stock
on the NYSE MKT on June 28, 2016 was $0.37 per share. Immediately prior to this offering, we had 10,701,320 issued and outstanding
shares of common stock, which were held by approximately 214 holders of record.
DIVIDEND POLICY
In
the past, we have not declared or paid cash dividends on our capital stock. Our loan and security agreement with
Hercules
Capital, Inc. (formerly Hercules Technology Growth Capital, Inc.)
, dated
October 23, 2013, as amended, prohibits us from paying cash dividends or distributions on our capital stock. Even if we are permitted
to pay cash dividends in the future, we do not intend to do so. Rather, we intend to retain future earnings, if any, to fund the
operation and expansion of our business and for general corporate purposes.
CAPITALIZATION
The following table summarizes our cash
and cash equivalents, certain other items from our historical consolidated balance sheet, and capitalization as of March 31, 2016:
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on
an actual basis; and
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•
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on an unaudited as adjusted basis, giving
effect to (1) the filing of the amendment to our amended and restated certificate of incorporation to increase the number
of authorized shares of common stock from 50,000,000 to 150,000,000, which was filed on May 25, 2016, and (2) our receipt
of the net proceeds from the sale by us in this offering of Preferred Stock and warrants at an anticipated public offering
price of $37 per share of Preferred Stock, assuming the conversion of all of the Preferred Stock into shares of common stock
and payment of all dividends accrued on the Preferred Stock in shares of common stock upon conversion of the Preferred Stock
and after deducting estimated placement agent fees and other estimated offering expenses payable by us.
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For the purposes of the Capitalization
discussion, we determined the assumed number of shares by dividing (x) $14,700,000 that we anticipate raising in this offering
by (y) an assumed offering price of $37 per share of Preferred Stock, which is 100 times $0.37, the last reported sales price
of our common stock on June 28, 2016. The actual number of shares sold in this offering will be determined by dividing (x) $14,700,000
by (y) the public offering price as mutually determined by the placement agent and us. The as adjusted information below is illustrative
only and our capitalization following the completion of this offering will be adjusted based on the actual public offering price,
the number of securities sold and other terms of this offering determined at pricing. You should read this table together with
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial
statements and the related notes appearing elsewhere in this prospectus.
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March 31, 2016
(in thousands)
(unaudited)
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Actual
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|
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As Adjusted
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Cash and cash equivalents
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1,999
|
|
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15,233
|
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Equity:
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|
|
|
|
|
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Common stock, par value
$0.0001 per share – 50,000,000 shares authorized and 10,722,974 shares issued and outstanding actual; 150,000,000 shares
authorized and 80,250,124 shares issued and outstanding as adjusted
(1)
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1
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|
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|
8
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|
Preferred stock, par value $0.0001 per share; 5,000,000 shares authorized:
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Series A Preferred Stock, par value $0.0001 per
share; none issued and outstanding at March 31, 2016 and as adjusted
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—
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|
|
|
—
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Series B Convertible Preferred Stock, par value
$0.0001 per share; none issued and outstanding at March 31, 2016; 397,298 shares issued as adjusted
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—
|
|
|
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—
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Additional paid-in capital
|
|
|
122,209
|
|
|
|
135,436
|
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Accumulated deficit
|
|
|
(125,605
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)
|
|
|
(125,605
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)
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Total equity
|
|
|
(3,395
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)
|
|
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9,839
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|
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(1)
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80,250,124 shares issued and outstanding as adjusted includes 39,729,800
shares of common stock underlying Preferred Stock being sold in this offering and 29,797,350 shares of common stock as payment
of all dividends accrued on the Preferred Stock upon conversion of the Preferred Stock at an assumed conversion price of $0.37
and an assumed stated value per share of $37 and does not include 39,729,800 shares of common stock issuable upon the full
exercise of the warrants being sold in this offering, 2,781,000 shares of common stock issuable upon conversion of the Preferred
Stock and exercise of the warrants to purchase common stock included in the placement agent’s unit purchase option,
and 1,042,875 shares of common stock issuable as cumulative dividend upon conversion of the Preferred Stock included in the
placement agent’s unit purchase option.
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DILUTION
The discussion assumes the price of $0.37 per share of common
stock, which is the last reported sales price of our common stock on June 28, 2016, and an offering price of $37 per share of
Preferred Stock and the accompanying warrant to purchase common stock, which is 100 times the last reported sales price of our
common stock on June 28, 2016.
If you invest in our Preferred Stock,
your interest will be diluted to the extent of the difference between the price per share of Preferred Stock you pay in this offering
and the as adjusted net tangible book value per share of our common stock immediately after this offering (assuming the conversion
of all of the Preferred Stock into shares of common stock). For the purpose of such calculation, the entire purchase price for
the shares of Preferred Stock and accompanying warrants is being allocated to the shares of Preferred Stock, and the shares issuable
upon exercise of the accompanying warrants have not been included.
Our net tangible book value of our common
stock as of March 31, 2016 was approximately $(3,470), or approximately $(0.32) per share of common stock based on 10,722,974
shares outstanding (including 10,671,187 vested restricted shares and 51,787 unvested restricted shares) at that time. “Net
tangible book value” is total assets minus the sum of liabilities and intangible assets. “Net tangible book value
per share” is net tangible book value divided by the total number of shares outstanding.
After giving effect to the sale of 397,298
shares of Preferred Stock and accompanying warrants to purchase 39,729,800 shares of our common stock in the aggregate amount
of $14,700,000 in this offering and deducting estimated placement agent fees and other estimated offering expenses payable by
us, our net tangible book value as of March 31, 2016 would have been approximately $9,764,000, or approximately $0.12 per share
of common stock based on 80,250,124 shares of common stock outstanding on a pro forma basis at that time (assuming conversion
of 397,298 shares of Preferred Stock into 39,729,800 shares of common stock, payment of all dividends accrued on the Preferred
Stock in an aggregate of 29,797,350 shares of common stock upon conversion of the Preferred Stock at an assumed conversion price
of $0.37 and an assumed stated value per share of $37 and no exercise of any of the warrants offered hereby). This represents
an immediate increase in net tangible book value of $0.44 per share to our existing stockholders and an immediate dilution of
approximately $0.25 per share to new investors participating in this offering (assuming conversion of all of the Preferred Stock
into shares of common stock), as illustrated by the following table:
Public offering price per share of common stock
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|
$
|
0.37
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|
|
|
|
|
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Net tangible book value per share of common stock as of March 31, 2016
|
|
$
|
(0.32
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)
|
|
|
|
|
|
Increase in net tangible book value per share of common
stock attributable to the offering
|
|
$
|
0.44
|
|
|
|
|
|
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Pro forma net tangible book value per share of common
stock as of March 31, 2016 after giving effect to the offering
|
|
$
|
0.12
|
|
|
|
|
|
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Dilution in net tangible book value per share of common
stock to new investors in the offering
|
|
$
|
0.25
|
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The discussion of dilution, and the table
quantifying it, attribute no value to the warrants being issued in this offering and assume no exercise of any of the warrants
offered hereby or thereby or any outstanding options or warrants or other potentially dilutive securities. The exercise of potentially
dilutive securities having an exercise price less than the offering price would increase the dilutive effect to new investors.
In particular, the table above excludes
the following potentially dilutive securities as of March 31, 2016:
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91,399
shares of common stock issuable upon the exercise of currently outstanding warrants with
an exercise price of $72.00 per share;
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|
•
|
65,912
shares of common stock issuable upon the exercise of currently outstanding warrants with
an exercise price of $30.00 per share;
|
|
•
|
16,836
shares of common stock issuable upon the exercise of currently outstanding warrants with
an exercise price of $29.70 per share;
|
|
•
|
313,100
shares of common stock issuable upon the exercise of currently outstanding warrants to
purchase one-half of one share of common stock with an exercise price for two warrants
of $17.50 per full share;
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|
•
|
3,436,973
shares of common stock issuable upon the exercise of currently outstanding warrants with
an exercise price of $5.50 per share;
|
|
•
|
1,466,526
shares of common stock issuable upon the exercise of currently outstanding warrants with
an exercise price of $0.59 per share;
|
|
•
|
146,653
shares of common stock issuable upon the exercise of currently outstanding warrants with
an exercise price of $0.7375 per share;
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|
•
|
shares
of common stock issuable upon the exercise of currently outstanding warrant issued to
Hercules Capital, Inc. on June 13, 2016, equal to $182,399.30, divided by (i) the lowest
effective price per share, determined on a common stock-equivalent basis, for which our
equity securities are sold and issued by us in an equity financing in which we receive
unrestricted aggregate gross cash proceeds of at least $7.5 million, subject to adjustment
from time to time in accordance with the terms of the warrant agreement, or (ii) if such
equity financing shall not have been consummated on or before July 30, 2016, or if, prior
to the consummation of such equity financing, there shall be a transaction involving
a change of control or a dissolution, liquidation or winding-up, then the closing price
of a share of our common stock on June 13, 2016, subject to adjustment thereafter from
time to time;
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|
•
|
2,781,000 shares of common stock issuable
upon conversion of the Preferred Stock and exercise of the warrants to purchase common stock included in the unit purchase
option that we have agreed to issue to the placement agent or its designees in this offering, assuming the sale of all shares
covered by this prospectus, at a price per share equal to 125% of the public offering price in this offering;
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|
•
|
1,042,875
shares of common stock issuable
as cumulative dividends upon conversion of the Preferred Stock included in the unit purchase option that we have agreed to
issue to the placement agent or its designees in this offering, assuming the sale of all shares covered by this prospectus;
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|
•
|
1,056,852
shares of common stock issuable upon the exercise of currently outstanding options with
exercise prices ranging from $0.0001 to $84.00 and having a weighted average exercise
price of $8.64 per share;
|
|
•
|
10,122
shares of common stock available for future issuance under our 2011 UMBRELLA Option Plan;
and
|
|
•
|
10,212,129
shares of common stock available for future issuance under our 2013 Long-Term Incentive
Plan.
|
To the extent that any of these options
are exercised, new options are issued under our equity incentive plans and subsequently exercised or we issue additional shares
of common stock in the future, there will be further dilution to new investors participating in this offering.
We may sell less than 397,298 shares of
Preferred Stock. An increase of 10,000 shares in the number of shares of Preferred Stock sold by us would increase our as adjusted
net tangible book value after this offering by approximately $0.3 million, or $0.002 per share, and the dilution per share to
new investors would be approximately $0.25 per share, assuming conversion of all of the Preferred Stock into shares of common
stock and that the public offering price remains the same and after deducting estimated placement agent fees and other estimated
offering expenses payable by us.
Similarly, a decrease of 10,000 shares
of Preferred Stock in the number of shares sold by us would decrease our as adjusted net tangible book value after this offering
by approximately $0.3 million, or $0.002 per share, and the dilution per share to new investors would be approximately $0.25 per
share, assuming conversion of all of the Preferred Stock into shares of common stock and that that the public offering price remains
the same and after deducting estimated placement agent fees and other estimated offering expenses payable by us.
Assuming the issuance of all Preferred
Stock and accompanying warrants offered by us in this offering and assuming the conversion of all of the Preferred Stock into
shares of common stock, each $10 increase (decrease) in the anticipated public offering price of $37 per share of Preferred Stock
and the accompanying warrant would increase (decrease) our pro forma as adjusted net tangible book value by approximately $3.6
million, the pro forma as adjusted net tangible book value per share by approximately $0.05 per share and the dilution to investors
in this offering by approximately $0.05 per share, assuming the number of shares of Preferred Stock and warrants offered by us,
as set forth on the cover page of this prospectus, remains the same and after deducting estimated placement agent fees and other
estimated offering expenses payable by us. The information discussed above is illustrative only and will adjust based on the actual
public offering price, the number of securities sold and other terms of this offering determined at pricing.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
You should read the following discussion
and analysis of financial condition and results of operations in conjunction with our financial statements and the related notes
thereto included elsewhere in this prospectus. In addition to historical information, the following discussion and analysis includes
forward-looking information that involves risks, uncertainties and assumptions. Our actual results and the timing of events could
differ materially from those anticipated by these forward-looking statements as a result of many factors, including those discussed
under “Risk Factors” and elsewhere in this prospectus. See “Cautionary Note Regarding Forward-Looking Statements”
included elsewhere in this prospectus.
Overview
We are a medical device company focusing
on the development and commercialization of our proprietary MicroNet stent platform technology for the treatment of complex coronary
and vascular disease. A stent is an expandable “scaffold-like” device, usually constructed of a metallic material,
that is inserted into an artery to expand the inside passage and improve blood flow. Our MicroNet, a micron mesh sleeve, is wrapped
over a stent to provide embolic protection in stenting procedures. Our MGuard Prime EPS, which incorporate our MicroNet platform
technology, is marketed for use in patients with acute coronary syndromes, notably acute myocardial infarction (heart attack)
and saphenous vein graft coronary interventions (bypass surgery).
Our second product, CGuard EPS combines
our MicroNet mesh and a self-expandable nitinol stent in a single device for use in carotid artery applications. Our CGuard EPS
received CE mark approval in the European Union in March 2013, and we launched its release on a limited basis in October 2014.
In January 2015, a new version of CGuard, with a rapid exchange delivery system, received CE mark approval in Europe and in September
2015, we announced the full market launch of CGuard EPS in Europe through a distribution agreement with Penumbra, Inc. In September
2015, we also received regulatory approval to commercialize CGuard EPS in Argentina and Colombia. Following the receipt of such
regulatory approval, we launched CGuard EPS in Argentina in the first quarter of 2016 and Colombia in the fourth quarter of 2015.
We are also developing a neurovascular
flow diverter, which is an endovascular device that directs blood flow away from cerebral aneurysms in order to ultimately seal
the aneurysms. Our flow diverter would utilize an open cell, highly flexible metal scaffold to which MicroNet would be attached.
We have commenced initial pre-clinical testing of this product in both simulated bench models and standard in vivo pre-clinical
models.
We also intend to develop a pipeline of
other products and additional applications by leveraging our MicroNet technology to new applications to improve peripheral vascular
and neurovascular procedures, such as the treatment of the superficial femoral artery disease, vascular disease below the knee
and neurovascular stenting to open diseased vessels in the brain.
Presently, none of our products may be
sold or marketed in the United States.
Recent Events
During the first quarter of 2015, we implemented
a cost reduction/focused spending plan. The plan has four components: (i) reducing headcount; (ii) limiting the focus of clinical
and development expenses to only carotid and neurovascular products; (iii) limiting sales and marketing expenses to those related
to the CGuard EPS stent launch; and (iv) reducing all other expenses (including conferences, travel, promotional expenses, executive
cash salaries, director cash fees, rent, etc.). In addition, we decided to alter our commercial strategy by using third party
distributors to drive future sales, as opposed to direct sales to hospitals and clinics, which had previously been our focus.
On March 21, 2016, we sold 1,900,000 shares
of our common stock and warrants to purchase 950,000 shares of our common stock in a public offering. Each purchaser received
a warrant to purchase one half of one share of common stock for each share of common stock that it purchased in the offering.
The warrants are exercisable immediately and have a term of exercise of 5 years from the date of issuance and an exercise price
of $0.59. This offering resulted in gross proceeds to us of approximately $1.1 million, before deducting the underwriting discount
and estimated offering expenses.
On March 21, 2016, we sold 1,033,051 shares
of our common stock and warrants to purchase 516,526 shares of our common stock in a private placement. Each purchaser received
a warrant to purchase one half of one share of common stock for each share of common stock that it purchased in the private placement.
The warrants are exercisable immediately and have a term of exercise of 5 years from the date of issuance and an exercise price
of $0.59. This private placement resulted in gross proceeds to us of approximately $0.6 million, before deducting placement agent
fees and estimated offering expenses.
These sales of securities on March 21,
2016 resulted in aggregate net proceeds to us of approximately $1.4 million, after deducting underwriting discount, placement
agent fees and other offering expenses.
Critical Accounting Policies
We prepared our consolidated financial
statements for inclusion in this report in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”).
U.S. GAAP represents a comprehensive set of accounting and disclosure rules and requirements, and applying these rules and requirements
requires management judgments and estimates including, in certain circumstances, choices between acceptable U.S. GAAP alternatives.
The following is a discussion of our most critical accounting policies, judgments and uncertainties that are inherent in our application
of U.S. GAAP.
Use of estimates
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates using assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of sales and expenses during the reporting periods. Actual results could differ from those estimates.
As applicable to these consolidated financial
statements, the most significant estimates and assumptions relate to inventory valuations, royalty buyout and legal contingencies.
Functional currency
The currency of the primary economic environment
in which our operations and the operations of our subsidiaries are conducted is the U.S. dollar (“$” or “dollar”).
Accordingly, our and our subsidiaries’ functional currency is the U.S. dollar.
The dollar figures are determined as follows:
transactions and balances originally denominated in dollars are presented in their original amounts. Balances in foreign currencies
are translated into dollars using historical and current exchange rates for non-monetary and monetary balances, respectively.
The resulting translation gains or losses are recorded as financial income or expense, as appropriate. For transactions reflected
in the statements of operations in foreign currencies, the exchange rates at transaction dates are used. Depreciation and changes
in inventories and other changes deriving from non-monetary items are based on historical exchange rates.
Concentration of credit
risk and allowance for doubtful accounts
Financial instruments that may potentially
subject us to a concentration of credit risk consist of cash and cash equivalents, which are deposited in major financially sound
institutions in the United States, Israel and Germany, and trade accounts receivable. Our trade accounts receivable are derived
from revenues earned from customers from various countries. We perform ongoing credit evaluations of our customers’ financial
condition and, generally, require no collateral from customers. We also have a credit insurance policy for some customers. We
maintain an allowance for doubtful accounts receivable based upon the expected ability to collect the accounts receivable. We
review our allowance for doubtful accounts quarterly by assessing individual accounts receivable and all other balances based
on historical collection experience and an economic risk assessment. If we determine that a specific customer is unable to meet
its financial obligations to us, we provide an allowance for credit losses to reduce the receivable to the amount management reasonably
believes will be collected, which is netted against “Accounts receivable — Trade”.
Inventory
Inventories are stated at the lower of
cost (cost is determined on a “first-in, first-out” basis) or market value. Our inventories generally have a limited
shelf life and are subject to impairment as they approach their expiration dates. We regularly evaluate the carrying value of
our inventories and when, based on such evaluation, factors indicate that impairment has occurred, we impair the inventories’
carrying value.
Revenue recognition
Revenue is recognized when delivery has
occurred, evidence of an arrangement exists, title and risks and rewards for the products are transferred to the customer, collection
is reasonably assured and product returns can be reliably estimated.
We recognize revenue net of value added
tax (VAT).
Research and development
costs
Research and development costs are charged
to the statement of operations as incurred.
Share-based compensation
Employee option awards are classified
as equity awards and accounted for using the grant-date fair value method. The fair value of share-based awards is estimated using
the Black-Scholes valuation model and expensed over the requisite service period, net of estimated forfeitures. We estimate forfeitures
based on historical experience and anticipated future conditions.
We elected to recognize compensation expenses
for awards with only service conditions that have graded vesting schedules using the accelerated multiple option approach.
In addition, certain share-based awards
are performance based and dependent upon achieving certain goals. With respect to these awards, we estimate the expected pre-vesting
award probability that the performance conditions will be achieved. We only recognize expense for those shares that are expected
to vest.
Uncertain tax and value
added tax positions
We follow a two-step approach to recognizing
and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight
of available evidence indicates that it is more likely than not that the position will be sustained on audit. If under the first
step a tax provision is assessed to be more likely than not of being sustained on audit, the second step is performed, under which
the tax benefit is measured as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Such liabilities
are classified as long-term, unless the liability is expected to be resolved within twelve months from the balance sheet date.
Our policy is to include interest related to unrecognized tax benefits within “Financial expenses (income) — net.”
Fair value measurement
We measure fair value and disclose fair
value measurements for financial assets and liabilities. Fair value is based on the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The accounting standard establishes a
fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which
are described below:
Level 1: Quoted prices (unadjusted) in
active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest
priority to Level 1 inputs.
Level 2: Observable prices that are based
on inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used
when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, we utilize
valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible
and consider counterparty credit risk in our assessment of fair value.
Allocation of issuance
proceeds
When debt or equity is issued with other
components that are subsequently measured at fair value, the proceeds are allocated first to such components (such as warrants
and embedded derivatives in the debt that require bifurcation at their fair values), then the residual amount of the proceeds
is allocated to the debt or equity. When other components are classified in equity, the proceeds are allocated based on relative
fair values.
Results of Operations
Three months ended March 31, 2016
compared to the three months ended March 31, 2015
Revenues
. For the three months
ended March 31, 2016, revenue increased by $0.1 million, or 18.2%, to $0.6 million, from $0.5 million during the same period in
2015. This increase was predominantly driven by a 437.4% increase in sales of CGuard EPS from $60,000 in the three months ended
March 31, 2015 to $0.3 million in the same period in 2016. This increase in CGuard EPS sales were partially offset by a 41.7%
decrease in sales of MGuard Prime EPS from $0.4 million in the three months ended March 31, 2015 to $0.3 million in the same period
in 2016, predominantly driven by a decrease in sales due to the trend of doctors increasingly using drug-eluting stents rather
than bare metal stents in ST-segment elevation myocardial infarction, the most severe form of a heart attack, referred to as STEMI,
patients.
With respect to regions, the increase
in revenue was primarily attributable to an increase of $0.1 million in revenue from our distributors in Europe.
Gross Profit (Loss)
. For the
three months ended March 31, 2016, we had a gross profit (revenue less cost of revenues) of $66,000, as compared to a gross loss
(revenue less cost of revenues) of $37,000, during the same period in 2015, representing an increase of $0.1 million. This increase
in gross profit was attributable to an increase in revenues of $0.1 million (see above for explanation) and a decrease of write-offs
of inventory of $0.2 million, which were primarily related to a decrease of write-offs of MGuard Prime EPS units during the three
months ended March 31, 2016, as compared to the same period in 2015, partially offset by an increase of $0.1 million in material
and labor costs due to the increased sales and an increase of $0.1 million related to the underutilization of our manufacturing
resources. Gross margin (gross profits as a percentage of revenue) increased to 11.7% in the three months ended March 31, 2016
from (7.8)% in the same period in 2015.
Research and Development Expenses
. For
the three months ended March 31, 2016, research and development expenses decreased by 64.6%, or $0.9 million, to $0.5 million,
from $1.4 million during the same period in 2015. This decrease in research and development expenses resulted primarily from a
decrease of $0.3 million in clinical trial and development costs associated with CGuard EPS, a decrease of $0.3 million in compensation
expenses, a decrease of $0.1 million in clinical trial expenses associated with our MASTER II trial, a decrease of $0.1 million
of expenses related to the development of a drug eluting coronary stent and a decrease of $0.1 million in miscellaneous clinical
and development expenditures related to MGuard Prime EPS. Such decreases are the results of the implementation of our cost reduction/focused
spending plan beginning in the first quarter of 2015.
Selling and Marketing Expenses
. For
the three months ended March 31, 2016, selling and marketing expenses decreased by 62.0%, or $0.6 million, to $0.4 million, from
$1.0 million during the same period in 2015. This decrease in selling and marketing expenses resulted primarily from a decrease
of $0.4 million in compensation expenses due to our transition away from direct sales in favor of using third party distributors,
a decrease of $0.1 million in travel expenses associated with the decreased size of our sales force and a decrease of $0.1 million
in miscellaneous expenses. The decrease in spending was a result of our cost reduction/focused spending plan.
General and Administrative Expenses
. For
the three months ended March 31, 2016, general and administrative expenses decreased by 19.3%, or $0.4 million, to $1.6 million,
from $2.0 million during the same period in 2015. The decrease in general and administrative expenses resulted primarily from
a decrease of $0.2 million in miscellaneous expenses such as investor relations, audit, rent, consultants and travel, as part
of our cost reduction/focused spending plan, a decrease of $0.1 million of share based compensation expenses pertaining to the
change in our forfeiture rate assumptions of restricted stock of our chief executive officer and a decrease of $0.1 million in
litigation expenses following a one-time charge in Argentina of $0.1 million in the three months ended March 31, 2015.
Restructuring and Impairment Expenses
. For
the three months ended March 31, 2015 we incurred $0.5 million of restructuring and impairment expenses made up of $0.3 million
of expenses related to the impairment of an MGuard royalties buyout option due to anticipated lower sales in the future, $0.1
million of cash payouts and $0.1 million of restricted shares given to terminated employees in connection with our restructuring.
No such expense occurred during the same period in 2016.
Financial Expenses
. For the
three months ended March 31, 2016, financial expenses decreased by 27.8% or $0.1 million, to $0.2 million, from $0.3 million during
the same period in 2015. The decrease in financial expenses resulted from a decrease of $0.1 million of interest expenses due
to the reduction in principal of our outstanding indebtedness.
Tax Expenses (Income)
. For
the three months ended March 31, 2016 there was no material change in tax expenses (income) compared to the same period in 2015.
Net Loss
. Our net loss decreased
by $2.6 million, or 49.9%, to $2.6 million for the three months ended March 31, 2016 from $5.2 million during the same period
in 2015. The decrease in net loss resulted primarily from a decrease of $2.4 million in operating expenses primarily associated
with lower research and development, sales and marketing and restructuring expenses, due to our cost reduction/focused spending
plan, a decrease of $0.1 million in financial expenses and an increase of $0.1 million in gross profit.
Twelve months ended December 31,
2015 compared to the twelve months ended December 31, 2014
Revenues
. For the twelve months
ended December 31, 2015, revenue decreased by $0.5 million, or 18.1%, to $2.3 million, from $2.8 million during the same period
in 2014. This decrease was predominantly driven by a decrease in sales of our MGuard coronary products of $1.2 million, or 42.6%,
from $2.8 million in the twelve months ended December 31, 2014 to $1.6 million in the same period in 2015. This decrease in sales
of MGuard Prime EPS was predominantly driven by a decrease in sales volume of $0.8 million, or 28.9% due to the trend of doctors
increasingly using drug-eluting stents rather than bare metal stents in STEMI patients, which impacted current sales. Price decreases
to our distributors drove the remaining decrease of $0.4 million, or 13.7%, of MGuard Prime EPS, due to lower average sales prices
necessary to remain competitive amongst sharp price decreases in the coronary stent market, as well as the effects of the weakening
of the Euro against the U.S dollar. These decreases, however, were partially offset by an increase of $0.7 million of sales of
our new product CGuard EPS, which was launched in October 2014.
With respect to regions, the decrease
in revenue was primarily attributable to a decrease of $0.7 million in revenue from our distributors in the Middle East and a
decrease of $0.1 million in revenue from our distributors in Asia, partially offset by an increase of $0.3 million in revenue
from our distributors in Europe.
Gross Profit (Loss)
. For the
twelve months ended December 31, 2015, we had a gross loss (revenue less cost of revenues) of $0.3 million, as compared to a gross
profit of $0.8 million during the same period in 2014, representing a decrease of 137.8%, or $1.1 million. This decrease in gross
profit was attributable to a decrease in revenues of $0.5 million (see above for explanation), an increase of write-offs of inventory
of $0.4 million, which were primarily related to write-offs of MGuard Prime EPS units due to expected lower sales in the future
resulting from industry preferences for drug eluting stents, and our transition to a third party distributor commercial strategy,
an increase in labor and material costs of $0.3 million attributable to higher material and labor costs for CGuard EPS, as well
as an increase of $0.3 million related to underutilization of our manufacturing resources. These increases, however, were partially
offset by a decrease of $0.4 million in costs associated with the voluntary field action. Gross margin (gross profits as a percentage
of revenue) decreased from 27.8% in the twelve months ended December 31, 2014 to (12.8)% in the same period in 2015. The decrease
in gross margin of 40.6% was driven mainly by write-offs of inventory, the change in product mix, including a higher percentage
of CGuard EPS, which has higher material and labor costs than our MGuard coronary products, and a lower average sales price of
MGuard Prime EPS.
Research and Development Expenses
. For
the twelve months ended December 31, 2015, research and development expenses decreased by 58.3%, or $5.1 million, to $3.6 million,
from $8.7 million during the same period in 2014. This decrease in research and development expenses resulted primarily from a
decrease of $3.4 million in clinical trial expenses associated with our MASTER II trial, a decrease of $0.5 million in clinical
trial and development costs associated with CGuard EPS, which were predominantly related to our CARENET (
CAR
otid
E
mbolic protection using micro
NET
) trial, a decrease of $0.3 million in compensation expenses, a decrease
of $0.3 million of expenses related to our stent retention program, which we concluded in 2014, a decrease of $0.2 million in
travel expenses and a decrease of $0.4 million in miscellaneous clinical and development expenditures related to MGuard Prime
EPS. The decreases in compensation, travel and miscellaneous clinical and development expenditures related to MGuard Prime EPS
are the results of the implementation of our cost reduction/focused spending plan in the first quarter of 2015. Research and development
expenses as a percentage of revenue decreased to 157.7% for the twelve months ended December 31, 2015, from 310.3% in the same
period in 2014.
Selling and Marketing Expenses
. For
the twelve months ended December 31, 2015, selling and marketing expenses decreased by 51.9%, or $3.4 million, to $3.2 million,
from $6.6 million during the same period in 2014. This decrease in selling and marketing expenses resulted primarily from a decrease
of $2.2 million in compensation expenses due to our transition away from direct sales in favor of using third party distributors,
a decrease of $0.5 million in travel expenses associated with the decreased size of our sales force, a decrease of $0.5 million
in trade show participation related expenditures and a decrease of $0.2 million in miscellaneous expenses. The decrease in spending
of the above was a result of our cost reduction/focused spending plan. Selling and marketing expenses as a percentage of revenue
decreased to 137.6% in the twelve months ended December 31, 2015, from 234.7% in the same period in 2014.
General and Administrative Expenses
. For
the twelve months ended December 31, 2015, general and administrative expenses decreased by 30.0%, or $2.7 million, to $6.4 million,
from $9.1 million during the same period in 2014. The decrease in general and administrative expenses resulted primarily from
a decrease of $2.1 million in compensation due to a decrease in share-based compensation driven by lower valued ESOP grants made
to our management and directors, as well as a decrease in salary expenses due to a reduced headcount as part of our cost reduction/focused
spending plan. In line with our cost reduction/focused spending plan, we also had a decrease of $0.2 million in legal expenses,
a decrease of $0.1 million in travel expenditures and a decrease of $0.4 million in miscellaneous expenses. General and administrative
expenses as a percentage of revenue decreased to 276.5% in the twelve months ended December 31, 2015 from 323.8% in the same period
in 2014.
Restructuring and Impairment Expenses.
For
the twelve months ended December 31, 2015, we incurred $1.0 million of restructuring and impairment expenses made up of $0.6 million
of expenses related to the impairment of an MGuard Prime EPS royalty buyout option due to anticipated lower sales in the future
due to the shift in industry preferences away from bare metal stents in favor of drug eluting stents, $0.2 million of cash payouts
and $0.1 million of restricted shares given to employees terminated in connection with our cost reduction/focused spending plan
and $0.1 million in fees associated with our early exit from a portion of our lease in our Boston office. Restructuring and impairment
expenses as a percentage of revenue was 42.5% for the twelve months ended December 31, 2015.
Financial Expenses
. For the
twelve months ended December 31, 2015, financial expenses decreased by 20.9%, or $0.3 million, to $1.1 million, from $1.4 million
during the same period in 2014. The decrease in financial expenses resulted from a decrease of $0.4 of interest expenses due to
the reduction in principal of our outstanding indebtedness, partially offset by an increase in miscellaneous expenses of $0.1
million. Financial expenses as a percentage of revenue decreased to 47.4% in the twelve months ended December 31, 2015, from 49.1%
in the same period in 2014.
Tax Expenses (Income).
For
the twelve months ended December 31, 2015 there was no material change in tax expenses (income) compared to the same period in
2014.
Net Loss
. Our net loss decreased
by $9.5 million, or 37.9%, to $15.6 million for the twelve months ended December 31, 2015 from $25.1 million during the same period
in 2014. The decrease in net loss resulted primarily from a decrease of $10.2 million in operating expenses primarily associated
with lower research and development expenses, due to our cost reduction/focused spending plan, and a decrease of $0.3 million
in financial expenses, partially offset by a decrease of $1.0 million in gross profit (see above for explanation).
Liquidity and Capital Resources
We had an accumulated deficit as of March
31, 2016, as well as net losses and negative operating cash flows in recent years. We expect to continue incurring losses and
negative cash flows from operations until our products (primarily CGuard EPS) reach commercial profitability. As a result of these
expected losses and negative cash flows from operations, along with our current cash position, we do not have sufficient resources
to fund operations beyond June 2016. Therefore, there is substantial doubt about our ability to continue as a going concern.
Our plans include the continued commercialization
of our products and raising capital through sale of additional equity securities, debt or capital inflows from strategic partnerships.
There are no assurances however, that we will be successful in obtaining the level of financing needed for our operations. If
we are unsuccessful in commercializing our products and raising capital, we may need to reduce activities, curtail or cease operations.
On October 23, 2013, we entered into a
loan and security agreement with Hercules Capital, Inc., which was subsequently amended on November 19, 2013, July 23, 2014, and
June 13, 2016, pursuant to which we received a loan of $10 million, before deduction of issuance costs. Interest on the loan is
determined on a daily basis at a variable rate equal to the greater of either (i) 10.5%, or (ii) the sum of (A) 10.5% plus (B)
the prime rate minus 5.5%. On June 13, 2016, we amended the loan and security agreement to provide that, among other things, the
principal payment otherwise due and payable will be suspended for a four month period beginning May 1, 2016, provided, that we
receive unrestricted and unencumbered net cash proceeds in an amount of at least $10 million from the sale of our equity securities
with investors acceptable to the lender on or prior to June 30, 2016. The term loan under the loan and security agreement, as
amended, matures on (i) April 1, 2017, if we do not complete such sale of our equity securities and the lender does not waive
such condition to complete such sale prior to June 30, 2016, or (ii) June 1, 2017, if we complete such sale of our equity securities,
or if the lender waives such condition to complete such sale of our equity securities, prior to June 30, 2016. Our obligations
under the loan and security agreement are secured by a grant of a security interest in all of our assets. In addition, in connection
with the loan and security agreement, on October 23, 2013, we issued the lender a five year warrant to purchase 168,351 shares
of our common stock at a per share exercise price of $2.97. On June 13, 2016, in connection with the amendment to the loan and
security agreement, we issued the lender a five year warrant to purchase up to the number of shares of common stock equal to $182,399.30,
divided by (i) the lowest effective price per share, determined on a common stock-equivalent basis, for which our equity securities
are sold and issued by the Company in an equity financing in which we receive unrestricted aggregate gross cash proceeds of at
least $7.5 million, subject to adjustment from time to time in accordance with the terms of the warrant agreement, or (ii) if
such equity financing shall not have been consummated on or before July 30, 2016, or if, prior to the consummation of such equity
financing, there shall be a transaction involving a change of control or a dissolution, liquidation or winding-up, then the closing
price of a share of our common stock on June 13, 2016, subject to adjustment thereafter from time to time in accordance with the
terms of the warrant agreement.
On October 23, 2013, we entered into an
at-the-market issuance sales agreement with MLV & Co. LLC (“MLV”), pursuant to which we may issue and sell shares
of our common stock in an aggregate amount up to $40 million from time to time in an “at-the-market” offering as defined
in Rule 415 under the Securities Act of 1933, as amended, through MLV as our sales agent. On August 15, 2014, we sold 94,800 shares
of our common stock, at $24.00 per share, pursuant to the at-the-market issuance sales agreement with MLV. These sales resulted
in net proceeds to us of approximately $2.2 million. We paid MLV compensation at a commission rate of 3% of the gross sales. Prior
to these sales, we have not made any sales under this “at-the-market” equity offering program, and, as of December
31, 2015, shares of our common stock having an aggregate value of approximately $37.7 million remained available for sale under
this offering program. Such sales were made pursuant to our effective $75 million shelf registration statement filed with the
Securities and Exchange Commission in October 2013 (File No. 333-191875). Our securities purchase agreement with purchasers of
shares of our common stock and warrants to purchase our common stock, dated March 4, 2015, entered into in connection with the
public offering described below, prohibits us from issuing and selling additional shares of our common stock under this “at-the-market”
equity offering program until March 9, 2017.
On November 7, 2014, we sold 626,189 shares
of our common stock and warrants to purchase 313,100 shares of our common stock in a registered direct offering. The shares of
common stock were sold at a negotiated purchase price of $13.00 per share, and each purchaser received a warrant to purchase one-half
of a share of common stock for each share of common stock that it purchased in the offering. The warrants are non-exercisable
for six months after the date of issuance and have a term of exercise of 42 months after the date of issuance and an exercise
price of $17.50. This offering resulted in net proceeds to us of approximately $7.4 million after deducting placement agent fees
and other estimated offering expenses. Such sales were made pursuant to the $75 million shelf registration statement.
On March 9, 2015, we sold 3,436,968 shares
of our common stock and warrants to purchase 3,436,968 shares of our common stock in a public offering. Each purchaser received
a warrant to purchase one share of common stock for each share of common stock that it purchased in the offering. The warrants
have a term of exercise of 5 years from the date of issuance and an exercise price of $5.50. This offering resulted in net proceeds
to us of approximately $12.4 million after deducting placement agent fees and other estimated offering expenses. Such sales were
made pursuant to the $75 million shelf registration statement.
On March 21, 2016, we sold 1,900,000 shares
of our common stock and warrants to purchase 950,000 shares of our common stock in a public offering. Each purchaser received
a warrant to purchase one half of one share of common stock for each share of common stock that it purchased in the offering.
The warrants are exercisable immediately and have a term of exercise of 5 years from the date of issuance and an exercise price
of $0.59. This offering resulted in gross proceeds to us of approximately $1.1 million.
On March 21, 2016, we sold 1,033,051 shares
of our common stock and warrants to purchase 516,526 shares of our common stock in a private placement. Each purchaser received
a warrant to purchase one half of one share of common stock for each share of common stock that it purchased in the offering.
The warrants are exercisable immediately and have a term of exercise of 5 years from the date of issuance and an exercise price
of $0.59. This offering resulted in gross proceeds to us of approximately $0.6 million.
These offerings on March 21, 2016, resulted
in net proceeds to us of approximately $1.4 million after deducting placement agent fees and other estimated offering expenses.
The sale of 1,900,000 shares of our common stock and warrants to purchase 950,000 shares of our common stock was made pursuant
to the $75 million shelf registration statement.
As of June 28, 2016, shares of our
common stock having an aggregate value of approximately $49.7 million remained available for sale under the shelf registration
statement, including approximately $37.7 million remaining available for sale under “at-the-market” equity offering
program; however, because our current aggregate value of public float is below $75 million, we may not sell more than the equivalent
of one-third of our public float during any 12 consecutive months, and as of June 28, 2016, we have no “shelf capacity”
under the $75 million shelf registration statement and cannot make further sales pursuant to such shelf registration statement.
Three months ended March 31, 2016
compared to the three months ended March 31, 2015
General
. At March 31, 2016,
we had cash and cash equivalents of $2.0 million, as compared to $3.3 million as of December 31, 2015. We have historically met
our cash needs through a combination of issuing new shares, borrowing activities and product sales. Our cash requirements are
generally for research and development, marketing and sales activities, finance and administrative cost, capital expenditures
and general working capital.
Cash used in our operating activities
was $1.9 million for the three months ended March 31, 2016 and $4.6 million for the same period in 2015. The principal reason
for the usage of cash in our operating activities for the three months ended March 31, 2016 was a net loss of $2.6 million, offset
primarily by $0.7 million in non-cash share based compensation that was largely paid to our directors and chief executive officer.
The principal reason for the usage of cash in our operating activities for the three months ended March 31, 2015 was a net loss
of $5.2 million, as well as an increase in working capital of $0.9 million, offset by $1.0 million in non-cash share-based compensation
that was largely paid to our directors and chief executive officer, $0.3 million of non-cash expenses related to the impairment
of our royalties buyout option (discussed above), $0.1 million of non-cash financial expense and $0.1 million of depreciation
and amortization expenses.
Cash provided by our investing activities
was $90,000 during the three months ended March 31, 2016, resulting from the receipt of cash previously funded to employee retirement
funds, compared to $11,000 of cash used by our investing activities during the same period in 2015.
Cash provided by financing activities
for the three months ended March 31, 2016 was $0.5 million, compared to $11.6 million during the same period in 2015. The principal
source of the cash provided by financing activities during the three months ended March 31, 2016 was the issuance of shares and
warrants in a concurrent public offering and private placement for approximately $1.5 million of proceeds, offset by loan repayments
of $1.0 million The principal source of the cash provided by financing activities during the three months ended March 31, 2015
relates to funds received from the issuance of shares and warrants of approximately $12.5 million in a public offering, offset
by the repayment of a loan of $0.9 million and $0.1 million of payments made by us in satisfaction of tax withholding obligations
associated with the vesting of restricted stock held by some of our employees.
As of March 31, 2016, our current liabilities
exceeded our current assets by a multiple of 2.1. Current assets decreased by $1.3 million during the period and current liabilities
increased by $0.2 million during the period. As a result, our working capital deficit increased by $1.5 million to $3.7 million
at March 31, 2016.
Twelve months ended December 31,
2015 compared to the twelve months ended December 31, 2014
General
. At December 31, 2015,
we had cash and cash equivalents of $3.3 million, as compared to $6.3 million as of December 31, 2014. We have historically met
our cash needs through a combination of issuing new shares, borrowing activities and product sales. Our cash requirements are
generally for research and development, marketing and sales activities, finance and administrative cost, capital expenditures
and general working capital.
Cash used in our operating activities
was $11.6 million for the twelve months ended December 31, 2015 and $19.4 million for the same period in 2014. The principal reasons
for the usage of cash in our operating activities for the twelve months ended December 31, 2015 were a net loss of $15.6 million,
as well as an increase in working capital of $0.2 million, offset by $3.1 million in non-cash share based compensation that was
largely paid to our directors, chief executive officer and chief operating officer $0.6 million of non-cash expenses related to
the impairment of our royalty buyout option (discussed above), $0.3 million of non-cash financial expenses and $0.2 million of
depreciation and amortization expenses. The principal reasons for the usage of cash in our operating activities for the twelve
months ended December 31, 2014, were a net loss of $25.1 million, offset by $4.1 million in non-cash share-based compensation
that was largely paid to our directors and chief executive officer, a decrease in working capital of $0.9 million, $0.4 million
of non-cash financial expense and $0.3 million of depreciation and amortization expenses.
Cash used in our investing activities
was $23,000 during the twelve months ended December 31, 2015, compared to $86,000 during the same period in 2014. The decrease
in cash used in our investing activities resulted primarily from a decrease in purchases of property, plant and equipment.
Cash provided by financing activities
for the twelve months ended December 31, 2015, was $8.6 million, compared to $8.3 million during the same period in 2014. The
principal source of the cash provided by financing activities during the twelve months ended December 31, 2015 was the issuance
of shares and warrants in a public offering for approximately $12.4 million after deducting placement agent fees and other estimated
offering expenses, offset by loan repayments of $3.7 million and $0.1 million of payments made by us in satisfaction of tax withholding
obligations associated with the vesting of restricted stock held by some of our employees. The principal source of the cash provided
by financing activities during the twelve months ended December 31, 2014, relates to funds received from the issuance of shares
in a registered direct offering of $7.4 million and funds received from the issuance of at-the-market shares of $2.2 million,
offset by the repayment of a loan of $1.2 million.
As of December 31, 2015, our current liabilities
exceeded our current assets by a multiple of 1.5. Current assets decreased by $4.7 million during the period and current liabilities
decreased by $1.6 million during the period. As a result, our working capital surplus decreased by $3.1 million to a working capital
deficit of $2.3 million at December 31, 2015.
Off Balance Sheet Arrangements
We have no off-balance sheet transactions,
arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons
that have, or may have, a material effect on our financial condition, changes in financial condition, revenues or expenses, results
of operations, liquidity, capital expenditures or capital resources.
Recent Accounting Pronouncements
In
April, 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2015-03, “Simplifying
the Presentation of Debt Issuance Costs.” The new guidance requires debt issuance costs to be presented in the balance sheet
as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount.
The new guidance does not affect the recognition and measurement of debt issuance costs. The new guidance became effective during
the first quarter of 2016 and was applied on a retrospective basis.
As of March 31, 2016 and December 31, 2015, $68,000
and $85,000, respectively were deducted from the carrying value of the “Current maturity of loan” in the condensed
consolidated balance sheets.
In May 2014, the FASB issued Accounting
Standards Codification 606, Revenue from contracts with customers. The objective of the new revenue standard is to provide a single,
comprehensive revenue recognition model for all contracts with customers to improve comparability within industries, across industries,
and across capital markets. The revenue standard contains principles that an entity will apply to determine the measurement of
revenue and timing of when it is recognized. The underlying principle is that an entity will recognize revenue to depict the transfer
of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services,
based on a five step model that includes the identification of the contract with the customer and the performance obligations
in the contract, determination of the transaction price, allocation of the transaction price to the performance obligations in
the contract and recognizing revenue when (or as) the entity satisfies a performance obligation. The revenue standard is effective
for annual periods beginning on or after December 15, 2016. We are currently evaluating the impact, if any, the adoption of this
guidance will have on its consolidated financial statements.
On July 9, 2015, the FASB approved a one-year
deferral of the effective date of Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers,”
such that it is effective beginning on or after December 15, 2017 for public entities. Reporting entities may choose to adopt
the standard as of the original effective date.
On July 22, 2015, the FASB issued Accounting
Standards Update No. 2015-11, “Simplifying the Measurement of Inventory,” which requires that inventory within the
scope of the guidance be measured at the lower of cost and net realizable value. Inventory measured using last-in, first-out and
the retail inventory method are not impacted by the new guidance. The new guidance will be effective for public business entities
in fiscal years beginning after December 15, 2016, including interim periods within those years. Prospective application is required.
Early adoption is permitted as of the beginning of an interim or annual reporting period. We are currently evaluating the impact
of the standard on its consolidated financial statements.
In March 2016, FASB issued Accounting
Standards Update which simplifies certain aspects of the accounting for share-based payments, including accounting for income
taxes, classification of awards as either equity or liabilities, classification on the statement of cash flows as well as allowing
an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures
as they occur. This Accounting Standards Update is effective for fiscal years beginning after December 15, 2016, including interim
periods within those fiscal years. Early adoption is permitted in any annual or interim period for which financial statements
have not yet been issued, and all amendments in the Accounting Standards Update that apply must be adopted in the same period.
We are currently evaluating the new guidance to determine the impact it may have on our consolidated financial statements. In
addition, the impact on our consolidated financial statements upon adoption is dependent on our share price at option expiration
dates and restricted stock vesting dates.
Factors That May Affect Future Operations
We believe that our future operating results
will continue to be subject to quarterly variations based upon a wide variety of factors, including the cyclical nature of the
ordering patterns of our distributors, timing of regulatory approvals, the implementation of various phases of our clinical trials
and manufacturing efficiencies due to the learning curve of utilizing new materials and equipment. Our operating results could
also be impacted by a weakening of the Euro and strengthening of the NIS, both against the U.S. dollar. Lastly, other economic
conditions we cannot foresee may affect customer demand, such as individual country reimbursement policies pertaining to our products.
BUSINESS
Overview
We are a medical device company focusing
on the development and commercialization of our proprietary MicroNet stent platform technology for the treatment of complex vascular
and coronary disease. A stent is an expandable “scaffold-like” device, usually constructed of a metallic material,
that is inserted into an artery to expand the inside passage and improve blood flow. Our MicroNet, a micron mesh sleeve, is wrapped
over a stent to provide embolic protection in stenting procedures.
Our CGuard EPS combines our MicroNet mesh
and a self-expandable nitinol stent in a single device for use in carotid artery applications. Our CGuard EPS received CE mark
approval in the European Union in March 2013, and we launched its release on a limited basis in October 2014. In January 2015,
a new version of CGuard, with a rapid exchange delivery system, received CE mark approval in Europe and in September 2015, we
announced the full market launch of CGuard EPS in Europe through a distribution agreement with Penumbra, Inc. In September 2015,
we also received regulatory approval to commercialize CGuard EPS in Argentina and Colombia. Following the receipt of such regulatory
approval, we launched CGuard EPS in Argentina in the first quarter of 2016 and Colombia in the fourth quarter of 2015.
Our MGuard Prime EPS is marketed for use
in patients with acute coronary syndromes, notably acute myocardial infarction (heart attack) and saphenous vein graft coronary
interventions (bypass surgery). MGuard Prime EPS combines the MicroNet with a bare-metal cobalt-chromium based stent and, together
with our first generation MGuard stent combining the MicroNet with a bare-metal stainless steel stent, unless otherwise indicated,
we refer to both kinds of bare-metal stents as MGuard coronary products. We market and sell MGuard Prime EPS for the treatment
of coronary disease in the European Union. MGuard Prime EPS received CE mark approval in the European Union in October 2010 for
improving luminal diameter and providing embolic protection. However, as a result of a shift in industry preferences away from
bare-metal stents in favor of drug-eluting (drug-coated) stents, in 2014 we decided to curtail further development of this product
in order to focus on the development of a drug-eluting stent product, MGuard DES. Due to limited resources, though, our efforts
have been limited to testing drug-eluting stents manufactured by potential partners for compatibility and incorporating our MicroNet
in-house onto a drug-eluting stent manufactured by a potential partner. We are also developing a neurovascular flow diverter,
which is an endovascular device that directs blood flow away from cerebral aneurysms in order to ultimately seal the aneurysms.
Our flow diverter would utilize an open cell, highly flexible metal scaffold to which MicroNet would be attached. We have commenced
initial pre-clinical testing of this product in both simulated bench models and standard in vivo pre-clinical models.
We also intend to develop a pipeline of
other products and additional applications by leveraging our MicroNet technology to new applications to improve peripheral vascular
and neurovascular procedures, such as the treatment of the superficial femoral artery disease, vascular disease below the knee
and neurovascular stenting to open diseased vessels in the brain.
Presently, none of our products may be
sold or marketed in the United States.
During the first quarter of 2015, we implemented
a cost reduction/focused spending plan. The plan has four components: (i) reducing headcount; (ii) limiting the focus of clinical
and development expenses to only carotid and neurovascular products; (iii) limiting sales and marketing expenses to those related
to CGuard EPS stent launch; and (iv) reducing all other expenses (including conferences, travel, promotional expenses, executive
cash salaries, director cash fees, rent, etc.). In addition, we decided to alter our commercial strategy by using third party
distributors to drive future sales, as opposed to direct sales to hospitals and clinics, which had previously been our focus.
Recent Developments
On March 21, 2016, we sold 1,900,000 shares
of our common stock and warrants to purchase 950,000 shares of our common stock in a public offering. Each purchaser received
a warrant to purchase one half of one share of common stock for each share of common stock that it purchased in the offering.
The warrants are exercisable immediately and have a term of exercise of 5 years from the date of issuance and an exercise price
of $0.59. This offering resulted in gross proceeds to us of approximately $1.1 million, before deducting the underwriting discount
and estimated offering expenses.
On March 21, 2016, we sold 1,033,051 shares
of our common stock and warrants to purchase 516,526 shares of our common stock in a private placement. Each purchaser received
a warrant to purchase one half of one share of common stock for each share of common stock that it purchased in the private placement.
The warrants are exercisable immediately and have a term of exercise of 5 years from the date of issuance and an exercise price
of $0.59. This private placement resulted in gross proceeds to us of approximately $0.6 million, before deducting placement agent
fees and estimated offering expenses.
These sales of securities on March 21,
2016 resulted in aggregate net proceeds to us of approximately $1.4 million, after deducting underwriting discount, placement
agent fees and other offering expenses.
Growth Strategy
Our primary business objective is to utilize
our proprietary technology to become the industry standard for treatment of complex vascular and coronary disease and to provide
a superior solution to the common acute problems caused by current stenting procedures, such as restenosis, embolic showers and
late thrombosis. We are pursuing the following business strategies in order to achieve this objective.
|
•
|
Grow
our presence in existing and new markets for CGuard EPS.
We have fully launched
CGuard EPS in most European and Latin American countries, through a combination of distributor
sales organizations as well as a partnership with Penumbra, Inc., a global interventional
therapies company focused on the neuro and peripheral vascular specialties, to distribute
CGuard EPS in 18 European countries. We are also pursuing additional registrations and
contracts in other countries in Europe, Asia and Latin America.
|
|
•
|
Continue
to leverage MicroNet technology to develop additional applications for interventional
cardiologists and vascular surgeons.
In addition to the applications described
above, we believe that we will eventually be able to utilize our proprietary technology
to address imminent market needs for new product innovations to significantly improve
patients’ care. We continue to broadly develop and protect intellectual property
using our mesh technology. Examples of some areas include peripheral vascular disease,
neurovascular disease, renal artery disease, and bifurcation disease.
|
|
•
|
Establish
relationships with collaborative and development partners to fully develop and market
our existing and future products.
We are seeking strategic partners for collaborative
research, development, marketing, distribution, or other agreements, which could assist
with our development and commercialization efforts for CGuard EPS and our NGuard flow
diverter, as well as future efforts with MGuard Prime EPS, MGuard DES, and other potential
products that are based on our MicroNet technology.
|
|
•
|
Continue
to protect and expand our portfolio of patents.
Our MicroNet technology and
the use of patents to protect it are critical to our success. We own numerous patents
for our MicroNet technology. Twelve separate patent applications have been filed in the
United States some of which have corresponding patent applications and/or issued patents
in Canada, China, Europe, Israel, India, and South Africa. We believe these patents and
patent applications collectively cover all of our existing products, and may be useful
for protecting our future technology developments. We intend to aggressively continue
patenting new technology, and to actively pursue any infringement covered by any of our
patents. We believe that our patents, and patent applications once allowed, are important
for maintaining the competitive differentiation of our products and maximizing our return
on research and development investments.
|
|
•
|
Resume
development and successfully commercialize the next generation of drug-eluting stent
incorporating MicroNet.
While we have limited the focus of product development
to carotid and neurovascular products, if we resume development of our coronary products,
we plan to evaluate opportunities to further develop a drug-eluting stent that incorporates
MicroNet.
|
Business Segment and Geographic Areas
Prior to October 2014, all revenue was
derived from sales of MGuard Prime EPS, our bare-metal coronary stent. For the twelve months ended December 31, 2015, 70% of our
revenue was derived from sales of this product. For financial information about our one operating and reportable segment and geographic
areas, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and
Note 13 to our financial statements for the year ended December 31, 2015.
Our Industry
Carotid
Carotid arteries are located on each side
of the neck and provide the primary blood supply to the brain. Carotid artery disease, also called carotid artery stenosis, is
a type of atherosclerosis (hardening of the arteries) that is one of the major risk factors for ischemic stroke. In carotid artery
disease, plaque accumulates in the artery walls, narrowing the artery and disrupting the blood supply to the brain. This disruption
in blood supply, together with plaque debris breaking off the artery walls and traveling to the brain, are the primary causes
of stroke. According to the World Heart Federation (
http://www.world-heart-federation.org/cardiovascular-health/stroke/
,
l
ast visited on Mar. 11, 2016), every year, 15 million people worldwide suffer a stroke, and nearly six million die and
another five million are left permanently disabled. According to the same source, stroke is the second leading cause of disability,
after dementia.
The potential global market value of carotid
stents is approximately $500 million, approximately $300 million of which consists of the U.S. market and approximately $200 million
of which consists of the rest of the world (
source: JMP Securities 2014 and Cowen 2014)
. Carotid artery stenting is a minimally
invasive treatment option for carotid artery disease and an alternative to carotid endarterectomy, where a surgeon accesses the
blocked carotid artery though an incision in the neck, and then surgically removes the plaque. Endovascular techniques using stents
and carotid embolic prevention system protect against plaque and debris traveling downstream, blocking off the vessel and disrupting
blood flow. We believe that the use of a stent with an embolic protection system should increase the number of patients being
treated since it would avoid the need for complex surgery.
Coronary
Physicians and patients may select from
among a variety of treatments to address coronary artery disease, including pharmaceutical therapy, balloon angioplasty, stenting
with bare metal or drug-eluting stents, and coronary artery bypass graft procedures, with the selection often depending upon the
stage of the disease.
The global market value of coronary products
is estimated at $5.9 billion, of which $4.2 billion is for stable angina and $1.7 billion is for acute myocardial infarctions
according to Health Research International (June 2011). According to the 2014 MEDTECH OUTLOOK produced in December 2013 by BMO
Capital Markets (“MEDTECH OUTLOOK”), revenues from the global coronary stent market are predicted to slightly decline,
although in volume of stents the market is predicted to continue to grow. We believe the growth in volume is due to the appeal
for less invasive percutaneous coronary intervention (“PCI”) procedures and advances in technology coupled with the
increase in the elderly population, obesity rates and advances in technology.
Neurovascular
The neurovascular market focuses on catheter-delivered
products used to treat strokes that already happened or unruptured brain aneurysms that could lead to strokes. In the latter case,
coils are wound into blood vessel bulges to block blood flow entering the aneurysms to prevent the aneurysms from rupturing. Endovascular
treatment of arterial aneurysm has evolved substantially over the past two decades, transitioning from an investigational therapy
into routine clinical practice and ultimately emerging as the treatment of choice for many lesions
(source: Medtech Ventures
2009, Aneurysm Flow Modulating Device Market).
We believe that the market for aneurysm flow modulating devices is still in
the embryonic stage with windows of opportunities for early entrance.
The current global market for the aneurysm
flow modulating devices is estimated at $550 million, and the current market value of the flow diversion market segment is estimated
to be $125 million. The neurovascular market includes over-the-wire, flow-guided microcatheters, guiding catheters, coil and liquid
embolics, neurovascular stents and flow diversion stents. According to iData Research, the market is expected to be driven by
the conversion from surgical procedures to endovascular techniques in the treatment of aneurysms and arteriovenous malformations.
Peripheral
Peripheral vascular diseases (“PVD”) are caused
by the formation of atherosclerotic plaques in arteries, which carry blood to organs, limbs and head. It is also known as peripheral
artery occlusive disease or peripheral artery disease. It comprises diseases pertaining to both peripheral veins and peripheral
arteries, affecting the peripheral and cardiac circulation in the body. PVD includes diseases outside of the heart and brain,
but most times refers to the leg and foot.
The
global market value of
PVDs
is estimated at $1.7 billion
(
source:
Global Data 2011
)
.
The overall peripheral vascular devices
market consists of nine different product segments: peripheral vascular stents, chronic total occlusion devices, peripheral transluminal
angioplasty balloon catheters, atherectomy devices, percutaneous transluminal angioplasty guidewires, aortic stents, embolic protection
devices, synthetic surgical grafts and inferior vena cava filters
(source: Grand View Research 2014)
.Treatment modalities
and methods have considerably improved during the last several years, and this trend is expected to continue (
source: Global
Data 2011
). Stents and balloons hold the majority of the share in the peripheral vascular devices market. Peripheral stents
are more often used in combination with balloon angioplasty to open the veins, so that blood can flow through the blocked veins
in the body.
The growing prevalence of PVD is expected to cause increased
demand for treatment options. The expansion of the elderly population is contributing to increasing incidence rates of PVD.
The percentage of the global population above the age of 50 is expected to reach 17% by 2030. As the risk of developing
PVD increases with age, a growing elderly population translates into a growing incidence of PVD (
source: Global Data 2011
).
The growing global geriatric population base also triggers increasing demand for minimally invasive endovascular procedures on
account of their shorter recovery time, lesser scaring and lesser chances of post surgery infections. In addition, a growing prevalence
of disease causing lifestyle factors and eating habits such as high consumption of alcohols and tobacco products is expected to
boost peripheral vascular devices market demand by triggering the incidence rates of cardiac arrest, blood clotting and other
vascular diseases
(source: Grand View Research 2014).
Our Products
Below is a summary of our current products
and products under development, and their intended applications.
MicroNet
MicroNet is our proprietary circular knitted
mesh which wraps around a stent to protect patients from plaque debris flowing downstream upon deployment. MicroNet is made of
a single fiber from a biocompatible polymer widely used in medical implantations. The size, or aperture, of the current MicroNet
‘pore’ is only 150-180 microns in order to maximize protection against the potentially dangerous plaque and thrombus.
CGuard — Carotid Applications
Our CGuard EPS combines our MicroNet mesh
and a self-expandable nitinol stent (a stent that expands without balloon dilation pressure or need of an inflation balloon) in
a single device for use in carotid artery applications. MicroNet is placed over and attached to an open cell nitinol metal stent
platform which is designed to trap debris and emboli that can dislodge from the diseased carotid artery and potentially travel
to the brain and cause a stroke. This danger is one of the greatest limitations of carotid artery stenting with conventional carotid
stents and stenting methods. The CGuard EPS technology is a highly flexible stent system that conforms to the carotid anatomy.
Our CGuard EPS with over-the-wire delivery
system received CE mark approval in the European Union in March 2013. In October 2014, we initiated a limited market release of
CGuard EPS with over-the-wire delivery system for use in carotid artery applications in Germany, Poland and Italy.
In September 2014, we reported the results
of the CGuard CARENET trial at the Transcatheter Cardiovascular Therapeutics (“TCT”) conference in Washington D.C.
In the CARENET trial, the CGuard EPS system demonstrated better results over historical data using conventional commercially available
carotid stents. In the third quarter of 2015 the results of the CGuard CARENET trial were published in the Journal of the American
College of Cardiology. In November 2015, positive twelve month follow-up data from the CGuard CARENET trial was presented at the
42
nd
Annual Symposium on Vascular and Endovascular Issues, documenting the benefits of the CGuard MicroNet technology
as well as the patency benefits (maintaining the artery open) of the internal and external carotid arteries at twelve months.
We believe that our CGuard EPS design
provides advantages over existing therapies in treating carotid artery stenosis, such as conventional carotid stenting and surgical
endarterectomy, given the superior embolic protection characteristics provided by the MicroNet. We believe the MicroNet will provide
acute embolic protection at the time of the procedure, but more importantly, we believe that CGuard EPS will provide post-procedure
protection against embolic dislodgement, which can occur up to 48 hours post-procedure. It is in this post-procedure time frame
that embolization is the source of post-procedural strokes in the brain. Schofer, et al. (“Late cerebral embolization after
emboli-protected carotid artery stenting assessed by sequential diffusion-weighted magnetic resonance imaging,”
Journal
of American College of Cardiology Cardiovascular Interventions
, Volume 1, 2008) have shown that the majority of the incidents
of embolic showers associated with carotid stenting occur post-procedure.
In the first quarter of 2015, we introduced
CGuard RX, the new rapid exchange delivery system for CGuard EPS. The rapid exchange delivery system has a guidewire that passes
through the delivery system, running through the guiding catheter. It has one port, and thus, can be operated by one operator,
while an over-the-wire-delivery system has two lumens and ports and requires two operators to perform the procedure. Our rapid
exchange delivery system received CE mark approval in January 2015. We launched our CGuard EPS in Europe with the rapid exchange
delivery system in multiple medical specialties that perform carotid artery stenting. These customers include interventional cardiologists,
vascular surgeons, interventional neuroradiologists and interventional radiologists.
In September 2015, we announced full market
launch of CGuard EPS by our distribution partner, Penumbra, Inc., in 18 CE marked countries in Europe. In October 2015, we received
regulatory approval to commercialize CGuard EPS in Argentina and Colombia. Following the receipt of such regulatory approval,
we launched CGuard EPS in Argentina in the first quarter of 2016 and Colombia in the fourth quarter of 2015. We are currently
preparing materials required to conduct a clinical trial in the United States and have a draft clinical protocol synopsis that
we believe could support a clinical trial for submission for approval by the U.S. Food and Drug Administration. Once complete,
we plan to request a pre-submission guidance meeting with the U.S. Food and Drug Administration.
MGuard Products — Coronary
Applications
Bare-Metal Stent MGuard Product.
Our
MGuard Prime EPS coronary product is comprised of MicroNet wrapped around a cobalt-chromium based bare-metal stent. In comparison
to a conventional bare-metal stent, we believe our MGuard Prime EPS coronary product with MicroNet mesh provides protection from
dangerous embolic showers in patients experiencing ST-segment elevation myocardial infarction, the most severe form of a heart
attack, referred to as STEMI. Standard stents were not engineered for heart attack patients. Rather, they were designed for treating
stable angina patients whose occlusion is different from that of an occlusion in a heart attack patient. In acute heart attack
patients, the plaque or thrombus is unstable and often breaks up as the stent is implanted causing downstream blockages in a significant
portion of heart attack patients. Our MGuard Prime EPS is integrated with a precisely engineered micro net mesh that is designed
to prevent the unstable arterial plaque and thrombus that caused the heart attack blockage from breaking off.
During the fourth quarter of 2014, due
to a shift in industry preferences away from bare-metal stents in favor of drug-eluting (drug-coated) stents, we decided to curtail
developing and promoting our bare-metal stent platform and instead focus on the development of a drug-eluting stent product. Although
we have curtailed development and promotion of MGuard Prime EPS, our distributors and sales staff generally cover all of our current
products in the market including MGuard Prime EPS.
Drug-Eluting Stent MicroNet Product
Candidate.
During 2015, we completed the second phase of development work for our MGuard DES, pursuant to which we
incorporated our MicroNet with a drug-eluting stent manufactured by a prospective partner. We believe that a drug-eluting stent
with MicroNet has the potential to improve certain performance metrics over the MGuard Prime EPS and attract a broader portion
of the cardiologists in the worldwide stent market who are more accustomed to using drug-eluting stents. However, due to our limited
resources we have tabled further development of MGuard DES at this time.
NGuard — Neurovascular Applications
We are developing a neurovascular flow
diverter, which is an endovascular device that directs blood flow away from cerebral aneurysms to ultimately seal the aneurysms.
Flow diversion is a growing market segment within the neurovascular medical device field. Current commercial flow diverters are
highly flexible dense metal mesh tubes that go across most types of cerebral aneurysms and divert the blood flow away from the
aneurysm with the desired end result of sealing the aneurysm. The challenges with the current flow diverters are that they (i)
are difficult to place given the high metal content in the device, which makes it more difficult to move the device through the
delivery system due to resistance from the metal, and to subsequently accurately place it, (ii) need to be accurately placed to
avoid crossing and blocking other cerebral vessels, which could cause additional damage by cutting off blood flow to sections
of the brain, (iii) require chronic use of anti-thrombotic medications due to the amount of metal in the cerebral vasculature,
which could cause thrombotic complications, and (iv) do not allow a physician to reaccess the aneurysm if the aneurysm does not
seal, in which event the aneurysm may need to be treated with another therapy such as aneurysm coils, due to the tight metal mesh
that will not allow other devices to pass through the flow diverter.
Our flow diverter prototype will include
our MicroNet that has been employed in CGuard EPS and MGuard Prime EPS. MicroNet has already demonstrated the ability to effectively
seal aneurysms in both human coronary arteries using the MGuard Prime EPS and aneurysms in the carotid arteries using CGuard EPS
in human clinical situations without the need for additional devices or procedures (coils or a second stent) (
source: Journal
of Medical Case Reports http://www.jmedicalcasereports.com/content/4/1/238
). For our flow diverter, we plan to utilize an
open cell, highly flexible metal scaffold to which MicroNet would be attached. We believe our flow diverter could be more accurately
delivered due to a lower metal content scaffold than current commercial flow diverters; lower metal content in our flow diverter
may reduce the need for long-term anticoagulation; the open cell metal scaffold combined with the MicroNet may allow passage of
other devices through the MicroNet mesh without compromising the MicroNet, thus allowing a physician to reaccess the aneurysm,
if needed; and our flow diverter should be capable of being delivered through a state-of-the-art microcatheter for accurate placement
without constant repositioning. We have tested early flow diverter prototypes in both simulated aneurysm bench models using various
MicroNet configurations with varying aperture sizes, as well as in standard in vivo pre-clinical models, in which we observed
aneurysm sealing and also wide open side branch vessels across which the device was placed.
We expect to complete the development
work on our flow diverter and submit for CE mark approval in 2017.
PVGuard — Peripheral Vascular
Applications
We intend to develop our MicroNet mesh
sleeve and a self-expandable stent for use in peripheral vascular applications, to which we refer to as PVGuard. PVDs are usually
characterized by the accumulation of plaque in arteries in the legs. This accumulation can lead to the need for amputation or
even death, when untreated. PVD is treated either by trying to clear the artery of the blockage, or by implanting a stent in the
affected area to push the blockage out of the way of normal blood flow.
As in carotid procedures, peripheral procedures
are characterized by the necessity of controlling embolic showers both during and post-procedure. Controlling embolic showers
is so important in these indications that physicians often use fully covered stents, at the risk of blocking branching vessels,
to ensure that emboli do not fall into the bloodstream and move to the brain. We believe that our MicroNet design will provide
substantial advantages over existing therapies in treating peripheral artery stenosis.
We estimate that we may complete the development
work on our PVGuard and submit for CE mark approval in 2018.
Completed Clinical Trials for CGuard
EPS — CARENET
The CARENET trial was the first multi-center
study of CGuard EPS following the receipt of CE mark of this device in March 2013. The CARENET trial was designed to evaluate
feasibility and safety of CGuard EPS in treatment of carotid lesions in consecutive patients suitable for coronary artery stenting
(“CAS”) in a multi-operator, real-life setting. The acute, 30 day, magnetic resonance imaging (“MRI”),
ultrasound and six month clinical event results were presented at the LINC conference in Leipzig, Germany in February, 2015. In
the third quarter of 2015, the results of the CGuard CARENET trial were published in the Journal of the American College of Cardiology.
In November 2015, positive twelve month follow-up data from the CGuard CARENET trial was presented at the 42
nd
Annual
Symposium on Vascular and Endovascular Issues, documenting the benefits of the CGuard MicroNet technology as well as the patency
benefits (maintaining the artery open) of the internal and external carotid arteries at twelve months.
MACCE (myocardial infarction (“MI”),
stroke or death) was 0.0% at 30 days. At six months, there was one case of death, which was not stent or procedure-related, and
MACCE was increased to 3.6%. At twelve months there were three cases of death, which were not stent or procedure-related, and
MACCE was 11.1%.
|
|
30 days
(n=30)
|
|
|
6 months (n=28)
|
|
|
12 months (n=27)
|
|
MACCE (MI, stroke, death)
|
|
|
(0)0.0
|
%
|
|
|
(1)3.6
|
%
|
|
|
(3)11.1
|
%
|
MI
|
|
|
(0)0.0
|
%
|
|
|
(0)0.0
|
%
|
|
|
(0)0.0
|
%
|
Stroke
|
|
|
(0)0.0
|
%
|
|
|
(0)0.0
|
%
|
|
|
(0)0.0
|
%
|
Death
|
|
|
(0)0.0
|
%
|
|
|
(1)3.6
|
%
|
|
|
(3)11.1
|
%
|
In addition, 30 day and 6 month follow-up
data from the CARENET study determined the following MACCE events as compared to MACCE events from studies using conventional
carotid stents:
|
|
30
days
(14 trials, 5255
patients)
(1)
|
|
|
6
months
(3
trials, 1053
patients)
(2)
|
|
MACCE (MI, stroke, death)
|
|
|
5.72
|
%
|
|
|
8.09
|
%
|
(1)
Trials included in analysis: ARCHeR pooled, ARMOUR, BEACH, CABERNET, CREATE, EMPIRE, EPIC, MAVErIC 1+2, MAVErIC International,
PRIAMUS, SAPPHIRE, SECURITY, PROFI, ICSS
(2) Values extrapolated
from event curves (
source: The CARENET all-comer trial using the CGuard micronet-covered carotid embolic prevention stent,
presented by Dr. Piotr Musialek at the LINC 2015 conference
)
CAS carries the risk of cerebral embolization
during and following the procedure, leading to life-threatening complications, mainly cerebral ischemic events. Diffusion-weighted
magnetic resonance imaging (DW-MRI) is a sensitive tool used to identify cerebral emboli during CAS by measuring “lesions”
within the brain which are areas that are ischemic and do not receive oxygenated blood due to cerebral emboli. In the CARENET
trial, 37.0% of patients treated with CGuard EPS had new ischemic lesions at 48 hours after the procedure, with an average volume
of 0.039 cm
3
. Of these lesions, there was only one that remained at 30 days following the procedure and all others
had resolved. Complete details appear in the following table. Where there is a second number shown below after a ±,it indicates
the rate of error.
|
|
48 hours
n=27
|
|
|
30 days
n=26
|
|
Subjects with new Acute Ischemic Lesions
(“AIL”)
|
|
|
10
|
|
|
|
1
|
|
Incidence of new lesions
|
|
|
37.0%
|
|
|
|
4.0%
|
|
Total number new AIL
|
|
|
83
|
|
|
|
1
|
|
Avg. number new AIL per patient
|
|
|
3.19
± 10.33
|
|
|
|
0.04
± 0.20
|
|
Average
lesion volume (cm
3
)
|
|
|
0.039
± 0.08
|
|
|
|
0.08
± 0.00
|
|
Maximum
lesion volume (cm
3
)
|
|
|
0.445
|
|
|
|
0.116
|
|
Permanent AIL at 30 days
|
|
|
—
|
|
|
|
1
|
|
The healing process of the tissue and
in-stent restenosis can be measured by a non-invasive form of ultrasound called duplex ultrasound. This type of ultrasound measures
the velocity of the blood that flows within the carotid arteries, which increases exponentially as the lumen of the internal carotid
artery narrows and the percent stenosis increases. One of the measurements is called PSV (peak systolic volume) and is known to
be highly correlated to the degree of in-stent restenosis; PSV values higher than 300 cm/sec are indicative of >70% stenosis,
while PSV values lower than 104 cm/sec are indicative of <30% restenosis and healthy healing. In the CARENET trial, duplex
ultrasound measurements done at 30 days, 6 months and 12 months following the stenting procedure all attest to healthy normal
healing without restenosis concerns, as the PSV values were 60.96 cm/sec ± 22.31, 85.24 cm/sec ± 39.56, and 90.22
cm/sec ± 37.72 respectively. The internal carotid artery was patent in all patients (100%).
The conclusions of the CARENET trial were:
|
•
|
CARENET
trial demonstrated safety of CGuard EPS stent, with 30 day MACCE of 0%.
|
|
•
|
Incidence
of new ipsilateral lesions (percent of patients with new lesions on the ipsilateral side
(same side where the stent was employed)) at 48 hours was reduced by almost half compared
to published data, and volume was reduced almost tenfold.
|
|
•
|
All
but one lesion had resolved completely by 30 days.
|
|
•
|
Twelve
month data showed no change in peak systolic velocity between 6 months and 12 months,
suggesting no restenosis concerns.
|
|
•
|
CGuard
EPS offers unique clinical benefits for patients undergoing CAS with unprecedented safety.
|
Ongoing Physician-Sponsored Clinical
Trials for CGuard
—
PARADIGM Study
PARADIGM (
P
rospective evaluation
of
A
ll-comer pe
R
cutaneous c
A
roti
D
revascularization
I
n symptomatic
and increased-risk asymptomatic carotid artery stenosis, using C
G
uard™
M
esh-covered embolic
prevention stent system) is an investigator-led, single center study with the objective of evaluating feasibility and outcome
of routine anti-embolic stent system in unselected, consecutive carotid patients (all-comers) referred for carotid revascularization,
initiated in 2015.
The PARADIGM included evaluation of 71
CGuard EPS procedures in 68 unselected all-comer patients and continues to show favorable angiographic and clinical outcomes in
using CGuard EPS in patients with carotid artery disease as follows:
|
•
|
CGuard
EPS success and procedure success rate were 100%.
|
|
•
|
Periprocedural
complications were 0% and remained at 0% at 30 days following the procedure.
|
|
•
|
No
major adverse cardiac or neurological events occurred periprocedurally or at 30 days
following the procedure, pursuant to operator-independent neurologist and non-invasive
cardiologist evaluation.
|
In May 2016, CGuard EPS reported positive
results in PARADIGM-101, an investigator-led clinical evaluation of the CGuard EPS system for routine use in 101 consecutive,
increased risk patients undergoing carotid artery stenting. In the PARADIGM-101 study, the investigator conducted clinical evaluation
of the safety and periprocedural and 30 day clinical efficacy of routine use of the CGuard EPS system in unselected carotid stenosis
patients, building upon the earlier PARADIGM study, and also assessed the CGuard EPS’s ability to minimize vessel narrowing
after carotid stenting. The results of the PARADIGM-101 study were presented at the EuroPCR 2016 Late-Breaking Clinical Trial
Session in Paris, France.
The conclusions of the PARADIGM-101 study
were:
|
•
|
CGuard
EPS delivery success was 99.1%. The clinical evaluation also found no device foreshortening
or elongation.
|
|
•
|
At
48 hours, MACCE was at 0%.
|
|
•
|
At
30 days, MACCE was at 0% as determined by independent neurological and angiographic evaluation.
|
The results of the PARADIGM-101 study
support that CGuard EPS can safely be used on a high risk, all-comer population of patients with carotid artery stenosis and indicate
that routine use of CGuard EPS may prevent cerebral events, such as strokes, by holding plaque against the vessel wall, preventing
emboli from being released into the blood stream.
Ongoing Physician-Initiated Study
for CGuard
—
IRON-Guard Registry
The IRON-Guard (
I
talian
R
egistry of car
O
tid ste
N
ting with the C-
GUARD
mesh-stent) is a physician-initiated,
Italian, prospective, multicenter, single-arm study with a total of 200 patients from 29 clinicians from 23 different centers
planned to be enrolled. The objective of the registry is to evaluate the clinical outcome of treatment by means of stenting with
the CGuard patients requiring CAS due to significant extra-cranial carotid artery stenosis. The primary endpoint of this study
is the 30-day rate of major adverse events, defined as the cumulative incidence of any periprocedural (≤ 30 days post-procedure)
death, stroke or MI. The secondary endpoints are rate of late ipsilateral stroke (31 through 365 days), system technical success,
device malfunctions, major adverse events, serious device-related and procedure-related adverse events, target lesion revascularization,
and in-stent restenosis rates. The anticipated duration of this study is approximately 24 months, namely 12 months per patient
follow-up, with a recruitment period of 12 months. (
source: Setacci, et. al., J Cardiovasc Surg. 2015 May 2
)
Completed Clinical Trials for MGuard
Bare-Metal Coronary Products
We have completed eight clinical trials
with respect to our first generation stainless steel-based MGuard stent and our cobalt-chromium based MGuard Prime EPS stent.
Our first generation MGuard stent combining the MicroNet with a stainless steel stent received CE mark approval for the treatment
of coronary artery disease in the European Union in October 2007. We subsequently replaced the stainless steel stent with a more
advanced cobalt-chromium based stent for MGuard Prime EPS.
The First in Men (FIM) study conducted
in Germany from the fourth quarter of 2006 through the second quarter of 2008 focused on patients with occlusion in their stent
graft. This group is considered to be in “high risk” for complications during and shortly after the procedure due
to the substantial risk of occurrence of a thromboembolic event. The study demonstrated MGuard stent’s safety in this high
risk group. This study was followed by the GUARD study in Brazil in 2007 with a similar patient population which reinforced the
safety profile of MGuard stents in patients prone to procedural complications. The MAGICAL study was a pilot study in STEMI patients
conducted in Poland from 2008 through 2012 which demonstrated safety, measured by MACE rates at 30 days following the stent procedure,
as well as efficacy results, measured by the ability of MGuard to reestablish blood flow into the infarcted area of the muscle.
Furthermore, we conducted three registries (iMOS, IMR and iMOS Prime) that confirmed the feasibility of MGuard and MGuard Prime
EPS for the treatment of STEMI patients and the safety of MGuard and MGuard Prime EPS in the STEMI patient group. Safety was repeatedly
demonstrated in these trials and registries by the low mortality rate in the first month after the procedure.
In the second calendar quarter of 2011,
we began the MGuard for Acute ST Elevation Reperfusion Trial (which we refer to as our “MASTER I trial”), a prospective,
randomized study, which demonstrated that among patients with acute STEMI undergoing emergency PCI, patients treated with MGuard
had superior rates of epicardial coronary flow (blood flow within the vessels that run along the outer surface of the heart) and
complete ST-segment resolution, or restoration of blood flow to the heart muscle after a heart attack, compared to those treated
with commercially-approved bare metal or drug-eluting stents. The results of this trial are summarized in greater detail below.
Finally, the MASTER II trial, which we
initially initiated as part of our efforts to seek approval of our MGuard Prime EPS by the U.S. Food and Drug Administration,
was discontinued at our election in its current form in light of market conditions moving toward the use of drug-eluting stents
over bare-metal stents. Analysis of the patients already enrolled in the MASTER II trial prior to its suspension, however, reconfirmed
the MASTER I safety results due to a continued low mortality rate.
MASTER I Trial
In the second calendar quarter of 2011,
we began the MASTER I trial, a prospective, randomized study in Europe, South America and Israel to compare the MGuard with commercially-approved
bare metal and drug-eluting stents in achieving superior myocardial reperfusion (the restoration of blood flow) in primary angioplasty
for the treatment of acute STEMI. The MASTER I trial enrolled 433 subjects, 50% of whom were treated with an MGuard stent and
50% of whom were treated with a commercially-approved bare metal or drug-eluting stent. The detailed acute and 30 days results
from the trial were presented at the TCT conference on October 24, 2012 and published (Prospective, Randomized, Multicenter Evaluation
of a Polyethylene Terephthalate Micronet Mesh–Covered Stent (MGuard) in ST-Segment Elevation Myocardial Infarction, Stone
et. Al,
JACC
, 60; 2012). The results were as follows:
|
•
|
The
primary endpoint of post-procedure complete ST-segment resolution was statistically significantly
improved in patients randomized to the MGuard stent compared to patients receiving a
commercially-approved bare metal or drug-eluting stent (57.8% vs. 44.7%).
|
|
•
|
Patients
receiving the MGuard stent exhibited superior rates of thrombolysis in myocardial infarction
(TIMI) 3 flow, which evidences normal coronary blood flow that fills the distal coronary
bed completely, as compared to patients receiving a commercially-approved bare metal
or drug-eluting stent (91.7% vs. 82.9%), with comparable rates of myocardial blush grade
2 or 3 (83.9% vs. 84.7%) and corrected TIMI frame count (cTFC) (17.0 vs. 18.1), all markers
of optimal blood flow to the heart.
|
|
•
|
Angiographic
success rates (attainment of <50% final residual stenosis of the target lesion and
final TIMI 3 flow) were higher in the MGuard group compared to commercially-approved
bare metal or drug-eluting stents (91.7% vs 82.4%).
|
|
•
|
Mortality
(0% vs. 1.9%) and major adverse cardiac events (1.8% vs. 2.3%) at 30 days post procedure
were not statistically significantly different between patients randomized to the MGuard
stent as opposed to patients randomized to commercially-approved bare metal or drug-eluting
stents. All other major adverse cardiac event components, as well as stent thrombosis,
were comparable between the MGuard stent and commercially-approved bare metal or drug-eluting
stents.
|
The six month results from the MASTER
I trial, which were presented at the 2013 EuroPCR Meeting, the official annual meeting of the European Association for Percutaneous
Cardiovascular Interventions, on May 23, 2013 in Paris, France. The results were as follows:
|
•
|
Mortality
(0.5% vs. 2.8%) and major adverse cardiac events (5.2% vs. 3.4%) at 6 months post procedure
were not statistically significantly different between patients randomized to the MGuard
stent as compared to patients randomized to commercially-approved bare metal or drug-eluting
stents. All other major adverse cardiac event components, as well as stent thrombosis,
were comparable between patients treated with MGuard stent and those treated with commercially-approved
bare metal or drug-eluting stents.
|
The twelve month results from the MASTER
I trial were presented at the TCT conference on October 29, 2013 and published (Mesh-Covered Embolic Protection Stent Implantation
in ST-Segment–Elevation Myocardial Infarction Final 1-Year Clinical and Angiographic Results From the MGUARD for Acute ST
Elevation Reperfusion Trial, Dudek e. el,
Coronary Interventions
, 2014. The results were as follows:
|
•
|
Mortality
(1.0% vs. 3.3%) and major adverse cardiac events (9.1% vs. 3.3%) at 12 months post procedure
were not statistically significantly different between patients randomized to the MGuard
stent as opposed to those randomized to commercially-approved bare metal or drug-eluting
stents. All other major adverse cardiac events, as well as stent thrombosis, were comparable
between the MGuard stent and commercially-approved bare metal or drug-eluting stents.
|
In summary, the MASTER I trial demonstrated
that among patients with acute STEMI undergoing emergency PCI patients treated with MGuard stent had superior rates of epicardial
coronary flow (blood flow within the vessels that run along the outer surface of the heart) and complete ST-segment resolution
compared to those treated with commercially-approved bare metal or drug-eluting stents. In addition, patients treated with MGuard
stent showed a slightly lower mortality rate and a slightly higher major adverse cardiac event rate as compared to patients treated
with commercially-approved bare metal or drug-eluting stents six and twelve months post procedure.
A detailed table with the results from
the MASTER I trial is set forth below. The “p-Value” refers to the probability of obtaining a given test result. Any
p value less than 0.05 is considered statistically significant.
|
|
MGuard Stent
|
|
|
Bare Metal
Stents/Drug
Eluting Stents
|
|
|
p-Value
|
|
Number of Patients
|
|
|
217
|
|
|
|
216
|
|
|
|
—
|
|
TIMI 0-1
|
|
|
1.8
|
|
|
|
5.6
|
|
|
|
0.01
|
|
TIMI 3
|
|
|
91.7
|
|
|
|
82.9
|
|
|
|
0.006
|
|
Myocardial blush grade 0-1
|
|
|
16.1
|
|
|
|
14.8
|
|
|
|
0.71
|
|
Myocardial blush grade 3
|
|
|
74.2
|
|
|
|
72.1
|
|
|
|
0.62
|
|
ST segment resolution >70
|
|
|
57.8
|
|
|
|
44.7
|
|
|
|
0.008
|
|
30 day major adverse cardiac event
|
|
|
1.8
|
|
|
|
2.3
|
|
|
|
0.75
|
|
6 month major adverse cardiac event
|
|
|
5.2
|
|
|
|
3.4
|
|
|
|
0.34
|
|
12 month major adverse cardiac event
|
|
|
9.1
|
|
|
|
3.3
|
|
|
|
0.02
|
|
Future Clinical Trials for CGuard EPS and MGuard Prime EPS
Post-marketing clinical trials (outside
the United States) could be conducted to further evaluate the safety and efficacy of CGuard EPS in specific indications. These
trials would be designed to facilitate market acceptance and expand the use of the product. We should be able to rely upon CE
mark approval of the product and other supporting clinical data to obtain local approvals.
We are currently preparing materials required
to conduct a clinical trial in the United States and have a draft clinical protocol synopsis that we believe could support a clinical
trial for submission for approval by the U.S. Food and Drug Administration. Once complete, we plan to request a pre-submission
guidance meeting with the U.S. Food and Drug Administration.
We do not anticipate conducting additional
post-marketing clinical trials for our bare-metal MGuard coronary products.
Competition
The markets in which we compete are highly
competitive, subject to change and impacted by new product introductions and other activities of industry participants.
Carotid
The carotid stent markets in the United
States and Europe are dominated by Abbott Laboratories, Boston Scientific Corporation, Covidien Ltd. (currently part of Medtronic,
Inc.), and Cordis Corporation. Gore Medical and Terumo Medical Corporation produce mesh-covered carotid stents. All of these larger
companies have substantially greater capital resources, larger customer bases, broader product lines, larger sales forces, greater
marketing and management resources, larger research and development staffs and larger facilities than ours and have established
reputations and relationships with our target customers, as well as worldwide distribution channels that are more effective than
ours. However, we believe that the European market is somewhat fragmented, and, in our opinion, smaller competitors may be able
to gain market share with greater flexibility.
Coronary
The bare-metal stent and the drug-eluting
stent markets in the United States and Europe are dominated by Abbott Laboratories, Boston Scientific Corporation, and Medtronic,
Inc. In the future, we believe that physicians will look to next-generation stent technology to compete with existing therapies.
These new technologies will likely include bio-absorbable stents, stents that focus on treating bifurcated lesions, and stents
with superior polymer and drug coatings, and many industry participants are working to improve stenting procedures in the future
as the portfolio of available stent technologies rapidly increases.
According to the MEDTECH OUTLOOK, the
three major players (Abbott Laboratories, Boston Scientific Corporation and Medtronic, Inc.) in the worldwide coronary stent market
have a combined total market share of approximately 92%. To date, our sales are not significant enough to register in market share.
As such, one of the challenges we face to further our product growth is the competition from numerous pharmaceutical and biotechnology
companies in the therapeutics area, as well as competition from academic institutions, government agencies and research institutions.
Most of our current and potential competitors, including but not limited to those listed above, have, and will continue to have,
substantially greater financial, technological, research and development, regulatory and clinical, manufacturing, marketing and
sales, distribution and personnel resources than we do. Due to ongoing consolidation in the industry, there are high barriers
to entry for small manufacturers in both the European and the United States markets.
Neurovascular
Stryker Corporation dominated the global
interventional neurology market in 2014. The other key players in this market include Medtronic plc, Johnson & Johnson, Terumo
Corporation, Penumbra, Inc., Abbott Laboratories, Merit Medical Systems, Inc., W. L. Gore & Associates, Inc., Microport Scientific
Corporation, and Medikit Co., Ltd., among others. (
source: Markets and Markets 2015).
Research and Development Expenses
During the twelve months ended December
31, 2015 and 2014, we spent $3.6 million and $8.7 million, respectively, on research and development.
Sales and Marketing
Sales and Marketing
Currently, we are actively selling our
MGuard coronary products with a bio-stable MicroNet through local distributors in Europe, Latin America, the Middle East and Asia.
Based on the positive CGuard EPS clinical
data, we commercially launched CGuard EPS in CE marked countries in early 2015. We initially sold CGuard products through a distributor
network as we did with MGuard coronary products. On August 5, 2015, InspireMD, Ltd., our wholly owned subsidiary, entered into
a distribution agreement with Penumbra, Inc., and, in September 2015, we announced full market launch of CGuard EPS by Penumbra,
Inc. in 18 CE marked countries in Europe.
We plan to focus our marketing efforts
primarily on Europe, Asia and Latin America. In addition to utilizing local and regional distributor networks, we are using international
trade shows and industry conferences to gain market exposure and brand recognition. We plan to work with leading physicians to
enhance our marketing efforts.
Product Positioning
The MGuard coronary products have initially
penetrated the market by entering segments with indications that present high risks of embolic dislodgement, notably acute MI
and saphenous vein graft coronary interventions. Even though MGuard technology has demonstrated its advantages with clinical data,
it is based on a bare-metal platform while the market demand has shifted away from bare-metal stents in favor of drug-eluting
stents.
When treating carotid artery disease,
we believe that there is an opportunity to enter the market with bare-metal stent platform and to become a competitive player
without a drug-eluting stent platform. Therefore, we believe that CGuard EPS is poised for commercial growth in 2016 as more and
more positive clinical data is presented. Finally, we do not expect that it would be crucial to use a drug-eluting stent platform
to compete in certain new markets such as the neurovascular market, and hence, we plan to continue to explore this area of opportunity.
Insurance Reimbursement
In most countries, a significant portion
of a patient’s medical expenses is covered by third-party payers. Third-party payers can include both government funded
insurance programs and private insurance programs. While each payer develops and maintains its own coverage and reimbursement
policies, the vast majority of payers have similarly established policies. All of the MGuard coronary products and CGuard products
sold to date have been designed and labeled in such a way as to facilitate the utilization of existing reimbursement codes, and
we intend to continue to design and label our present and future products in a manner consistent with this goal.
While most countries have established
reimbursement codes for stenting procedures, certain countries may require additional clinical data before recognizing coverage
and reimbursement for the MGuard coronary products and CGuard products or in order to obtain a higher reimbursement price. In
these situations, we intend to complete the required clinical studies to obtain reimbursement approval in countries where it makes
economic sense to do so.
Intellectual Property
Patents
We have filed sixteen patent applications,
twelve of which are pending in the United States covering aspects of our MGuard and CGuard technology. We have filed corresponding
patent applications to some of these in Canada, China, Europe, Israel, India and South Africa, for an aggregate total of 46 patents
and pending applications including four issued U.S. patents. These patent rights are directed to cover percutaneous therapy, knitted
stent jackets, stent and filter assemblies,
in vivo
filter assembly, optimized stent jackets, stent apparatuses for treatment
via body lumens and methods of use, stent apparatuses for treatment via body lumens and methods of manufacture and use, among
others. In lay terms, these patent applications generally cover three aspects of our products: the mesh sleeve with and without
a drug, the product and the delivery mechanism of the stent. On October 27, 2010, our South African patent application pertaining
to “Stent Apparatus for Treatment via Body Lumens and Method of Use” was issued as South African Patent No. 2007/10751.
On October 25, 2011, our patent application pertaining to “In Vivo Filter Assembly,” U.S. Patent Application 11/582,354,
was issued as U.S. Patent 8,043,323. On June 13, 2012, our patent application pertaining to “Filter Assemblies,” Chinese
Patent Application No. 200780046659.9, was issued as Chinese Patent No. ZL200780046659.9. On September 26, 2012, our patent application
pertaining to “Bifurcated Stent Assemblies,” Chinese Patent Application No. 200780046676.2, was issued as Chinese
Patent No. ZL200780046676.2. On October 10, 2012, our patent application pertaining to “Knitted Stent Jackets,” Chinese
Patent Application No. 200780046697.4, was issued as Chinese Patent No. ZL200780046697.4. On January 2, 2013, our patent application
pertaining to “Optimized Stent Jacket,” Chinese Patent Application No. 200780043259.2, was issued as Chinese Patent
No. ZL200780043259.2. We have also had Israeli Patent No. 198189 entitled “Filter Assemblies” issued March 27, 2014,
and Patent No. 198190, entitled “Knitted Stent Jackets” issued Feb. 1, 2014, and Canadian Patent No. 2609687 entitled
“Stent Apparatuses For Treatment Via Body Lumens” issued April 22, 2014. Israeli Patent No. 198,188 entitled “Bifurcated
Stent Assemblies” issued May 1, 2014 and Israeli Patent No. 198,665 entitled “Optimized Stent Jacket” issued
May 28, 2014. U.S. Patent Application No. 11/797,168, filed May 1, 2007, was issued as U.S. Patent No. 8,961,586 on February 24,
2015. Canadian Patent No. 2,666,712 entitled “Filter Assemblies” issued March 31, 2015. Canadian Patent No. 2,666,728
entitled “Knitted Stent Jackets” issued June 23, 2015. U.S. Patent No. 9,132,261 entitled “
In Vivo
Filter
Assembly” and U.S. Patent No. 9,132,003, entitled “Optimized Drug-Eluting Stent Assembly” each issued September
15, 2015. Canadian Patent No. 2,843,097 entitled “Stent Apparatuses for Treatment Via Body Lumens and Methods of Use”
issued October 27, 2015. Chinese Patent No. 201210320950.3 entitled “Knitted Stent Jackets” issued December 2, 2015.
Chinese Patent No. ZL201210454357.8, entitled “Optimized Stent Jacket” issued December 9, 2015. We also believe that
one or more additional pending patent applications, upon issuance, will cover our existing products. We also believe that the
patent applications we have filed, in particular those covering the use of a knitted micron-level mesh sleeve over a stent for
various indications, if issued as patents with claims substantially in their present form, would likely create a significant barrier
for another company seeking to use similar technology.
Trademarks
We use the InspireMD
®
,
MGuard
®
and MGuard Prime
®
trademarks in connection with our products. We have registered these trademarks
in the European Union. The trademarks are renewable indefinitely, so long as we make the appropriate filings when required. We
also have registrations for Carenet
®
, CGuard
®
and the MNP Micronet Protection Logo in the European
Union and a supplemental registration for Micronet
®
in the United States. We have also applied to register the
names Carenet™, CGuard™ InspireMD™, SmartFit™, PVGuard
TM
, NGuard
TM
, AGuard
TM
,
and MGuard Prime™ as trademarks in the United States We also use and may have common law rights to various trademarks, trade
names, and service marks.
Government Regulation
The manufacture and sale of our products
are subject to regulation by numerous governmental authorities, principally the European Union CE mark, the U.S. Food and Drug
Administration and other corresponding foreign agencies.
Sales of medical devices outside the United
States are subject to foreign regulatory requirements that vary widely from country to country. These laws and regulations range
from simple product registration requirements in some countries to complex clearance, clinical tests and production controls in
others. As a result, the processes and time periods required to obtain foreign marketing approval may be longer or shorter than
those necessary to obtain U.S. Food and Drug Administration market authorization. These differences may affect the efficiency
and timeliness of international market introduction of our products. For countries in the European Union, medical devices must
display a CE mark before they may be imported or sold. In order to obtain and maintain the CE mark, we must comply with the Medical
Device Directive 93/42/EEC by presenting comprehensive technical files for our products and passing initial and annual quality
management system audit inspections to the ISO 13485 standard by an European Notified Body. We have obtained ISO 13485 quality
system certification and the products we currently distribute into the European Union display the required CE mark. In order to
maintain certification, we are required to pass annual facilities audit inspections conducted by European Notified Body inspectors.
As noted below, we have regulatory approval
and have made sales in MGuard Prime EPS, CGuard EPS or both products either through distributors pursuant to distribution agreements
or directly, in the following countries: Argentina, Australia, Austria, Belarus, Belgium, Brazil, Colombia, Croatia, Cyprus, Czech
Republic, Denmark, Estonia, Finland, France, Germany, Hungary, Ireland, Israel, Italy, Latvia, Lithuania, Luxembourg, Malta, Mexico,
Netherlands, Norway, Poland, Portugal, Romania, Russia, Saudi Arabia, Serbia, Slovakia, Slovenia, South Africa, Spain, Sweden,
Switzerland, and the United Kingdom. In addition, we have distribution agreements for our products in Uzbekistan, Canada, Venezuela,
and Armenia, although we have not yet obtained regulatory approval to sell our products in those countries, and we are awaiting
regulatory approval to sell our products in Russia (for CGuard EPS) and Malaysia. While each of the European Union member countries
accepts the CE mark as its sole requirement for marketing approval, some of these countries still require us to take additional
steps in order to gain reimbursement rights for our products. Furthermore, while we believe that certain of the above-listed countries
that are not members of the European Union accept the CE mark as a primary requirement for marketing approval, each such country
requires additional regulatory requirements for final marketing approval of our products. Furthermore, we are currently targeting
additional countries in Europe, Asia, and Latin America, however, even if all governmental regulatory requirements are satisfied
in each such country, we anticipate that obtaining marketing approval in each country could take as few as three months or as
many as twelve months or more, due to the nature of the approval process in each individual country, including typical wait times
for application processing and review, as discussed in greater detail below.
In October 2007, our first generation
MGuard stent combining the MicroNet with a stainless steel stent received CE mark approval for the treatment of coronary artery
disease in the European Union. We subsequently replaced the first generation MGuard product with MGuard Prime EPS, which uses
a more advanced cobalt-chromium based stent. Our MGuard Prime EPS received CE mark approval in the European Union in October 2010
and marketing approval in those countries listed in the table below. We are currently seeking marketing approval for the MGuard
Prime EPS in Malaysia. We are focused on seeking marketing approval in these countries because we believe that these countries
represent the strongest opportunities for us to grow with respect to our sales.
The CGuard EPS received CE mark approval
in the European Union on March 14, 2013 and marketing approval in those countries listed in the table below. We are currently
seeking marketing approval for CGuard EPS in Brazil and Russia.
Please refer to the table below setting
forth the approvals and sales made for CGuard EPS and the MGuard Prime EPS on a country-by-country basis.
Approvals and Sales of MGuard Prime
EPS and CGuard EPS on a Country-by-Country Basis
Countries
|
|
MGuard
Prime
EPS Approval
|
|
MGuard
Prime
EPS Sales
|
|
CGuard
EPS
Approval
|
|
CGuard
EPS Sales
|
|
Argentina
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Armenia
|
|
N
|
|
N
|
|
N
|
|
N
|
|
Australia
|
|
Y
|
|
Y
|
|
N
|
|
N
|
|
Austria
|
|
Y
|
|
Y
|
|
Y
|
|
N
|
|
Belarus
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Belgium
|
|
Y
|
|
Y
|
|
Y
|
|
N
|
|
Brazil
|
|
Y
|
|
Y
|
|
N
|
|
N
|
|
Chile
|
|
N
|
|
Y
|
(1)
|
N
|
|
Y
|
(1)
|
Colombia
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Croatia
|
|
Y
|
|
Y
|
|
Y
|
|
N
|
|
Cyprus
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Czech
Republic
|
|
Y
|
|
Y
|
|
Y
|
|
N
|
|
Denmark
|
|
Y
|
|
N
|
|
Y
|
|
N
|
|
Estonia
|
|
Y
|
|
Y
|
|
Y
|
|
N
|
|
Countries
|
|
MGuard
Prime
EPS Approval
|
|
MGuard
Prime
EPS Sales
|
|
CGuard
EPS
Approval
|
|
CGuard
EPS Sales
|
|
Finland
|
|
Y
|
|
Y
|
|
Y
|
|
N
|
|
France
|
|
Y
|
|
Y
|
|
Y
|
|
N
|
|
Germany
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Greece
|
|
Y
|
|
N
|
|
Y
|
|
N
|
|
Holland
(Netherlands)
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Hungary
|
|
Y
|
|
Y
|
|
Y
|
|
N
|
|
Iceland
|
|
Y
|
|
N
|
|
Y
|
|
N
|
|
India
|
|
Y
|
|
N
|
|
N
|
|
N
|
|
Ireland
|
|
Y
|
|
Y
|
|
Y
|
|
N
|
|
Israel
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Italy
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Kazakhstan
|
|
N
|
|
N
|
|
N
|
|
N
|
|
Latvia
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Lithuania
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Liechtenstein
|
|
Y
|
|
N
|
|
Y
|
|
N
|
|
Luxemburg
|
|
Y
|
|
N
|
|
Y
|
|
N
|
|
Malaysia
|
|
N
|
|
Y
|
(2)
|
N
|
|
N
|
|
Malta
|
|
Y
|
|
Y
|
|
Y
|
|
N
|
|
Mexico
|
|
Y
|
|
Y
|
|
N
|
|
N
|
|
Norway
|
|
Y
|
|
Y
|
|
Y
|
|
N
|
|
Poland
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Portugal
|
|
Y
|
|
N
|
|
Y
|
|
N
|
|
Romania
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Russia
|
|
Y
|
|
Y
|
|
N
|
|
N
|
|
Saudi
Arabia
|
|
Y
|
|
Y
|
|
N
|
|
N
|
|
Serbia
|
|
Y
|
|
N
|
|
N
|
|
N
|
|
Slovakia
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Slovenia
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
South
Africa
|
|
Y
|
(3)
|
Y
|
|
N
|
|
N
|
|
Spain
|
|
Y
|
|
Y
|
|
Y
|
|
Y
|
|
Sweden
|
|
Y
|
|
Y
|
|
Y
|
|
N
|
|
Switzerland
|
|
Y
|
|
Y
|
|
Y
|
|
N
|
|
Taiwan
|
|
Y
|
|
N
|
|
N
|
|
N
|
|
United
Kingdom
|
|
Y
|
|
Y
|
|
Y
|
|
N
|
|
Uzbekistan
|
|
N
|
|
N
|
|
N
|
|
N
|
|
Venezuela
|
|
N
|
|
N
|
|
N
|
|
N
|
|
|
(1)
|
We have made
sales to distributors in this country, but based upon information from such distributors,
we believe that the product has not been sold to customers in this country.
|
|
(2)
|
Due to the
changes made to the relevant regulations in Malaysia that became effective in November
2015, we are required to register our product. Sales of MGuard Prime EPS were made to
our distributor in Malaysia prior to the date such change became effective. On November
29, 2015 we initiated registration process required pursuant to the amended regulation.
|
|
(3)
|
We believe
that we have regulatory approval for MGuard Prime EPS in South Africa based upon information
from our former distributor in such country, who was responsible for obtaining the regulatory
approval for MGuard Prime EPS. However, the certificate evidencing regulatory approval
was held by our former distributor and we cannot guarantee that it is in full force and
effect. Our distribution agreement with the distributor in South Africa expired pursuant
to the terms of such distribution agreement on February 1, 2015.
|
In the United States, the medical devices
that will be manufactured and sold by us will be subject to laws and regulations administered by the U.S. Food and Drug Administration,
including regulations concerning the prerequisites to commercial marketing, the conduct of clinical investigations, compliance
with the Quality System Regulation and labeling. We anticipate that our CGuard EPS will be classified as a Class III medical device
by the U.S. Food and Drug Administration.
A manufacturer may seek market authorization
for a new medical device through the rigorous premarket approval application process, which first requires that the U.S. Food
and Drug Administration determine that the device is safe and effective for the purposes intended.
We will also be required to register with
the U.S. Food and Drug Administration as a medical device manufacturer. As such, our manufacturing facilities will be subject
to U.S. Food and Drug Administration inspections for compliance with Quality System Regulation. These regulations will require
that we manufacture our products and maintain our documents in a prescribed manner with respect to design, manufacturing, testing
and quality control activities. As a medical device manufacturer, we will further be required to comply with U.S. Food and Drug
Administration requirements regarding the reporting of adverse events associated with the use of our medical devices, as well
as product malfunctions that would likely cause or contribute to death or serious injury if the malfunction were to recur. U.S.
Food and Drug Administration regulations also govern product labeling and prohibit a manufacturer from marketing a medical device
for unapproved applications. If the U.S. Food and Drug Administration believes that a manufacturer is not in compliance with the
law, it can institute enforcement proceedings to detain or seize products, issue a recall, enjoin future violations and assess
civil and criminal penalties against the manufacturer, its officers and employees.
Customers
Our customer base is varied. We began
shipping our product to customers in Europe in January 2008 and have since expanded our global distribution network to Southeast
Asia, India, Latin America and Israel. We currently have distribution agreements for our CE mark-approved MGuard Prime EPS and/or
CGuard EPS with medical product distributors based in Europe, the Middle East, Asia Pacific, Australia and Latin America. We are
currently in discussions with additional distribution companies in Europe, Asia, and Latin America.
For the twelve months ended December 31,
2015, 79% of our revenue was generated in Europe, and 17% of our revenue was generated in Latin America, with the remaining 4%
of our revenue generated in the rest of the world. Our major customers in the twelve months ended December 31, 2015 were Avidal
Group GmbH, a distributor in Germany that accounted for 11% of our revenues, and Cardio Medical Sales L.P, a distributor in Belarus
that accounted for 10% of our revenues.
Our agreement with Avidal Group GmbH grants
Avidal Group GmbH the right to be a distributor of MGuard Prime EPS and CGuard EPS in Germany until March 2017, subject to the
achievement of certain order minimums. The term of the agreement may be renewed for an additional 12 month term by written consent
of both parties no later than October 31 of the last year of the term. Either party may terminate the agreement for any reason
with 60 days’ prior written notice. Under our agreement with Avidal Group GmbH, as amended, Avidal Group GmbH was required
to purchase 850 MGuard Prime EPS and 225 CGuard EPS from us in 2015. Although Avidal Group GmbH did not adhere to their order
minimum for 2015, we did not terminate their right to be our distributor of MGuard Prime EPS and CGuard EPS in Germany.
Our agreement with Cardio Medical Sales
L.P, as amended, grants Cardio Medical Sales L.P the right to be the non-exclusive distributor of MGuard Prime EPS and CGuard
EPS in Belarus until December 2016, subject to the achievement of certain order minimums. Under our agreement with Cardio Medical
Sales L.P, Cardio Medical Sales L.P was required to purchase 450 MGuard Prime EPS from us in 2015, 70 MGuard Prime EPS in 2016
and 30 CGuard EPS in 2016. Although Cardio Medical Sales L.P did not adhere to their order minimum for 2015, we did not terminate
their right to be our exclusive distributor of MGuard Prime EPS and CGuard EPS in Belarus.
Penumbra Distribution Agreement
On August 5, 2015, InspireMD, Ltd., our
wholly owned subsidiary, entered into a distribution agreement with Penumbra, Inc., pursuant to which Penumbra, Inc. will act
as the exclusive distributor of CGuard EPS in Austria, France, Sweden, Denmark, Norway, Finland, Estonia, Lithuania, Portugal,
Switzerland and the United Kingdom and Ireland. The territory covered by the distribution agreement also includes non-exclusive
rights to distribute CGuard EPS in Latvia, Belgium, the Netherlands, Luxembourg, Germany and Poland.
Under the terms of the distribution agreement,
we will use all commercially reasonable efforts to obtain all required permits, licenses and other approvals necessary to import,
market or sell CGuard EPS in the territory covered by the distribution agreement. Within 60 days after receipt of all such required
approvals in a given territory, Penumbra, Inc. will place its initial stocking order for CGuard EPS, for which Penumbra, Inc.
will pay one-half of the purchase price upon placing such order and the remainder of the purchase price 30 days after receipt
of CGuard products and our invoice for such CGuard EPS products. If, in our reasonable discretion, Penumbra, Inc. fails to order
a sufficient quantity of CGuard EPS to successfully commercialize CGuard EPS in the applicable territory, then we may reduce the
territory covered by the distribution agreement upon providing 60 days’ notice to Penumbra, Inc.
The distribution agreement requires Penumbra,
Inc. to use commercially reasonable efforts to purchase CGuard EPS in certain minimum target amounts agreed to by the parties
for the 2015 and 2016 calendar years. For all subsequent calendar years during the term of the distribution agreement, the parties
will agree to the minimum annual purchase targets at least 30 days prior to the commencement of such calendar year, which shall
be determined in good faith by mutual agreement, taking into account various relevant factors, including but not limited to the
sales attained during the preceding calendar year and prevailing market conditions. The parties fixed the initial prices to be
paid by Penumbra, Inc. for CGuard EPS through December 31, 2015, which were subject to certain reductions for inventory shelf
life and other adjustments negotiated by the parties.
The initial term of the distribution agreement
ends on December 31, 2018, unless sooner terminated pursuant to the termination rights set forth in the distribution agreement.
Either party may terminate the distribution agreement (i) without cause upon providing 60 days’ notice to the other party,
(ii) upon the other party’s material breach of the distribution agreement, which is not cured 30 days after written notice
of such breach from the non-breaching party to the breaching party and (iii) immediately without notice upon the bankruptcy, insolvency,
dissolution, assignment for the benefit of creditors or similar event with respect to the other party. We may also terminate the
distribution agreement if we reasonably believe that Penumbra, Inc., or any party acting on its behalf, has violated the United
States Foreign Corrupt Practices Act of 1977. In addition, if at any time during the term of the distribution agreement, Penumbra,
Inc. distributes or offers for sale products that, in our reasonable judgment, compete with CGuard EPS, then we may terminate
the distribution agreement or change the exclusive rights granted to non-exclusive rights upon providing 30 days’ notice
to Penumbra, Inc.
Pursuant to the distribution agreement,
we are subject to customary covenants and other continuing regulatory, record-keeping and reporting obligations.
The distribution agreement also contains
a limited three year warranty for CGuard EPS and other mutual confidentiality and indemnification obligations for us and Penumbra,
Inc.
Most of our current agreements with our
distributors stipulate that, and we expect our future agreements with our distributors to stipulate that, while we shall assist
in training by providing training materials, marketing guidance, marketing materials, and technical guidance, each distributor
will be responsible for carrying out local registration, sales and marketing activities. In addition, in most cases, all sales
costs, including sales representatives, incentive programs, and marketing trials, will be borne by the distributor. Under current
agreements, distributors purchase stents from us at a fixed price. Our current agreements with distributors are generally for
a term of two to three years.
Manufacturing and Suppliers
The polymer fiber for MicroNet is supplied
by Biogeneral, Inc., a San Diego, California-based specialty polymer manufacturer for medical and engineering applications.
Natec Medical Ltd. supplies us with catheters
that help create the base for our CGuard EPS stents. Our agreement with Natec Medical Ltd., as amended, which may be terminated
by us upon eight months’ notice, calls for a minimum order of 2,000 catheters and commitment to purchase the remaining stock
of components for production of the catheters in the event we fail to meet the minimum order for up to approximately $87,000 in
2016.
Natec Medical Ltd. supplies us with catheters
that help create the base for our MGuard Prime EPS. Our agreement with Natec Medical Ltd., which may be terminated by either party
upon six months’ notice, calls for non-binding minimum orders.
The cobalt-chromium stent for our MGuard
Prime EPS was designed by Svelte Medical Systems Inc. We have an agreement with Svelte Medical Systems Inc., as amended, that
grants us a non-exclusive, worldwide license for production and use of the MGuard Prime cobalt-chromium stent for the life of
the stent’s patent, subject to the earlier termination of the agreement upon the bankruptcy of either party or the uncured
default by either party under any material provision of the agreement. Our royalty payments to Svelte Medical Systems Inc. are
determined by the sales volume of MGuard Prime EPS. Currently, the royalty rate is 2.9% of all net sales. We have mutual indemnification
obligations with Svelte Medical Systems Inc. for any damages suffered as a result of third party actions based upon breaches of
representations and warranties or the failure to perform certain covenants in the license agreement, and Svelte Medical Systems
Inc. will also indemnify us for any damages suffered as a result of third party actions based upon intellectual property or design
claims against the cobalt-chromium stent for the MGuard Prime EPS.
We manufacture our CGuard EPS and MGuard
Prime EPS at our own facility. The bare-metal cobalt-chromium stents for our MGuard Prime EPS and the self-expanding bare-metal
stents for our CGuard EPS are being manufactured and supplied by MeKo Laserstrahl-Materialbearbeitung. Our agreement with MeKo
Laserstrahl-Materialbearbeitung for the production of electro polished L605 bare-metal stents for MGuard Prime EPS and CGuard
EPS is priced on a per-stent basis, subject to the quantity of stents ordered. The complete assembly process for MGuard Prime
EPS and CGuard EPS, including knitting and securing the sleeve to the stent and the crimping of the sleeve stent on to a balloon
catheter, is done at our Israel manufacturing site. Once MGuard Prime EPS and CGuard EPS have been assembled, they are sent for
sterilization in Germany and then back to Israel for final packaging.
Each MGuard stent is manufactured from
two main components, the stent and the mesh polymer. The stent is made out of cobalt chromium. This material is readily available
and we acquire it in the open market. The mesh is made from polyethylene terephthalate. This material is readily available in
the market as well, because it is used for many medical applications. In the event that our supplier can no longer supply this
material in fiber form, we would need to qualify another supplier, which could take several months. In addition, in order to retain
the approval of the CE mark, we are required to perform periodic audits of the quality control systems of our key suppliers in
order to insure that their products meet our predetermined specifications
A CGuard EPS consists of a CGuard stent
and the delivery system. Each CGuard stent is manufactured from two main components, a self-expending stent and the mesh polymer.
The stent is made out of nitinol. This material is readily available and we acquire it in the open market. The mesh is made from
polyethylene terephthalate. We have pending patent rights that cover the proposed CGuard stent with mesh. This material is readily
available in the market as well, because it is used for many medical applications. In the event that our supplier can no longer
supply this material in fiber form, we would need to qualify another supplier, which could take several months. The delivery system
for CGuard is made out of polymer tubes we acquire from an original equipment manufacturer. In the event that our supplier can
no longer supply this material, we would need to qualify another supplier, which could take several months. In addition, in order
to retain the approval of the CE mark, we are required to perform periodic audits of the quality control systems of our key suppliers
in order to insure that their products meet our predetermined specifications.
Employees
As of June 28, 2016, we had 33 full-time
employees. Except for one of our employees in Europe, our employees are not party to any collective bargaining agreements. We
do not expect the collective bargaining agreements to which our employees are party to have a material effect on our business
or results of operations. We consider our relations with our employees to be good. We believe that our future success will depend,
in part, on our continued ability to attract, hire and retain qualified personnel.
Properties
Our headquarters are located in Boston,
Massachusetts, where we lease approximately 1,580 square feet of executive office space. In addition, in Tel Aviv, Israel, we
currently have a 1,000 square meter office and manufacturing facility that has the capacity to manufacture and assemble 4,800
stents per month, based upon the production schedule of one shift per day. We believe that our current facility is sufficient
to meet anticipated future demand by adding additional shifts to our current production schedule.
Legal Proceedings
From time to time, we may be involved
in litigation that arises through the normal course of business.
On April 26, 2016, Microbanc, LLC and
Todd Spenla of Microbanc, LLC filed suit in the New York State Supreme Court (New York County) against us asserting claims for
breach of agreement, quantum meruit, unjust enrichment and fraud and seeking approximately $2.2 million and 9% of the amount of
stock and warrants sold in 2011 and 2012 in alleged damages relating to certain alleged finders’ fees that they claim are
owed. Due to the uncertainties of litigation, however, we can give no assurance that we will prevail on any claims made
against us in any such lawsuit. Also, we can give no assurance that any other lawsuits or claims brought in the future will not
have an adverse effect on our financial condition, liquidity or operating results.
As of the date of this filing, we are
not aware of any other material legal proceedings to which we or any of our subsidiaries is a party or to which any of our property
is subject, nor are we aware of any such threatened or pending litigation other than the foregoing suit filed by Microbanc, LLC
and Todd Spenla.
There are no material proceedings in which
any of our directors, officers or affiliates or any registered or beneficial stockholder of more than 5% of our common stock,
or any associate of any of the foregoing, is an adverse party or has a material interest adverse to our interest.
Corporate Information
We were organized in the State of Delaware
on February 29, 2008. Our principal executive offices are located at 321 Columbus Avenue, Boston, Massachusetts 02116. Our telephone
number is (857) 305-2410. Our website address is
www.inspire-md.com
. Information accessed through our website is not incorporated
into this prospectus and is not a part of this prospectus.
MANAGEMENT
Executive Officers and Directors
The following table sets forth information
regarding our executive officers and the members of our board of directors.
Name
|
|
Age
|
|
Position
|
James Barry, Ph.D.
|
|
56
|
|
President, Chief Executive Officer and Director
|
Craig Shore
|
|
55
|
|
Chief Financial Officer, Chief Administrative
Officer, Secretary and Treasurer
|
Sol J. Barer, Ph.D.
(1)(2)(3)
|
|
68
|
|
Chairman of the Board of Directors
|
Isaac Blech
|
|
66
|
|
Vice Chairman of the Board of Directors
|
Michael Berman
(1)(2)
|
|
58
|
|
Director
|
Campbell Rogers, M.D.
|
|
54
|
|
Director
|
Paul Stuka
(1)(2)(3)
|
|
61
|
|
Director
|
(1)
Member of our audit committee
(2)
Member of our nominating and corporate governance committee
(3)
Member of our compensation committee
Our directors hold office until the earlier
of their death, resignation or removal by stockholders or until their successors have been qualified. Our directors are divided
into three classes. Sol J. Barer, Ph.D. and Paul Stuka are our Class 1 directors, with their terms of office to expire at our
2018 annual meeting of stockholders. Michael Berman and Campbell Rogers, M.D. are our Class 2 directors, with their terms of office
to expire at our 2019 annual meeting of stockholders. Isaac Blech and James Barry, Ph.D. are our Class 3 directors, with their
terms of office to expire at our 2017 annual meeting of stockholders. At each annual meeting of stockholders, directors elected
to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting
of stockholders after their election, with each director to hold office until his or her successor shall have been duly elected
and qualified.
Our officers hold office until the earlier
of their death, resignation or removal by our board of directors or until their successors have been selected. They serve at the
pleasure of our board of directors.
James Barry, Ph.D.
has served as
our president and chief executive officer since June 6, 2016, and as a director since January 30, 2012. Prior to becoming our
president and chief executive officer, Dr. Barry has served as our executive vice president and chief operating officer since
July 14, 2014. Dr. Barry has served as executive vice president and chief operating officer at Arsenal Medical Inc., a medical
device company focused on local therapy, since September 2011. Dr. Barry also heads his own consulting firm, Convergent Biomedical
Group LLC, advising medtech companies on product development, strategy, regulatory challenges and fund raising. Until June 2010,
he was senior vice president, corporate technology development at Boston Scientific Corporation, where he was in charge of the
corporate research and development and pre-clinical sciences functions. Dr. Barry joined Boston Scientific in 1992 and oversaw
its efforts in the identification and development of drug, device and biological systems for applications with implantable and
catheter-based delivery systems. He currently serves on a number of advisory boards including the College of Biomedical Engineering
at Yale University, the College of Sciences at University of Massachusetts-Lowell and the Massachusetts Life Science Center and
as a director of pSivida Corp (NASDAQ: PSDV). Dr. Barry received his Ph.D. in Biochemistry from the University of Massachusetts-Lowell
and holds a B.A. degree in Chemistry from Saint Anselm College. Dr. Barry brings to the board over 20 years of experience in leadership
roles in the medical device industry and significant medical technology experience, in particular with respect to interventional
cardiology products, and as chief executive officer, Dr. Barry’s position on the board ensures a unity of vision between
the broader goals of our company and our day-to-day operations.
Craig Shore
has served as our chief
financial officer, secretary and treasurer since March 31, 2011 and as our chief administrative officer since May 3, 2013. In
addition, from November 10, 2010 through March 31, 2011, Mr. Shore served as InspireMD Ltd.’s vice president of business
development. From February 2008 through June 2009, Mr. Shore served as chief financial officer of World Group Capital Ltd. and
Nepco Star Ltd., both publicly traded companies on the Tel Aviv Stock Exchange, based in Tel Aviv, Israel. From March 2006 until
February 2008, Mr. Shore served as the chief financial officer of Cellnets Solutions Ltd., a provider of advanced cellular public
telephony solutions for low to middle income populations of developing countries based in Azur, Israel. Mr. Shore has over 25
years of experience in financial management in the United States, Europe and Israel. His experience includes raising capital both
in the private and public markets. Mr. Shore graduated with honors and received a B.Sc. in Finance from Pennsylvania State University
and an M.B.A. from George Washington University.
Sol J. Barer, Ph.D.
has served
as a director since July 11, 2011 and has served as our chairman since November 16, 2011. Dr. Barer has over 25 years of experience
with publicly traded biotechnology companies. In 1980, when Dr. Barer was with Celanese Research Company, he formed the biotechnology
group that was subsequently spun out to form Celgene Corporation. Dr. Barer spent 18 years leading Celgene Corporation as president,
chief operating officer and chief executive officer, culminating with his tenure as Celgene Corporation’s executive chairman
from June 2010 until January 2011 and chairman from May 2006 until June 2010 and from January 2011 until his retirement in June
2011. Dr. Barer is also a director of Cerecor, Inc., Edge Therapeutics, Inc., Medgenics, Inc., Centrexion Corporation, RestorGenex
Corporation, ContraFect Corporation, Amicus Therapeutics, Inc. and Aegerion Pharmaceuticals, Inc. and serves as a senior advisor
to a number of other biotechnology companies. Dr. Barer received a Ph.D. in organic chemistry from Rutgers University. Dr. Barer
brings to the board significant scientific and executive leadership experience in the U.S. biotechnology industry and prior service
on the board of directors of other publicly-held biopharmaceutical companies, as well as a unique perspective on the best methods
of growth for a biotechnology company.
Isaac Blech
has served as a director
and our vice chairmen since January 22, 2016. Mr. Blech is a renowned biotechnology entrepreneur and investor, who, over the past
32 years, has founded and served on the board of companies which have produced major advances in a broad array of diseases, including
the diagnosis of chlamydia, herpes, syphilis and HIV, and the treatment of cystic fibrosis, sexual dysfunction, multiple myeloma
and brain cancer. The companies he established include Celgene Corporation (NASDAQ: CELG), ICOS Corporation, Nova Pharmaceutical
Corporation, Pathogenesis Corporation and Genetics Systems Corporation. Mr. Blech’s current roles include director and founder
of Cerecor, Inc. (NASDAQ: CERC), a public company developing new treatments for central nervous system disorders, director of
ContraFect Corporation (NASDAQ: CFRX), a public infectious disease company, director of Medgenics, Inc. (NYSE: MDGN), a public
company creating new treatments for rare diseases, and vice chairman of Edge Therapeutics, Inc. (NASDAQ: EDGE), a public company
that treats life-threatening neurological conditions. He is vice chairman of Centrexion Corporation, a private company which is
developing new modalities of pain control, vice chairman of Regenovation, Inc., a private company developing new ways to regenerate
human tissue, vice chairman of X4 Pharmaceuticals, a private cancer immunology company, vice chairman of Sapience Therapeutics,
a private oncology company and vice chairman of Aridis Pharmaceuticals, a private company with a product to treat pneumonia. He
also serves as vice chairman of WaveGuide Corporation, a private company developing the world’s smallest NMR machine, vice
chairman of root9B Technologies, Inc. (OTC: RTNB), a public cyber security company, and vice chairman of The SpendSmart Payments
Company (OTC: SSPC), a public electronic rewards company.
Our board of directors believes that Mr.
Blech’s broad experiences as a founder, director and major investor in numerous biotechnology companies provide him with
the qualifications and skills to serve as a director.
Michael Berman
has served as our
director since February 7, 2013. Mr. Berman is a medical device entrepreneur who works with high-potential development and early-stage
commercial companies. From 2005 to 2012, when the company was sold to Boston Scientific, Mr. Berman was a co-founder and the chairman
of BridgePoint Medical, Inc., which developed technology to treat coronary and peripheral vascular chronic total occlusions. Mr.
Berman was also a member of the board of Lutonix, Inc. from 2007 until 2011, when the company was sold to C.R. Bard, Inc. Mr.
Berman has served (i) since 2003 as co-founder and a director of Aetherworks II, a medical device incubator, (ii) since 2004 as
a co-founder and director of Benechill, Inc., a company developing a therapeutic hypothermia system for the treatment of cardiac
arrest, (iii) since 2011 as an advisor to, and since 2012 as a director of, Cardiosonic, Inc., a company developing a system for
hypertension reduction via renal denervation, (iv) since 2005 as a director of PharmaCentra, LLC, which creates customizable marketing
programs that help pharmaceutical companies communicate with physicians and patients, (v) since 2011 as a co-founder and director
of Rebiotix Inc., a company developing an innovative treatment for C Diff colitis, (vi) since 2011 as a director of AngioSlide
Ltd., a medical device company that has developed an embolic capture angioplasty device, (vii) since 2011 as a director of InterValve,
Inc., a medical device company developing an aortic valvuloplasty balloon for treatment of calcific aortic stenosis, (viii) since
2013 as a Director of ClearCut Inc., a medical device company that has developed an MRI system for tumor margin assessment, (ix)
since 2013 as a director of PulmOne Ltd., a medical device company developing an innovative Pulmonary Function Testing system,
(x) since 2014 as a director of Mazor Robotics, Inc., a publicly held company that has developed and markets an innovative system
for robotic surgery, (xi) since 2014 as a director of SoniVie, a medical device company and (xii) since 2014 as a venture partner
at RiverVest Ventures. Mr. Berman was a member of the Data Sciences International, Inc. board from 2001 until 2012. Mr. Berman
brings to the board his extensive executive and entrepreneurial experiences in the field of medical devices and interventional
cardiology, which should assist in strengthening and advancing our strategic focus.
Campbell Rogers, M.D.
has served
as a director since September 3, 2013. Dr. Rogers has served as chief medical officer of HeartFlow, Inc., a cardiovascular diagnostics
company, since March 2012. Prior to joining HeartFlow, Inc., he was the chief scientific officer and global head of research and
development at Cordis Corporation, Johnson & Johnson, where he was responsible for leading investments and research in cardiovascular
devices, from July 2006 to March 2012. Prior to that, he was associate professor of medicine at Harvard Medical School and the
Harvard-M.I.T. Division of Health Sciences and Technology and director of the cardiac catheterization and experimental cardiovascular
interventional laboratories at Brigham and Women’s Hospital. He served as principal investigator for numerous interventional
cardiology device, diagnostic, and pharmacology trials, is the author of numerous journal articles, chapters, and books in the
area of coronary artery and other cardiovascular diseases and was the recipient of research grant awards from the National Institute
of Health and the American Heart Association. He received his A.B. from Harvard College and his M.D. from Harvard Medical School.
Dr. Rogers’ qualifications to serve on the board include his significant experience in cardiovascular devices, as well as
his familiarity with the operations of medical device companies.
Paul Stuka
has served as a director
since August 8, 2011. Mr. Stuka has served as the managing member of Osiris Partners, LLC, an investment fund, since 2000. Prior
to forming Osiris Partners, LLC, Mr. Stuka, with 35 years of experience in the investment industry, was a managing director of
Longwood Partners, managing small cap institutional accounts. In 1995, Mr. Stuka joined State Street Research and Management as
manager of its Market Neutral and Mid Cap Growth Funds. From 1986 to 1994, Mr. Stuka served as the general partner of Stuka Associates,
where he managed a U.S.-based investment partnership. Mr. Stuka began his career in 1980 as an analyst at Fidelity Management
and Research. As an analyst, Mr. Stuka followed a wide array of industries including healthcare, energy, transportation, and lodging
and gaming. Early in his career he became the assistant portfolio manager for three Fidelity Funds, including the Select Healthcare
Fund which was recognized as the top performing fund in the United States for the five-year period ending December 31, 1985. Mr.
Stuka has served as a director of Caliber Imaging & Diagnostics, Inc. (formerly Lucid, Inc.) since June 2013. Mr. Stuka’s
qualifications to serve on the board include his significant strategic and business insight from his years of experience investing
in the healthcare industry.
Mr. Shore and Dr. Barry are parties to
certain agreements related to their service as executive officers and directors described under “Executive Compensation
– Agreements with Executive Officers.”
Family Relationships
We have no family relationships amongst
our directors and executive officers.
Director Independence
The board of directors has determined
that Drs. Barer and Rogers and Messrs. Stuka, Berman and Blech satisfy the requirement for independence set out in Section 803
of the NYSE MKT rules and that each of these directors has no material relationship with us (other than being a director and/or
a stockholder). In making its independence determinations, the board of directors sought to identify and analyze all of the facts
and circumstances relating to any relationship between a director, his immediate family or affiliates and our company and our
affiliates and did not rely on categorical standards other than those contained in the NYSE MKT rule referenced above.
Board Committees
Our board of directors has established
an audit committee, a nominating and corporate governance committee and a compensation committee, each of which has the composition
and responsibilities described below.
Audit Committee
. Our audit
committee is currently comprised of Messrs. Berman and Stuka and Dr. Barer, each of whom our board has determined to be financially
literate and qualify as an independent director under Section 803(B)(2) of the NYSE MKT rules. Mr. Stuka is the chairman of our
audit committee and qualifies as a financial expert, as defined in Item 407(d)(5)(ii) of Regulation S-K. The audit committee’s
duties are to recommend to our board of directors the engagement of independent auditors to audit our financial statements and
to review our accounting and auditing principles. The audit committee will review the scope, timing and fees for the annual audit
and the results of audit examinations performed by the internal auditors and independent public accountants, including their recommendations
to improve the system of accounting and internal controls.
Nominating and Corporate Governance
Committee
. Our nominating and corporate governance committee is currently comprised of Messrs. Berman and Stuka and Dr.
Barer, each of whom qualify as an independent director under Section 803(A) of the NYSE MKT rules. Mr. Berman is the chairman
of our nominating and corporate governance committee. The nominating and corporate governance committee identifies and recommends
to our board of directors individuals qualified to be director nominees. In addition, the nominating and corporate governance
committee recommends to our board of directors the members and chairman of each board committee who will periodically review and
assess our code of business conduct and ethics and our corporate governance guidelines. The nominating and corporate governance
committee also makes recommendations for changes to our code of business conduct and ethics and our corporate governance guidelines
to our board of directors, reviews any other matters related to our corporate governance and oversees the evaluation of our board
of directors and our management.
Compensation Committee
. Our
compensation committee is currently comprised of Mr. Stuka and Dr. Barer, each of whom qualify as an independent director under
Sections 803(A) and 805(c)(1) of the NYSE MKT rules. Mr. Stuka is the chairman of our compensation committee. The compensation
committee reviews and approves our salary and benefits policies, including compensation of executive officers and directors. The
compensation committee also administers our stock option plans and recommends and approves grants of stock options under such
plans.
Code of Ethics
We have adopted a code of ethics and business
conduct that applies to our officers, directors and employees, including our principal executive officer, principal financial
officer and principal accounting officer, which is posted on our website at
www.inspire-md.com
. We intend to disclose future
amendments to certain provisions of the code of ethics, or waivers of such provisions granted to executive officers and directors,
on this website within four business days following the date of such amendment or waiver.
EXECUTIVE COMPENSATION
Summary Compensation Table
The table below sets forth the compensation
earned by our named executive officers for the twelve month period ended December 31, 2015 and 2014.
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus ($)
|
|
|
Restricted
Stock
Awards
($)
(1)
|
|
|
Option
Awards
($)
(1)
|
|
|
All Other
Compensation
($)
|
|
|
Total ($)
|
|
Alan Milinazzo
|
|
2015
|
|
|
225,000
|
(3)
|
|
|
45,833
|
(4)
|
|
|
428,826
|
(3)
|
|
|
131,221
|
|
|
|
20,462
|
(5)
|
|
|
851,342
|
|
President and Chief
|
|
2014
|
|
|
450,000
|
|
|
|
69,105
|
(6)
|
|
|
553,916
|
|
|
|
736,482
|
|
|
|
20,460
|
(5)
|
|
|
1,829,963
|
|
Executive
Officer
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Craig Shore
|
|
2015
|
|
|
224,481
|
(7)
|
|
|
17,349
|
(4)(7)
|
|
|
33,750
|
|
|
|
33,479
|
|
|
|
74,318
|
(7)(8)
|
|
|
383,377
|
(7)
|
Chief Financial Officer,
|
|
2014
|
|
|
214,525
|
|
|
|
22,331
|
(6)
|
|
|
327,013
|
|
|
|
322,817
|
|
|
|
59,276
|
(8)
|
|
|
945,962
|
|
Secretary and Treasurer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James Barry, Ph.D.
|
|
2015
|
|
|
300,333
|
(9)
|
|
|
37,500
|
(4)
|
|
|
127,167
|
(10)
|
|
|
16,740
|
|
|
|
19,936
|
(11)
|
|
|
532,093
|
|
Executive Vice President
|
|
2014
|
|
|
183,812
|
(12)
|
|
|
25,914
|
(6)
|
|
|
391,500
|
|
|
|
802,545
|
(13)
|
|
|
123,748
|
(14)
|
|
|
1,527,519
|
|
and Chief Operating Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The amounts
reflect the dollar amounts recognized for financial statement reporting purposes with
respect to the twelve month periods ended December 31, 2015 and 2014 in accordance with
FASB ASC Topic 718. Fair value is based on the Black-Scholes option pricing model using
the fair value of the underlying shares at the measurement date. For additional discussion
of the valuation assumptions used in determining stock-based compensation and the grant
date fair value for stock options, see “Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Critical Accounting Policies
— Share-based compensation” and Note 2 — “Significant Accounting
Policies” and Note 10 — “Equity” of the Notes to the Consolidated
Financial Statements for the Twelve Months Ended December 31, 2015 included herein.
|
|
(2)
|
Mr. Milinazzo
served as our president, chief executive officer and director until his resignation from
such positions on June 6, 2016. Mr. Milinazzo served as our director during the twelve
months ended December 31, 2015 and 2014, but did not receive any additional compensation
for his services as director.
|
|
(3)
|
Pursuant
to amendments to employment agreement with Mr. Milinazzo, dated January 5, 2016, and
June 29, 2015, Mr. Milinazzo received 50% of his base salary for January 2015 through
December 31, 2015, or $225,000, in 31,250 shares of restricted common stock, which was
issued on January 26, 2015, and 63,825 shares of restricted common stock, which was issued
on December 31, 2015. See “— Agreements with Executive Officers — Alan
Milinazzo.”
|
|
(4)
|
Bonuses for
the 2015 calendar year were approved by the Compensation Committee in July 2015.
|
|
(5)
|
Mr. Milinazzo’s
other compensation consisted solely of benefits related to health insurance.
|
|
(6)
|
Bonuses for
the 2014 calendar year were approved by the Compensation Committee in January 2015.
|
|
(7)
|
The change
in salary from 2014 to 2015 is exclusively due to the difference in the exchange rate
for the applicable period. Compensation amounts received in non-U.S. currency have been
converted into U.S. dollars using the average exchange rate for the applicable period,
except for bonus amounts which have been converted into U.S. dollars using 3.769 NIS
per dollar and 3.889 NIS per dollar, which were the exchange rates as of June 30, 2015
and December 31, 2014. The average exchange rate for the twelve month period ended December
31, 2015 and 2014 were 3.884 NIS per dollar and 3.58 NIS per dollar, respectively.
|
|
(8)
|
Mr. Shore’s
other compensation consisted solely of benefits in the twelve months ended December 31,
2015 and 2014. In each of the periods reported, Mr. Shore’s benefits included our
contributions to his severance, pension, vocational studies and disability funds, an
annual recreation payment, a company car or car allowance and cell phone, and a daily
food allowance.
|
|
(9)
|
Includes
$26,583 of salary forgone at the election of Dr. Barry, representing 50% of his salary
from March 10, 2015 through April 30, 2015 in exchange for 3,692 shares of restricted
common stock. See “— Agreements with Executive Officers — James Barry.”
|
|
(10)
|
Includes
4,757 shares of restricted common stock we issued to Dr. Barry in lieu of 50% of his
base salary pursuant to amendments to employment agreement with Dr. Barry, dated January
5, 2016, and dated February 22, 2015. See “— Agreements with Executive
Officers — James Barry.”
|
|
(11)
|
Dr. Barry’s
other compensation consisted solely of benefits related to health insurance.
|
|
(12)
|
Dr. Barry’s
salary compensation includes $15,000 of fees earned as a director during the twelve months
ended December 31, 2014.
|
|
(13)
|
Includes
the fair value of options granted to Dr. Barry as a director of $94,909 during the twelve
months ended December 31, 2014.
|
|
(14)
|
Dr. Barry’s
other compensation in the twelve months ended December 31, 2014 consisted of $115,000
of consulting fees and $8,748 of benefits related to health insurance
|
Agreements with Executive Officers
Alan Milinazzo
On January 3, 2013, we entered into an
employment agreement with Alan Milinazzo to serve as our president, chief executive officer and a director, which was first amended
on April 24, 2013, and further amended on January 5, 2015, June 29, 2015, and January 21, 2016. On June 6, 2016, Mr. Milinazzo
resigned from his positions as our president, chief executive officer and director, and his employment agreement, as amended,
was terminated.
Under the employment agreement, as amended,
Mr. Milinazzo was entitled to an annual base salary of at least $450,000. Such amount may be reduced only as part of an overall
cost reduction program that affects all of our senior executives and does not disproportionately affect Mr. Milinazzo, so long
as such reductions do not reduce the base salary to a rate that is less than 90% of the amount set forth above (or 90% of the
amount to which it has been increased). The base salary was to be reviewed annually by the board for increase as part of its annual
compensation review. Mr. Milinazzo was also eligible to receive an annual bonus of at least $275,000 upon the achievement of reasonable
target objectives and performance goals, to be determined by the board of directors in consultation with Mr. Milinazzo on or before
the end of the first quarter of the fiscal year to which the bonus relates and, in the event actual performance exceeds the goals,
the board may, in its sole discretion, pay Mr. Milinazzo bonus compensation of more than $275,000. The annual bonus amount was
to be less than $275,000 if the target objectives and performance goals are not met. In addition, Mr. Milinazzo was eligible to
receive such additional bonus or incentive compensation as the board may establish from time to time in its sole discretion.
On January 5, 2015, we amended Mr. Milinazzo’s
employment agreement to provide that, for a limited period of time to be mutually agreed to by us and Mr. Milinazzo, Mr. Milinazzo
would receive 50% of his base salary in cash payments, with the remaining 50% to be paid in an equivalent amount of shares of
restricted common stock, payable and granted in equal installments in accordance with our normal payroll practices. These shares
of restricted stock were to vest immediately and be valued as of the closing price of our common stock on the date of grant. Notwithstanding
the foregoing agreement, at Mr. Milinazzo’s request, no shares of restricted common stock were granted to Mr. Milinazzo
pursuant to this amendment. Rather, we and Mr. Milinazzo determined that it would be in our mutual best interest to make a single
grant of shares of restricted common stock to Mr. Milinazzo having a fair market value, as of the date of grant, equal to 50%
of his annual base salary, with such shares vesting on the first anniversary of the date of grant, as opposed to making bi-weekly
grants of restricted common stock to Mr. Milinazzo. As such, on January 26, 2015, we issued 31,250 shares of restricted common
stock valued at $7.20 per share, representing the fair market value of our common stock as of the market close on January 26,
2015, in lieu of 50% of his base salary for his employment in 2015, to vest on January 26, 2016.
On June 29, 2015, we further amended Mr.
Milinazzo’s employment agreement to memorialize the payroll adjustment that was made to Mr. Milinazzo’s manner of
salary payment on January 26, 2015, and to provide certain additional changes. Specifically, this amendment provided that, until
we raise an aggregate of $5 million from investors, Mr. Milinazzo would receive (A) with respect to his employment in 2015, 50%
of his base salary in cash payments, with the remaining 50% having been paid to Mr. Milinazzo on January 26, 2015, through the
issuance of 31,250 shares of restricted common stock as discussed above, which would be subsequently adjusted based upon the volume-weighted
average price of our common stock during the calendar year ended December 31, 2015 (or during the period from January 2, 2015
through his termination date if Mr. Milinazzo’s employment is terminated upon his death or disability, by Mr. Milinazzo
for good reason, or by us without cause prior to December 31, 2015) to represent the equivalent of 50% of Mr. Milinazzo’s
base salary in 2015. On December 31, 2015, we issued an additional 63,825 shares of restricted common stock as an adjustment pursuant
to such amendment, as the value of our common stock declined following the grant to Mr. Milinazzo on January 26, 2015.
On January 21, 2016, we further amended
Mr. Milinazzo’s employment agreement to provide that, during the remaining term of his employment, Mr. Milinazzo would receive
(A) 50% of his base salary in cash payments, for all days that Mr. Milinazzo works during the remaining term of his employment,
at the monthly rate of $18,750, payable in accordance with our regular payroll practices, and (B) a lump-sum payment equivalent
to 50% of Mr. Milinazzo’s base salary through June 30, 2016, at the monthly rate of $18,750, payable within 20 business
days from the earlier of (x) us raising an aggregate of $5 million from investors, or (y) June 30, 2016.
In accordance with Mr. Milinazzo’s
employment agreement, on January 3, 2013, we granted Mr. Milinazzo a nonqualified stock option to purchase 52,593 shares of our
common stock, made pursuant to a nonqualified stock option agreement, an incentive stock option to purchase 7,408 shares of our
common stock, made pursuant to an incentive stock option agreement, and 40,000 shares of restricted stock, which are subject to
forfeiture until the vesting of such shares, made pursuant to a restricted stock award agreement. The options have an exercise
price of $40.50, which was the fair market value of our common stock on the date of grant. The options are subject to a three-year
vesting period subject to Mr. Milinazzo’s continued service with us, with one-thirty-sixth (1/36
th
) of such awards
vesting each month. The shares of restricted stock initially vested monthly over thirty-six months, with 1/36 vesting on February
3, 2013, March 3, 2013 and April 3, 2013. The grant was then amended to vest annually over three years, with 9/36 vesting on January
3, 2014, and one-third vesting on January 3, 2015 and January 3, 2016. On or before December 31 of each calendar year, Mr. Milinazzo
will be eligible to receive an additional grant of equity awards equal, in the aggregate, to up to 0.5% of actual outstanding
shares of our common stock on the date of grant, provided that the actual amount of the grant will be based on his achievement
of certain performance objectives as established by the board, in its reasonable discretion, for each such calendar year. Each
additional grant will, with respect to any awards that are options, have an exercise price equal to the fair market value of our
common stock, and will be subject to a three-year vesting period subject to Mr. Milinazzo’s continued service with us, with
one-third of each additional grant vesting equally on the first, second, and third anniversary of the date of grant for such awards.
In connection with the equity compensation related to 2013 achievements, on January 29, 2014, Mr. Milinazzo was granted stock
options to purchase 8,633 shares of common stock and 8,633 restricted shares. In connection with the equity compensation related
to 2014 achievements, on January 26, 2015, Mr. Milinazzo was granted stock options to purchase 5,300 shares of common stock and
5,300 restricted shares.
Mr. Milinazzo’s employment agreement,
as amended, also contains certain noncompetition, no solicitation, confidentiality, and assignment of inventions requirements
for Mr. Milinazzo.
Pursuant to Mr. Milinazzo’s employment
agreement, as amended, if Mr. Milinazzo’s employment had been terminated upon his death or disability, by Mr. Milinazzo
for good reason (as such term is defined in Mr. Milinazzo’s employment agreement, as amended), or by us without cause (as
such term is defined in Mr. Milinazzo’s employment agreement, as amended), Mr. Milinazzo was entitled to receive, in addition
to other unpaid amounts owed to him (e.g., for base salary and accrued vacation): (i) any unpaid incentive compensation (as such
term is defined in the employment agreement, as amended) actually earned or owing as of the termination date; (ii) vesting of
100% of all unvested stock options, restricted stock, stock appreciation rights or similar stock based rights granted to Mr. Milinazzo,
and lapse of any forfeiture included in such restricted or other stock grants; (iii) an extension of the exercise period of any
outstanding stock options or stock appreciation rights until the earlier of (a) two (2) years from the date of termination, or
(b) the latest date that each stock option or stock appreciation right would otherwise expire by its original terms; and (v) to
the fullest extent permitted by our then-current benefit plans, continuation of benefits coverage for the lesser of 12 months
after termination or until Mr. Milinazzo obtains coverage from a new employer. If, during the term of the employment agreement,
as amended, we terminate Mr. Milinazzo’s employment for cause or Mr. Milinazzo voluntarily terminates his employment, Mr.
Milinazzo would only be entitled to unpaid amounts owed to him and whatever rights, if any, are available to him pursuant to our
stock-based compensation plans or any award documents related to any stock-based compensation.
Mr. Milinazzo had no specific right to
terminate the employment agreement or right to any severance payments or other benefits solely as a result of a change in control.
However, if within 24 months following a change in control, (a) Mr. Milinazzo terminated his employment for good reason, or (b)
we terminated his employment without cause, the lump sum severance payment to which he would have been entitled to would have
been equal to 200% of his base salary, and all stock options, restricted stock, stock appreciation rights or similar stock-based
rights granted to him would have vested in full and be immediately exercisable and any risk of forfeiture included in restricted
or other stock grants previously made to him would have immediately lapsed.
Pursuant to an option cancellation and
release agreement, dated January 26, 2016, between us and Mr. Milinazzo, Mr. Milinazzo agreed to cancel options to purchase 160,488
shares of our common stock at exercise prices ranging from $7.20 to $40.50 previously granted to him. In exchange for the cancellation
of Mr. Milinazzo’s options, we granted to Mr. Milinazzo, pursuant to the InspireMD, Inc. 2013 Long-Term Incentive Plan and
the 2013 Employee Stock Incentive Plan, which is a sub-plan to the InspireMD, Inc. 2013 Long-Term Incentive Plan, one share of
our common stock as of January 26, 2016.
Craig Shore
We have been a party to an employment
agreement with Craig Shore since November 28, 2010. Pursuant to the employment agreement, Mr. Shore was initially entitled to
a monthly gross salary of $8,750, which amount had increased to $10,620 by 2012. In addition, Mr. Shore’s annual base salary
was increased to $175,000 on April 22, 2013, retroactive to January 1, 2013. On May 5, 2014, we entered into an amended and restated
employment agreement with Mr. Shore. The employment agreement, as amended, has an initial term that ends on April 20, 2017 and
will automatically renew for additional one-year periods on April 21, 2017 and on each April 21
st
thereafter unless
either party gives the other party written notice of its election not to extend such employment at least six months prior to the
next April 21
st
renewal date. If a change in control occurs when less than two full years remain in the initial term
or during any renewal term, the employment agreement will automatically be extended for two years from the change in control date
and will terminate on the second anniversary of the change in control date. Under the terms of the employment agreement, Mr. Shore
is entitled to an annual base salary of at least $220,000, retroactive to January 1, 2014. Such amount may be reduced only as
part of an overall cost reduction program that affects all of our senior executives and does not disproportionately affect Mr.
Shore, so long as such reduction does not reduce the base salary to a rate that is less than 90% of the amount set forth above
(or 90% of the amount to which it has been increased). The base salary will be reviewed annually by our chief executive officer
for increase (but not decrease, except as permitted as part of an overall cost reduction program) as part of our annual compensation
review. Mr. Shore is also eligible to receive an annual bonus in an amount equal to 45% of his then-annual salary upon the achievement
of reasonable target objectives and performance goals, to be determined by the board of directors in consultation with Mr. Shore
and based on the percentages set forth in his employment agreement. On January 5, 2015, we amended Mr. Shore’s amended and
restated employment agreement to remove from the amended and restated employment agreement the provision disallowing payment of
annual bonus compensation if Mr. Shore achieved less than 70% of the target objectives and performance goals determined by our
board of directors in consultation with him. Pursuant to such amendment, Mr. Shore is eligible to receive the percentage of his
annual bonus corresponding to the percentage of his achievement of such target objectives and performance goals. The annual bonus
will be reviewed annually by our chief executive officer for increase in the amount of the percentage of his then-base salary
(but not decrease), as well as the criteria and corresponding percentages for the goals, as part of our annual compensation review.
In addition, Mr. Shore is eligible to receive such additional bonus or incentive compensation as the board may establish from
time to time in its sole discretion. Mr. Shore will also be considered for grants of equity awards each year as part of the board’s
annual compensation review, which will be made at the sole discretion of the board of directors. Each grant will, with respect
to any awards that are options, have an exercise price equal to the fair market value of our common stock as of the date of grant,
and will be subject to a three-year vesting period subject to Mr. Shore’s continued service with us, with one-third of each
additional grant vesting equally on the first, second, and third anniversary of the date of grant for such awards.
If during the term of the employment agreement,
Mr. Shore’s employment is terminated upon his death or disability or by us without cause (as such term is defined in Mr.
Shore’s employment agreement), Mr. Shore will be entitled to receive, in addition to any amounts he is entitled to receive
under the manager’s insurance policy: (i) any unpaid base salary and accrued unpaid vacation or earned incentive compensation
and the pro rata amount of any bonus plan incentive compensation for the fiscal year of such termination (based on the number
of business days he was actually employed by us during the fiscal year of such termination and based on the percentage of the
goals that he actually achieved under the bonus plan) that he would have received had his employment not been terminated; (ii)
a one-time lump sum severance payment equal to 100% of his base salary, provided that he executes a release relating to employment
matters and the circumstances surrounding his termination in favor of us, our subsidiaries and our officers, directors and related
parties and agents, in a form reasonably acceptable to us at the time of such termination; (iii) vesting of 50% of all unvested
stock options granted to him; (iv) an extension of the exercise period of all vested stock options granted to Mr. Shore until
the earlier of (a) two years from the date of termination or (b) the latest date that each stock option would otherwise expire
by its original terms; (v) to the fullest extent permitted by our then-current benefit plans, continuation of health, dental,
vision and life insurance coverage for the lesser of 12 months after termination or until Mr. Shore obtains coverage from a new
employer; and (vi) reimbursement of up to $30,000 for executive outplacement services, subject to certain restrictions. The severance
payment described in (ii) of the foregoing sentence upon Mr. Shore’s death or disability will be reduced by any payments
received by Mr. Shore pursuant to any of our employee welfare benefit plans providing for payments in the event of death or disability.
If, during or after the term of his employment agreement, Mr. Shore’s employment is terminated by us for cause or by Mr.
Shore voluntarily, Mr. Shore will only be entitled to unpaid amounts owed to him (e.g., base salary, accrued vacation and earned
incentive compensation through the date of such termination) and whatever rights, if any, are available to him pursuant to our
stock-based compensation plan or any award documents related to any stock-based compensation.
Mr. Shore has no specific right to terminate
the employment agreement or right to any severance payments or other benefits solely as a result of a change in control. However,
if within 24 months following a change in control, (a) Mr. Shore terminates his employment for good reason, or (b) we terminate
Mr. Shore’s employment without cause, he is entitled to receive the full lump sum severance payment equal to 100% of his
base salary and all stock options, stock appreciation rights or similar stock-based rights granted to him will vest in full and
be immediately exercisable and any risk of forfeiture included in restricted or other stock grants previously made to him will
immediately lapse. Furthermore, pursuant to terms contained in Mr. Shore’s stock option and restricted stock award agreements,
in the event of a change of control of our company, the stock options and restricted stock granted to Mr. Shore that were unvested
will vest immediately upon such change of control, in the case of stock options, if such stock options are not assumed or substituted
by the surviving company. We have also agreed orally that, upon Mr. Shore’s termination of service as a result of death,
disability, resignation for “good reason” or termination by us without “cause,” Mr. Shore will also be
entitled to receive: (a) 50% vesting of all unvested stock options, restricted stock, restricted stock units, stock appreciation
rights or similar stock based rights outstanding at the time of termination of service; and (b) the right to exercise any outstanding
stock options or stock appreciation rights for a period equal to the lesser of (x) two years from the date of termination of service,
or (y) the period remaining until the original expiration date of any such outstanding stock options or stock appreciation rights.
If we terminate Mr. Shore’s employment
without cause, Mr. Shore will be entitled, under Israeli law, to severance payments equal to his last month’s salary multiplied
by the number of years Mr. Shore has been employed with us. In order to finance this obligation, we make monthly contributions
equal to 8.33% of Mr. Shore’s salary to a severance payment fund. The total amount accumulated in Mr. Shore’s severance
payment fund as of December 31, 2014 was $51,615, as adjusted for conversion from New Israeli Shekels to U.S. Dollars. However,
if Mr. Shore’s employment is terminated without cause, on account of a disability or upon his death, as of December 31,
2014, Mr. Shore would have been entitled to receive $67,564 in severance under Israeli law, thereby requiring us to pay Mr. Shore
$15,949, in addition to releasing the $51,615 in Mr. Shore’s severance payment fund. On the other hand, pursuant to his
employment agreement, Mr. Shore is entitled to the total amount contributed to and accumulated in his severance payment fund in
the event of the termination of his employment as a result of his voluntary resignation. In addition, Mr. Shore would be entitled
to receive his full severance payment under Israeli law, including the total amount contributed to and accumulated in his severance
payment fund, if he retires from our company at or after age 67.
We are entitled to terminate Mr. Shore’s
employment immediately at any time for “cause” (as such term is defined in the agreement and the Israeli Severance
Payment Act 1963), upon which, after meeting certain requirements under the applicable law and recent Israeli Labor court requirements,
we believe we will have no further obligation to compensate Mr. Shore.
Also, upon termination of Mr. Shore’s
employment for any reason, we will compensate him for all unused vacation days accrued.
The employment agreement also contains
certain standard noncompetition, no solicitation, confidentiality, and assignment of inventions requirements for Mr. Shore.
Mr. Shore is also entitled to participate
in or receive benefits under our social insurance and benefits plans, including but not limited to our manager’s insurance
policy and education fund, which are customary benefits provided to executive employees in Israel. A management insurance policy
is a combination of severance savings (in accordance with Israeli law), defined contribution tax-qualified pension savings and
disability pension payments. An education fund is a savings fund of pre-tax contributions to be used after a specified period
of time for advanced educational training and other permitted purposes, as set forth in the by-laws of the education fund. We
will make periodic contributions to these insurance and social benefits plans based on certain percentages of Mr. Shore’s
base salary, including (i) 7.5% to the education fund and (ii) 15.83% to the manager’s insurance policy, of which 8.33%
will be allocated to severance pay, 5% to pension fund payments and 2.5% to disability pension payments. Upon the termination
of Mr. Shore’s employment for any reason other than for cause, Mr. Shore will be entitled to receive the total amount contributed
to and accumulated in his manager insurance policy fund.
Pursuant to an option cancellation and
release agreement, dated January 26, 2016, between us and Mr. Shore, Mr. Shore agreed to cancel options to purchase 44,350 shares
of our common stock at exercise prices ranging from $7.20 to $49.29 previously granted to him. In exchange for the cancellation
of Mr. Shore’s options, we granted to Mr. Shore, pursuant to the InspireMD, Inc. 2013 Long-Term Incentive Plan and the 2013
Employee Stock Incentive Plan, which is a sub-plan to the InspireMD, Inc. 2013 Long-Term Incentive Plan, one share of our common
stock as of January 26, 2016.
James Barry
On July 14, 2014, we entered into an employment
agreement with James Barry to serve as our executive vice president and chief operating officer, which was first amended on January
5, 2015, and further amended on February 22, 2015 and on March 28, 2016, and on June 6, 2016, our board of directors appointed
Dr. Barry as our president and chief executive officer, and further amended the employment agreement. Dr. Barry was previously
a director and continues his role as a director. The term of Dr. Barry’s employment will continue until May 31, 2017, with
Dr. Barry resigning as a member of the board of directors at the end of such term if requested by us, and in the event that the
term is not extended beyond May 31, 2017 by mutual agreement of the parties and we do not offer Dr. Barry a position as chief
executive officer and/or chief operating officer on the same or more favorable terms with a base salary that is at least 10% greater
than his current base salary, Dr. Barry’s termination will be deemed a termination without cause.
Under the employment agreement, as amended,
Dr. Barry is entitled to an annual base salary of at least $365,000. Such amount may be reduced only as part of an overall cost
reduction program that affects all of our senior executives and does not disproportionately affect Dr. Barry, so long as such
reductions do not reduce the base salary to a rate that is less than 90% of the amount set forth above (or 90% of the amount to
which it has been increased). The base salary will be reviewed annually by the board for increase as part of its annual compensation
review.
Prior to his appointment as our president
and chief executive officer, Dr. Barry was also eligible to receive an annual bonus of $225,000 upon the achievement of reasonable
target objectives and performance goals, to be determined by the board of directors in consultation with Dr. Barry on or before
the end of the first quarter of the fiscal year to which the bonus relates and, in the event actual performance exceeds the goals,
the board may, in its sole discretion, pay Dr. Barry bonus compensation of more than $225,000. Pursuant to the amendment to Dr.
Barry’s employment agreement upon his appointment as our president and chief executive director, effective as of June 6,
2016, Dr. Barry is eligible to receive annual bonus compensation in an amount equal to 100% of his base salary upon the achievement
of reasonable target objectives and performance goals as may be determined by the board of directors in consultation with Dr.
Barry and (ii) on the first to occur of (a) the first payroll period that is on or after the 20th business day following closing
of a transaction with investors where we raise an aggregate of $5 million or (b) March 15, 2017, Dr. Barry will receive a lump-sum
retention bonus in an amount equal to $106,458, subject to Dr. Barry’s continued employment through such date. In addition,
Dr. Barry is eligible to receive such additional bonus or incentive compensation as the board may establish from time to time
in its sole discretion.
On January 5, 2015, we amended Dr. Barry’s
employment agreement to provide that, for a limited period of time to be mutually agreed to by us and Dr. Barry, Dr. Barry will
receive 50% of his base salary in cash payments, with the remaining 50% to be paid in an equivalent amount of shares of restricted
common stock, payable and granted in equal installments in accordance with our normal payroll practices. These shares of restricted
stock were to vest immediately and be valued as of the closing price of our common stock on the date of grant. Notwithstanding
the foregoing agreement, at Dr. Barry’s request, no shares of restricted common stock were granted to Dr. Barry pursuant
to this amendment. Rather, we and Dr. Barry determined that it would be in our mutual best interest to make a single grant of
shares of restricted common stock to Dr. Barry having a fair market value, as of the date of grant, equal to 50% of his annual
base salary, with such shares vesting on the first anniversary of the date of grant, as opposed to making bi-weekly grants of
restricted common stock to Dr. Barry. As such, , on January 26, 2015, we issued 19,011 shares of restricted common stock valued
at $7.20 per share, representing the fair market value of our common stock as of the market close on January 26, 2015, in lieu
of 50% of his base salary for his employment in 2015, to vest on January 26, 2016.
On February 22, 2015, we further amended
Dr. Barry’s employment agreement to memorialize the payroll adjustment that was made to Dr. Barry’s manner of salary
payment on January 26, 2015 and to provide certain additional changes. Specifically, this amendment provided that, until the earlier
of (1) September 30, 2015 and (2) we raise an aggregate of $5 million from investors, Dr. Barry shall receive 50% of his base
salary in cash payments, with the remaining 50% having been paid to Dr. Barry on January 26, 2015, through the issuance of 19,011
shares of restricted stock as discussed above. Notwithstanding the foregoing, with Dr. Barry’s consent, Dr. Barry continued
to receive only 50% of his base salary in cash from March 9, 2015, the date of the closing of our offering from which we received
gross proceeds of approximately $13.7 million, until April 30, 2015. As we commenced full cash payment of Dr. Barry’s salary
on April 30, 2015, Dr. Barry forfeited 10,562 shares of restricted stock on May 1, 2015, which represented the shares of restricted
common stock previously granted to Dr. Barry to cover 50% of his base salary from May 1, 2015 through December 31, 2015. The remaining
such shares of restricted stock issued to Dr. Barry on January 26, 2015 in lieu of cash base salary fully vested on January 26,
2016.
In November 2015, due to our efforts to
preserve cash, Dr. Barry agreed to temporarily forego, in exchange for a corresponding reduced time commitment to us, 50% of his
base salary. We formalized such voluntarily agreement by entering into an amendment to Dr. Barry’s employment agreement,
dated March 28, 2016. The foregoing amendment to Dr. Barry’s employment agreement provides that, until the earlier of (1)
the end of the term of his employment, and (2) we raise an aggregate of $5 million from investors, Dr. Barry shall receive 50%
of his base salary and shall be eligible for 50% of any annual bonus or other incentive compensation, during which period Dr.
Barry shall devote 50% less business time than he ordinarily has devoted or would devote to us for the performance of his services
under his employment agreement.
On June 6, 2016, in connection with Dr.
Barry’s appointment as our president and chief executive officer, we further amended Dr. Barry’s employment agreement
to provide that, for the period beginning on June 1, 2016 and ending on the earlier of (i) the closing of a transaction with investors
where we raise an aggregate of $5 million and (ii) March 15, 2017, Dr. Barry will receive 50% of his base salary in cash payments,
payable in accordance with our regular payroll practices, with the remaining 50% of his base salary paid in a lump-sum payment
on the first to occur of (a) the first payroll period that is on or after the 20th business day following such transaction or
(b) March 15, 2017. In addition, within 20 business days of the closing of the transaction with investors where we raise an aggregate
of $5 million, Dr. Barry will be granted, subject to the board’s approval and Dr. Barry’s continued employment through
the applicable grant date, (i) a nonqualified stock option relating to the number of shares of our common stock equal to 2% of
outstanding common stock on the date of the closing of such transaction and (ii) an award of a number of restricted shares of
our common stock equal to 2% of outstanding common stock on the date of the closing of such transaction, in each case, subject
to the terms and conditions of the InspireMD, Inc. 2013 Long-Term Incentive Plan and a nonqualified stock option agreement and
a restricted stock award agreement to be entered into by us and Dr. Barry.
Pursuant to Dr. Barry’s employment
agreement, if Dr. Barry’s employment is terminated upon his death or disability, by Dr. Barry for good reason (as such term
is defined in Dr. Barry’s employment agreement), or by us without cause (as such term is defined in Dr. Barry’s employment
agreement), Dr. Barry will be entitled to receive, in addition to other unpaid amounts owed to him (e.g., for base salary and
accrued vacation): (i) the pro rata amount of any bonus for the fiscal year of such termination (assuming full achievement of
all applicable goals under the bonus plan) that he would have received had his employment not been terminated; (ii) a one-time
lump sum severance payment equal to 150% of his base salary, provided that he executes a release relating to employment matters
and the circumstances surrounding his termination in favor of us, our subsidiaries and our officers, directors and related parties
and agents, in a form reasonably acceptable to us at the time of such termination; (iii) vesting of 50% of all unvested stock
options, restricted stock, stock appreciation rights or similar stock based rights granted to Dr. Barry, and lapse of any forfeiture
included in such restricted or other stock grants; (iv) an extension of the term of any outstanding stock options or stock appreciation
rights until the earlier of (a) eighteen months from the date of termination, or (b) the latest date that each stock option or
stock appreciation right would otherwise expire by its original terms; (v) to the fullest extent permitted by our then-current
benefit plans, continuation of health, dental, vision and life insurance coverage for the lesser of 18 months after termination
or until Dr. Barry obtains coverage from a new employer; and (vi) a cash payment of $25,000, which Dr. Barry may use for executive
outplacement services or an education program. The payments described above will be reduced by any payments received by Dr. Barry
pursuant to any of our employee welfare benefit plans providing for payments in the event of death or disability. If Dr. Barry
continues to be employed by us after the term of his employment agreement, unless otherwise agreed by the parties in writing,
and Dr. Barry’s employment is terminated upon his death or disability, by Dr. Barry for good reason, or by us without cause,
Dr. Barry will be entitled to receive, in addition to other unpaid amounts owed to him, the payments set forth in (i), (ii) and
(iv) above. If, during the term of his employment agreement, we terminate Dr. Barry’s employment for cause, Dr. Barry will
only be entitled to unpaid amounts owed to him and whatever rights, if any, are available to him pursuant to our stock-based compensation
plans or any award documents related to any stock-based compensation.
Dr. Barry has no specific right to terminate
the employment agreement or right to any severance payments or other benefits solely as a result of a change in control. However,
if within 24 months following a change in control, (a) Dr. Barry terminates his employment for good reason, or (b) we terminate
his employment without cause, the lump sum severance payment to which he is entitled will be increased from 150% of his base salary
to 250% of his base salary and all stock options, restricted stock units, stock appreciation rights or similar stock-based rights
granted to him will vest in full and be immediately exercisable and any risk of forfeiture included in restricted or other stock
grants previously made to him will immediately lapse.
Dr. Barry’s employment agreement
also contains certain noncompetition, no solicitation, confidentiality, and assignment of inventions requirements for Dr. Barry.
Pursuant to an option cancellation and
release agreement, dated January 26, 2016, between us and Dr. Barry, Dr. Barry agreed to cancel options to purchase 67,677 shares
of our common stock at exercise prices ranging from $7.20 to $78.00 previously granted to him. In exchange for the cancellation
of Dr. Barry’s options, we granted to Dr. Barry, pursuant to the InspireMD, Inc. 2013 Long-Term Incentive Plan and the 2013
Employee Stock Incentive Plan, which is a sub-plan to the InspireMD, Inc. 2013 Long-Term Incentive Plan, one share of our common
stock as of January 26, 2016.
2015 Grants of Plan-Based Awards
Name
|
|
Grant Date
|
|
All Other Stock
Awards: Number of
Shares of Stock
or Units
(#)
|
|
|
All
Other
Option Awards:
Number of
Securities
Underlying
Options
(#)
(2)
|
|
|
Exercise or Base
Price of Option
Awards
($/Sh)
|
|
|
Grant Date Fair
Value of Stock and
Option
Awards
($)
|
|
Alan
Milinazzo
(1)
|
|
01/26/2015
|
|
|
15,209
|
|
|
|
|
|
|
|
|
|
|
|
109,500
|
|
President and Chief Executive Officer
|
|
01/26/2015
|
|
|
5,300
|
|
|
|
|
|
|
|
|
|
|
|
38,159
|
|
|
|
01/26/2015
|
|
|
31,250
|
|
|
|
|
|
|
|
|
|
|
|
225,000
|
|
|
|
01/26/2015
|
|
|
|
|
|
|
5,300
|
|
|
|
7.2
|
|
|
|
22,599
|
|
|
|
01/26/2015
|
|
|
|
|
|
|
25,474
|
|
|
|
7.2
|
|
|
|
108,622
|
|
|
|
12/31/2015
|
|
|
63,825
|
|
|
|
|
|
|
|
|
|
|
|
56,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Craig Shore
|
|
01/26/2015
|
|
|
4,688
|
|
|
|
|
|
|
|
|
|
|
|
33,750
|
|
Chief Financial Officer, Secretary
|
|
01/26/2015
|
|
|
|
|
|
|
7,852
|
|
|
|
7.2
|
|
|
|
33,479
|
|
and Treasurer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James Barry, Ph.D.
|
|
01/26/2015
|
|
|
|
|
|
|
3,926
|
|
|
|
7.2
|
|
|
|
16,740
|
|
Executive Vice President and Chief
|
|
01/26/2015
|
|
|
10,793
|
|
|
|
|
|
|
|
|
|
|
|
77,708
|
|
Operating Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Mr. Milinazzo
served as our president, chief executive officer and director until his resignation from
such positions on June 6, 2016.
|
|
(2)
|
On January
26, 2016, we entered into an option cancellation and release agreement with each of the
named executive officers included in the table above, pursuant to which the parties agreed
to cancel options which their exercise prices is ranging from $7.20 to $78.00 previously
granted to each of the named executive officers included in the table above.
|
Outstanding Equity Awards at December
31, 2015
The following table shows information
concerning unexercised options and unvested restricted shares outstanding as of December 31, 2015 for each of our named executive
officers.
|
|
Option Awards
|
|
Stock Awards
|
|
Name
|
|
Number of
securities
underlying
unexercised
options (#)
exercisable
|
|
|
Number
of
securities
underlying
unexercised
options
(#)
unexercisable
(15)
|
|
|
Option
exercise
price
($)
|
|
|
Option
expiration
date
|
|
Number of shares
of stock that have
not vested (#)
|
|
|
Market value of
shares of stock that
have not
vested ($)
|
|
Alan Milinazzo
|
|
|
58,334
|
|
|
|
1,667
|
(1)
|
|
|
40.5
|
|
|
1/3/2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,330
|
(2)
|
|
|
11,730
|
|
|
|
|
19,830
|
|
|
|
9,915
|
(3)
|
|
|
20.5
|
|
|
4/23/2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,995
|
(4)
|
|
|
5,276
|
|
|
|
|
2,878
|
|
|
|
5,755
|
(5)
|
|
|
31.0
|
|
|
1/27/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,755
|
(6)
|
|
|
5.064
|
|
|
|
|
10,445
|
|
|
|
20,890
|
(7)
|
|
|
29.7
|
|
|
1/29/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,426
|
(8)
|
|
|
5,655
|
|
|
|
|
—
|
|
|
|
30,774
|
(9)
|
|
|
7.2
|
|
|
1/25/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,209
|
(10)
|
|
|
13,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,300
|
(10)
|
|
|
4,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,250
|
(11)
|
|
|
27,500
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
Name
|
|
Number of
securities
underlying
unexercised
options (#)
exercisable
|
|
|
Number
of
securities
underlying
unexercised options
(#) unexercisable
(15)
|
|
|
Option
exercise
price
($)
|
|
|
Option
expiration
date
|
|
Number of shares
of stock that have
not vested (#)
|
|
|
Market value of
shares of stock
that have not
vested($)
|
|
Craig Shore
|
|
|
9,131
|
|
|
|
—
|
|
|
|
49.285
|
|
|
2/27/2021
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
|
|
|
—
|
|
|
|
32.0
|
|
|
5/24/2022
|
|
|
|
|
|
|
|
|
|
|
|
1,667
|
|
|
|
833
|
(13)
|
|
|
29.5
|
|
|
5/7/2023
|
|
|
|
|
|
|
|
|
|
|
|
2,567
|
|
|
|
5,133
|
(5)
|
|
|
31.0
|
|
|
1/27/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,133
|
(6)
|
|
|
4,517
|
|
|
|
|
3,222
|
|
|
|
6,445
|
(7)
|
|
|
29.7
|
|
|
1/29/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,982
|
(8)
|
|
|
1,744
|
|
|
|
|
—
|
|
|
|
7,852
|
(9)
|
|
|
7.2
|
|
|
1/25/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,688
|
(10)
|
|
|
4,125
|
|
James Barry
|
|
|
2,500
|
|
|
|
—
|
|
|
|
78.0
|
|
|
1/30/2022
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
|
—
|
|
|
|
31.6
|
|
|
6/17/2022
|
|
|
|
|
|
|
|
|
|
|
|
6,667
|
|
|
|
3,333
|
(12)
|
|
|
27.5
|
|
|
5/7/2023
|
|
|
|
|
|
|
|
|
|
|
|
1,667
|
|
|
|
3,333
|
(5)
|
|
|
31.0
|
|
|
1/27/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
(13)
|
|
|
8,800
|
|
|
|
|
15,000
|
|
|
|
30,001
|
(14)
|
|
|
26.1
|
|
|
7/11/2024
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
3,926
|
(9)
|
|
|
7.2
|
|
|
1/25/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,344
|
(10)
|
|
|
2,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,449
|
(11)
|
|
|
7,435
|
|
|
(1)
|
These options
vested on January 3, 2016.
|
|
(2)
|
These restricted
shares vested on January 3, 2016.
|
|
(3)
|
These options
vested on April 25, 2016.
|
|
(4)
|
These restricted
shares vested on April 25, 2016.
|
|
(5)
|
These options
vest annually, with one-half vesting on each of January 29, 2016 and January 29, 2017.
|
|
(6)
|
These restricted
shares vest annually, with one-half vesting on each of January 29, 2016 and January 29,
2017.
|
|
(7)
|
These options
vest annually, with one-half vesting on each of January 31, 2016 and January 31, 2017.
|
|
(8)
|
These restricted
shares vest annually, with one-half vesting on each of January 31, 2016 and January 31,
2017.
|
|
(9)
|
These options
vest annually, with one-third vesting on each of January 26, 2016, January 26, 2017 and
January 26, 2018.
|
|
(10)
|
These restricted
shares vest annually, with one-third vesting on each of January 26, 2016, January 26,
2017 and January 26, 2018.
|
|
(11)
|
These restricted
shares vested on January 26, 2016.
|
|
(12)
|
These restricted
shares vested on May 9, 2016.
|
|
(13)
|
These restricted
shares vest annually, with one-half vesting on each of July 14, 2016 and July 14, 2017.
|
|
(14)
|
These options
vest annually, with one-half vesting on each of July 14, 2016 and July 14, 2017.
|
|
(15)
|
On January
26, 2016, we entered into an option cancellation and release agreement with each of the
named executive officers included in the table above, pursuant to which the parties agreed
to cancel options which their exercise prices is ranging from $7.20 to $78.00 previously
granted to each of the named executive officers included in the table above.
|
Option Exercises and Stock Vested
There were no stock options exercised
by our named executive officers during the twelve months ended December 31, 2015.
2011 UMBRELLA Option Plan
On March 28, 2011, our board of directors
and stockholders adopted and approved the InspireMD, Inc. 2011 UMBRELLA Option Plan, which was subsequently amended on October
31, 2011 and December 21, 2012. Under the InspireMD, Inc. 2011 UMBRELLA Option Plan, we have reserved 500,000 shares of our common
stock as awards to the employees, consultants, and service providers to InspireMD, Inc. and its subsidiaries and affiliates worldwide.
The InspireMD, Inc. 2011 UMBRELLA Option
Plan currently consists of three components, the primary plan document that governs all awards granted under the InspireMD, Inc.
2011 UMBRELLA Option Plan, and two appendices: (i) Appendix A, designated for the purpose of grants of stock options and restricted
stock awards to Israeli employees, consultants, officers and other service providers and other non-U.S. employees, consultants,
and service providers, and (ii) Appendix B, which is the 2011 U.S. Equity Incentive Plan, designated for the purpose of grants
of stock options and restricted stock awards to U.S. employees, consultants, and service providers who are subject to the U.S.
income tax. On December 21, 2012, the stockholders approved the awarding of “incentive stock options” pursuant to
the U.S. portion of the plan.
The purpose of the InspireMD, Inc. 2011
UMBRELLA Option Plan is to provide an incentive to attract and retain employees, officers, consultants, directors, and service
providers whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of
such persons in our development and financial success. The InspireMD, Inc. 2011 UMBRELLA Option Plan is administered by our compensation
committee. Unless terminated earlier by the board of directors, the InspireMD, Inc. 2011 UMBRELLA Option Plan will expire on March
27, 2021.
2013 Long-Term Incentive Plan
On December 16, 2013, our stockholders
approved the InspireMD, Inc. 2013 Long-Term Incentive Plan, which was adopted by our board of directors on October 25, 2013.
The purpose of the InspireMD, Inc. 2013
Long-Term Incentive Plan is to provide an incentive to attract and retain employees, officers, consultants, directors, and service
providers whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of
such persons in our development and financial success. The InspireMD, Inc. 2013 Long-Term Incentive Plan provides for the granting
of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance
awards, dividend equivalent rights, and other awards, which may be granted singly, in combination, or in tandem. The InspireMD,
Inc. 2013 Long-Term Incentive Plan is administered by our compensation committee. A total of 500,000 shares of common stock are
reserved for awards under the InspireMD, Inc. 2013 Long-Term Incentive Plan.
The InspireMD, Inc. 2013 Long-Term Incentive
Plan is intended serve as an “umbrella” plan for us and our subsidiaries worldwide. Therefore, if so required, appendices
may be added to the InspireMD, Inc. 2013 Long-Term Incentive Plan in order to accommodate local regulations that do not correspond
to the scope of the InspireMD, Inc. 2013 Long-Term Incentive Plan. Attached as Appendix A to the InspireMD, Inc. 2013 Long-Term
Incentive Plan is the InspireMD, Inc. 2013 Employee Stock Incentive Plan, for the purpose of making grants of stock options, restricted
stock, and other stock incentive awards pursuant to Sections 102 and 3(i) of the Israeli Income Tax Ordinance (New Version), 1961
to Israeli employees and officers and any other service providers or control holders of us who are subject to Israeli Income Tax.
On September 9, 2015, our stockholders
approved an amendment to the InspireMD, Inc. 2013 Long-Term Incentive Plan to increase the number of shares of common stock available
for issuance pursuant to awards under the InspireMD, Inc. 2013 Long-Term Incentive Plan by 470,000 shares of common stock, to
a total of 970,000 shares of common stock.
On May 24, 2016, our stockholders approved
the second amendment to the InspireMD, Inc. 2013 Long-Term Incentive Plan to increase the number of shares of common stock available
for issuance pursuant to awards under the InspireMD, Inc. 2013 Long-Term Incentive Plan by 10,000,000 shares of common stock,
to a total of 10,970,000 shares of common stock.
Director Compensation
The following table shows information
concerning our directors, other than Alan Milinazzo and James Barry, Ph.D., during the twelve months ended December 31, 2015.
Name
|
|
Fees Earned or
Paid in Cash ($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
(1)
($)
|
|
|
All Other
Compensation ($)
|
|
|
Total
($)
|
|
Sol J. Barer, Ph.D.
|
|
|
8,750
|
|
|
|
—
|
|
|
|
80,629
|
(2)
|
|
|
—
|
|
|
|
89,379
|
|
Paul Stuka
|
|
|
9,750
|
|
|
|
—
|
|
|
|
69,385
|
(3)
|
|
|
—
|
|
|
|
79,134
|
|
James J. Loughlin
|
|
|
10,250
|
|
|
|
—
|
|
|
|
71,760
|
(4)
|
|
|
—
|
|
|
|
82,010
|
|
Michael Berman
|
|
|
8,000
|
|
|
|
—
|
|
|
|
61,070
|
(5)
|
|
|
—
|
|
|
|
69,070
|
|
Campbell Rogers, M.D.
|
|
|
6,750
|
|
|
|
—
|
|
|
|
55,132
|
(6)
|
|
|
—
|
|
|
|
61,882
|
|
(1)
|
The amounts in this
column reflect the dollar amounts recognized for financial statement reporting purposes with respect to the twelve months
ended December 31, 2015, in accordance with FASB ASC Topic 718. Fair value is based on the Black-Scholes option pricing model
using the fair value of the underlying shares at the measurement date. For additional discussion of the valuation assumptions
used in determining stock-based compensation and the grant date fair value for stock options, see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Share-based
compensation” and Note 2 — “Significant Accounting Policies” and Note 9 — “Equity”
of the Notes to the Consolidated Financial Statements for the Year Ended December 31, 2015 included herein.
|
|
|
(2)
|
As of December 31,
2015, Dr. Barer had outstanding options to purchase up to 135,584 shares of our common stock.
|
|
|
(3)
|
As of December 31,
2015, Mr. Stuka had outstanding options to purchase up to 45,808 shares of our common stock.
|
|
|
(4)
|
As of December 31,
2015, Mr. Loughlin had outstanding options to purchase up to 45,797 shares of our common stock. Mr. Loughlin ceased serving
as a director following our 2016 annual meeting of stockholders held on May 24, 2016.
|
|
|
(5)
|
As of December 31,
2015, Mr. Berman had outstanding options to purchase up to 42,666 shares of our common stock.
|
|
|
(6)
|
As of December 31,
2015, Dr. Rogers had outstanding options to purchase up to 39,628 shares of our common stock.
|
Name
|
|
Shares
Subject to
Options
|
|
|
Grant
Date
|
|
Exercise
Price
|
|
|
Vesting
Schedule
|
|
Expiration
|
|
Fair
Market
Value on
Grant Date
|
|
Sol J. Barer,
Ph.D.
|
|
|
4,162
|
(1)(6)
|
|
January 5, 2015
|
|
$
|
7.8
|
|
|
Fully vested as of grant date
|
|
January 5, 2025
|
|
$
|
17,380
|
|
|
|
|
9,161
|
(2)(6)
|
|
January 26, 2015
|
|
$
|
7.2
|
|
|
One-third annually in 2016, 2017 and 2018 on the anniversary of
the date of grant, provided that Dr. Barer is providing services to us or our subsidiaries or affiliates on the applicable
vesting date.
|
|
January 26, 2025
|
|
$
|
39,059
|
|
|
|
|
4,389
|
(3)
|
|
March 31, 2015
|
|
$
|
3.2
|
|
|
Fully vested as of grant date
|
|
March 31, 2025
|
|
$
|
7,971
|
|
|
|
|
4,967
|
(4)
|
|
June 30, 2015
|
|
$
|
2.8
|
|
|
Fully vested as of grant date
|
|
June 30, 2025
|
|
$
|
8,060
|
|
|
|
|
8,155
|
(5)
|
|
September 30, 2015
|
|
$
|
1.7
|
|
|
Fully vested as of grant date
|
|
September 30, 2025
|
|
$
|
8,159
|
|
Paul Stuka
|
|
|
4,637
|
(1)(6)
|
|
January 5, 2015
|
|
$
|
7.8
|
|
|
Fully vested as of grant date
|
|
January 5, 2025
|
|
$
|
19,366
|
|
|
|
|
5,409
|
(2)(6)
|
|
January 26, 2015
|
|
$
|
7.2
|
|
|
One-third annually in 2016, 2017 and 2018 on the anniversary of
the date of grant, provided that Mr. Stuka is providing services to us or our subsidiaries or affiliates on the applicable
vesting date.
|
|
January 26, 2025
|
|
$
|
23,064
|
|
|
|
|
4,891
|
(3)
|
|
March 31, 2015
|
|
$
|
3.2
|
|
|
Fully vested as of grant date
|
|
March 31, 2025
|
|
$
|
8,882
|
|
|
|
|
5,534
|
(4)
|
|
June 30, 2015
|
|
$
|
2.8
|
|
|
Fully vested as of grant date
|
|
June 30, 2025
|
|
$
|
8,981
|
|
|
|
|
9,087
|
(5)
|
|
September 30, 2015
|
|
$
|
1.7
|
|
|
Fully vested as of grant date
|
|
September 30, 2025
|
|
$
|
9,091
|
|
James J. Loughlin
|
|
|
4,875
|
(1)(6)
|
|
January 5, 2015
|
|
$
|
7.8
|
|
|
Fully vested as of grant date
|
|
January 5, 2025
|
|
$
|
20,359
|
|
|
|
|
5,409
|
(2)(6)
|
|
January 26, 2015
|
|
$
|
7.2
|
|
|
One-third annually in 2016, 2017 and 2018 on the anniversary of
the date of grant, provided that Mr. Loughlin is providing services to us or our subsidiaries or affiliates on the applicable
vesting date.
|
|
January 26, 2025
|
|
$
|
23,064
|
|
|
|
|
5,142
|
(3)
|
|
March 31, 2015
|
|
$
|
3.2
|
|
|
Fully vested as of grant date
|
|
March 31, 2025
|
|
$
|
9,338
|
|
|
|
|
5,818
|
(4)
|
|
June 30, 2015
|
|
$
|
2.8
|
|
|
Fully vested as of grant date
|
|
June 30, 2025
|
|
$
|
9,442
|
|
|
|
|
9,553
|
(5)
|
|
September 30, 2015
|
|
$
|
1.7
|
|
|
Fully vested as of grant date
|
|
September 30, 2025
|
|
$
|
9,558
|
|
Michael Berman
|
|
|
3,805
|
(1)(6)
|
|
January 5, 2015
|
|
$
|
7.8
|
|
|
Fully vested as of grant date
|
|
January 5, 2025
|
|
$
|
15,890
|
|
|
|
|
5,409
|
(2)(6)
|
|
January 26, 2015
|
|
$
|
7.2
|
|
|
One-third annually in 2016, 2017 and 2018 on the anniversary of
the date of grant, provided that Mr. Berman is providing services to us or our subsidiaries or affiliates on the applicable
vesting date.
|
|
January 26, 2025
|
|
$
|
23,064
|
|
|
|
|
4,013
|
(3)
|
|
March 31, 2015
|
|
$
|
3.2
|
|
|
Fully vested as of grant date
|
|
March 31, 2025
|
|
$
|
7,228
|
|
|
|
|
4,541
|
(4)
|
|
June 30, 2015
|
|
$
|
2.8
|
|
|
Fully vested as of grant date
|
|
June 30, 2025
|
|
$
|
7,369
|
|
|
|
|
7,456
|
(5)
|
|
September 30, 2015
|
|
$
|
1.7
|
|
|
Fully vested as of grant date
|
|
September 30, 2025
|
|
$
|
7,460
|
|
Campbell Rogers, M.D.
|
|
|
3,210
|
(1)(6)
|
|
January 5, 2015
|
|
$
|
7.8
|
|
|
Fully vested as of grant date
|
|
January 5, 2025
|
|
$
|
13,407
|
|
|
|
|
5,409
|
(2)(6)
|
|
January 26, 2015
|
|
$
|
7.2
|
|
|
One-third annually in 2016, 2017 and 2018 on the anniversary of
the date of grant, provided that Mr. Rogers is providing services to us or our subsidiaries or affiliates on the applicable
vesting date.
|
|
January 26, 2025
|
|
$
|
23,064
|
|
|
|
|
3,386
|
(3)
|
|
March 31, 2015
|
|
$
|
3.2
|
|
|
Fully vested as of grant date
|
|
March 31, 2025
|
|
$
|
6,149
|
|
|
|
|
3,832
|
(4)
|
|
June 30, 2015
|
|
$
|
2.8
|
|
|
Fully vested as of grant date
|
|
June 30, 2025
|
|
$
|
6,218
|
|
|
|
|
6,291
|
(5)
|
|
September 30, 2015
|
|
$
|
1.7
|
|
|
Fully vested as of grant date
|
|
September 30, 2025
|
|
$
|
6,294
|
|
(1)
|
These options were granted in lieu of the cash
compensation that was owed to them for their services as directors for the third and fourth calendar quarters of 2014.
|
|
|
(2)
|
These options were granted as the director’s
2015 annual director compensation.
|
|
|
(3)
|
These options were granted in lieu of the cash
compensation for their services as directors for the first calendar quarter of 2015.
|
|
|
(4)
|
These options were granted in lieu of the cash
compensation for their services as directors for the second calendar quarter of 2015.
|
|
|
(5)
|
These options were granted in lieu of the cash
compensation for their services as directors for the third calendar quarter of 2015.
|
|
|
(6)
|
On January 26, 2016, we entered into an option
cancellation and release agreement with each of the directors, pursuant to which the parties agreed to cancel options which
their exercise prices is ranging from $7.20 to $100.00 previously granted to each of the directors.
|
For the 2014 calendar year, our board approved
the following compensation for our independent directors: (i) a $25,000 stipend, payable quarterly; (ii) annual committee chair
compensation (effective April 1, 2014) of $12,000 for the chairman of the audit committee, $8,000 for the chairman of the compensation
committee and $5,000 for the chairmen of the nominating and corporate governance committee and the research and development committee;
(iii) annual committee membership compensation (effective April 1, 2014) of $4,000 for members of the audit committee and the
compensation committee and $2,000 for members of the nominating and corporate governance committee and the research and development
committee; (iv) an option to purchase 50,000 shares of our common stock for each board member; and (v) an option to purchase an
additional 35,000 shares of our common stock for the chairman of the board.
On January 5, 2015, our compensation committee
amended its compensation policy for directors to provide that effective as of July 1, 2014, each director would forego any cash
compensation in exchange for such number of immediately vested 10 year stock options having a Black-Scholes value equal to the
cash compensation otherwise due to such director under our current director compensation policies. As a result of such amendment,
on January 5, 2015, we granted to each of Dr. Barer, Mr. Berman, Mr. Loughlin, Dr. Rogers and Mr. Stuka options to purchase 41,611,
38,045, 48,745, 32,100 and 46,367 shares of common stock, respectively, in lieu of the cash compensation that was owed to them
for their services as directors for the third and fourth calendar quarters of 2014 (which was $17,500, $16,000, $20,500, $13,500
and $19,500, respectively). Each of these options has a term of 10 years, an exercise price of $0.78 per share, the closing price
of our common stock on the date of the grant, and vested immediately. On January 26, 2016, we entered into an option cancellation
and release agreement with the directors, pursuant to which the parties agreed to cancel options which their exercise prices is
ranging from $7.20 to $100.00 previously granted to each of the directors.
Equity Compensation Plan Information
The following table provides certain information
as of December 31, 2015 with respect to our equity compensation plans under which our equity securities are authorized for issuance:
|
|
Number
of securities to
be issued upon exercise
of outstanding options,
warrants and rights
|
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
|
|
Number
of securities
remaining available
for future issuance
under equity
compensation
plans (excluding
securities reflected in
column (a))
|
|
Plan Category
|
|
|
(a)
|
|
|
|
(b)
|
|
|
|
(c)
|
|
Equity
compensation plans approved by security holders
|
|
|
677,762
|
|
|
|
24.2
|
|
|
|
458,533
|
|
Equity
compensation plans not approved by security holders
|
|
|
87,722
|
(1)
|
|
|
68.42
|
|
|
|
—
|
|
Total
|
|
|
765,484
|
|
|
|
29.26
|
|
|
|
|
|
|
(1)
|
Comprised
of awards made to individuals outside the InspireMD, Inc. 2011 UMBRELLA Option Plan and 2013 Long Term Incentive Plan, as
described below:
|
|
•
|
In
April 2008, we issued options to purchase 147 shares of common stock to a provider of finder services who assisted InspireMD
Ltd. in raising funds in 2008. The exercise price of these options is $49.285 per share. These options are fully vested and
expire in June 2016.
|
|
•
|
Options
issued to current director: in November 2011, we issued options to purchase an aggregate of 72,500 shares of common stock
to Dr. Barer, the chairman of our board of directors. The exercise price of these options is $78 per share. An option to purchase
18,125 shares of common stock vested on April 11, 2013, when our common stock was first listed on a national securities exchange.
An option to purchase 18,125 shares of common stock vested on May 10, 2013, after we received research coverage from a second
investment bank that ranked in the top twenty investment banks in terms of life science underwritings. The option to purchase
36,250 shares of common stock vests in substantially equal monthly installments (with any fractional shares vesting on the
last vesting date) on the last business day of each calendar month over a two year period from the date of grant, with the
first installment vesting on November 30, 2011, provided that Dr. Barer is still providing services to us in some capacity
as of each such vesting date.
|
|
•
|
Options
issued to current vice president of global marketing and strategy: in September 2013, we issued options to purchase 15,000
shares of common stock to David Blossom. The exercise price of these options was $22.3 per share. The options vest annually
with one-third vesting on September 16, 2014, September 16, 2015 and September 16, 2016. The options expire on September 16,
2023.
|
Directors’ and Officers’ Liability Insurance
We currently have directors’ and officers’
liability insurance insuring our directors and officers against liability for acts or omissions in their capacities as directors
or officers, subject to certain exclusions. Such insurance also insures us against losses which we may incur in indemnifying our
officers and directors. In addition, we have entered into indemnification agreements with key officers and directors and such
persons shall also have indemnification rights under applicable laws, and our certificate of incorporation and bylaws.
CERTAIN RELATIONSHIPS
AND RELATED PARTY TRANSACTIONS
On November 7, 2014, we closed a registered
direct offering of approximately 626,000 shares of common stock and warrants to purchase up to approximately 313,000 shares of
common stock at a price of $13.00 per share, for gross proceeds of $8.1 million, before deducting placement agents’ fees
and estimated offering expenses. Each purchaser received a warrant to purchase one-half of a share of common stock for each share
of common stock that it purchased in the offering. The warrants are non-exercisable for six months and have a term of exercise
of 42 months from the date of issuance and an exercise price of $17.50. The purchasers in the offering included Dr. Barer, the
chairman of our board of directors, who purchased 19,231 shares of common stock and warrants to purchase 9,616 shares of common
stock, for a purchase price of $250,000, Mr. Milinazzo, our president, chief executive officer and director until his resignation
from such positions on June 6, 2016, and Dr. Barry, our executive vice president and chief operating officer, who each purchased
1,924 shares of common stock and warrants to purchase 962 shares of common stock, for a purchase price of $25,000, and Rick Olson,
our then-current vice president of global sales and operations of InspireMD Ltd, who purchased 11,539 shares of common stock and
warrants to purchase 5,770 shares of common stock, for a purchase price of $150,000.
On March 9, 2015, we closed a public offering
of approximately 34.4 million shares of common stock and warrants to purchase up to approximately 34.4 million shares of common
stock at a price of $5.5 per share, for gross proceeds of $13.7 million, before deducting placement agents’ fees and estimated
offering expenses. Each purchaser received a warrant to purchase one share of common stock for each share of common stock that
it purchased in the offering. The warrants have a term of exercise of five years from the date of issuance and an exercise price
of $5.5. The purchasers in the offering included: Dr. Barer, the chairman of our board of directors, who purchased 250,000 shares
of common stock and warrants to purchase 250,000 shares of common stock, for a purchase price of $1,000,000, Osiris Investment
Partners, L.P., of which Mr. Stuka, our director, is the principal and managing member, which purchased 62,500 shares of common
stock and warrants to purchase 62,500 shares of common stock, for a purchase price of $250,000 and Mr. Milinazzo, our president,
chief executive officer and director until his resignation from such positions on June 6, 2016, who purchased 12,500 shares of
common stock and warrants to purchase 12,500 shares of common stock, for a purchase price of $50,000.
On March 21, 2016, we sold 1,900,000 shares
of our common stock and warrants to purchase 950,000 shares of our common stock in a public offering. Each purchaser received
a warrant to purchase one half of one share of common stock for each share of common stock that it purchased in the offering.
The warrants are exercisable immediately and have a term of exercise of 5 years from the date of issuance and an exercise price
of $0.59. The purchasers in the offering included Sabby Healthcare Master Fund, Ltd. and Sabby Volatility Warrant Master Fund,
Ltd., for which Sabby Management LLC serves as the investment manager, who purchased an aggregate of 750,000 shares of common
stock and warrants to purchase 375,000 shares of common stock, for a purchase price of $442,500.
On March 21, 2016, we closed a private placement
of 1,033,051 shares of our common stock and warrants to purchase up to 516,526 shares of our common stock with certain of our
officers and directors. The purchasers in the private placement included: Dr. Barer, the chairman of our board of directors, who
purchased 847,458 shares of common stock and warrants to purchase 423,729 shares of common stock, for a purchase price of $500,000,
Osiris Investment Partners, L.P., of which Mr. Stuka, our director, is the principal and managing member, which purchased 127,119
shares of common stock and warrants to purchase 63,560 shares of common stock, for a purchase price of $75,000, Mr. Loughlin,
who served as our director until May 24, 2016, purchased 50,000 shares of common stock and warrants to purchase 25,000 shares
of common stock, for a purchase price of $29,500 and Dr. Rogers, our director, who purchased 8,474 shares of common stock and
warrants to purchase 4,237 shares of common stock, for a purchase price of $5,000.
In accordance with our audit committee charter,
the audit committee is required to approve all related party transactions. In general, the audit committee will review any proposed
transaction that has been identified as a related party transaction under Item 404 of Regulation S-K, which means a transaction,
arrangement or relationship in which we and any related party are participants in which the amount involved exceeds $120,000.
A related party includes (i) a director, director nominee or executive officer of us, (ii) a security holder known to be an owner
of more than 5% of our voting securities, (iii) an immediate family member of the foregoing or (iv) a corporation or other entity
in which any of the foregoing persons is an executive, principal or similar control person or in which such person has a 5% or
greater beneficial ownership interest.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information
with respect to the beneficial ownership of our common stock as of June 28, 2016 by:
|
•
|
each
person known by us to beneficially own more than 5.0% of our common stock;
|
|
•
|
each
of the named executive officers; and
|
|
•
|
all
of our directors and executive officers as a group.
|
The percentages of common stock beneficially
owned are reported on the basis of regulations of the Securities and Exchange Commission governing the determination of beneficial
ownership of securities. Under the rules of the Securities and Exchange Commission, a person is deemed to be a beneficial owner
of a security if that person has or shares voting power, which includes the power to vote or to direct the voting of the security,
or investment power, which includes the power to dispose of or to direct the disposition of the security.
Certain of our directors have indicated
an interest in purchasing an aggregate of up to approximately $1,250,000 in Preferred Stock and accompanying warrants in this
offering at the offering price. Based on an assumed public offering price of $37 per share of Preferred Stock (100 times $0.37,
the last reported sales price of our common stock on June 28, 2016), these directors would purchase up to an aggregate of 33,784
shares of Preferred Stock in this offering based on their indications of interest. However, because indications of interest are
not binding agreements or commitments to purchase, these directors may determine to purchase fewer shares than they indicate an
interest in purchasing or not to purchase any shares in this offering. The following table does not reflect any potential purchases
by these directors.
Except as indicated in the footnotes
to this table, each beneficial owner named in the table below has sole voting and sole investment power with respect to all shares
beneficially owned and each person’s address is c/o InspireMD, Inc., 321 Columbus Avenue, Boston, MA 02116. As of June 28,
2016, we had 10,701,320 shares outstanding.
Name
of Beneficial Owner
|
|
Number
of Shares
Beneficially
Owned
(1)
|
|
|
Percentage
Beneficially
Owned
(1)
|
|
5%
Owners
|
|
|
|
|
|
|
|
|
Sabby
Management LLC.
(2)
|
|
|
1,878,871
|
(3)
|
|
|
16.39
|
%
|
Officers
and Directors
|
|
|
|
|
|
|
|
|
Alan W. Milinazzo
|
|
|
150,527
|
(4)
|
|
|
1.4
|
%
|
Craig
Shore
|
|
|
15,362
|
(5)
|
|
|
*
|
|
|
|
Sol
J. Barer, Ph.D.
|
|
|
2,085,046
|
(6)
|
|
|
18.17
|
%
|
|
|
James
Barry, Ph.D.
|
|
|
23,605
|
(7)
|
|
|
*
|
|
|
|
Michael
Berman
|
|
|
19,011
|
(8)
|
|
|
*
|
|
|
|
Campbell
Rogers, M.D.
|
|
|
26,221
|
(9)
|
|
|
*
|
|
|
|
Paul
Stuka
|
|
|
412,632
|
(10)
|
|
|
3.8
|
%
|
|
|
Isaac
Blech
|
|
|
195,000
|
(11)
|
|
|
1.79
|
%
|
|
|
All
directors and executive officers as a group (8 persons)
|
|
|
2,927,403
|
|
|
|
24.68
|
%
|
|
|
|
*
|
Represents
ownership of less than one percent.
|
|
(1)
|
Shares of common stock beneficially
owned and the respective percentages of beneficial ownership of common stock assumes
the exercise of all options, warrants and other securities convertible into common stock
beneficially owned by such person or entity currently exercisable or exercisable within
60 days of June 28, 2016. Shares issuable pursuant to the exercise of stock options and
warrants exercisable within 60 days are deemed outstanding and held by the holder of
such options or warrants for computing the percentage of outstanding common stock beneficially
owned by such person, but are not deemed outstanding for computing the percentage of
outstanding common stock beneficially owned by any other person.
|
|
(2)
|
Sabby Management LLC’s
address is 10 Mountainview Road, Suite 205, Upper Saddle River, New Jersey 07458
|
|
(3)
|
Based
on our knowledge, including Amendment No. 1 to Schedule 13G filed with the Securities
and Exchange Commission on January 12, 2016, comprised of (i) 1,045,698 shares of common
stock owned directly by Sabby Healthcare Master Fund, Ltd., (ii) 92,787 shares of common
stock owned directly by Sabby Volatility Warrant Master Fund, Ltd., (iii) warrants to
purchase 57,693 shares of common stock that are currently exercisable or exercisable
within 60 days of June 28, 2016 owned directly by Sabby Healthcare Volatility Master
Fund, Ltd., (iv) warrants to purchase 370,193 shares of common stock that are currently
exercisable or exercisable within 60 days of June 28, 2016 owned directly by Sabby Volatility
Warrant Master Fund, Ltd. and (v) warrants to purchase 312,500 shares of common stock
that are currently exercisable or exercisable within 60 days of June 28, 2016 owned directly
by Sabby Healthcare Master Fund, Ltd. Sabby Management, LLC serves as the investment
manager of Sabby Healthcare Master Fund, Ltd. and Sabby Volatility Warrant Master Fund,
Ltd. Hal Mintz serves as manager of Sabby Management, LLC. As such, Sabby Management,
LLC and Hal Mintz may be deemed to beneficially own these securities.
|
|
(4)
|
Includes warrants to purchase 13,462
shares of common stock that are currently exercisable or exercisable within 60 days of
June 28, 2016. Mr. Milinazzo served as our president, chief executive officer and
director until his resignation from such positions on June 6, 2016.
|
|
(5)
|
Consists of shares of common
stock.
|
|
(6)
|
Includes options to purchase 90,011
shares of common stock and warrants to purchase 683,345 shares of common stock that are
currently exercisable or exercisable within 60 days of June 28, 2016.
|
|
(7)
|
Includes warrants to purchase 962
shares of common stock that are currently exercisable or exercisable within 60 days of June
28, 2016.
|
|
(8)
|
Includes options to purchase 16,010
shares of common stock that are currently exercisable or exercisable within 60 days of June
28, 2016.
|
|
(9)
|
Includes options to purchase 13,509
shares of common stock and warrants to purchase 4,237 shares of common stock that are
currently exercisable or exercisable within 60 days of June 28, 2016.
|
|
(10)
|
Paul Stuka is the principal and
managing member of Osiris Investment Partners, L.P., and, as such, has beneficial ownership
of the (i) 267,060 shares of common stock and (ii) currently exercisable warrants to
purchase 63,560 shares of common stock held by Osiris Investment Partners, L.P., in addition
to personally holding options to purchase 19,512 shares of common stock that are currently
exercisable or exercisable within 60 days of June 28, 2016 and warrants to purchase 62,500
shares of common stock that are currently exercisable or exercisable within 60 days of
June 28, 2016.
|
|
(11)
|
Consists of options to purchase
195,000 shares of common stock that are currently exercisable or exercisable within 60
days of June 28, 2016.
|
MATERIAL U.S. FEDERAL
TAX CONSEQUENCES
The following is a general summary of material
U.S. federal income tax consequences of the acquisition of shares of Preferred Stock (the “Shares”) in the offering,
the acquisition, exercise, disposition, and lapse of warrants (the “Warrants”) in the offering, and the acquisition,
ownership, and disposition of shares of our common stock issuable as a distribution with respect to the Shares, upon exercise
of the Warrants or upon conversion of the Shares ( such as common stock, the “Common Stock”).
Scope of this Summary
This summary is for general information purposes
only and does not purport to be a complete analysis of all potential U.S. federal income tax consequences of the acquisition,
ownership and disposition of Shares, Common Stock and Warrants. Except as specifically set forth below, this summary does not
discuss applicable tax reporting requirements. In addition, this summary does not take into account the individual facts and circumstances
of any particular holder that may affect the U.S. federal income tax consequences to such holder. Accordingly, this summary is
not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any particular holder.
Each holder should consult its own tax advisors regarding the U.S. federal, state and local, and non-U.S. tax consequences of
the acquisition, ownership and disposition of Shares, Common Stock and Warrants.
No legal opinion from U.S. legal counsel or
ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the U.S. federal
income tax consequences of the acquisition, ownership and disposition of Shares, Common Stock and Warrants. This summary is not
binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions
taken in this summary.
Authorities
This summary is based on the Internal Revenue
Code of 1986, as amended (the “Code”), Treasury Regulations, published rulings of the IRS, published administrative
positions of the IRS, and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date
of this prospectus. Any of the authorities on which this summary is based could be changed in a material and adverse manner at
any time, and any such change could be applied on a retroactive basis.
U.S. Holders
As used in this summary, the term “U.S.
Holder” means a beneficial owner of Shares and Warrants acquired pursuant to this prospectus and a beneficial owner of Common
Stock acquired upon conversion of the Shares, exercise of the Warrants or acquired as a distribution with respect to the Shares
that is for U.S. federal income tax purposes:
|
•
|
an individual who is
a citizen or resident of the U.S.;
|
|
•
|
a corporation (or other
entity taxable as a corporation) organized under the laws of the U.S., any state thereof
or the District of Colombia;
|
|
•
|
an estate whose income
is subject to U.S. federal income taxation regardless of its source; or
|
|
•
|
a trust that (1) is
subject to the primary supervision of a court within the U.S. and the control of one
or more U.S. persons for all substantial decisions or (2) has a valid election in effect
under applicable Treasury Regulations to be treated as a U.S. person.
|
Non-U.S. Holders
The term “Non-U.S. Holder” means
any beneficial owner of Shares and Warrants acquired pursuant to this prospectus and a beneficial owner of Common Stock acquired
upon conversion of the Shares, exercise of the Warrants or acquired as a distribution with respect to the Shares that is not a
U.S. Holder.
Holders Subject to Special U.S. Federal Income Tax Rules
This summary deals only with persons or entities
who acquire Shares and Warrants in the offering and who hold Shares, Common Stock or Warrants as a capital asset within the meaning
of Section 1221 of the Code (generally, property held for investment purposes). This summary does not address all aspects of U.S.
federal income taxation that may be applicable to holders in light of their particular circumstances or to holders subject to
special treatment under U.S. federal income tax law, such as (without limitation): banks, insurance companies, and other financial
institutions; dealers or traders in securities, commodities or foreign currencies; regulated investment companies; U.S. expatriates
or former long-term residents of the U.S.; persons holding Shares, Warrants or Common Stock as part of a straddle, appreciated
financial position, synthetic security, hedge, conversion transaction or other integrated investment; persons holding Shares,
Warrants or Common Stock as a result of a constructive sale; entities that acquire Shares, Warrants or Common Stock that are treated
as partnerships for U.S. federal income tax purposes and partners in such partnerships; real estate investment trusts; U.S. Holders
that have a “functional currency” other than the U.S. dollar; holders that acquired Shares, Warrants or Common Stock
in connection with the exercise of employee stock options or otherwise as consideration for services; or holders that are “controlled
foreign corporations” or “passive foreign investment companies.” Holders that are subject to special provisions
under the Code, including holders described immediately above, should consult their own tax advisors regarding the U.S. federal,
state and local, and non-U.S. tax consequences arising from and relating to the acquisition, ownership and disposition of Shares,
Warrants and Common Stock.
If an entity or arrangement that is classified
as a partnership (or other “pass-through” entity) for U.S. federal income tax purposes holds Shares, Warrants or Common
Stock, the U.S. federal income tax consequences to such entity and the partners (or other owners) of such entity generally will
depend on the activities of the entity and the status of such partners (or owners). This summary does not address the tax consequences
to any such owner or entity. Partners (or other owners) of entities or arrangements that are classified as partnerships or as
“pass-through” entities for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S.
federal income tax consequences arising from and relating to the acquisition, ownership, and disposition of Shares, Warrants or
Common Stock.
Tax Consequences Not Addressed
This summary does not address the U.S. state
and local, U.S. federal estate and gift, U.S. federal alternative minimum tax, or non-U.S. tax consequences to holders of the
acquisition, ownership, and disposition of Shares, Warrants and Common Stock. Each holder should consult its own tax advisors
regarding the U.S. state and local, U.S. federal estate and gift, U.S. federal alternative minimum tax, and non-U.S. tax consequences
of the acquisition, ownership, and disposition of Shares, Warrants and Common Stock.
Certain Material U.S. Federal Income Tax Consequences of the
Purchase of Shares and Warrants to U.S. Holders and Non-U.S. Holders
For U.S. federal income tax purposes, the
purchase of Shares and Warrants in this offering by U.S. Holders and Non-U.S. Holders will be treated as the purchase of two components:
a component consisting of Shares and a component consisting of Warrants, with each Warrant enabling its holder to purchase 100
shares of common stock. The purchase price for the Shares and Warrants will be allocated between these two components in proportion
to their relative fair market values at the time the Shares and Warrants are purchased by the holder. This allocation of the purchase
price will establish a holder’s initial tax basis for U.S. federal income tax purposes for each share of Shares and Warrant.
U.S. Federal Income Tax Consequences to U.S. Holders of the
Exercise and Disposition of Warrants
Exercise of Warrants
A U.S. Holder generally will not recognize
gain or loss on the exercise of a Warrant and related receipt of our common shares (unless cash is received in lieu of the issuance
of a fractional share of Common Stock). A U.S. Holder’s initial tax basis in Common Stock received on the exercise of a
Warrant should be equal to the sum of (a) such U.S. Holder’s tax basis in such Warrant plus (b) the exercise price paid
by such U.S. Holder on the exercise of such Warrant. A U.S. Holder’s holding period for Common Stock received on the exercise
of a Warrant should begin on the date that such Warrant is exercised by such U.S. Holder.
Disposition of Warrants
A U.S. Holder will recognize gain or loss
on the sale or other taxable disposition of a Warrant (including upon lapse or expiration) in an amount equal to the difference,
if any, between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. Holder’s tax
basis in the Warrant sold or otherwise disposed of. Any such gain or loss generally will be capital gain or loss and will be long-term
capital gain or loss if the Warrant is held for more than one year. Long-term capital gains recognized by certain non-corporate
U.S. Holders (including individuals) will generally be subject to a preferential rate of U.S. federal income tax. Deductions for
capital losses are subject to limitations.
Certain Adjustments to the Warrants
Under Section 305 of the Code, an adjustment
to the number of Common Stock that will be issued on the exercise of the Warrants, or an adjustment to the exercise price of the
Warrants, may be treated as a constructive distribution to a U.S. Holder of the Warrants if, and to the extent that, such adjustment
has the effect of increasing such U.S. Holder’s proportionate interest in our “earnings and profits” or assets,
depending on the circumstances of such adjustment (for example, if such adjustment is to compensate for a distribution of cash
or other property to our shareholders). Adjustments to the exercise price of a Warrant made pursuant to a bona fide reasonable
adjustment formula that has the effect of preventing dilution of the interest of the holders of the Warrants should generally
not result in a constructive distribution. (See the more detailed discussion of the rules applicable to distributions made by
us at “U.S. Federal Income Tax Consequences to U.S. Holders of the Acquisition, Ownership and Disposition of Shares and
Common Stock - Distributions” below).
U.S. Federal Income Tax Consequences to U.S. Holders of the
Acquisition, Ownership and Disposition of Shares and Common Stock
Distributions
Cash distributions made on Shares and Common
Stock generally will be included in a U.S. Holder’s income as ordinary dividend income to the extent of our current and
accumulated earnings and profits (determined under U.S. federal income tax principles) as of the end of our taxable year in which
the distribution occurs. To the extent those distributions exceed our current and accumulated earnings and profits, they will
constitute a return of capital and will first reduce a U.S. Holder’s basis in Shares or Common Stock, but not below zero,
and then will be treated as gain from the sale of stock, which will be taxable according to rules discussed under the heading
“Sale, Certain Redemptions or Other Taxable Disposition of Shares and Common Stock” below. (As of May 2016, we have
no current or accumulated earning and profits.) Cash dividends received by non-corporate U.S. Holders are generally taxed at a
maximum tax rate of 20%, provided certain holding period and other requirements are satisfied. Cash distributions in excess of
our current and accumulated earnings and profits will be treated as a return of capital to the extent of a U.S. Holder’s
adjusted tax basis in the Shares or Common Stock and thereafter as capital gain from the sale or exchange of such Shares or Common
Stock, which will be taxable according to rules discussed under the heading “Sale, Certain Redemptions or Other Taxable
Dispositions of Shares and Common Stock,” below. Cash dividends received by a corporate holder may be eligible for a dividends
received deduction, subject to applicable limitations.
Although it is not entirely free from doubt,
U.S. holders of Shares should not be subject to U.S. federal income tax upon the receipt of Common Stock issued as a dividend
upon the conversion of Shares. U.S. Holders should consult their tax advisors concerning the tax treatment of distributions of
Common Stock made on the Shares.
Sale, Certain Redemptions or Other Taxable
Dispositions of Shares and Common Stock
Upon the sale, redemption, or other taxable
disposition of Shares or Common Stock, a U.S. Holder generally will recognize capital gain or loss equal to the difference between
(i) the amount of cash and the fair market value of any property received upon such taxable disposition and (ii) the U.S. Holder’s
adjusted tax basis in the Shares or Common Stock. Such capital gain or loss will be long-term capital gain or loss if a U.S. Holder’s
holding period in the Shares or Common Stock is more than one year at the time of the taxable disposition. Long-term capital gains
recognized by non-corporate U.S. Holders will generally be subject to a maximum U.S. federal income tax rate of 20%. Deductions
for capital losses are subject to limitations.
Conversion of Shares in Exchange for
Common Stock
A U.S. Holder will not recognize any gain
or loss by reason of receiving Common Stock in exchange for our Shares upon conversion of the Shares. A U.S. Holder’s initial
tax basis in Common Stock received upon the conversion of its Shares (including Common Stock received as a dividend upon conversion)
should be equal to such U.S. Holder’s tax basis in such Shares. A U.S. Holder’s holding period for Common Stock received
upon the conversion of its Shares should carry over from the converted Shares.
Constructive Dividends
The conversion rate of the Shares is subject
to adjustment in certain circumstances. Adjustments that have the effect of increasing the proportionate interest of holders of
our Shares in our assets or earnings can give rise to deemed dividend income to such holders. Similarly, a failure to adjust the
conversion price to reflect a stock dividend or other events increasing the proportionate interest of the holders of Common Stock
can, in some circumstances, give rise to deemed dividend income to such common stock holders. Such deemed dividend income is taxable
to such holders in the taxable year of the adjustment (or failure to adjust).
Other U.S. Federal Income Tax Consequences Applicable to U.S.
Holders
Additional Tax on Passive Income
Individuals, estates and certain trusts whose
income exceeds certain thresholds will be required to pay a 3.8% Medicare surtax on “net investment income” including,
among other things, dividends on and net gain from the disposition of Shares or Common Stock. U.S. Holders should consult their
own tax advisors regarding the effect, if any, of this tax on their ownership and disposition of Shares and Common Stock.
Information Reporting and Backup Withholding
Information reporting requirements generally
will apply to payments of dividends on Shares and Common Stock and to the proceeds of a sale of Shares or Common Stock paid to
a U.S. Holder unless the U.S. Holder is an exempt recipient (such as a corporation). Backup withholding will apply to those payments
if the U.S. Holder fails to provide its correct taxpayer identification number, or certification of exempt status, or if the U.S.
Holder is notified by the IRS that it has failed to report in full payments of interest and dividend income. Backup withholding
is not an additional tax, and any amounts withheld under the backup withholding rules generally will be allowed as a refund or
a credit against a U.S. Holder’s U.S. federal income tax liability, if any, provided the required information is furnished
in a timely manner to the IRS.
U.S. Federal Income Tax Consequences to Non-U.S. Holders of
the Acquisition, Ownership and Disposition of Shares and Common Stock
U.S. Federal Income Tax Consequences to Non-U.S. Holders of
the Exercise and Disposition of Warrants
Exercise of Warrants
A Non-U.S. Holder generally will not recognize
gain or loss on the exercise of a Warrant and related receipt of Common Stock (unless cash is received in lieu of the issuance
of a fractional share of Common Stock and certain other conditions are present, as discussed below under “Sale or Other
Taxable Disposition of Shares and Common Stock”). A Non-U.S. Holder’s initial tax basis in Common Stock received on
the exercise of a Warrant should be equal to the sum of (a) such Non-U.S. Holder’s tax basis in such Warrant plus (b) the
exercise price paid by such Non-U.S. Holder on the exercise of such Warrant. A Non-U.S. Holder’s holding period for Common
Stock received on the exercise of a Warrant should begin on the date that such Warrant is exercised by such Non-U.S. Holder.
Certain Adjustments to the Warrants
Under Section 305 of the Code, an adjustment
to the number of Common Stock that will be issued on the exercise of the Warrants, or an adjustment to the exercise price of the
Warrants, may be treated as a constructive distribution to a Non-U.S. Holder of the Warrants if, and to the extent that, such
adjustment has the effect of increasing such Non-U.S. Holder’s proportionate interest in our “earnings and profits”
or assets, depending on the circumstances of such adjustment (for example, if such adjustment is to compensate for a distribution
of cash or other property to our shareholders). See the more detailed discussion of the rules applicable to distributions made
by us under the heading “Dividends” below.
U.S. Federal Income Tax Consequences to
Non-U.S. Holders of the Acquisition, Ownership and Disposition of Shares and Common Stock
Conversion of Shares in Exchange for
Common Shares
A Non-U.S. holder will not recognize any gain or loss by reason
of receiving Common Stock, in exchange for our Shares upon conversion of the Shares. A Non-U.S. Holder’s initial tax basis
in Common Stock received upon the conversion of its Shares (including Common Stock received as a dividend upon conversion) should
be equal to such Non-U.S. Holder’s tax basis in its converted Shares. A Non-U.S. Holder’s holding period for Common
Stock received upon the conversion of its Shares should carry over from the Shares.
Constructive Dividends
The conversion rate of our Shares is subject
to adjustment in certain circumstances. Adjustments that have the effect of increasing the proportionate interest of holders of
our Shares in our assets or earnings can give rise to deemed dividend income to such holders. Similarly, a failure to adjust the
conversion price to reflect a stock dividend or other events increasing the proportionate interest of the holders of Common Stock
can, in some circumstances, give rise to deemed dividend income to such common stock holders. Such deemed dividend income is taxable
to such holders in the taxable year of the adjustment (or failure to adjust). Any such deemed dividend with respect to Common
Stock or Shares would be subject to U.S. federal withholding tax on dividend income to the same extent as an actual cash distribution,
as described below under “U.S. Federal Income Tax Consequences to Non-U.S. Holders of the Acquisition, Ownership and Disposition
of Shares and Common Stock — Distributions.” Because deemed distributions would not give rise to any cash from which
any applicable withholding tax could be satisfied, we may withhold the U.S. federal tax on such dividend from any cash, shares
of common stock or Shares, or sales proceeds otherwise payable to a non-U.S. holder.
Distributions
Cash distributions on Shares or Common Stock
will constitute dividends for U.S. federal income tax purposes to the extent paid from our current and accumulated earnings and
profits, as determined under U.S. federal income tax principles. To the extent those distributions exceed our current and accumulated
earnings and profits, they will constitute a return of capital and will first reduce a Non-U.S. Holder’s basis in Shares
or Common Stock, but not below zero, and then will be treated as gain from the sale of stock, which will be taxable according
to rules discussed under the heading “Sale or Other Taxable Disposition of Shares and Common Stock,” below. (As of
May 2016, we have no current or accumulated earning and profits.) Any cash dividends paid to a Non-U.S. Holder with respect to
Shares or Common Stock generally will be subject to withholding tax at a 30% gross rate, subject to any exemption or lower rate
under an applicable treaty if the Non-U.S. Holder provides us with a properly executed IRS Form W-8BEN-E or W-8BEN. A Non-U.S.
Holder that provides us with a properly executed IRS Form W-8ECI (or other applicable form) relating to income effectively connected
with the conduct of a trade or business within the U.S. will not be subject to the 30% withholding tax.
Although it is not entirely free from doubt,
non-U.S. holders of Shares should not be subject to U.S. federal income tax upon the receipt of Common Stock issued as a dividend
upon the conversion of Shares. Non-U.S. Holders should consult their tax advisors concerning the tax treatment of distributions
of Common Stock made on the Shares.
Cash dividends that are effectively connected
with the conduct of a trade or business within the U.S. are not subject to the withholding tax (assuming proper certification
and disclosure), but instead are subject to U.S. federal income tax on a net income basis at applicable graduated individual or
corporate rates, subject to an applicable treaty that provides otherwise. Any such effectively connected income received by a
non-U.S. corporation may, under certain circumstances, be subject to an additional branch profits tax on its effectively connected
earnings and profits at a 30% rate, subject to any exemption or lower rate as may be specified by an applicable income tax treaty.
A Non-U.S. Holder of Shares or Common Stock
who wishes to claim the benefit of an applicable treaty rate or exemption is required to satisfy certain certification and other
requirements. If a Non-U.S. Holder is eligible for an exemption from or a reduced rate of U.S. withholding tax pursuant to an
income tax treaty, it may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with
the IRS.
Sale or Other Taxable Disposition of
Shares, Common Stock and Warrant
In general, a Non-U.S. Holder of Shares, Common
Stock or Warrants will not be subject to U.S. federal income tax on gain recognized from a sale, exchange, or other taxable disposition
of such Shares, Common Stock or Warrants, unless:
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the
gain is effectively connected with a U.S. trade or business carried on by the Non-U.S.
Holder (and, where an income tax treaty applies, is attributable to a U.S. permanent
establishment of the Non-U.S. Holder), in which case the Non-U.S. Holder will be subject
to tax on the net gain from the sale at regular graduated U.S. federal income tax rates,
and if the Non-U.S. Holder is a corporation, may be subject to an additional U.S. branch
profits tax at a gross rate equal to 30% of its effectively connected earnings and profits
for that taxable year, subject to any exemption or lower rate as may be specified by
an applicable income tax treaty;
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the
Non-U.S. Holder is an individual who is present in the U.S. for 183 days or more in the
taxable year of disposition and certain other conditions are met, in which case the Non-U.S.
Holder will be subject to a 30% tax on the gain from the sale, which may be offset by
U.S. source capital losses; or
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we
are or have been a “United States real property holding corporation” (“USRPHC”)
for U.S. federal income tax purposes at any time during the shorter of the Non-U.S. Holder’s
holding period or the 5-year period ending on the date of disposition of Shares, Common
Stock or Warrants; provided, with respect to the Shares, Common Stock or Warrants, that
as long as Common Stock is regularly traded on an established securities market as determined
under the Treasury Regulations (the “Regularly Traded Exception”), a Non-U.S.
Holder would not be subject to taxation on the gain on the sale of Shares, Common Stock
or Warrants under this rule unless the Non-U.S. Holder has owned more than 5% of Common
Stock at any time during such 5-year or shorter period (a “5% Shareholder”).
In determining whether a Non-U.S. Holder is a 5% Shareholder, such holder’s Warrants
may be included in such determination. In addition, certain attribution rules apply in
determining ownership for this purpose. While the Shares and Common Stock will be listed
on the NYSE MKT and therefore may satisfy the Regularly Traded Exception, since the Warrants
are not expected to be listed on a securities market, the Warrants are unlikely to qualify
for the Regularly Traded Exception. Non-U.S. Holders should be aware that we have made
no determination as to whether we are or have been a USRPHC, and we can provide no assurances
that we are not and will not become a USRPHC in the future. In addition, in the event
that we are or become a USRPHC, we can provide no assurances that the Shares, Common
Stock or Warrants will meet the Regularly Traded Exception at the time a Non-U.S. Holder
purchases such securities or sells, exchanges or otherwise disposes of such securities.
Non-U.S. Holders should consult with their own tax advisors regarding the consequences
to them of investing in a USRPHC. As a USRPHC, a Non-U.S. Holder will be taxed as if
any gain or loss were effectively connected with the conduct of a trade or business as
described above in “Dividends” in the event that (i) such holder is a 5%
Shareholder, or (ii) the Regularly Traded Exception is not satisfied during the relevant
period.
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Information Reporting and Backup Withholding
Generally, we must report annually to the
IRS and to Non-U.S. Holders the amount of cash dividends paid on the Shares and Common Stock to Non-U.S. Holders and the amount
of tax, if any, withheld with respect to those payments. Copies of the information returns reporting such dividends and withholding
may also be made available to the tax authorities in the country in which a Non-U.S. Holder resides under the provisions of an
applicable income tax treaty.
In general, a Non-U.S. Holder will not be
subject to backup withholding with respect to payments of dividends that we make, provided we receive a statement meeting certain
requirements to the effect that the Non-U.S. Holder is not a U.S. person and we do not have actual knowledge or reason to know
that the holder is a U.S. person, as defined under the Code, that is not an exempt recipient. The requirements for the statement
will be met if (1) the Non-U.S. Holder provides its name, address and U.S. taxpayer identification number, if any, and certifies,
under penalty of perjury, that it is not a U.S. person (which certification may be made on IRS Form W-8BEN or W-8BEN-E, as applicable)
or (2) a financial institution holding the instrument on behalf of the Non-U.S. Holder certifies, under penalty of perjury, that
such statement has been received by it and furnishes us or our paying agent with a copy of the statement. In addition, a Non-U.S.
Holder will be subject to information reporting and, depending on the circumstances, backup withholding with respect to payments
of the proceeds of a sale of Shares, Common Stock and Warrants within the U.S. or conducted through certain U.S.-related financial
intermediaries, unless the statement described above has been received, and we do not have actual knowledge or reason to know
that a holder is a U.S. person, as defined under the Code, that is not an exempt recipient, or the Non-U.S. Holder otherwise establishes
an exemption. Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules will be
allowed as a refund or a credit against a Non-U.S. Holder’s U.S. federal income tax liability, if any, provided the required
information is furnished in a timely manner to the IRS.
Rules Relating to Foreign Accounts
Generally, we will be required to withhold
tax at a rate of 30% on dividends in respect of Shares and Common Stock, and gross proceeds from the sale of Shares, Common Stock
or Warrants held by or through certain foreign entities, in the case of dividends, and beginning after December 31, 2018, in the
case of such gross proceeds, unless such entity is in compliance with its obligations under the Foreign Account Tax Compliance
Act, or “FATCA.”
DESCRIPTION OF SECURITIES
We have authorized 155,000,000 shares
of capital stock, par value $0.0001 per share, of which 150,000,000 are shares of common stock and 5,000,000 are shares of “blank
check” preferred stock. On June 28, 2016, there were 10,701,320 shares of common stock issued and outstanding and no shares
of preferred stock issued and outstanding. We currently have 20,000 shares of preferred stock designated as Series A Preferred
Stock and will have shares of
preferred stock designated as Series B Convertible Preferred Stock. The authorized and unissued shares of common stock and the
authorized and undesignated shares of preferred stock are available for issuance without further action by our stockholders, unless
such action is required by applicable law or the rules of any stock exchange on which our securities may be listed. Unless approval
of our stockholders is so required, our board of directors does not intend to seek stockholder approval for the issuance and sale
of our common stock or preferred stock.
Common Stock
The holders of our common stock are entitled
to one vote per share. Our certificate of incorporation does not provide for cumulative voting. Our directors are divided into
three classes. At each annual meeting of stockholders, directors elected to succeed those directors whose terms expire are elected
for a term of office to expire at the third succeeding annual meeting of stockholders after their election. The holders of our
common stock are entitled to receive ratably such dividends, if any, as may be declared by our board of directors out of legally
available funds; however, the current policy of our board of directors is to retain earnings, if any, for operations and growth.
Upon liquidation, dissolution or winding-up, the holders of our common stock are entitled to share ratably in all assets that
are legally available for distribution. The holders of our common stock have no preemptive, subscription, redemption or conversion
rights. The rights, preferences and privileges of holders of our common stock are subject to, and may be adversely affected by,
the rights of the holders of any series of preferred stock, which may be designated solely by action of our board of directors
and issued in the future.
The transfer agent and registrar for our common
stock is Action Stock Transfer Corp. The transfer agent’s address is 2469 E. Fort Union Blvd., Suite 214, Salt Lake City,
Utah 84121. Our common stock is listed on the NYSE MKT under the symbol “NSPR.”
Preferred Stock
The board of directors is authorized, subject
to any limitations prescribed by law, without further vote or action by the stockholders, to issue from time to time shares of
preferred stock in one or more series. Each such series of preferred stock shall have such number of shares, designations, preferences,
voting powers, qualifications, and special or relative rights or privileges as shall be determined by the board of directors,
which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights.
Issuance of preferred stock by our board of directors may result in such shares having dividend and/or liquidation preferences
senior to the rights of the holders of our common stock and could dilute the voting rights of the holders of our common stock.
Prior to the issuance of shares of each series
of preferred stock, the board of directors is required by the Delaware General Corporation Law and our certificate of incorporation
to adopt resolutions and file a certificate of designation with the Secretary of State of the State of Delaware. The certificate
of designation fixes for each class or series the designations, powers, preferences, rights, qualifications, limitations and restrictions,
including, but not limited to, some or all of the following:
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the
number of shares constituting that series and the distinctive designation of that series, which number may be increased or
decreased (but not below the number of shares then outstanding) from time to time by action of the board of directors;
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the
dividend rate and the manner and frequency of payment of dividends on the shares of that series, whether dividends will be
cumulative, and, if so, from which date;
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whether
that series will have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting
rights;
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whether
that series will have conversion privileges, and, if so, the terms and conditions of such conversion, including provision
for adjustment of the conversion rate in such events as the board of directors may determine;
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whether
or not the shares of that series will be redeemable, and, if so, the terms and conditions of such redemption;
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whether
that series will have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount
of such sinking fund;
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whether
or not the shares of the series will have priority over or be on a parity with or be junior to the shares of any other series
or class in any respect;
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the
rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights or priority, if any, of payment of shares of that series; and
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any
other relative rights, preferences and limitations of that series.
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Once designated by our board of directors,
each series of preferred stock may have specific financial and other terms.
Series B Convertible Preferred Stock Being Issued in this Offering
The following summary of certain terms and
provisions of the Preferred Stock offered in this offering is subject to, and qualified in its entirety by reference to, the terms
and provisions set forth in our certificate of designation of preferences, rights and limitations of the Preferred Stock, which
has been filed as an exhibit to the registration statement of which this prospectus is a part.
Our Preferred Stock is convertible into shares of our common
stock (subject to the beneficial ownership limitations as provided in the related certificate of designation of preferences),
at a conversion price equal to $ per share of common stock, subject to adjustment as
provided in the certificate of designation, at any time at the option of the holder prior to the fifth anniversary of the date
of issuance, at which time all shares of outstanding Preferred Stock shall automatically and without any further action by the
holder be converted into shares of our common stock at the then effective conversion price, provided that the holder will be prohibited
from converting Preferred Stock into shares of our common stock if, as a result of such conversion, the holder, together with
its affiliates, would own more than 4.99% of the total number of shares of our common stock then issued and outstanding. However,
any holder may increase or decrease such percentage to any other percentage not in excess of 9.99%, provided that any increase
in such percentage shall not be effective until 61 days after such notice to us.
The holders of Preferred Stock will be
entitled to receive cumulative dividends at the rate per share of 15% per annum of the stated value per share, until the fifth
anniversary of the date of issuance of the Preferred Stock. The dividends become payable, at our option, in either cash, out of
any funds legally available for such purpose, or in shares of common stock, (i) upon any conversion of the Preferred Stock, (ii)
on each such other date as our board of directors may determine, subject to written consent of the holders of Preferred Stock
holding a majority of the then issued and outstanding Preferred Stock, (iii) upon our liquidation, dissolution or winding up,
and (iv) upon occurrence of a fundamental transaction, including any merger or consolidation, sale of all or substantially all
of our assets, exchange or conversion of all of our common stock by tender offer, exchange offer or reclassification; provided,
however, that if Preferred Stock is converted into shares of common stock at any time prior to the fifth anniversary of the date
of issuance of the Preferred Stock, the holder will receive a make-whole payment in an amount equal to all of the dividends that,
but for the early conversion, would have otherwise accrued on the applicable shares of Preferred Stock being converted for the
period commencing on the conversion date and ending on the fifth anniversary of the date of issuance, less the amount of all prior
dividends paid on such converted Preferred Stock before the date of conversion. Make-whole payments are payable at our option
in either cash, out of any funds legally available for such purpose, or in shares of common stock. Our loan and security agreement
with Hercules Capital, Inc., dated October 23, 2013, as amended, prohibits us from paying cash dividends or distributions on our
capital stock.
With respect to any dividend payments
and make-whole payments paid in shares of common stock, the number of shares of common stock to be issued to a holder of Preferred
Stock will be an amount equal to the quotient of (i) the amount of the dividend payable to such holder divided by (ii) the conversion
price then in effect.
The Preferred Stock, to the extent that
it has not been converted previously, is subject to full ratchet anti-dilution price protection upon the issuance of equity or
equity-linked securities at an effective common stock purchase price of less than the conversion price then in effect, subject
to adjustment as provided in the certificate of designation.
In the event of our liquidation, dissolution,
or winding up, holders of our Preferred Stock will be entitled to receive the amount of cash, securities or other property to
which such holder would be entitled to receive with respect to such shares of Preferred Stock if such shares had been converted
to common stock immediately prior to such event (without giving effect for such purposes to the 4.99% or 9.99% beneficial ownership
limitation, as applicable) subject to the preferential rights of holders of any class or series of our capital stock specifically
ranking by its terms senior to the Preferred Stock as to distributions of assets upon such event, whether voluntarily or involuntarily.
The holders of the Preferred Stock have
no voting rights, except as required by law. Any amendment to our certificate of incorporation, bylaws or certificate of designation
that adversely affects the powers, preferences and rights of the Preferred Stock requires the approval of the holders of a majority
of the shares of Preferred Stock then outstanding.
The Preferred Stock will not be listed
on the NYSE MKT or any other exchange or trading market. We do not plan on making an application to list the Preferred Stock on
the NYSE MKT, any other national securities exchange or any other nationally recognized trading system. The common stock issuable
upon conversion of the Preferred Stock is listed on the NYSE MKT under the symbol “NSPR.”
Shares of Preferred Stock will be issued
in book-entry form under a transfer agency and service agreement between Action Stock Transfer Corp., as transfer agent, and us,
and shall initially be represented by one or more book-entry certificates deposited with DTC, and registered in the name of Cede
& Co., a nominee of DTC, or as otherwise directed by DTC.
The transfer agent and registrar for our
Preferred Stock is Action Stock Transfer Corp. The transfer agent’s address is 2469 E. Fort Union Blvd., Suite 214, Salt
Lake City, Utah 84121.
You should review a copy of the certificate
of designation of the Preferred Stock, which has been filed as an exhibit to the registration statement of which this prospectus
is a part, for a complete description of the terms and conditions of the Preferred Stock.
Warrants Being Issued in this Offering
The following is a brief summary of certain
terms and conditions of the warrants and is subject in all respects to the provisions contained in the warrants being issued in
this offering.
Form
. The warrants will be issued in
book-entry form under a warrant agent agreement between Action Stock Transfer Corp., as warrant agent, and us, and shall initially
be represented by one or more book-entry certificates deposited with DTC, and registered in the name of Cede & Co., a nominee
of DTC, or as otherwise directed by DTC. You should review a copy of the form of warrant, which is attached as an exhibit to the
registration statement of which this prospectus forms a part, for a complete description of the terms and conditions of the warrants.
Exercisability
. The warrants are
exercisable at any time after the date of issuance, and at any time up to the date that is 60 months from the date of issuance,
at which time any unexercised warrants will expire and cease to be exercisable. The warrants will be exercisable, at the option
of each holder, in whole or in part by delivering to us a duly executed exercise notice and by payment in full in immediately
available funds for the number of shares of common stock purchased upon such exercise. If a registration statement registering
the issuance of the shares of common stock underlying the warrants under the Securities Act of 1933, as amended, is not then effective
or available, the holder may exercise the warrant through a cashless exercise, in whole or in part, in which case the holder would
receive upon such exercise the net number of shares of common stock determined according to the formula set forth in the warrant.
No fractional shares of common stock will be issued in connection with the exercise of a warrant. In lieu of fractional shares,
we will either pay the holder an amount in cash equal to the fractional amount multiplied by the exercise price or round up to
the next whole share.
Exercise Limitation
. A holder
will not have the right to exercise any portion of the warrant if the holder (together with its affiliates) would beneficially
own in excess of 4.99% of the number of shares of our stock outstanding immediately after giving effect to the exercise, as such
percentage ownership is determined in accordance with the terms of the warrants. However, any holder may increase or decrease
such percentage to any other percentage not in excess of 9.99%, provided that any increase in such percentage shall not be effective
until 61 days after such notice to us.
Exercise Price; Anti-Dilution
. The
assumed initial exercise price per share of common stock purchasable upon exercise of the warrants is $0.22 per share of
common stock, the midpoint of the exercise price range on the front cover of this prospectus. The exercise price is subject to
appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications
or similar events affecting our common stock.
Transferability
. Subject to applicable
laws, the warrants may be offered for sale, sold, transferred or assigned without our consent. There is currently no trading market
for the warrants and a trading market is not expected to develop.
Exchange Listing
. Following completion
of this offering, we intend to apply to list the warrants on the NYSE MKT. No assurance can be given that such listing will be
approved.
Fundamental Transactions
. In the
event of a fundamental transaction, as described in the warrants and generally including any reorganization, recapitalization
or reclassification of our common stock, the sale, transfer or other disposition of all or substantially all of our properties
or assets, our consolidation or merger with or into another person, the holders of the warrants will be entitled to receive upon
exercise of the warrants the kind and amount of securities, cash or other property that the holders would have received had they
exercised the warrants immediately prior to such fundamental transaction.
Rights as a Stockholder
. Except
as otherwise provided in the warrants or by virtue of such holder’s ownership of shares of our common stock, the holder
of a warrant does not have the rights or privileges of a holder of our common stock, including any voting rights, until the holder
exercises the warrant.
We, with the consent of the warrant holders
holding all of the then outstanding warrants, may increase the exercise price, shorten the expiration date and amend all other
warrant terms. We may lower the exercise price or extend the expiration date without the consent of investors.
You should review a copy of the warrant agent
agreement and the form of warrant, each of which has been filed as an exhibit to the registration statement of which this prospectus
is a part, for a complete description of the terms and conditions of the warrants and the warrant agent agreement.
This prospectus also relates to the offering
of the placement agent’s warrants and of the shares of our common stock issuable upon exercise, if any, of such warrants.
See “Plan of Distribution” section below for more information.
Other Warrants
June 2016 Warrant Agreement
On
June 13, 2016, in connection with an amendment entered into on June 13, 2016, to the Loan and Security Agreement, dated October
23, 2013, between us and
Hercules Capital, Inc. (formerly Hercules Technology Growth Capital, Inc.)
,
we issued
Hercules Capital, Inc. a
warrant to purchase up to the
number of shares of common stock equal to $182,399.30, divided by (i) the lowest effective price per share, determined on a common
stock-equivalent basis, for which our equity securities are sold and issued by us in an equity financing in which we receive unrestricted
aggregate gross cash proceeds of at least $7.5 million, subject to adjustment from time to time in accordance with the terms of
the warrant agreement, or (ii) if such equity financing shall not have been consummated on or before July 30, 2016, or if, prior
to the consummation of such equity financing, there shall be a transaction involving a change of control or our dissolution, liquidation
or winding-up, then the closing price of our common stock on June 13, 2016, subject to adjustment thereafter from time to time
in accordance with the terms of the warrant agreement. The warrant is immediately exercisable and have a five year term. The warrant
may also be exercised on a cashless basis according to the formula set forth in the warrant agreement. The exercise price of the
warrant and the number of shares issuable upon exercise of the warrant are subject to adjustments for stock splits, combinations
or similar events. Upon the occurrence of a transaction involving a change of control in which the consideration is either all
cash or securities that are either registered for sale on an exchange or quotation system or otherwise unrestricted, the warrant,
to the extent not previously exercised, may be exchanged, at the holder’s request, for the consideration the holder would
have received as if it had exercised the warrant immediately prior to the change of control. For all other changes of control,
the warrant will be assumed by the successor or surviving entity with similar rights to the warrant, and thereafter the warrant
shall be exercisable for the same number and type of securities or other property as if the warrants had been exercised in full
immediately prior to the change of control. To the extent this warrant is not previously exercised, and if the then-current fair
market value of one share of common stock is greater than the exercise price then in effect, or, in the case of a transaction
involving a change of control in which the consideration is either all cash or securities that are either registered for sale
on an exchange or quotation system or otherwise unrestricted, where the value per share of common stock (as determined as of the
closing of such transaction) to be paid to the holders thereof is greater than the exercise price then in effect, the warrant
shall be deemed automatically exercised via cashless exercise as of immediately before its expiration.
The warrant contains “piggyback”
registration rights for the shares of common stock underlying the warrant that, if we, at any time and from time to time on or
after the issuance and on or before the expiration or earlier termination of the warrant, propose to register under the Securities
Act of 1933, as amended, any shares of common stock held by one or more stockholders of us for resale by such stockholders, whether
on a Form S-3 registration statement or otherwise, we shall give written notice thereof to Hercules Capital, Inc. and permit Hercules
Capital, Inc. to include any or all of the shares of common stock issuable upon exercise of the warrant (and any or all shares
previously issued to Hercules Capital, Inc. upon any prior exercise(s)) in such registration on a pari passu basis with such other
stockholder(s) and on the same terms and conditions applicable to such other stockholder(s).
March 2016 $0.59 Warrants
On March 21, 2016, we issued certain investors
in an underwritten public offering warrants to purchase up to an aggregate of 950,000 shares of our common stock at an exercise
price of $0.59 per share and certain of our directors in a concurrent private placement warrants to purchase up to an aggregate
of 516,526 shares of our common stock at an exercise price of $0.59 per share. The warrants are exercisable immediately and have
a term of exercise of five years from the date of issuance. A holder will not have the right to exercise any portion of the warrant
if the holder (together with its affiliates) would beneficially own in excess of 4.99% of the number of shares of our stock outstanding
immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the
warrants. However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99%, provided
that any increase in such percentage shall not be effective until 61 days after such notice to us. The warrants contain provisions
that protect their holders against dilution by adjustment of the purchase price in certain events such as stock dividends and
distributions, stock splits, stock combinations, reclassifications and other similar events. If a registration statement registering
the issuance of the shares of common stock underlying the warrants under the Securities Act of 1933, as amended, is not then effective
or available, the holder may exercise the warrant through a cashless exercise, in whole or in part, in which case the holder would
receive upon such exercise the net number of shares of common stock determined according to the formula set forth in the warrant.
If while the warrants are outstanding, we declare or make any dividend or other distribution of our assets to holders of shares
of common stock, then any holder of the warrants shall, upon exercise, have the right to participate in such distribution as if
it had exercised the warrants immediately before the date on which a record is taken for such distribution, or, if no such record
is taken, the date as of which the record holders of shares of common stock are to be determined for the participation in such
distribution, subject to certain limitations. In the event of a fundamental transaction, as described in the warrants and generally
including any reorganization, recapitalization or reclassification of our common stock, the sale, transfer or other disposition
of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the holders
of the warrants will be entitled to receive upon exercise of the warrants the kind and amount of securities, cash or other property
that the holders would have received had they exercised the warrants immediately prior to such fundamental transaction.
March 2016 Underwriter Warrant and Registration
Right
In connection with the underwritten public
offering in March 2016, on March 21, 2016, we issued Dawson James Securities, Inc. a five-year warrant to purchase up to 95,000
shares of common stock at an exercise price of $0.7375 per share. The underwriter warrant is exercisable at any time and from
time to time, in whole or in part, during the period commencing six months following the date of issuance and ending five years
from March 16, 2016. The underwriter warrant may be exercised through a cashless exercise, in whole or in part, in which case
the Dawson James Securities, Inc. would receive upon such exercise the net number of shares of common stock determined according
to the formula set forth in the warrant. Dawson James Securities, Inc. has the right to include the shares of common stock underlying
the underwriter warrant as part of any other registration of securities we file, subject to certain marketing and other limitations.
This “piggyback” registration rights terminate on March 16, 2021. The warrants contain provisions that protect their
holders against dilution by adjustment of the purchase price in certain events such as stock dividends, stock splits and other
similar events. In case of any reclassification or reorganization of the outstanding shares of common stock other than the foregoing,
or in the case of any share reconstruction or amalgamation or consolidation of us with or into another corporation, or in the
case of any sale or conveyance to another corporation or entity of our property as an entirety or substantially as an entirety
in connection with which we are dissolved, Dawson James Securities, Inc. will have the right to receive upon exercise of the underwriter
warrant, the kind and amount of shares of stock or other securities or property receivable upon such reclassification, reorganization,
share reconstruction or amalgamation, or consolidation, or upon a dissolution following any such sale or transfer, by a holder
of the number of shares of our common stock obtainable upon exercise of the underwriter’s warrant immediately prior to such
event. Dawson James Securities, Inc. agreed that at any time prior to the complete exercise of the underwriter warrant, if we
and Dawson James Securities, Inc. enter into an agreement pursuant to which the parties agree that the outstanding underwriter
warrant will be exchanged for securities or cash or a combination of both, then it will agree to such exchange and become a party
to such agreement.
March 2016 Placement Agent Warrant and
Registration Right
In connection with the private placement
in March 2016, on March 21, 2016, we issued Dawson James Securities, Inc. a five-year warrant to purchase up to 51,653 shares
of common stock at an exercise price of $0.7375 per share. The placement agent warrants are exercisable at any time and from time
to time, in whole or in part, during the period commencing six months following the date of issuance and ending five years from
the date of issuance. The terms of this warrant are identical to the March 2016 underwriter warrant described above.
March 2015 $5.50 Warrants
On March 9, 2015, we issued certain investors
in a public offering warrants to purchase up to an aggregate of 3,436,968 shares of our common stock at an exercise price of $5.50
per share. The warrants are exercisable immediately and have a term of exercise of five years from the date of issuance. A holder
will not have the right to exercise any portion of the warrant if the holder (together with its affiliates) would beneficially
own in excess of 4.99% of the number of shares of our stock outstanding immediately after giving effect to the exercise, as such
percentage ownership is determined in accordance with the terms of the warrants. However, any holder may increase or decrease
such percentage to any other percentage not in excess of 9.99%, provided that any increase in such percentage shall not be effective
until 61 days after such notice to us. The exercise price is subject to appropriate adjustment in the event of certain stock dividends
and distributions, stock splits, stock combinations, reclassifications or similar events affecting our common stock. If a registration
statement registering the issuance of the shares of common stock underlying the warrants under the Securities Act of 1933, as
amended, is not then effective or available, the holder may exercise the warrant through a cashless exercise, in whole or in part,
in which case the holder would receive upon such exercise the net number of shares of common stock determined according to the
formula set forth in the warrant. Notwithstanding the foregoing, on the termination date of this warrant, the warrant will be
automatically exercised via cashless exercise. If while the warrants are outstanding, we declare or make any dividend or other
distribution of our assets to holders of shares of common stock, then any holder of the warrants shall have the right to participate
in such distribution as if it had completely exercised the warrants immediately before the date on which a record is taken for
such distribution, or, if no such record is taken, the date as of which the record holders of shares of common stock are to be
determined for the participation in such distribution. In the event of a fundamental transaction, as described in the warrants
and generally including any reorganization, recapitalization or reclassification of our common stock, the sale, transfer or other
disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person,
the holders of the warrants will be entitled to receive upon exercise of the warrants the kind and amount of securities, cash
or other property that the holders would have received had they exercised the warrants immediately prior to such fundamental transaction.
November 2014 $17.50 Warrants
On November 7, 2014, we issued certain investors
in a public offering warrants to purchase up to an aggregate of 313,100 shares of our common stock at an exercise price of $17.50
per share. The warrants are exercisable at any time after six months after the date of issuance, and at any time up to the date
that is 42 months from the date of issuance. A holder will not have the right to exercise any portion of the warrant if the holder
(together with its affiliates) would beneficially own in excess of 4.99% of the number of shares of our stock outstanding immediately
after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the warrants.
However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99%, provided that any
increase in such percentage shall not be effective until 61 days after such notice to us. The exercise price is subject to appropriate
adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar
events affecting our common stock. If a registration statement registering the issuance of the shares of common stock underlying
the warrants under the Securities Act of 1933, as amended, is not then effective or available, the holder may exercise the warrant
through a cashless exercise, in whole or in part, in which case the holder would receive upon such exercise the net number of
shares of common stock determined according to the formula set forth in the warrant. Notwithstanding the foregoing, on the termination
date of this warrant, the warrant will be automatically exercised via cashless exercise. If while the warrants are outstanding,
we declare or make any dividend or other distribution of our assets to holders of shares of common stock, then any holder of the
warrants shall have the right to participate in such distribution as if it had completely exercised the warrants immediately before
the date on which a record is taken for such distribution, or, if no such record is taken, the date as of which the record holders
of shares of common stock are to be determined for the participation in such distribution. In the event of a fundamental transaction,
as described in the warrants and generally including any reorganization, recapitalization or reclassification of our common stock,
the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with
or into another person, the holders of the warrants will be entitled to receive upon exercise of the warrants the kind and amount
of securities, cash or other property that the holders would have received had they exercised the warrants immediately prior to
such fundamental transaction.
October 2013 $29.70 Warrant and Registration
Rights
On
October 23, 2013, in connection with that certain Loan and Security Agreement, dated October 23, 2013, between us and
Hercules
Capital, Inc. (formerly Hercules Technology Growth Capital, Inc.)
, we
issued
Hercules Capital, Inc.
a warrant to purchase 16,836 shares
of our common stock at an exercise price of $29.70 per share. The warrant is immediately exercisable and have a five year term.
The warrant may also be exercised on a cashless basis according to the formula set forth in the warrant. The exercise price of
the warrant and the number of shares issuable upon exercise of the warrant are subject to adjustments for stock splits, combinations
or similar events. Upon the occurrence of a transaction involving a change of control in which the consideration is either all
cash or securities that are either registered for sale on an exchange or quotation system or otherwise unrestricted, the warrant,
to the extent not previously exercised, may be exchanged, at the holder’s request, for the consideration the holder would
have received as if it had exercised the warrant immediately prior to the change of control. For all other changes of control,
the warrant will be assumed by the successor or surviving entity with similar rights to the warrant, and thereafter the warrant
shall be exercisable for the same number and type of securities or other property as if the warrant had been exercised in full
immediately prior to the change of control. To the extent this warrant is not previously exercised, and if the then-current fair
market value of one share of common stock is greater than the exercise price then in effect, or, in the case of a transaction
involving a change of control in which the consideration is either all cash or securities that are either registered for sale
on an exchange or quotation system or otherwise unrestricted, where the value per share of common stock (as determined as of the
closing of such transaction) to be paid to the holders thereof is greater than the exercise price then in effect, the warrant
shall be deemed automatically exercised via cashless exercise as of immediately before its expiration.
The warrant contains “piggyback”
registration rights for the shares of common stock underlying the warrant that, if we, at any time and from time to time on or
after the issuance and on or before the expiration or earlier termination of the warrant, propose to register under the Securities
Act of 1933, as amended, any shares of common stock held by one or more stockholders of us for resale by such stockholders, whether
on a Form S-3 registration statement or otherwise, we shall give written notice thereof to Hercules Capital, Inc. and permit Hercules
Capital, Inc. to include any or all of the shares of common stock issuable upon exercise of the warrant (and any or all shares
previously issued to Hercules Capital, Inc. upon any prior exercise(s)) in such registration on a pari passu basis with such other
stockholder(s) and on the same terms and conditions applicable to such other stockholder(s).
April 2013 $30.00 Warrants
On April 16, 2013, we issued certain holders
of our then outstanding convertible debentures warrants to purchase up to an aggregate of 65,912 shares of our common stock at
an exercise price of $30.00 per share. We are prohibited from effecting the exercise of any such warrant to the extent that as
a result of such exercise the holder of the exercised warrant beneficially owns more than 4.99% in the aggregate of the issued
and outstanding shares of our common stock calculated immediately after giving effect to the issuance of shares of our common
stock upon the exercise of the warrant (subject to an increase, upon at least 61 days’ notice by the holder of such warrant
to us, of up to 9.99%). The warrants contain provisions that protect their holders against dilution by adjustment of the purchase
price in certain events such as stock dividends, stock splits and other similar events. If there is no effective registration
statement registering, or no current prospectus available for, the resale of the shares of common stock underlying the warrants
at the time of exercise of the warrants, the holders of such warrants have the right to exercise the warrants by means of a cashless
exercise. Notwithstanding the foregoing, if the last sale price of the common stock on the principal trading market on the trading
day immediately preceding the termination date of the warrant is greater than the exercise price, at our election, this warrant
shall either be (i) automatically exercised via cashless exercise as of the termination date or (ii) exercised via a cash exercise
in accordance with the terms of the warrant. In addition, upon the occurrence of a transaction involving a change of control that
is (i) an all cash transaction, (ii) a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the Securities Exchange
Act of 1934, as amended, or (iii) involving a person or entity not traded on a national securities exchange, the holders of the
warrants will have the right, among others, to have the warrants repurchased in exchange for issuance of a number of shares of
common stock equal to a fraction of (i) the numerator of which is the Black Scholes value (as calculated pursuant to the warrants)
of the remaining unexercised portion of the warrant, and (ii) the denominator of which is the sum of the price per share being
offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such fundamental transaction.
If while the warrants are outstanding, we issue any evidences of indebtedness, assets, rights or warrants to subscribe for or
purchase any security of the company, then any holder of the warrants shall, upon exercise, have the right to acquire the same
securities as if it had exercised the warrants immediately before the date on which a record is taken for such distribution, or,
if no such record is taken, the date as of which the record holders of shares of common stock are to be determined for the participation
in such distribution. The warrants expire on April 16, 2018.
April 2012 $72.00 Warrants
On April 5, 2012, we issued certain investors
warrants to purchase an aggregate of 83,587 shares of our common stock at an exercise price of $72.00 per share. We are prohibited
from effecting the exercise of any such warrant to the extent that as a result of such exercise the holder of the exercised warrant
beneficially owns more than 4.99% in the aggregate of the issued and outstanding shares of our common stock calculated immediately
after giving effect to the issuance of shares of our common stock upon the exercise of the warrant (subject to an increase, upon
at least 61 days’ notice by the holder of such warrant to us, of up to 9.99%). The warrants contain provisions that protect
their holders against dilution by adjustment of the purchase price in certain events such as stock dividends, stock splits and
other similar events. If at any time after 60 days following the date of issuance of the warrants there is no effective registration
statement registering, or no current prospectus available for, the resale of the shares of common stock underlying the warrants,
the holders of such warrants have the right to exercise the warrants by means of a cashless exercise. Notwithstanding the foregoing,
if the last sale price of the common stock on the principal trading market on the trading day immediately preceding the termination
date of the warrant is greater than the exercise price, at our election, this warrant shall either be (i) automatically exercised
via cashless exercise as of the termination date or (ii) exercised via a cash exercise in accordance with the terms of the warrant.
In addition, upon the occurrence of a transaction
involving a change of control that is (i) an all cash transaction, (ii) a “Rule 13e-3 transaction” as defined in Rule
13e-3 under the Securities Exchange Act of 1934, as amended, or (iii) involving a person or entity not traded on a national securities
exchange, the holders of the warrants will have the right, among others, to have the warrants repurchased in exchange for issuance
of a number of shares of common stock equal to a fraction of (i) the numerator of which is the Black Scholes value (as calculated
pursuant to the warrants) of the remaining unexercised portion of the warrant, and (ii) the denominator of which is the sum of
the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such
fundamental transaction. If while the warrants are outstanding, we issue any evidences of indebtedness, assets, rights or warrants
to subscribe for or purchase any security of the company, then any holder of the warrants shall, upon exercise, have the right
to acquire the same securities as if it had exercised the warrants immediately before the date on which a record is taken for
such distribution, or, if no such record is taken, the date as of which the record holders of shares of common stock are to be
determined for the participation in such distribution. The warrants expire on April 5, 2017.
April 2012 Placement Agent Warrants
As consideration for serving as our placement
agents in connection with certain private placements, on April 5, 2012, we issued Palladium Capital Advisors, LLC a five-year
warrant to purchase up to 3,990 shares of common stock at an exercise price of $72.00 per share, Oppenheimer & Co. Inc. a
five-year warrant to purchase up to 2,827 shares of common stock at an exercise price of $72.00 per share and JMP Securities LLC
a five-year warrant to purchase up to 992 shares of common stock at an exercise price of $72.00 per share. The terms of these
warrants are identical to the April 2012 $72.00 Warrants described above.
Delaware Anti-Takeover Law, Provisions of our Certificate of
Incorporation and Bylaws
Delaware Anti-Takeover Law
We are subject to Section 203 of the Delaware
General Corporation Law. Section 203 generally prohibits a public Delaware corporation from engaging in a “business combination”
with an “interested stockholder” for a period of three years after the date of the transaction in which the person
became an interested stockholder, unless:
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prior
to the date of the transaction, the board of directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested stockholder;
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the
interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding (i) shares owned by persons who are directors and also
officers and (ii) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange offer; or
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on
or subsequent to the date of the transaction, the business combination is approved by the board and authorized at an annual
or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding
voting stock which is not owned by the interested stockholder.
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Section 203 defines a business combination
to include:
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any
merger or consolidation involving the corporation and the interested stockholder;
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any
sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation;
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subject
to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder; or
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the
receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
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In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any
entity or person affiliated with, or controlling, or controlled by, the entity or person. The term “owner” is broadly
defined to include any person that, individually, with or through that person’s affiliates or associates, among other things,
beneficially owns the stock, or has the right to acquire the stock, whether or not the right is immediately exercisable, under
any agreement or understanding or upon the exercise of warrants or options or otherwise or has the right to vote the stock under
any agreement or understanding, or has an agreement or understanding with the beneficial owner of the stock for the purpose of
acquiring, holding, voting or disposing of the stock.
The restrictions in Section 203 do not apply
to corporations that have elected, in the manner provided in Section 203, not to be subject to Section 203 of the Delaware General
Corporation Law or, with certain exceptions, which do not have a class of voting stock that is listed on a national securities
exchange or held of record by more than 2,000 stockholders. Our certificate of incorporation and bylaws do not opt out of Section
203.
Section 203 could delay or prohibit mergers
or other takeover or change in control attempts with respect to us and, accordingly, may discourage attempts to acquire us even
though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market
price.
Certificate of Incorporation
and Bylaws
Provisions of our certificate of incorporation
and bylaws may delay or discourage transactions involving an actual or potential change in our control or change in our management,
including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders
might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our common
stock. Among other things, our certificate of incorporation and bylaws:
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permit
our board of directors to issue up to 5,000,000 shares of preferred stock, without further action by the stockholders, with
any rights, preferences and privileges as they may designate, including the right to approve an acquisition or other change
in control;
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provide
that the authorized number of directors may be changed only by resolution of the board of directors;
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provide
that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative
vote of a majority of directors then in office, even if less than a quorum;
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divide
our board of directors into three classes, with each class serving staggered three-year terms;
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do
not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled
to vote in any election of directors to elect all of the directors standing for election, if they should so choose);
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provide
that special meetings of our stockholders may be called only by our board of directors; and
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set
forth an advance notice procedure with regard to the nomination, other than by or at the direction of our board of directors,
of candidates for election as directors and with regard to business to be brought before a meeting of stockholders.
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PLAN OF DISTRIBUTION
Placement Agency Agreement
In connection with this offering, we will
enter into a placement agency agreement with Dawson James Securities, Inc., pursuant to which Dawson James Securities, Inc. will
agree to act as our exclusive placement agent on a best efforts basis in connection with the sale of our securities. The
placement agent has no obligation to purchase or sell any securities offered by us under this prospectus for its own account or
to arrange the purchase or sale of any specific number or dollar amount of the securities, but the placement agent will agree
to act as our agent and to use its reasonable best efforts to arrange for the sale of all of the securities in this offering.
Affiliates and associated persons of Dawson James Securities, Inc. may invest in this offering on the same terms and conditions
as the public investors participating in this offering.
The placement agency agreement will provide
that the obligations of the placement agent are subject to certain conditions precedent, including, among other things, the absence
of any material adverse change in our business and the receipt of customary legal opinions, letters and certificates. In addition,
we will make certain representations and warranties in the placement agency agreement and we will agree to certain covenants in
the placement agent agreement.
Upon closing, we will deliver to each purchaser
delivering funds the number of shares of preferred stock and warrants purchased by such purchaser in electronic format.
Fees and Expenses
We will pay the placement agent a fee equal
to 9% of the gross proceeds of the offering. We have also agreed to reimburse the placement agent for its reasonable “blue
sky” fees and expenses, of $25,000.
We estimate the total expenses of this offering,
excluding the placement agent fees, will be approximately $230,000. Because there is no minimum offering amount required as a
condition to closing in this offering, the actual offering amount, placement agent fees and proceeds to us, if any, in this offering
may be substantially less than the maximum offering amounts set forth in this prospectus.
We have also agreed to issue to the placement
agent a unit purchase option to purchase a number of our securities equal to an aggregate of 3.5% of the securities sold in this
offering. The placement agent unit purchase option will have an exercise price equal to 125% of the public offering price of the
securities set forth on the cover of this prospectus and may be exercised on a cashless basis. The placement agent unit purchase
option is not redeemable by us. This prospectus also covers the sale of the placement agent unit purchase option and the securities
underlying the units. The placement agent unit purchase option and the underlying securities have been deemed compensation by
FINRA, and are therefore subject to FINRA Rule 5110(g)(1). In accordance with FINRA Rule 5110(g)(1), neither the placement agent
unit purchase option nor any securities underlying such unit purchase option may be sold, transferred, assigned, pledged, or hypothecated,
or be the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic
disposition of such securities by any person for a period of 180 days immediately following the date of effectiveness or commencement
of sales of the offering pursuant to which the placement agent unit purchase option is being issued, except the transfer of any
security:
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by
operation of law or by reason of reorganization of our company;
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to
any FINRA member firm participating in this offering and the officers or partners thereof, if all securities so transferred
remain subject to the lock-up restriction described above for the remainder of the time period;
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if
the aggregate amount of our securities held by either a placement agent or a related person do not exceed 1% of the securities
being offered;
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that
is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that no participating member
manages or otherwise directs investments by the fund, and participating members in the aggregate do not own more than 10%
of the equity in the fund; or
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the
exercise or conversion of any security, if all securities received remain subject to the lock-up restriction set forth above
for the remainder of the time period.
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Although the unit purchase option and
the underlying securities have been registered on the registration statement of which this prospectus forms a part, we have agreed
to use commercially reasonable efforts to file a short-form registration statement on Form S-3 covering the resale of such underlying
securities, on one occasion only upon request by the placement agent, within 30 days after we become eligible to use such Form
S-3. These registration rights shall expire on the fifth anniversary of the effective date of the registration statement of which
this prospectus forms a part.
Restriction on Sales of Capital Stock
The placement agency agreement will contain a restriction on
sales of our capital stock by us, pursuant to which we will agree to not, for a period of 180 days after the date of the placement
agency agreement, subject to certain exceptions, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose
of, directly or indirectly, our capital stock or any securities convertible into or exercisable or exchangeable for our capital
stock; (ii) file or cause to be filed any registration statement with the Securities and Exchange Commission relating to the offering
of our capital stock or any securities convertible into or exercisable or exchangeable for our capital stock other than the filing
of a Registration Statement on Form S-8; (iii) enter into any swap or other arrangement that transfers to another, in whole or
in part, any of the economic consequences of ownership of our capital stock, whether any such transaction described in clause
(i), (ii) or (iii) above is to be settled by delivery of our capital stock or such other securities, in cash or otherwise; or
(iv) publicly announce an intention to effect any transaction specified in clause (i), (ii) or (iii) above.
Determination of Exercise Price of the Warrants
We currently estimate that the initial warrant exercise
price will be between $0.20 and $0.24 per share of common stock. The exercise price of the warrants will be negotiated
between us and Dawson James Securities, Inc. Among the factors to be considered in these negotiations are prevailing market
conditions, our current value of our market capitalization compared to the size of the offering, our capitalization, market
prices of our common stock in recent periods, our financial and operating information in recent periods, market valuations of
us and other companies that we and Dawson James Securities, Inc. believe to be comparable to us, our prospects, the present
state of our development and other factors deemed relevant.
Other Matters
We have agreed to indemnify the placement
agent and certain other persons against certain liabilities, including civil liabilities under the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended, to advance costs of defense incurred in respect of those liabilities,
and to contribute to payments that the placement agent may be required to make in respect of those liabilities.
The placement agent has informed us that it
will not engage in over-allotment, stabilizing transactions or syndicate covering transactions in connection with this offering.
This prospectus in electronic format may be
made available on websites or through other online services maintained by the placement agent, or by its affiliates. Other
than this prospectus in electronic format, the information on the placement agent’s website and any information contained
in any other website maintained by the placement agent is not part of this prospectus or the registration statement of which this
prospectus forms a part, has not been approved and/or endorsed by us or the placement agent and should not be relied upon by investors.
From time to time, Dawson James Securities,
Inc. may provide various investment banking and other financial services for us for which services they may in the future receive
customary fees. Except for services provided in connection with this offering, Dawson James Securities, Inc. has not provided
any investment banking or other financial services preceding the date of this prospectus and we do not expect to retain any placement
agent to perform any investment banking or other financial services for at least 90 days after the date of this prospectus, except
for the following:
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in March 2015, Dawson James Securities, Inc. served as a co-placement
agent selected by H.C. Wainwright & Co., LLC, the lead placement agent, in connection
with a public offering of 3,436,968 shares of our common stock and warrants to purchase 3,436,968
shares of our common stock. In connection with such offering, Dawson James Securities,
Inc., together with H.C. Wainwright & Co., LLC, received placement agent fee equal to
8% of the aggregate gross proceeds of the offering;
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in March 2016, Dawson James Securities, Inc. served as an underwriter
in connection with a public offering of 1,900,000 shares of our common stock and warrants to purchase up to 950,000 shares
of our common stock. In connection with such offering, Dawson James Securities, Inc. received underwriting discounts of $89,680
and was issued underwriter’s warrants to purchase 95,000 shares of our common stock at an exercise price of $0.7375
per share. In addition, we reimbursed Dawson James Securities, Inc. for $25,000 in expenses, and for its “blue
sky” fees and expenses of $20,000; and
|
|
•
|
in
March 2016, Dawson James Securities, Inc. served as a placement agent in connection with a private offering of approximately
$600,000 of our common stock and warrants on the same terms as the March 2016 public offering described above. In connection
with such private placement, we agreed to pay a placement agent fee of 8% of the offering proceeds, to reimburse the placement
agent for its expenses up to $25,000 and to issue the placement agent warrants to purchase up to 5% of the number of shares
of common stock sold in the private placement at an exercise price per share equal to $0.7375.
|
LEGAL MATTERS
The validity of the securities offered by
this prospectus will be passed upon for us by Haynes and Boone, LLP, New York, New York. Schiff Hardin LLP, Washington, DC, is
acting as counsel for the placement agent in connection with the securities offered hereby.
EXPERTS
The financial statements as of December 31,
2015 and 2014 and for each of the two years in the period ended December 31, 2015 included in this prospectus have been so included
in reliance on the report (which contains an explanatory paragraph relating to the Company’s ability to continue as a going
concern as described in Note 1 to the financial statements) of Kesselman & Kesselman, an independent registered public accounting
firm and a member firm of PricewaterhouseCoopers International Limited, given on the authority of said firm as experts in auditing
and accounting.
WHERE YOU CAN FIND MORE
INFORMATION
We are subject to the informational requirements
of the Securities Exchange Act of 1934, as amended, and in accordance therewith file annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission. Such reports, proxy statements and other information
can be read and copied at the Securities and Exchange Commission’s Public Reference Room at 100 F Street, N.W., Washington,
D.C. 20549, on official business days during the hours of 10:00 am to 3:00 pm. Please call the Securities and Exchange Commission
at 1-800-732-0330 for further information on the operation of the Public Reference Room. In addition, the Securities and Exchange
Commission maintains a website that contains reports, proxy and information statements and other information regarding registrants
that file electronically with the Securities and Exchange Commission. The address of the Securities and Exchange Commission’s
website is
www.sec.gov
.
We make available free of charge on or through
our website at
www.inspire-md.com
, our Annual Reports on Form 10-K, Transition Reports on Form 10-KT, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material
with or otherwise furnish it to the Securities and Exchange Commission.
We have filed with the Securities and Exchange
Commission a registration statement under the Securities Act of 1933, as amended, relating to the offering of these securities.
The registration statement, including the attached exhibits, contains additional relevant information about us and the securities.
This prospectus does not contain all of the information set forth in the registration statement. You can obtain a copy of the
registration statement, at prescribed rates, from the Securities and Exchange Commission at the address listed above, or for free
at www.sec.gov. The registration statement and the documents referred to below under “Incorporation of Certain Information
By Reference” are also available on our website,
www.inspire-md.com
.
We have not incorporated by reference into
this prospectus the information on our website, and you should not consider it to be a part of this prospectus.
INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE
The Securities and Exchange Commission allows
us to “incorporate by reference” the information we have filed with it, which means that we can disclose important
information to you by referring you to those documents. The information we incorporate by reference is an important part of this
prospectus, and later information that we file with the Securities and Exchange Commission will automatically update and supersede
this information. We incorporate by reference all documents (excluding information furnished pursuant to Items 2.02 and 7.01 of
Form 8-K) we file with the Securities and Exchange Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, subsequent to the date of this prospectus and prior to the termination of the offering shall
be deemed to be incorporated by reference into the prospectus.
You should rely only on the information incorporated
by reference or provided in this prospectus. We have not authorized anyone else to provide you with different information. You
should not assume that the information in this prospectus is accurate as of any date other than the date of this prospectus or
the date of the documents incorporated by reference in this prospectus.
We will provide without charge to each person
to whom a copy of this prospectus is delivered, upon written or oral request, a copy of any or all of the reports or documents
that have been incorporated by reference in this prospectus but not delivered with this prospectus (other than an exhibit to these
filings, unless we have specifically incorporated that exhibit by reference in this prospectus). Any such request should be addressed
to us at: 321 Columbus Avenue, Boston, Massachusetts 02116, Attention: Craig Shore, Chief Financial Officer, or made by phone
at (857) 305-2410. You may also access the documents incorporated by reference in this prospectus through our website at
www.inspire-md.com
.
Except for the specific incorporated documents listed above, no information available on or through our website shall be deemed
to be incorporated in this prospectus or the registration statement of which it forms a part.
INSPIREMD, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The amounts are stated in U.S. dollars
in thousands
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders of
InspireMD, Inc.
In our opinion, the accompanying consolidated
balance sheets and the related consolidated statements of operations, capital deficiency and cash flows present fairly, in all
material respects, the financial position of InspireMD Inc. (the “Company”) and its subsidiaries at December 31, 2015
and 2014, and the results of their operations and their cash flows for each of the two years in the period ended December 31,
2015 in conformity with accounting principles generally accepted in the United States of America. These financial statements are
the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in Note 1 to the financial
statements, the Company has an accumulated deficit as of December 31, 2015, as well as net losses and negative operating cash
flows in recent years. The Company’s management expects to continue incurring losses and negative cash flows from operations
until its products reach commercial profitability. As a result of these expected losses and negative cash flows from operations,
along with the Company’s current cash position, the Company’s management has determined that the Company does not
have sufficient resources to fund operations beyond May, 2016. Therefore, there is substantial doubt about the Company’s
ability to continue as a going concern. These financial statements have been prepared assuming that the Company will continue
as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
Tel-Aviv, Israel
|
|
/s/ Kesselman & Kesselman
|
March 28, 2016
|
|
Certified Public Accountants (Isr.)
|
|
|
A member firm of PricewaterhouseCoopers International
Limited
|
INSPIREMD, INC.
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands)
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,257
|
|
|
$
|
6,300
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
Trade, net
|
|
|
405
|
|
|
|
635
|
|
Other
|
|
|
142
|
|
|
|
359
|
|
Prepaid expenses
|
|
|
75
|
|
|
|
150
|
|
Inventory
|
|
|
753
|
|
|
|
1,924
|
|
Total current assets
|
|
|
4,632
|
|
|
|
9,368
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT
, net
|
|
|
472
|
|
|
|
622
|
|
|
|
|
|
|
|
|
|
|
Deferred issuance costs
|
|
|
85
|
|
|
|
153
|
|
Fund in respect of employee rights upon retirement
|
|
|
502
|
|
|
|
498
|
|
Long-term prepaid expenses
|
|
|
|
|
|
|
66
|
|
Royalties buyout
|
|
|
87
|
|
|
|
752
|
|
Total non-current assets
|
|
|
1,146
|
|
|
|
2,091
|
|
Total assets
|
|
$
|
5,778
|
|
|
$
|
11,459
|
|
INSPIREMD, INC.
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands other than share
and per share data)
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
LIABILITIES NET OF CAPITAL DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable and accruals:
|
|
|
|
|
|
|
|
|
Trade
|
|
$
|
512
|
|
|
$
|
909
|
|
Other
|
|
|
2,006
|
|
|
|
3,576
|
|
Advanced payment from customers
|
|
|
167
|
|
|
|
179
|
|
Current maturity of loan
|
|
|
4,234
|
|
|
|
3,809
|
|
Total current liabilities
|
|
|
6,919
|
|
|
|
8,473
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
Liability for employees rights upon retirement
|
|
|
706
|
|
|
|
687
|
|
Long-term loan
|
|
|
1,099
|
|
|
|
5,086
|
|
Total long-term liabilities
|
|
|
1,805
|
|
|
|
5,773
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENT LIABILITIES
(Note 9)
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
8,724
|
|
|
|
14,246
|
|
|
|
|
|
|
|
|
|
|
EQUITY (CAPITAL DEFICIENCY):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, par value $0.0001 per share; 50,000,000
shares authorized; 7,676,074 and 4,136,852, shares issued and outstanding at December 31, 2015 and 2014, respectively
|
|
|
1
|
|
|
|
|
|
Additional paid-in capital
|
|
|
120,049
|
|
|
|
104,624
|
|
Accumulated deficit
|
|
|
(122,996
|
)
|
|
|
(107,411
|
)
|
Total capital deficiency
|
|
|
(2,946
|
)
|
|
|
(2,787
|
)
|
Total liabilities net of capital
deficiency
|
|
$
|
5,778
|
|
|
$
|
11,459
|
|
The accompanying notes are an integral
part of the consolidated financial statements.
INSPIREMD, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. dollars in thousands, except per
share data)
|
|
Year Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
REVENUES
|
|
$
|
2,310
|
|
|
$
|
2,818
|
|
COST OF REVENUES
|
|
|
2,606
|
|
|
|
2,034
|
|
GROSS PROFIT
(LOSS)
|
|
|
(296
|
)
|
|
|
784
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
3,642
|
|
|
|
8,744
|
|
Selling and marketing
|
|
|
3,178
|
|
|
|
6,613
|
|
General and administrative
|
|
|
6,387
|
|
|
|
9,125
|
|
Restructuring and impairment
|
|
|
982
|
|
|
|
|
|
Total operating expenses
|
|
|
14,189
|
|
|
|
24,482
|
|
LOSS FROM OPERATIONS
|
|
|
(14,485
|
)
|
|
|
(23,698
|
)
|
FINANCIAL EXPENSES
, net:
|
|
|
|
|
|
|
|
|
Interest expenses
|
|
|
1,036
|
|
|
|
1,409
|
|
Other financial expenses (income)
|
|
|
60
|
|
|
|
(24
|
)
|
Total financial expenses
|
|
|
1,096
|
|
|
|
1,385
|
|
LOSS BEFORE TAX EXPENSES
|
|
|
(15,581
|
)
|
|
|
(25,083
|
)
|
TAX EXPENSES
|
|
|
4
|
|
|
|
12
|
|
NET LOSS
|
|
$
|
(15,585
|
)
|
|
$
|
(25,095
|
)
|
NET LOSS PER SHARE
–
basic and diluted
|
|
$
|
(2.23
|
)
|
|
$
|
(7.09
|
)
|
WEIGHTED AVERAGE NUMBER OF
ORDINARY SHARES USED IN COMPUTING NET LOSS PER SHARE
– basic and diluted
|
|
|
6,976,378
|
|
|
|
3,539,364
|
|
The accompanying notes are an integral
part of the consolidated financial statements.
INSPIREMD, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
EQUITY
|
|
Ordinary shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
shares
|
|
|
Par value
|
|
|
Additional paid-
in capital
|
|
|
Accumulated
deficit
|
|
|
Total equity
|
|
|
|
|
|
|
U.S. dollars in thousands, except share amounts
|
|
BALANCE AT JANUARY 1, 2014
|
|
|
3,398,297
|
|
|
|
*
|
|
|
$
|
90,956
|
|
|
$
|
(82,316
|
)
|
|
$
|
8,640
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,095
|
)
|
|
|
(25,095
|
)
|
Issuance of shares and warrants, including at the market
offering, net of $881 issuance costs
|
|
|
725,927
|
|
|
|
*
|
|
|
|
9,645
|
|
|
|
|
|
|
|
9,645
|
|
Employee and non-employee share-based compensation expenses
|
|
|
|
|
|
|
|
|
|
|
4,138
|
|
|
|
|
|
|
|
4,138
|
|
Vesting of restricted stock
|
|
|
17,196
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes withheld in respect of share
issuance
|
|
|
(4,568
|
)
|
|
|
*
|
|
|
|
(115
|
)
|
|
|
|
|
|
|
(115
|
)
|
BALANCE AT DECEMBER 31, 2014
|
|
|
4,136,852
|
|
|
|
*
|
|
|
$
|
104,624
|
|
|
$
|
(107,411
|
)
|
|
$
|
(2,787
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,585
|
)
|
|
|
(15,585
|
)
|
Issuance of shares and warrants, net of $1,315 issuance
costs
|
|
|
3,436,968
|
|
|
|
1
|
|
|
|
12,431
|
|
|
|
|
|
|
|
12,432
|
|
Employee and non-employee share-based compensation expenses
|
|
|
|
|
|
|
|
|
|
|
3,107
|
|
|
|
|
|
|
|
3,107
|
|
Vesting of restricted stock
|
|
|
141,834
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes withheld in respect of share
issuance
|
|
|
(39,580
|
)
|
|
|
*
|
|
|
|
(113
|
)
|
|
|
|
|
|
|
(113
|
)
|
BALANCE AT DECEMBER 31, 2015
|
|
|
7,676,074
|
|
|
$
|
1
|
|
|
$
|
120,049
|
|
|
$
|
(122,996
|
)
|
|
$
|
(2,946
|
)
|
|
*
|
Represents
an amount less than $1
|
The accompanying notes are an integral
part of the consolidated financial statements.
INSPIREMD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(15,585
|
)
|
|
$
|
(25,095
|
)
|
Adjustments required to reconcile net loss to net cash
used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
241
|
|
|
|
263
|
|
Impairment of royalties buyout
|
|
|
576
|
|
|
|
|
|
Loss from sale of property, plant and equipment
|
|
|
14
|
|
|
|
|
|
Change in liability for employees rights upon retirement
|
|
|
19
|
|
|
|
77
|
|
Financial expenses
|
|
|
249
|
|
|
|
350
|
|
Share-based compensation expenses
|
|
|
3,107
|
|
|
|
4,138
|
|
Loss (gains) on amounts funded in respect of employee
rights upon retirement, net
|
|
|
3
|
|
|
|
(18
|
)
|
Changes in operating asset and liability items:
|
|
|
|
|
|
|
|
|
Decrease in prepaid expenses
|
|
|
141
|
|
|
|
39
|
|
Decrease in trade receivables
|
|
|
230
|
|
|
|
1,220
|
|
Decrease in other receivables
|
|
|
217
|
|
|
|
28
|
|
Decrease (increase) in inventory
|
|
|
1,171
|
|
|
|
(331
|
)
|
Decrease in trade payables
|
|
|
(397
|
)
|
|
|
(659
|
)
|
Increase (decrease) in other payable
and advanced payment from customers
|
|
|
(1,582
|
)
|
|
|
626
|
|
Net cash used in operating activities
|
|
|
(11,596
|
)
|
|
|
(19,362
|
)
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Decrease in restricted cash
|
|
|
|
|
|
|
93
|
|
Purchase of property, plant and equipment
|
|
|
(16
|
)
|
|
|
(133
|
)
|
Amounts funded in respect of employee
rights upon retirement, net
|
|
|
(7
|
)
|
|
|
(46
|
)
|
Net cash used in investing activities
|
|
|
(23
|
)
|
|
|
(86
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of shares and warrants
|
|
|
12,432
|
|
|
|
9,535
|
|
Repayment of long-term loan
|
|
|
(3,702
|
)
|
|
|
(1,148
|
)
|
Taxes withheld in respect of share
issuance
|
|
|
(113
|
)
|
|
|
(115
|
)
|
Net cash provided by financing activities
|
|
|
8,617
|
|
|
|
8,272
|
|
EFFECT OF EXCHANGE
RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
|
|
(41
|
)
|
|
|
(59
|
)
|
DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(3,043
|
)
|
|
|
(11,235
|
)
|
BALANCE OF CASH
AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
|
|
6,300
|
|
|
|
17,535
|
|
BALANCE OF CASH AND CASH EQUIVALENTS
AT END OF YEAR
|
|
$
|
3,257
|
|
|
$
|
6,300
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
13
|
|
|
$
|
14
|
|
Interest paid
|
|
$
|
863
|
|
|
$
|
1,082
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF NON-CASH
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Anti-dilution rights
|
|
|
—
|
|
|
$
|
110
|
|
The accompanying notes are an integral
part of the consolidated financial statements.
INSPIREMD, INC.
Notes
to the Consolidated Financial Statements
NOTE 1 — DESCRIPTION OF BUSINESS
InspireMD, Inc., a Delaware corporation
(the “Company”), together with its subsidiaries, is a medical device company focusing on the development and commercialization
of its proprietary MicroNet™ stent platform technology for the treatment of complex coronary and vascular disease. MicroNet,
a micron mesh sleeve, is wrapped over a stent to provide embolic protection in stenting procedures. In October 2014, the Company
launched a limited market release of its carotid embolic prevention system (CGuard™ EPS), which combines MicroNet and a
self-expandable nitinol stent in a single device to treat carotid artery disease. In January 2015, the Company received CE mark
approval for the rapid exchange delivery system and launched CGuard in countries in Europe.
The Company’s coronary products
combining MicroNet and a bare-metal stent (MGuard Prime™ EPS) are marketed for use in patients with acute coronary syndromes,
notably acute myocardial infarction (heart attack) and saphenous vein graft coronary interventions (bypass surgery). The Company
markets its products through distributors in international markets, mainly in Europe and Latin America.
The Company has an accumulated deficit
as of December 31, 2015, as well as net losses and negative operating cash flows in recent years. The Company expects to continue
incurring losses and negative cash flows from operations until its products (primarily CGuard™) reach commercial profitability.
As a result of these expected losses and negative cash flows from operations, along with the Company’s current cash position,
the Company does not have sufficient resources to fund operations beyond May, 2016. Therefore, there is substantial doubt about
the Company’s ability to continue as a going concern. These financial statements have been prepared assuming that the Company
will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
Management’s plans include the continued
commercialization of the Company’s products and raising capital through the sale of additional equity securities, debt or
capital inflows from strategic partnerships. There are no assurances however, that the Company will be successful in obtaining
the level of financing needed for its operations. If the Company is unsuccessful in commercializing its products and raising capital,
it may need to reduce activities, curtail or cease operations.
On October 1, 2015, the Company effectuated
a one-for-ten reverse stock split of its common stock. All related share and per share data have been retroactively applied to
the financial statements and their related notes for all periods presented. See Note 10a.
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates using assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of sales and expenses during the reporting periods. Actual results could differ from those estimates.
As applicable to these consolidated financial
statements, the most significant estimates and assumptions relate to inventory valuations, royalty buyout and legal contingencies.
The currency of the primary economic environment
in which the operations of the Company and its subsidiaries are conducted is the U.S. dollar (“$” or “dollar”).
Accordingly, the functional currency of the Company and its subsidiaries is the U.S. dollar.
INSPIREMD, INC.
Notes
to the Consolidated Financial Statements
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES
(cont.)
The dollar figures are determined as follows:
transactions and balances originally denominated in dollars are presented in their original amounts. Balances in foreign currencies
are translated into dollars using historical and current exchange rates for non-monetary and monetary balances, respectively.
The resulting translation gains or losses are recorded as financial income or expense, as appropriate. For transactions reflected
in the statements of operations in foreign currencies, the exchange rates at transaction dates are used. Depreciation and changes
in inventories and other changes deriving from non-monetary items are based on historical exchange rates.
|
c.
|
Principles
of consolidation
|
The consolidated financial statements
include the accounts of the Company and of its subsidiaries. Intercompany transactions and balances have been eliminated upon
consolidation.
|
d.
|
Cash
and cash equivalents
|
The Company considers all highly liquid
investments, which include short-term bank deposits (up to three months from date of deposit), that are not restricted as to withdrawal
or use, to be cash equivalents.
|
e.
|
Concentration
of credit risk and allowance for doubtful accounts
|
Financial instruments that may potentially
subject the Company to a concentration of credit risk consist of cash and cash equivalents, which are deposited in major financially
sound institutions in the U.S, Israel and Germany, and trade accounts receivable. The Company’s trade accounts receivable
are derived from revenues earned from customers from various countries. The Company performs ongoing credit evaluations of its
customers’ financial condition and, requires no collateral from its customers. The Company also has a credit insurance policy
for some of its customers. The Company maintains an allowance for doubtful accounts receivable based upon the expected ability
to collect the accounts receivable. The Company reviews its allowance for doubtful accounts quarterly by assessing individual
accounts receivable and all other balances based on historical collection experience and an economic risk assessment. If the Company
determines that a specific customer is unable to meet its financial obligations to the Company, the Company provides an allowance
for credit losses to reduce the receivable to the amount management reasonably believes will be collected, which is netted against
“Accounts receivable — Trade”.
Inventories are stated at the lower of
cost (cost is determined on a “first-in, first-out” basis) or market value. The Company’s inventories generally
have a limited shelf life and are subject to impairment as they approach their expiration dates. The Company regularly evaluates
the carrying value of its inventories and when, based on such evaluation, factors indicate that impairment has occurred, the Company
impairs the inventories’ carrying value.
|
g.
|
Property,
plant and equipment
|
Property, plant and equipment are stated
at cost, net of accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the
estimated useful lives of the related assets: over three years for computers and other electronic equipment, and seven to fifteen
years for office furniture and equipment and machinery and equipment (mainly seven years). Leasehold improvements are amortized
on a straight-line basis over the term of the lease, which is shorter than the estimated life of the improvements.
|
h.
|
Impairment
in value of long-lived assets
|
The Company tests long-lived intangible
and tangible assets for impairment whenever events or circumstances present an indication of impairment. If the sum of expected
future cash flows (undiscounted and without interest charges) of the long-lived assets is less than the carrying amount of such
assets, an impairment would be recognized and the assets would be written down to their estimated fair values, based on expected
future discounted cash flows.
INSPIREMD, INC.
Notes
to the Consolidated Financial Statements
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES
(cont.)
Revenue is recognized when delivery has
occurred, evidence of an arrangement exists, title and risks and rewards for the products are transferred to the customer, collection
is reasonably assured and product returns can be reliably estimated.
The Company recognizes revenue net of
value added tax (VAT).
|
j.
|
Research
and development costs
|
Research and development costs are charged
to the statement of operations as incurred.
|
k.
|
Share-based
compensation
|
Employee option awards are classified
as equity awards and accounted for using the grant-date fair value method. The fair value of share-based awards is estimated using
the Black-Scholes valuation model and expensed over the requisite service period, net of estimated forfeitures. The Company estimates
forfeitures based on historical experience and anticipated future conditions.
The Company elected to recognize compensation
expenses for awards with only service conditions that have graded vesting schedules using the accelerated multiple option approach.
In addition, certain share-based awards
of the Company are performance based and dependent upon achieving certain goals. With respect to these awards, the Company estimates
the expected pre-vesting award probability that the performance conditions will be achieved. The Company only recognizes expense
for those shares that are expected to vest.
|
l.
|
Uncertain
tax positions
|
The Company follows a two-step approach
to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining
if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit. If
under the first step a tax provision is assessed to be more likely than not of being sustained on audit, the second step is performed,
under which the tax benefit is measured as the largest amount that is more than 50% likely to be realized upon ultimate settlement.
Such liabilities are classified as long-term, unless the liability is expected to be resolved within twelve months from the balance
sheet date. The Company’s policy is to include interest related to unrecognized tax benefits within “Financial expenses
— net”.
Deferred taxes are determined utilizing
the “asset and liability” method based on the estimated future tax effects of differences between the financial accounting
and tax bases of assets and liabilities under the applicable tax laws, and on tax rates anticipated to be in effect when the deferred
taxes are expected to be paid or realized. The Company assesses realization of deferred income tax assets and, based on all available
evidence, concludes whether it is more likely than not that the net deferred income tax assets will be realized. A valuation allowance
is provided for the amount of deferred income tax assets not considered to be realizable.
The Company may incur an additional tax
liability in the event of intercompany dividend distributions by its subsidiaries. Such additional tax liability in respect of
these foreign subsidiaries has not been provided for in these financial statements as it is the Company’s policy to permanently
reinvest the subsidiaries’ earnings and to consider distributing dividends only in connection with a specific tax opportunity
that may arise.
Taxes that would apply in the event of
disposal of investments in a foreign subsidiary have not been taken into account in computing the deferred taxes, as it is the
Company’s intention to hold, and not to realize, these investments.
INSPIREMD, INC.
Notes
to the Consolidated Financial Statements
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES
(cont.)
Costs related to advertising and promotion
of products are charged to sales and marketing expense as incurred. Advertising expenses were approximately $0.2 million and $0.8
million for the years ended December 31, 2015 and 2014, respectively.
Basic and diluted net loss per share is
computed by dividing the net loss for the year by the weighted average number of shares of common stock outstanding during the
year. The calculation of diluted net loss per share excludes potential share issuances of common stock upon the exercise of share
options and warrants, as the effect is anti-dilutive.
For the years ended December 31, 2015
and 2014, all shares of common stock underlying outstanding options, warrants and restricted stock have been excluded from the
calculation of the diluted loss per share since their effect was anti-dilutive. The total number of shares of common stock related
to outstanding options and warrants and restricted stock excluded from the calculations of diluted loss per share were 5,004,836
and 1,352,326 for the years ended December 31, 2015 and 2014, respectively.
The Company has one operating and reportable
segment.
|
q.
|
Fair
value measurement:
|
The Company measures fair value and discloses
fair value measurements for financial assets and liabilities. Fair value is based on the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The accounting standard establishes a
fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which
are described below:
Level 1: Quoted prices (unadjusted) in
active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest
priority to Level 1 inputs.
Level 2: Observable prices that are based
on inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used
when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company
utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent
possible and considers counterparty credit risk in its assessment of fair value.
|
r.
|
Allocation
of issuance proceeds
|
When debt or equity is issued with other
components that are subsequently measured at fair value, the proceeds are allocated first to such components (such as warrant
liabilities and embedded derivatives in the debt that require bifurcation at their fair values) then the residual amount of the
proceeds to the debt or equity. When the other components are classified in equity, the proceeds are allocated based on relative
fair values. See Note 7.
|
s.
|
Recently
issued accounting pronouncements
|
|
1.
|
In April,
2015, the Financial Accounting Standards Board (“FASB”) issued guidance related
to the presentation of Debt Issuance Costs. The new guidance requires debt issuance costs
to be presented in the balance sheet as a direct deduction from the carrying value of
the associated debt liability, consistent with the presentation of a debt discount.
|
INSPIREMD, INC.
Notes
to the Consolidated Financial Statements
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES
(cont.)
The new guidance does not affect
the recognition and measurement of debt issuance costs. The new guidance is effective for financial statements issued for fiscal
years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial
statements that have not been previously issued. The new guidance will be applied on a retrospective basis.
|
2.
|
In May
2014, the Financial Accounting Standards Board (the “FASB”) issued ASC 606,
Revenue from contracts with customers.
|
The objective of the new revenue
standard is to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability
within industries, across industries, and across capital markets. The revenue standard contains principles that an entity will
apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that an entity
will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled
to in exchange for those goods or services, based on a five step model that includes the identification of the contract with the
customer and the performance obligations in the contract, determination of the transaction price, allocation of the transaction
price to the performance obligations in the contract and recognizing revenue when (or as) the entity satisfies a performance obligation.
The revenue standard is effective for annual periods beginning on or after December 15, 2016. The Company is currently evaluating
the impact, if any, the adoption of this guidance will have on its consolidated financial statements.
On July 9, 2015, the FASB approved
a one-year deferral of the effective date of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, such
that it is effective beginning on or after December 15, 2017 for public entities. Reporting entities may choose to adopt the standard
as of the original effective date.
|
3.
|
On July
22, 2015, the FASB issued Accounting Standards Update 2015-11, Simplifying the Measurement
of Inventory, which requires that inventory within the scope of the guidance be measured
at the lower of cost and net realizable value. Inventory measured using last-in, first-out
(LIFO) and the retail inventory method (RIM) are not impacted by the new guidance. The
new guidance will be effective for public business entities in fiscal years beginning
after December 15, 2016, including interim periods within those years. Prospective application
is required. Early adoption is permitted as of the beginning of an interim or annual
reporting period. The Company is currently evaluating the impact of the standard on its
consolidated financial statements.
|
NOTE 3 — RESTRUCTURING AND IMPAIRMENT
|
|
December 31, 2015
|
|
|
|
($ in thousands)
|
|
Employee
termination costs
(1)
|
|
|
305
|
|
Lease
settlement
(2)
|
|
|
101
|
|
Total restructuring
|
|
$
|
406
|
|
Impairment
of royalties buyout
(3)
|
|
|
576
|
|
Total restructuring and impairment
|
|
$
|
982
|
|
During the first quarter of 2015, the
board of directors approved to curtail developing and promoting our bare metal stent platform and implementing another cost reduction/focused
spending plan. The plan has four components: (i) reducing headcount; (ii) limiting the focus of clinical and development expenses
to only carotid and neurovascular products; (iii) limiting sales and marketing expenses primarily to those related to the CGuard
EPS stent launch; and (iv) reducing all other expenses (including conferences, travel, promotional expenses, executive cash salaries,
director cash fees, rent, etc.).
|
1.
|
During
the year ended December 31, 2015, the company incurred $305,000 of costs associated with
reducing the Company’s headcount.
|
INSPIREMD, INC.
Notes
to the Consolidated Financial Statements
NOTE 3 — RESTRUCTURING AND IMPAIRMENT
(cont.)
|
2.
|
On November
5, 2015, the Company entered into a second amendment (the “Second Lease Amendment”)
to the lease agreement for its facilities in the U.S. Pursuant to the Second Lease Amendment
and effective January 1, 2016, the Company agreed to reduce its leased space and surrender
the released premises. The Company also agreed to pay transaction costs and settlement
amount of $101,000.
|
|
3.
|
During
the year ended December 31, 2015 the Company recorded expenses related to the impairment
of the royalties buyout asset amounting to $576,000 due to anticipated lower sales of
MGuard Prime in the future resulting from industry preferences for drug eluting stents.
|
The Company values Level 3 Royalties
buyout using an internally developed valuation model, whose inputs include future MGuard Prime EPS sales and the derived royalties
payments.
NOTE 4 — FAIR VALUE MEASUREMENT
Items Measured at Fair Value on a Recurring
Basis
The following tables summarize the activity
for those financial liabilities where fair value measurements are estimated utilizing Level 3 inputs:
|
|
Anti-Dilution
Rights
|
|
|
|
($ in thousands)
|
|
Balance as of January 1, 2014
|
|
$
|
156
|
|
Total losses (gains) (realized and unrealized) –
included in earnings – Financial expenses (income), net
|
|
|
(46
|
)
|
Settlement by issuance shares
|
|
|
(110
|
)
|
Balance as of December 31, 2014
|
|
$
|
—
|
|
The Company valued Level 3 Anti-Dilution
Rights using an internally developed valuation model, whose inputs include potential equity transactions (such as fund raising
and share based awards), probability of completing successful fund raising during the relevant period and stock prices.
The carrying amounts of financial instruments
included in working capital approximate their fair value either because these amounts are presented at fair value or due to the
relatively short-term maturities of such instruments. The fair value of the Loan (as defined in Note 7) approximated its carrying
amount since it bears interest at rates that approximate current market rates.
NOTE 5 — PROPERTY, PLANT AND EQUIPMENT
|
a.
|
Composition
of assets, grouped by major classifications, is as follows:
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
($ in thousands)
|
|
Cost:
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
$
|
221
|
|
|
$
|
242
|
|
Office furniture and equipment
|
|
|
104
|
|
|
|
110
|
|
Machinery and equipment
|
|
|
961
|
|
|
|
951
|
|
Leasehold improvements
|
|
|
143
|
|
|
|
194
|
|
|
|
|
1,429
|
|
|
|
1,497
|
|
Less – accumulated depreciation
and amortization
|
|
|
(957
|
)
|
|
|
(875
|
)
|
Net carrying amount
|
|
$
|
472
|
|
|
$
|
622
|
|
|
b.
|
Depreciation
and amortization expenses totaled approximately $152,000 and $163,000 for the years ended
December 31, 2015 and 2014, respectively.
|
INSPIREMD, INC.
Notes
to the Consolidated Financial Statements
NOTE 6 — LIABILITY FOR EMPLOYEES
RIGHT UPON RETIREMENT
Israeli labor law generally requires payment
of severance pay upon dismissal of an employee or upon termination of employment in certain other circumstances.
Pursuant to section 14 of the Israeli
Severance Compensation Act, 1963, some of the Company’s employees are entitled to have monthly deposits, at a rate of 8.33%
of their monthly salary, made in their name with insurance companies. Payments in accordance with section 14 relieve the Company
from any future severance payments to these employees.
The severance pay liability of the Company
for the rest of its Israeli employees, which reflects the undiscounted amount of the liability, is based upon the number of years
of service and the latest monthly salary. The severance pay liability is partly covered by insurance policies and by regular deposits
with recognized severance payment funds. The Company may only withdraw funds previously deposited for savings in connection with
the payment of severance. The severance pay expenses were approximately $211,000 and $233,000 for the years ended December 31,
2015 and 2014, respectively.
Defined contribution plan expenses were
approximately $213,000 and $285,000 for the years ended December 31, 2015 and 2014, respectively.
The Company expects contribution plan
expenses in 2016 to be approximately $165,000.
NOTE 7 — loan
|
I.
|
2013 Security
and Loan Agreement
|
|
a.
|
Loan
and Security Agreement
|
On October 23, 2013, the Company and InspireMD
Ltd. entered into a Loan and Security Agreement (the “Loan and Security Agreement”), pursuant to which a lender made
a term loan to the Company and InspireMD Ltd. in the aggregate amount of $10 million (the “Loan”). The annual interest
rate on the Loan is prime plus 4%, but shall not be reduced below 10.5%. Payments under the Loan and Security Agreement are for
the interest portion only for 9 months, followed by 30 monthly payments of principal and interest through the scheduled maturity
date on February 1, 2017.
The Company is permitted to prepay all
or a portion of the Loan. However, any prepayments of the Loan will be subject to a penalty of (i) 2%, if the prepayment occurs
within 12 months of the Loan being requested by the Company and InspireMD Ltd. (the “Advance Date”), (ii) 1%, if the
prepayment occurs between 12 and 24 months after the Advance Date, and (iii) 0.5%, if the prepayment occurs more than 24 months
after the Advance Date. The Company and InspireMD Ltd. will also pay the lender an aggregate end of term charge (the “End
of Term Charge”) of $500,000 when the Loan is paid in full or matures. In addition, upon the occurrence of a change in control,
the Company shall prepay the outstanding amount of all principal and accrued interest through the prepayment date and all unpaid
lender’s fees and expenses accrued to the date of the repayment (including the End of Term Charge) together with the penalties
stated above.
On October 23, 2013, InspireMD Ltd. issued
the lender a Fixed Charge Debenture and a Floating Charge Debenture (collectively, the “Israeli Security Agreements”)
in order to create a security interest in all the assets and property of InspireMD Ltd., securing the Company’s and InspireMD
Ltd.’s obligations under the Loan and Security Agreement. In addition, on October 23, 2013 and November 8, 2013, the Company
entered into Deposit Account Control Agreements with the lender and two banking institutions in the US (the “Deposit Account
Control Agreements”) in order to perfect the lender’s security interest in the Company’s bank account. Pursuant
to the Loan and Security Agreement, the Israeli Security Agreements and the Deposit Account Control Agreement, the Company’s
obligations to the lender are secured by a first priority perfected security interest in all of the assets and properties of the
Company and InspireMD Ltd., other than the intellectual property of the Company and InspireMD Ltd.
INSPIREMD, INC.
Notes
to the Consolidated Financial Statements
NOTE 7 — loan
(cont.)
The Company is required under the Loan
and Security Agreement to maintain at all times in the bank accounts under the Deposit Account Control Agreements, cash and cash
equivalents which may include cash collected from Accounts Receivable by Inspire M.D Ltd. and InspireM.D GmbH within the previous
7 days, and cash transferred to Inspire M.D Ltd. for the settlement of Permitted Indebtedness within the following 7 days, in
each unrestricted and unencumbered, in an aggregate amount of at least the lesser of (a) an amount equal to one hundred percent
of the then outstanding principal amount of the Term Loan Advance and (b) an amount equal to seventy-five percent of the aggregate
amount of all of Borrower’s worldwide cash and cash equivalents.
As of December 31, 2015, the future principal
payments obligation for the Loan were as follows:
|
|
($ in thousands)
|
|
Year Ended December 31:
|
|
|
|
2016
|
|
$
|
4,234
|
|
2017
|
|
|
776
|
|
|
|
$
|
5,010
|
|
NOTE 8 — RELATED PARTIES TRANSACTIONS
On January 26, 2015, the Company granted
the CEO stock options to purchase 30,777 shares of the Company’s common stock with an exercise price of $7.2 per share.
The fair value of the options using the Black-Scholes option-pricing model was approximately $131,000.
On January 26, 2015 the Company granted
the CEO 20,509 shares of restricted common stock which are subject to forfeiture until vested and which vest in three equal annual
installments;
On January 5, 2015, the CEO’s employment
agreement was amended such that, in lieu of 50% of the CEO’s base cash salary, he would be paid an equivalent amount of
shares of restricted common stock. On January 26, 2015, the Company issued 31,250 shares of restricted stock subject to a one
year service condition, with a fair value of $225,000.
On June 29, 2015, the Company amended
the employment agreement with the Company’s CEO in order to, among other things, (i) modify the term of employment to end
on June 30, 2016 unless earlier terminated by either party; and (ii) provide that, until the Company raises an aggregate of $5
million from investors, the CEO will receive (A) with respect to his employment in 2015, the 31,250 shares of restricted common
stock of the Company, issued on January 26, 2015, as described above, will be subsequently adjusted based upon the volume-weighted
average price of the Company’s common stock during the calendar year ended December 31, 2015 (or during the period from
January 2, 2015 through his termination date if his employment is terminated upon his death or disability, by the CEO for good
reason, or by the Company without cause prior to December 31, 2015) to represent the equivalent of 50% of the CEO’s base
salary in 2015, and (B) with respect to his employment in 2016, 50% of his base salary from January 1, 2016 through June 30, 2016
to be paid in shares of restricted common stock of the Company valued at the fair market value of the Company’s common stock
as of the market close on January 2, 2016. The amendment also amends those certain provisions in the Employment Agreement related
to payments on termination of employment.
On December 31, 2015, 63,825 shares of
restricted stock were issued to the CEO, based on the adjusting formula stipulated in the amended agreement, as described above.
See note 13b with respect to the fourth
amendment to the CEO’s employment agreement, entered into subsequent to December 31, 2015.
The share based compensation arrangement
with the Company’s CEO was initially classified as an equity award, and was reclassified to a liability award on June 29,
2015 following the second amendment to the CEO’s employment agreement, given the adjusting formula described above. On this
date, the amount accumulated in additional paid in capital was reclassified as a liability, which was subsequently remeasured
at fair value up to the date of its settlement.
INSPIREMD, INC.
Notes
to the Consolidated Financial Statements
NOTE 8 — RELATED PARTIES TRANSACTIONS
(cont.)
On December 31, 2015, the fair value of
the liability just prior to such date, in the amount of $84,000, was carried to additional paid in capital.
The Company recognized a total compensation
expense of $84,000 in connection with the CEO’s non-cash portion of his annual 2015 salary.
During the year ended December 31, 2014,
the Company granted the CEO stock options to purchase 39,968 shares of the Company’s common stock with an exercise price
of $29.70-$31.00 per share, and 18,273 shares of restricted stock, which vests in three equal annual installments. The fair value
of the above options and restricted shares, using the Black-Scholes option-pricing model, was approximately $736,000 and $554,000,
respectively.
The CEO has an option to deliver a number
of shares with an aggregate fair market value that equals or exceeds (to avoid the issuance of fractional shares) the required
tax withholding payment resulted from the vesting of the restricted stock or from the exercise of the options. As of December
31, 2015 and 2014, 32,811 and 4,569 shares were withheld by the Company to satisfy tax withholding obligations. The payment, amounting
to $81,000 and $115,000, was deducted from equity.
On or before December 31 of each calendar
year, the CEO will be eligible to receive an additional grant of equity awards equal, in the aggregate, to up to 0.5% of the Company’s
actual outstanding shares of common stock on the date of grant, provided that the actual amount of the grant will be based on
his achievement of certain performance objectives as established by the board, in its reasonable discretion, for each such calendar
year. In connection with the equity compensation related to 2013 achievements, on January 29, 2014 the CEO was granted stock options
to purchase 8,633 shares of the Company’s common stock and 8,633 restricted shares, (included in total options and restricted
shares granted to the CEO during 2014). In connection with the equity compensation related to 2014 achievements, on January 26,
2015 the CEO was granted stock options to purchase 5,300 shares of the Company’s common stock and 5,300 restricted shares.
On January 28, 2015, the Company’s
board of directors approved an annual bonus for 2014 to the CEO in the amount of $69,105.
In July 2015, the Company’s board
of directors approved an annual bonus for 2015 to the CEO in the amount of $45,833.
b.
During the years ended
December 31, 2015 and 2014, the Company granted stock options to directors to purchase a total of 138,541 and 33,500 shares of
the Company’s common stock, respectively. The options have exercise prices of $1.7 – $7.8 and $31, per share, respectively,
which were the fair market value of the Company’s common stock on the date of each respective grant. The options granted
in 2014 are subject to a three-year vesting period with one-third of such awards vesting each year. Of the 138,541 options granted
in 2015, 107,744 options were in lieu of cash compensation that was owed to them for their services as directors for the third
and fourth quarters of 2014 and the first through third quarter of 2015 and are fully vested as of their grant date and the remaining
options are subject to a three-year vesting period, with one-third of such awards vesting each year.
The fair value of the above options using
the Black-Scholes option-pricing model, was approximately $338,000 and $636,000, respectively.
c
. Balances with related parties:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
($ in thousands)
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Other accounts payable
|
|
$
|
132
|
|
|
$
|
241
|
|
INSPIREMD, INC.
Notes
to the Consolidated Financial Statements
NOTE 8 — RELATED PARTIES TRANSACTIONS
(cont.)
|
d
.
|
Transactions
with related parties:
|
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
($ in thousands)
|
|
Total expenses
|
|
$
|
1,892
|
|
|
$
|
3,269
|
|
NOTE 9 — COMMITMENTS AND CONTINGENT LIABILITIES
a. Lease commitments:
|
1)
|
On December
13, 2011, the Company entered into a lease agreement for a facility in Israel, which
expired in December 2014. The Company had the option, under the agreement, to extend
the agreement for two additional two year periods, for a total of four years. The Company
extended the agreement for two additional years.
|
In December 2013, the Company
entered into a lease agreement for its facilities in the U.S which expires in February 2018. The Company has the right to terminate
the lease agreement effective February 1, 2017 upon 9 months prior written notice, as stipulated in the agreement.
In August 2014, the Company
entered into an amendment (the “First Lease Amendment”) to the lease agreement for its facilities in the U.S. Pursuant
to the First Lease Amendment, amongst other things, the Company agreed to lease additional space and extend the expiration of
the agreement to February 2019.
On November 5, 2015, the Company
entered into a second amendment (the “Second Lease Amendment”) to the lease agreement for its facilities in the U.S.
See Note 3.
On September 1, 2015 the Company
signed a sublease agreement for part of its U.S. facilities. The agreement will terminate on August 31, 2017.
Rent expense included in the
consolidated statements of operations totaled approximately $383,000 and $388,000 for the years ended December 31, 2015 and 2014,
respectively. The rent expense for the year ended December 31, 2015 excludes $101,000, which is recorded under “Restructuring
and impairment” in the consolidated statements of operations. See Note 3.
As of December 31, 2015, the
aggregate future minimum lease obligations for office rent under non-cancelable operating lease agreements were as follows:
|
|
($ in thousands)
|
|
Year Ended December 31:
|
|
|
|
2016
|
|
$
|
320
|
|
2017
|
|
|
5
|
|
|
|
$
|
325
|
|
|
2)
|
The Company
leases its motor vehicles under operating lease agreements. As of December 31, 2015,
the aggregate non-cancelable future minimum lease obligations for motor vehicles were
approximately $6,000.
|
On August 22, 2013, the Company, InspireMD
Ltd. and a licensor entered into an amendment to the License Agreement, pursuant to which the Company and the Licensor agreed
to amend the royalty fee from 2.9% of all net sales during the term of the agreement to (i) 2% of the first $10.56 million of
net sales from July 1, 2013 through June 30, 2015, provided that the Company makes an advance royalty payment of $192,000 on the
date of the amendment, (ii) 2.5% of net sales in excess of
INSPIREMD, INC.
Notes
to the Consolidated Financial Statements
NOTE 9 — COMMITMENTS AND CONTINGENT LIABILITIES
(cont.)
$10.56 million from July 1, 2013 through
June 30, 2015, payable within 45 days of June 30, 2015, and (iii) 2.9% of all net sales beginning on July 1, 2015. The above referenced
advance royalty payment has been included in long term prepaid expenses.
During the year ended December 31, 2015
the Company recorded expenses related to the impairment of the royalties buyout asset amounting to $576,000 due to anticipated
lower sales of MGuard Prime in the future resulting from industry preferences for drug eluting stents. The expense is recorded
under “Restructuring and impairment” in the consolidated statements of operations.
Royalties expenses for the years ended
December 31, 2015 and 2014 amounted to approximately $149,000 and $148,000, respectively.
|
1)
|
The Company’s
obligations under the Loan and Security Agreement were secured by the Israeli Security
Agreements and the Deposit Account Control Agreements on all of the assets and properties
of the Company and InspireMD Ltd., other than the intellectual property of the Company
and InspireMD Ltd. See Note 7.
|
In July 2012, a purported assignee of
options in InspireMD Ltd. submitted a statement of claim against the Company, InspireMD Ltd., and the Company’s former CEO
and President for a declaratory and enforcement order that it is entitled to options to purchase 8,364 shares of the Company’s
common stock at an exercise price of $7.60 per share. In December 2014 the court accepted a motion to dismiss the former CEO and
president from the lawsuit. On May 27, 2015 the Company and the assignee of options accepted a settlement agreement pursuant to
which the claim was removed and the plaintiff waived his entire claim against the Company, in consideration of the Company’s
consent to allow him to exercise 5,855 options of the Company’s shares of common stock.
In December 2012, a former service provider
of InspireMD GmbH filed a claim with the Labor Court in Buenos Aires, Argentina in the amount of $193,378 plus interest (6% in
dollars or 18.5% in pesos), social benefits, legal expenses and fees (25% of the award) against InspireMD Ltd. and InspireMD GmbH.
The Company’s management, after considering the views of its legal counsel as well as other factors, recorded a provision
of $250,000 in the financial statements for the quarter ended December 31, 2012. In March 2015, the interest rate made by the
Court of Appeal in Argentina was increased retroactively, which resulted in the provision increasing to $340,000. The related
expense for the increase of $90,000 was recorded to “General and administrative” within the Consolidated Statements
of Operations. The Company settled with the plaintiff in the amount of $80,000 plus $20,000 for legal fees, which was approved
by the Labor Court and paid by the Company in March 2016 resulting in the provision decreasing to $100,000. The related decrease
in provision amounting to $240,000 was recorded to “General and administrative” within the Consolidated Statements
of Operations.
The Company received written communication
from a distributor to provide unspecified compensation for pre-paid goods subject to the voluntary field action. After considering
the views of its legal counsel as well as other factors, the Company’s management believes that a loss from any related
future proceedings would range from a minimal amount up to 1,075,000 Euros and is reasonably possible.
In November 2015, the Company received
written communication from a service provider to remit payment amounting to $1,965,000. Given the preliminary stage, the Company’s
management and legal counsel cannot estimate the outcome of any legal proceedings or settlements, however believes that neither
a court loss nor settlement are probable.
NOTE 10 — EQUITY
On September 9, 2015, the stockholders
approved the authorization of the board of directors, in its discretion, to amend the Amended and Restated Certificate of Incorporation
of the Company to effect a reverse stock split of the Company’s common stock at a ratio of one-for-ten and to reduce the
number of authorized shares of the Company’s common stock from 125 million shares to 50 million shares. The Company’s
common stock is listed on the NYSE MKT.
INSPIREMD, INC.
Notes
to the Consolidated Financial Statements
NOTE 10 — EQUITY
(cont.)
On September 30, 2015, the Company filed with
the Secretary of State of Delaware a Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation
to effect a one-for-ten reverse stock split of its common stock, par value $0.0001 per share (the “Reverse Stock Split”),
effective as of October 1, 2015, which decreased the number of issued and outstanding shares of common stock and restricted shares
of common stock from 78 million shares to 7.8 million shares. The Company’s authorized common stock was decreased from 125
million shares to 50 million shares. Accordingly, as of December 31, 2015, the Company has authorized 55,000,000 shares of capital
stock, par value $0.0001 per share, of which 50,000,000 are shares of common stock and 5,000,000 are shares of “blank check”
preferred stock.
All related share and per share data have
been retroactively applied to the financial statements and their related notes for all periods presented.
Pursuant to the terms of 2011 SPA that provided
these investors with certain anti-dilution protections until March 31, 2014. The Company issued the purchasers or their assigns
an aggregate of 84,289 shares of common stock through 2014. The related expense has been recorded to “Financial expenses
(income), net” within the consolidated statements of operations in the relevant periods.
On August 15, 2014, the Company sold 94,800
shares of its common stock pursuant to its at-the-market (ATM) issuance sales agreement with MLV & Co. LLC. These sales resulted
in net proceeds to the Company of approximately $2.2 million.
On November 7, 2014, the Company sold 626,189
shares of its common stock and warrants to purchase 313,100 shares of common stock in a registered direct offering (the “2014
Offering”). The common stock was sold at a negotiated purchase price of $13 per share, and each purchaser received a warrant
to purchase 0.5 of a share of common stock for each share of common stock that it purchased in the offering. The warrants, which
are classified in equity, are non-exercisable for six months and have a term of exercise of 42 months from the date of issuance
and an exercise price of $17.5. This offering resulted in net proceeds to the Company of approximately $7.4 million after deducting
placement agent fees and other estimated offering expenses.
On March 9, 2015, the Company sold 3,436,968
shares of its common stock and warrants to purchase 3,436,968 shares of common stock in a registered direct offering. Each purchaser
received a warrant to purchase one share of common stock for each share of common stock that it purchased in the offering. The
warrants, which are classified as equity, are exercisable immediately and have a term of exercise of 5 years from the date of
issuance and an exercise price of $5.50. This offering resulted in net proceeds to the Company of approximately $12.4 million
after deducting placement agent fees and other offering expenses.
b. Share-Based Compensation
1.
On March 28, 2011, the board of directors and stockholders of the Company adopted and approved the InspireMD, Inc. 2011 UMBRELLA
Option Plan (the “Umbrella Plan”) which expires on March 27, 2021. Under the Umbrella Plan, as subsequently amended,
the Company reserved 500,000 shares of common stock as awards to employees, consultants, and service providers. As of December
31, 2015, the Company had reserved 18,603 shares of common stock for issuance under the plans as described above.
On December 16, 2013, the board
of directors and stockholders of the Company adopted and approved the InspireMD, Inc. 2013 Long-Term Incentive Plan (the “2013
Plan”). Under the 2013 Plan, the Company reserved 500,000 shares of common stock for awards to employees, officers, directors,
consultants, and service providers. On September 9, 2015, the stockholders approved an amendment to the 2013 Plan to increase
the number of shares of common stock available for issuance pursuant to awards under the Plan by 470,000 shares of common stock,
to a total of 970,000 shares of common stock (the “Plan Amendment”). As of December 31, 2015, the Company had reserved
439,930 shares of common stock for issuance under the plans as described above.
INSPIREMD, INC.
Notes
to the Consolidated Financial Statements
NOTE 10 — EQUITY
(cont.)
The 2013 Plan provides for the granting
of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance
awards, dividend equivalent rights, and other awards, which may be granted singly, in combination, or in tandem. The 2013 Plan
is administered by the Company’s compensation committee.
U.S. federal income tax consequences
relating to the transactions described under the Umbrella Plan are set forth in Section 409A of the Internal Revenue Code of 1986,
as amended (the “Code”) and treasury regulations in 2004 to regulate all types of deferred compensation.
Pursuant to the current Section
102 of the Israeli Tax Ordinance, which came into effect on January 1, 2003, options may be granted through a trustee (i.e., Approved
102 Options) or not through a trustee (i.e., Unapproved 102 Options).
2.
During the years ended December 31, 2015 and 2014, the Company granted stock options to the CEO, employees and directors to purchase
a total of 214,499 and 184,652 shares of the Company’s common stock, respectively. The options have exercise prices ranging
from $1.70-$8.30 and $11.40-$32.30 per share, respectively, which were the fair market value of the Company’s common stock
on the date of each respective grant. The fair value of these options, using the Black-Scholes option-pricing model, was approximately
$660,000 and $3,279,000, respectively. Of the 214,499 stock options granted in 2015, 107,744 options are fully vested as of their
grant date and the remaining options are subject to a three-year vesting period with one-third of such awards vesting each year.
The options granted in 2014 are subject to a three-year vesting period with one-third of such awards vesting each year See also
Note 8a for stock options grants to the CEO and directors.
Out of the 184,652 stock options
granted during the year ended December 31, 2014, 45,001 stock options were granted to the COO of the Company, who also serves
as one of the Company’s directors.
3.
During the year ended December 31, 2015 and 2014, the Company granted to the CEO, employees and directors 196,178 and 65,076 restricted
shares of the Company’s common stock, respectively. The fair value of these restricted shares was approximately $1,157,000
and $1,916,000. Of the 196,178 restricted shares granted during the year ended December 31, 2015, 43,300 restricted shares are
subject to a one-year vesting period, 9,250 restricted shares are fully vested as of their grant date and are subject to a 6 month
lock up period, 63,825 restricted shares are fully vested as of their grant date, 32,914 restricted shares are subject to a six-month
vesting period and 46,889 restricted shares are subject to a three-year vesting period, with one-third of such awards vesting
each year. The 65,076 restricted shares granted during the year ended December 31, 2014 are subject to a three-year vesting period
with one-third of such awards vesting each year. Out of the 65,076 restricted shares mentioned above, 15,000 restricted shares
were granted to the COO of the Company, who also serves as one of the Company’s directors.
4.
The following table summarizes information about warrants and share options to employees:
|
|
Year ended December
31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
Number of
warrants
and
options
|
|
|
Weighted average
exercise price
|
|
|
Number of
warrants
and
options
|
|
|
Weighted average
exercise price
|
|
Outstanding – beginning of period
|
|
|
537,018
|
|
|
$
|
40.10
|
|
|
|
368,818
|
|
|
$
|
45.50
|
|
Granted
|
|
|
214,499
|
|
|
$
|
5.31
|
|
|
|
184,652
|
|
|
$
|
29.10
|
|
Forfeited
|
|
|
(37,830
|
)
|
|
$
|
30.68
|
|
|
|
(16,452
|
)
|
|
$
|
39.00
|
|
Outstanding – end of period
|
|
|
713,687
|
|
|
$
|
30.10
|
|
|
|
537,018
|
|
|
$
|
40.10
|
|
Exercisable at the end of the
period
|
|
|
344,787
|
|
|
$
|
46.37
|
|
|
|
229,201
|
|
|
$
|
54.80
|
|
INSPIREMD, INC.
Notes
to the Consolidated Financial Statements
NOTE 10 — EQUITY
(cont.)
The following table summarizes information
about warrants and share options to non-employees:
|
|
Year ended December
31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
Number of
warrants
and
options
|
|
|
Weighted average
exercise price
|
|
|
Number of
warrants
and
options
|
|
|
Weighted average
exercise price
|
|
Outstanding – beginning of period
|
|
|
139,902
|
|
|
$
|
44.80
|
|
|
|
154,315
|
|
|
$
|
45.70
|
|
Forfeited
|
|
|
(5,608
|
)
|
|
$
|
30.67
|
|
|
|
(14,413
|
)
|
|
$
|
54.40
|
|
Outstanding – end of period
|
|
|
134,294
|
|
|
$
|
45.37
|
|
|
|
139,902
|
|
|
$
|
44.80
|
|
Exercisable at the end of the
period
|
|
|
133,888
|
|
|
$
|
45.36
|
|
|
|
139,140
|
|
|
$
|
44.70
|
|
5.
The following table summarizes information about restricted shares to employees:
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
Number of restricted
shares
|
|
|
Number of restricted
shares
|
|
Outstanding – beginning of period
|
|
|
103,016
|
|
|
|
54,654
|
|
Granted
|
|
|
196,178
|
|
|
|
65,076
|
|
Forfeited
|
|
|
(10,145
|
)
|
|
|
(718
|
)
|
Vested
|
|
|
(141,834
|
)
|
|
|
(15,996
|
)
|
Outstanding – end of period
|
|
|
147,215
|
|
|
|
103,016
|
|
The following table provides additional information
about all warrants and options outstanding and exercisable:
|
|
Outstanding as of December
31, 2015
|
|
Exercise price
|
|
Warrants and
options outstanding
|
|
|
Weighted average
remaining
contractual life
(years)
|
|
|
Warrants and
options exercisable
|
|
$0-$8.3
|
|
|
251,637
|
|
|
|
8.19
|
|
|
|
38,709
|
|
$19.7-$29.8
|
|
|
227,249
|
|
|
|
7.80
|
|
|
|
117,081
|
|
$30.5-$34
|
|
|
87,202
|
|
|
|
7.67
|
|
|
|
43,065
|
|
$40.5-$49.285
|
|
|
93,283
|
|
|
|
5.78
|
|
|
|
91,210
|
|
$60-$78
|
|
|
172,360
|
|
|
|
2.92
|
|
|
|
172,360
|
|
$80-$100
|
|
|
16,250
|
|
|
|
5.42
|
|
|
|
16,250
|
|
|
|
|
847,981
|
|
|
|
6.64
|
|
|
|
478,675
|
|
The weighted average of the remaining
contractual life of total vested and exercisable warrants and options as of December 31, 2015 was 5.04 years.
The aggregate intrinsic value of
the total exercisable warrants and options as of December 31, 2015 was approximately $25,563.
The weighted average fair value
of warrants and options granted was approximately $3.11 and $17.80 for the years ended December 31, 2015 and 2014, respectively.
The weighted average fair value of warrants and options granted was estimated using the Black-Scholes option-pricing model.
INSPIREMD, INC.
Notes
to the Consolidated Financial Statements
NOTE 10 — EQUITY
(cont.)
1.
The following table sets forth the assumptions that were used in determining the fair value of options granted to employees for
the years ended December 31, 2015 and 2014:
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Expected life
|
|
|
5-6.5
years
|
|
|
|
5.5-6.5
years
|
|
Risk-free interest rates
|
|
|
1.41%-1.71%
|
|
|
|
1.64%-2.18%
|
|
Volatility
|
|
|
62.68%-71.12%
|
|
|
|
62.89%-68%
|
|
Dividend yield
|
|
|
0%
|
|
|
|
0%
|
|
The Company does not have sufficient
historical exercise data to provide a reasonable basis upon which to estimate expected term. Accordingly, as to ordinary course
options granted, the expected term was determined using the simplified method, which takes into consideration the option’s
contractual life and the vesting periods (for non-employees, the expected term is equal to the option’s contractual life).
The Company estimates its forfeiture
rate based on its employment termination history, and will continue to evaluate the adequacy of the forfeiture rate based on analysis
of employee turnover behavior and other factors (for non-employees the forfeiture rate is nil). The annual risk-free rates are
based on the yield rates of zero coupon non-index linked U.S. Federal Reserve treasury bonds as both the exercise price and the
share price are in dollar terms. The Company’s expected volatility is derived from a blended volatility, based on its historical
data and that of a peer group of public companies.
2.
As of December 31, 2015, the total unrecognized compensation cost on employee and non-employee stock options and restricted shares,
related to unvested stock-based compensation, amounted to approximately $1.75 million. This cost is expected to be recognized
over a weighted-average period of approximately 0.82 years. This expected cost does not include the impact of any future stock-based
compensation awards.
The following table summarizes the
allocation of total share-based compensation expense in the consolidated statements of operations:
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
($ in thousands)
|
|
Cost of revenues
|
|
$
|
8
|
|
|
$
|
13
|
|
Research and development
|
|
|
716
|
|
|
|
534
|
|
Sales and marketing
|
|
|
179
|
|
|
|
446
|
|
General and administrative
|
|
|
2,145
|
|
|
|
3,145
|
|
Restructuring and impairment
|
|
|
59
|
|
|
|
|
|
|
|
$
|
3,107
|
|
|
$
|
4,138
|
|
c. At-the-Market Agreement
On October 23, 2013, the Company entered into
an at-the-market issuance sales agreement, or the Sales Agreement, with MLV & Co. LLC pursuant to which The Company may issue
and sell shares of the Company common stock having an aggregate offering price of up to $40 million directly on the NYSE MKT or
sales made to or through a market maker other than on an exchange. With the Company’s prior written consent, sales may also
be made in negotiated transactions and/or any other method permitted by law. MLV & Co. LLC will receive a 3% commission from
the gross proceeds of any sales. Subject to the terms and conditions of the Sales Agreement, MLV & Co. LLC will use its commercially
reasonable efforts to sell the shares of the Company’s common stock from time to time, based upon the Company’s instructions
(including any price, time or size limits or other parameters or conditions that the Company may impose). The Company is not obligated
to make any sales of common stock under the Sales Agreement and no assurance can be given that the Company will sell any shares
under the Sales
INSPIREMD, INC.
Notes
to the Consolidated Financial Statements
NOTE 10 — EQUITY
(cont.)
Agreement, or, if the Company does, as to
the price or amount of shares that the Company will sell, or the dates on which any such sales will take place. The Sales Agreement
may be terminated by either party at any time upon 10 days’ notice to the other party, or by MLV & Co. LLC at any time
in certain circumstances, including the occurrence of a material adverse effect to the Company. In addition, the Sales Agreement
will automatically terminate upon the sale of all common stock subject to the Sales Agreement. During the year ended December
31, 2014, the Company sold 94,800 shares of its common stock pursuant to its at-the-market issuance sales agreement with MLV &
Co. LLC. These sales resulted in net proceeds to the Company of approximately $2.2 million. Following the 2014 Offering, the Company
is prohibited from entering into any variable rate transactions which may impair its ability to make sales under our at-the-market
issuance sales agreement absent the consent of the investors in the 2015 Offering until March 9, 2017.
NOTE 11 — TAXES ON INCOME
a. Tax laws applicable to the Company and its subsidiaries
Taxation in the United States
InspireMD, Inc. is taxed under U.S. tax laws.
Accordingly, the applicable corporate tax rate is 34%.
Taxation in Israel
InspireMD Ltd. is taxed under the Israeli
Income Tax Ordinance as a corporate tax rate of 26.5%.
Taxation in Germany
InspireMD GmbH is taxed according to the tax
laws in Germany. Accordingly, the applicable tax rates are corporate tax rate of 15.825% and trade tax rate of 17.15%.
Taxation in UK
InspireMD UK is taxed according to the tax
laws in the UK. Accordingly, the applicable tax rate is a corporate tax rate of 20%.
b. Tax benefits under the Law for the Encouragement of
Capital Investments, 1959 (the “Law”):
|
1.
|
InspireMD
Ltd. has been granted a “Beneficiary Enterprises” status under the Investment
Law including Amendment No. 60 thereof, which became effective in April 2005.
|
The tax benefits derived from any
such Beneficiary Enterprise relate only to taxable profits attributable to the specific program of investment to which the status
was granted.
The main benefit, to which InspireMD
Ltd. is entitled, conditional upon the fulfilling of certain conditions stipulated by the above law, is a two-year exemption and
five years of a reduced tax rate of 25% from tax on income derived from beneficiary activities in facilities in Israel. The two-year
exemption starts only when the Company starts to pay taxes after using all carryforward tax losses. The tax benefit period is
twelve years from the year of election, which means that after a year of election, the two-year exemption and five years of reduced
tax rate can only be used within the next twelve years. The Company elected the year 2007, as a year of election and 2011 as an
additional year of election.
In the event of a distribution of
tax-exempt income attributable to “Beneficiary Enterprises” as a cash dividend, the Company will be required to pay
tax at a rate of 25% on the amount distributed. In addition, dividends originating from income attributable to the “Beneficiary
Enterprises” will be subject to a 15% withholding tax.
Should InspireMD Ltd. derive income
from sources other than the “Beneficiary Enterprises” during the period of benefits, such income shall be taxable
at the regular corporate tax rate.
INSPIREMD, INC.
Notes
to the Consolidated Financial Statements
NOTE 11 — TAXES ON INCOME
(cont.)
2.
Conditions for entitlement to the benefits
The entitlement to the above benefits
is conditional upon InspireMD Ltd. fulfilling the conditions stipulated by the law, regulations published thereunder and the instruments
of approval for the specific investments in approved assets. In the event of failure to comply with these conditions, the benefits
may be cancelled and InspireMD Ltd. may be required to refund the amount of the benefits, in whole or in part, with the addition
of interest.
The Company opted not to apply for
Preferred Enterprise status.
c. Carry forward tax losses
As of December 31, 2015, InspireMD Ltd. had
a net carry forward tax loss of approximately $52 million. Under Israeli tax laws, the carry forward tax losses can be utilized
indefinitely. The Company had a net carry forward tax loss of approximately $29 million. Under U.S. tax laws, the Company’s
tax losses can be utilized two years back and twenty years forward. As such the Company’s carry forward tax losses will
begin to expire on December 31, 2031.
d. Loss before income taxes
The components of loss before income taxes
are as follows:
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
($ in thousands)
|
|
Profit (loss) before taxes on income:
|
|
|
|
|
|
|
|
|
InspireMD, Inc.
|
|
$
|
(6,131
|
)
|
|
$
|
(11,671
|
)
|
Subsidiaries
|
|
|
(9,450
|
)
|
|
|
(13,412
|
)
|
|
|
$
|
(15,581
|
)
|
|
$
|
(25,083
|
)
|
Current taxes on income
The following is a reconciliation of the theoretical
tax expense, assuming all income was taxed at the regular tax rates applicable to the Company in the U.S. and the actual tax expense:
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
($ in thousands)
|
|
Loss before taxes on income, as reported
in the statements of operations
|
|
$
|
15,581
|
|
|
$
|
25,083
|
|
|
|
|
|
|
|
|
|
|
Theoretical tax benefit
|
|
|
(5,297
|
)
|
|
|
(8,529
|
)
|
Decrease in tax benefit resulting from permanent differences
|
|
|
273
|
|
|
|
390
|
|
Increase (decrease) in taxes on income resulting from
the computation of deferred taxes at a rate which is different from the theoretical rate, and other
|
|
|
716
|
|
|
|
2,038
|
|
Difference between income reported for tax purposes and
income for financial reporting purposes – net
|
|
|
50
|
|
|
|
1,100
|
|
Decrease in theoretical tax benefit resulting from subsidiaries
different tax rate
|
|
|
(53
|
)
|
|
|
(73
|
)
|
Change in corporate tax rates
|
|
|
|
|
|
|
—
|
|
Change in valuation allowance
|
|
|
4,315
|
|
|
|
5,086
|
|
|
|
$
|
4
|
|
|
$
|
12
|
|
INSPIREMD, INC.
Notes
to the Consolidated Financial Statements
NOTE 11 — TAXES ON INCOME
(cont.)
As of December 31, 2015 and 2014, the Company
determined that it was more likely than not that the benefit of the operating losses would not be realized and consequently, management
concluded that full valuation allowances should be established regarding the Company’s deferred tax assets.
The changes in the valuation allowance for
the year ended December 31, 2015 and 2014 were as follows:
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
($ in thousands)
|
|
Balance at the beginning of the year
|
|
$
|
24,655
|
|
|
$
|
19,569
|
|
Changes during the year
|
|
|
4,315
|
|
|
|
5,086
|
|
Balance at the end of the year
|
|
$
|
28,970
|
|
|
$
|
24,655
|
|
e. Accounting for Uncertain Tax position
The Company has no uncertain tax positions
as of December 31, 2015.
All of the above amounts of unrecognized tax
benefits would affect the effective tax rate if recognized.
A summary of open tax years by major jurisdiction
is presented below:
Jurisdiction
|
|
Years
|
U.S.
|
|
2012-2015
|
Israel
|
|
2012-2015
|
Germany
|
|
2010-2015
|
United Kingdom
|
|
2014-2015
|
f. Deferred income tax:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
($ in thousands)
|
|
Short-term:
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
74
|
|
|
$
|
89
|
|
Provision for vacation and recreation
pay
|
|
|
105
|
|
|
|
59
|
|
|
|
|
179
|
|
|
|
148
|
|
Long-term:
|
|
|
|
|
|
|
|
|
R&D expenses
|
|
|
1,326
|
|
|
|
1,738
|
|
Share-based compensation
|
|
|
3,737
|
|
|
|
2,990
|
|
Carry forward tax losses
|
|
|
23,674
|
|
|
|
19,729
|
|
Accrued severance pay, net
|
|
|
54
|
|
|
|
50
|
|
|
|
|
28,791
|
|
|
|
24,507
|
|
Less-valuation allowance
|
|
|
(28,970
|
)
|
|
|
(24,655
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
INSPIREMD, INC.
Notes
to the Consolidated Financial Statements
NOTE 12 — SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION
Balance sheets:
a. Accounts receivable:
The changes in “Allowance for doubtful
accounts” during the years ended December 31, 2015 and 2014 are as follows:
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
($ in thousands)
|
|
Balance at beginning of period
|
|
$
|
337
|
|
|
$
|
405
|
|
Additions during the period
|
|
|
72
|
|
|
|
35
|
|
Deductions during the period
|
|
|
(49
|
)
|
|
|
(57
|
)
|
Exchange rate differences
|
|
|
(14
|
)
|
|
|
(46
|
)
|
Balance at end of period
|
|
$
|
346
|
|
|
$
|
337
|
|
b. Inventories:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
($ in thousands)
|
|
Finished goods
|
|
$
|
301
|
|
|
$
|
1,273
|
|
Work in process
|
|
|
307
|
|
|
|
326
|
|
Raw materials and supplies
|
|
|
145
|
|
|
|
325
|
|
|
|
$
|
753
|
|
|
$
|
1,924
|
|
For the years ended December 31, 2015 and
2014, the Company recorded expenses for slow moving inventory in the amounts of $588,000 and $129,000, respectively.
c. Voluntary Field Corrective Action
On April 30, 2014, the Company initiated a
voluntary field corrective action (“VFA”) of its MGuard Prime EPS to address the issue of stent retention following
reports of MGuard Prime stent dislodgements. On June 18, 2014, the Company received approval from the European regulatory agency
to resume the manufacturing of the MGuard Prime stent with a modified stent securement process. The Company also received approval
to modify and re-deploy existing MGuard Prime stents that were sent to the Company by clinical and commercial sites worldwide.
These products have been modified and shipped to direct hospital customers and the majority of its distributor partners, who have
begun shipping modified product back into hospital accounts. The Company began shipping products to new customers in the Company’s
direct markets in Western Europe in October 2014. The VFA had an adverse impact on both the commercial and clinical activities
relating to the MGuard Prime EPS from the date of initiation through December 31, 2014.
The expenses associated with the modifications
that were performed as a result of the VFA are approximately $377,000. These expenses were recorded in “Cost of revenues”
through the end of 2015.
In addition, as a result of the VFA, the Company
suspended enrollment in the MASTER II trial, which had been previously launched to support its investigational device exemption
application for MGuard Prime EPS with the U.S. Food and Drug Administration (“FDA”), pending a review by the FDA of
the manufacturing improvements to the MGuard Prime EPS. The FDA approved the re-commencement of the MASTER II trial in October
2014.
Notwithstanding FDA approval to re-commence
enrollment of the Master II trial, in light of current market conditions moving toward the use of drug-eluting stents (DES) over
bare-metal stents, the Company elected not to resume enrollment in the MASTER II trial. As a result of this change, the MASTER
II trial will no longer be an FDA registration trial.
INSPIREMD, INC.
Notes
to the Consolidated Financial Statements
NOTE 12 — SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION
(cont.)
d. Accounts payable and accruals-other:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
($ in thousands)
|
|
Employees and employee institutions
|
|
$
|
412
|
|
|
$
|
1,022
|
|
Accrued vacation and recreation pay
|
|
|
377
|
|
|
|
410
|
|
Accrued clinical trials expenses
|
|
|
582
|
|
|
|
1,016
|
|
Provision for sales commissions
|
|
|
80
|
|
|
|
120
|
|
Accrued expenses
|
|
|
552
|
|
|
|
993
|
|
Taxes payable
|
|
|
3
|
|
|
|
15
|
|
|
|
$
|
2,006
|
|
|
$
|
3,576
|
|
NOTE 13 — ENTITY WIDE DISCLOSURES
Revenues are attributed to geographic areas
based on the location of the customers. The following is a summary of revenues:
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
($ in thousands)
|
|
Germany
|
|
$
|
519
|
|
|
$
|
286
|
|
Italy
|
|
|
415
|
|
|
|
96
|
|
Brazil
|
|
|
238
|
|
|
|
95
|
|
Belarus
|
|
|
226
|
|
|
|
285
|
|
Middle East
|
|
|
94
|
|
|
|
792
|
|
Other
|
|
|
818
|
|
|
|
1,264
|
|
|
|
$
|
2,310
|
|
|
$
|
2,818
|
|
By product:
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
($ in thousands)
|
|
MGuard*
|
|
|
1,607
|
|
|
|
2,797
|
|
CGuard
|
|
|
703
|
|
|
|
21
|
|
|
|
$
|
2,310
|
|
|
$
|
2,818
|
|
*
Includes revenue from sales of both MGuard Prime and MGuard.
By principal customers:
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Customer A
|
|
|
11
|
%
|
|
|
7
|
%
|
Customer B
|
|
|
10
|
%
|
|
|
10
|
%
|
Customer C
|
|
|
|
|
|
|
21
|
%
|
All tangible long lived assets are located
in Israel.
INSPIREMD, INC.
Notes
to the Consolidated Financial Statements
NOTE 14 — SUBSEQUENT EVENTS
On January 16, 2016, the Board of Directors
appointed a new director as a Vice Chairman of the Board, effective as of January 22, 2016, with a term expiring at the Company’s
2017 annual meeting of stockholders. In connection with his appointment, the new director will be granted an option to purchase
780,000 shares of the Company’s common stock on April 30, 2016 at an exercise price equal to the closing fair market value
of the Common Stock on the date of grant on April 30, 2016, subject to the terms and conditions of the 2013 Plan. Options to purchase
195,000 shares of Common Stock vest and become exercisable immediately upon the time of grant, and, until all 780,000 options
shall have vested, options to purchase 195,000 shares of common stock will vest and become exercisable each time upon (i) the
Company raising at least $15 million through an equity offering; (ii) the Company’s market cap becoming equal to or greater
than $25 million; (iii) the Company receiving research coverage by three new analysts at a leading investment bank; or (iv) the
tripling of the Company’s market cap from the date of appointment. Any of the foregoing conditions, if achieved following
the director’s appointment but prior to April 30, 2016, will be deemed satisfied on the date of grant. However, in the event
(i) of the director’s death or permanent disability, (ii) a change in control (as defined in the Plan) or (iii) if the director
is asked to resign for any reason other than cause (as defined in the Company’s form of Nonqualified Stock Option Agreement
under its Plan), the options shall vest immediately in full. The options have a term of 10 years from the date of grant and may
be exercised for either cash or on a cashless basis.
On January 21, 2016, the Company and the Company’s
CEO, entered into a fourth amendment to the CEO’s Employment Agreement dated as of January 3, 2013, as first amended on
April 24, 2013, and further amended on January 5, 2015, and on June 29, 2015, by and between the Company and the CEO, in order
to, among other things, (i) modify the term of the CEO’s employment to end on the earlier of June 30, 2016 or the date upon
which a new president and/or chief executive officer (or executive performing a similar role) commences employment with the Company
(or, if such individual is promoted internally, the date such individual is promoted to the position of president and/or chief
executive officer); and (ii) provide that, during the remaining term of his employment, the CEO will receive (A) 50% of his base
salary in cash payments, for all days that the CEO works during the remaining term of his employment, at the monthly rate of $18,750,
payable in accordance with the Company’s regular payroll practices, and (B) a lump-sum payment equivalent to 50% of the
CEO’s base salary through June 30, 2016, at the monthly rate of $18,750, payable within 20 business days from the earlier
of (x) the Company raising an aggregate of $5 million from investors, or (y) June 30, 2016.
On January 26, 2016 the Company entered into
an option cancellation and release agreement with certain directors, the CEO and CFO (“the Optionholders”), pursuant
to which the parties agreed to cancel options to purchase an aggregate of 422,443 shares of common stock of the Company at exercise
prices ranging from $7.20 to $100.00 previously granted to each of the Optionholders.
On March 21, 2016, the Company sold 1,900,000
shares of its common stock and warrants to purchase 950,000 shares of common stock in an underwritten public offering. The common
stock was sold at a price of $0.59 per share and each purchaser received a warrant to purchase one half of one share of common
stock for each share of common stock that it purchased in the offering. The warrants are exercisable immediately and have a term
of exercise of 5 years from the date of issuance and an exercise price of $0.59. This offering resulted in gross proceeds to the
Company of approximately $1.1 million.
On March 21, 2016, the Company sold 1,033,051
shares of its common stock and warrants to purchase 516,526 shares of common stock in an underwritten private offering. The common
stock was sold at a price of $0.59 per share and each purchaser received a warrant to purchase one half of one share of common
stock for each share of common stock that it purchased in the offering. The warrants are exercisable immediately and have a term
of exercise of 5 years from the date of issuance and an exercise price of $0.59. This offering resulted in gross proceeds to the
Company of approximately $0.6 million.
These sales of securities on March 21, 2016
resulted in aggregate net proceeds to the Company of approximately $1.4 million after deducting underwriting discount, placement
agent fees and other offering expenses.
INSPIREMD, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(U.S. dollars in thousands other than share and per share data)
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,999
|
|
|
$
|
3,257
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
Trade, net
|
|
|
546
|
|
|
|
405
|
|
Other
|
|
|
204
|
|
|
|
142
|
|
Prepaid expenses
|
|
|
62
|
|
|
|
75
|
|
Inventory
|
|
|
511
|
|
|
|
753
|
|
Total current assets
|
|
|
3,322
|
|
|
|
4,632
|
|
NON-CURRENT ASSETS: PROPERTY, PLANT AND EQUPMENT
, net
|
|
|
436
|
|
|
|
472
|
|
|
|
|
|
|
|
|
|
|
Funds in respect of employees rights upon retirement
|
|
|
411
|
|
|
|
502
|
|
Royalties buyout
|
|
|
75
|
|
|
|
87
|
|
Total non-current assets
|
|
|
922
|
|
|
|
1,061
|
|
Total assets
|
|
$
|
4,244
|
|
|
$
|
5,693
|
|
The accompanying notes are an integral part
of the condensed consolidated financial statements.
INSPIREMD, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(U.S. dollars in thousands other than share and per share data)
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
LIABILITIES NET OF CAPITAL DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable and accruals:
|
|
|
|
|
|
|
|
|
Trade
|
|
$
|
453
|
|
|
$
|
512
|
|
Other
|
|
|
2,139
|
|
|
|
2,006
|
|
Advanced payment from customers
|
|
|
169
|
|
|
|
167
|
|
Current maturity of loan
|
|
|
4,294
|
|
|
|
4,149
|
|
Total current liabilities
|
|
|
7,055
|
|
|
|
6,834
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
Liability for employees rights upon retirement
|
|
|
584
|
|
|
|
706
|
|
Long-term loan
|
|
|
—
|
|
|
|
1,099
|
|
Total long-term liabilities
|
|
|
584
|
|
|
|
1,805
|
|
COMMITMENTS AND CONTINGENT LIABILITIES
|
|
|
|
|
|
|
|
|
(Note 10)
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
7,639
|
|
|
|
8,639
|
|
EQUITY (CAPITAL DEFICIENCY):
|
|
|
|
|
|
|
|
|
Common stock, par value $0.0001 per share; 50,000,000 shares authorized;
10,671,187 and 7,676,074 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively
|
|
|
1
|
|
|
|
1
|
|
Additional paid-in capital
|
|
|
122,209
|
|
|
|
120,049
|
|
Accumulated deficit
|
|
|
(125,605
|
)
|
|
|
(122,996
|
)
|
Total capital deficiency
|
|
|
(3,395
|
)
|
|
|
(2,946
|
)
|
Total liabilities net of capital deficiency
|
|
$
|
4,244
|
|
|
$
|
5,693
|
|
The accompanying notes are an integral part
of the condensed consolidated financial statements.
INSPIREMD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(U.S. dollars in thousands, except share and per share data)
|
|
Three months ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
REVENUES
|
|
$
|
563
|
|
|
$
|
477
|
|
COST OF REVENUES
|
|
|
497
|
|
|
|
514
|
|
GROSS PROFIT (LOSS)
|
|
|
66
|
|
|
|
(37
|
)
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
478
|
|
|
|
1,352
|
|
Selling and marketing
|
|
|
386
|
|
|
|
1,017
|
|
General and administrative
|
|
|
1,589
|
|
|
|
1,970
|
|
Restructuring and impairment
|
|
|
|
|
|
|
514
|
|
Total operating expenses
|
|
|
2,453
|
|
|
|
4,853
|
|
LOSS FROM OPERATIONS
|
|
|
(2,387
|
)
|
|
|
(4,890
|
)
|
FINANCIAL EXPENSES, net:
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
179
|
|
|
|
301
|
|
Other financial expenses
|
|
|
42
|
|
|
|
5
|
|
Total financial expenses
|
|
|
221
|
|
|
|
306
|
|
LOSS BEFORE INCOME TAXES
|
|
|
(2,608
|
)
|
|
|
(5,196
|
)
|
TAX EXPENSES
|
|
|
1
|
|
|
|
16
|
|
NET LOSS
|
|
$
|
(2,609
|
)
|
|
$
|
(5,212
|
)
|
NET LOSS PER SHARE
– basic and diluted
|
|
$
|
(0.32
|
)
|
|
$
|
(1.04
|
)
|
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON
STOCK USED IN COMPUTING NET LOSS PER SHARE –
basic and diluted
|
|
|
8,042,082
|
|
|
|
4,991,519
|
|
The accompanying notes are an integral part
of the condensed consolidated financial statements.
INSPIREMD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(U.S. dollars in thousands)
|
|
Three months ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,609
|
)
|
|
$
|
(5,212
|
)
|
Adjustments required to reconcile net loss to net cash
used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
48
|
|
|
|
75
|
|
Impairment of royalties buyout
|
|
|
|
|
|
|
316
|
|
Change in liability for employees right upon retirement
|
|
|
(122
|
)
|
|
|
12
|
|
Financial expenses
|
|
|
33
|
|
|
|
102
|
|
Share-based compensation expenses
|
|
|
741
|
|
|
|
1,029
|
|
Loss on amounts funded in respect of employee rights upon
retirement, net
|
|
|
1
|
|
|
|
4
|
|
Changes in operating asset and liability items:
|
|
|
|
|
|
|
|
|
Decrease in prepaid expenses
|
|
|
13
|
|
|
|
49
|
|
Increase in trade receivables
|
|
|
(141
|
)
|
|
|
(84
|
)
|
Decrease (increase) in other receivables
|
|
|
(62
|
)
|
|
|
81
|
|
Decrease in inventory
|
|
|
242
|
|
|
|
174
|
|
Decrease in trade payables
|
|
|
(59
|
)
|
|
|
(244
|
)
|
Increase (decrease) in other payables and advance payment
from customers
|
|
|
50
|
|
|
|
(924
|
)
|
Net cash used in operating activities
|
|
|
(1,865
|
)
|
|
|
(4,622
|
)
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
|
|
|
|
(1
|
)
|
Amounts gained (funded) in respect of employee rights
upon retirement, net
|
|
|
90
|
|
|
|
(10
|
)
|
Net cash provided by (used in) investing activities
|
|
|
90
|
|
|
|
(11
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Taxes withheld in respect of share issuance
|
|
|
(16
|
)
|
|
|
(78
|
)
|
Net proceeds from issuance of shares and warrants
|
|
|
1,520
|
|
|
|
12,529
|
|
Repayment of long-term loan
|
|
|
(988
|
)
|
|
|
(891
|
)
|
Net cash provided by financing activities
|
|
|
516
|
|
|
|
11,560
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS
|
|
|
1
|
|
|
|
(41
|
)
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(1,258
|
)
|
|
|
6,886
|
|
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE PERIOD
|
|
|
3,257
|
|
|
|
6,300
|
|
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF
THE PERIOD
|
|
$
|
1,999
|
|
|
$
|
13,186
|
|
The accompanying notes are an integral part
of the condensed consolidated financial statements.
INSPIREMD, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 — DESCRIPTION OF BUSINESS
a. General
InspireMD, Inc., a Delaware corporation (the
“Company”), together with its subsidiaries, is a medical device company focusing on the development and commercialization
of its proprietary MicroNet™ stent platform technology for the treatment of complex coronary and vascular disease. MicroNet,
a micron mesh sleeve, is wrapped over a stent to provide embolic protection in stenting procedures. In October 2014, the Company
launched a limited market release of its carotid embolic prevention system (CGuard™ EPS), which combines MicroNet and a
self-expandable nitinol stent in a single device to treat carotid artery disease. In January 2015, the Company received CE mark
approval for the rapid exchange delivery system and launched CGuard in countries in Europe.
The Company’s coronary products combining
MicroNet and a bare-metal stent (MGuard Prime™ EPS) are marketed for use in patients with acute coronary syndromes, notably
acute myocardial infarction (heart attack) and saphenous vein graft coronary interventions (bypass surgery). The Company markets
its products through distributors in international markets, mainly in Europe and Latin America.
b. Liquidity
The Company has an accumulated deficit as
of March 31, 2016, as well as net losses and negative operating cash flows in recent years. The Company expects to continue incurring
losses and negative cash flows from operations until its products (primarily CGuard™) reach commercial profitability. As
a result of these expected losses and negative cash flows from operations, along with the Company’s current cash position,
the Company does not have sufficient resources to fund operations beyond June 2016. Therefore, there is substantial doubt about
the Company’s ability to continue as a going concern. These financial statements have been prepared assuming that the Company
will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
Management’s plans include the continued
commercialization of the Company’s products and raising capital through the sale of additional equity securities, debt or
capital inflows from strategic partnerships. There are no assurances however, that the Company will be successful in obtaining
the level of financing needed for its operations. If the Company is unsuccessful in commercializing its products and raising capital,
it may need to reduce activities, curtail or cease operations.
NOTE 2 — BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated
financial statements have been prepared on the same basis as the annual consolidated financial statements. In the opinion of management,
the financial statements reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the
financial position and results of operations of the Company. These condensed consolidated financial statements and notes thereto
are unaudited and should be read in conjunction with the Company’s audited financial statements for the year ended December
31, 2015, as found in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March
28, 2016. The balance sheet for December 31, 2015 was derived from the Company’s audited financial statements for the year
ended December 31, 2015. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of
results that could be expected for the entire fiscal year.
NOTE 3 — RECENTLY ISSUED ACCOUNTING
PRONOUNCEMENTS
In April, 2015, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update No. 2015-03, “Simplifying the Presentation of Debt Issuance
Costs.” The new guidance requires debt issuance costs to be presented in the balance sheet as a direct deduction from the
carrying value of the associated debt liability, consistent with the presentation of a debt discount.
The new guidance does not affect the recognition
and measurement of debt issuance costs. The new guidance became effective during the first quarter of 2016 and was applied on
a retrospective basis.
INSPIREMD, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 — RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
(cont.)
As of March 31, 2016 and December 31, 2015,
$68,000 and $85,000, respectively were deducted from the carrying value of the “Current maturity of loan” in the condensed
consolidated balance sheets.
In May 2014, the Financial Accounting Standards
Board (the “FASB”) issued ASC 606, Revenue from contracts with customers. The objective of the new revenue standard
is to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability within
industries, across industries, and across capital markets. The revenue standard contains principles that an entity will apply
to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that an entity will recognize
revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange
for those goods or services, based on a five step model that includes the identification of the contract with the customer and
the performance obligations in the contract, determination of the transaction price, allocation of the transaction price to the
performance obligations in the contract and recognizing revenue when (or as) the entity satisfies a performance obligation. The
revenue standard is effective for annual periods beginning on or after December 15, 2016.
On July 9, 2015, the FASB approved a one-year
deferral of the effective date of Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers,”
such that it is effective beginning on or after December 15, 2017 for public entities. Reporting entities may choose to adopt
the standard as of the original effective date. The Company is currently evaluating the impact, if any, the adoption of this guidance
will have on its consolidated financial statements.
On July 22, 2015, the FASB issued Accounting
Standards Update No. 2015-11, “Simplifying the Measurement of Inventory,” which requires that inventory within the
scope of the guidance be measured at the lower of cost and net realizable value. Inventory measured using last-in, first-out and
the retail inventory method are not impacted by the new guidance. The new guidance will be effective for public business entities
in fiscal years beginning after December 15, 2016, including interim periods within those years. Prospective application is required.
Early adoption is permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating
the impact of the standard on its consolidated financial statements.
In March 2016, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) which simplifies certain aspects of the accounting
for share-based payments, including accounting for income taxes, classification of awards as either equity or liabilities, classification
on the statement of cash flows as well as allowing an entity-wide accounting policy election to either estimate the number of
awards that are expected to vest or account for forfeitures as they occur. This ASU is effective for fiscal years beginning after
December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted in any annual or interim period
for which financial statements have not yet been issued, and all amendments in the ASU that apply must be adopted in the same
period. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial
statements. In addition, the impact on the Company’s consolidated financial statements upon adoption is dependent on the
Company’s share price at option expiration dates and restricted stock vesting dates.
NOTE 4 — EQUITY:
a.
On January 26, 2016 the Company entered into an option cancellation and release agreement with certain directors, the CEO and
CFO. See Note 9.
b.
On March 21, 2016, the Company sold 2,933,051 shares of its common stock and warrants to purchase 1,466,526 shares of common stock
in concurrent underwritten public offering and private placement. The common stock was sold at a price of $0.59 per share and
each purchaser received a warrant to purchase one half of one share of common stock for each share of common stock that it purchased
in the offering. The warrants, which are classified as equity, are exercisable immediately and have a term of exercise of 5 years
from the date of issuance and an exercise price of $0.59. This offering resulted in gross proceeds to the Company of approximately
$1.7 million ($1.4 million after deducting underwriting discount, placement agent fees and other offering expenses).
INSPIREMD, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 — EQUITY
(cont.)
In connection with the underwritten public
offering and the Private Placement in March 2016, on March 21, 2016, the Company issued to the underwriter and placement agent
a five-year warrant to purchase up to 146,653 shares of common stock at an exercise price of $0.7375 per share. The warrants,
which are classified as equity, are exercisable at any time during the period commencing six months following the date of issuance
and ending five years from the date of issuance.
NOTE 5 — NET LOSS PER SHARE:
Basic and diluted net loss per share is computed
by dividing the net loss for the period by the weighted average number of shares of common stock outstanding during the period.
The calculation of diluted net loss per share excludes potential share issuances of common stock upon the exercise of share options,
warrants, convertible loans and restricted stocks as the effect is anti-dilutive.
The total number of shares of common stock
related to outstanding options, warrants, convertible loans and restricted stock excluded from the calculations of diluted loss
per share were 5,913,420 and 5,041,110 for the three month periods ended March 31, 2016 and 2015, respectively.
NOTE 6 — FAIR VALUE MEASURMENT:
The carrying amounts of financial instruments
included in working capital approximate their fair value either because these amounts are presented at fair value or due to the
relatively short-term maturities of such instruments. If measured at fair value in the financial statements, these financial instruments
would be classified as Level 3 in the fair value hierarchy. The fair value of the loan received on October 23, 2013 (the “Loan”)
approximated its carrying amount since it bears interest at rates that approximate current market rates.
As of March 31, 2016 and December 31, 2015,
allowance for doubtful accounts was $359,000 and $346,000, respectively.
NOTE 7 — INVENTORY:
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
|
|
($ in thousands)
|
|
Finished goods
|
|
$
|
116
|
|
|
$
|
301
|
|
Work in process
|
|
|
276
|
|
|
|
307
|
|
Raw materials and supplies
|
|
|
119
|
|
|
|
145
|
|
|
|
$
|
511
|
|
|
$
|
753
|
|
NOTE 8 — ACCOUNTS PAYABLE AND ACCRUALS — OTHER:
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
|
|
($ in thousands)
|
|
Employees and employee institutions
|
|
$
|
599
|
|
|
$
|
412
|
|
Accrued vacation and recreation pay
|
|
|
253
|
|
|
|
377
|
|
Accrued clinical trial expenses
|
|
|
523
|
|
|
|
582
|
|
Accrued expenses
|
|
|
678
|
|
|
|
552
|
|
Provision for sales commissions
|
|
|
84
|
|
|
|
80
|
|
Taxes payable
|
|
|
2
|
|
|
|
3
|
|
|
|
$
|
2,139
|
|
|
$
|
2,006
|
|
INSPIREMD, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 9 — RELATED PARTIES:
a.
On January 16, 2016, the Board of Directors appointed a new director as a Vice Chairman of the Board, effective as of January
22, 2016, with a term expiring at the Company’s 2017 annual meeting of stockholders. In connection with his appointment,
the new director was granted an option to purchase 780,000 shares of the Company’s common stock on April 30, 2016 at an
exercise price equal to the closing fair market value of the Common Stock on the date of grant on April 30, 2016, subject to the
terms and conditions of the 2013 Plan and the 2011 Plan. Options to purchase 195,000 shares of Common Stock vest and become exercisable
immediately upon the time of grant, and, until all 780,000 options shall have vested, options to purchase 195,000 shares of common
stock will vest and become exercisable each time upon (i) the Company raising at least $15 million through an equity offering;
(ii) the Company’s market cap becoming equal to or greater than $25 million; (iii) the Company receiving research coverage
by three new analysts at a leading investment bank; or (iv) the tripling of the Company’s market cap from the date of appointment.
Any of the foregoing conditions, if achieved following the director’s appointment but prior to April 30, 2016, will be deemed
satisfied on the date of grant. However, in the event (i) of the director’s death or permanent disability, (ii) a change
in control (as defined in the Plan) or (iii) if the director is asked to resign for any reason other than cause (as defined in
the Company’s form of Nonqualified Stock Option Agreement under its Plan), the options shall vest immediately in full. The
options have a term of 10 years from the date of grant and may be exercised for either cash or on a cashless basis. The fair value
of the options will be determined on April 30, 2016. Some of the above events involve performance conditions and some involve
market conditions. For grants that involve performance conditions, the expense will be recognized on a cumulative basis only if
the targets will be achieved. For grants that involve market conditions, the expense will be recognized over the expected period
for the conditions to occur.
b.
On January 21, 2016, the Company and the Company’s CEO, entered into a fourth amendment to the CEO’s Employment Agreement
by and between the Company and the CEO, in order to, among other things, (i) modify the term of the CEO’s employment to
end on the earlier of June 30, 2016 or the date upon which a new president and/or chief executive officer (or executive performing
a similar role) commences employment with the Company (or, if such individual is promoted internally, the date such individual
is promoted to the position of president and/or chief executive officer); and (ii) provide that, during the remaining term of
his employment, the CEO will receive (A) 50% of his base salary in cash payments, for all days that the CEO works during the remaining
term of his employment, at the monthly rate of $18,750, payable in accordance with the Company’s regular payroll practices,
and (B) a lump-sum payment equivalent to 50% of the CEO’s base salary through June 30, 2016, at the monthly rate of $18,750,
payable within 20 business days from the earlier of (x) the Company raising an aggregate of $5 million from investors, or (y)
June 30, 2016.
On January 26, 2016 the Company entered into
an option cancellation and release agreement with certain directors, the CEO and CFO (“the Optionholders”), pursuant
to which the parties agreed to cancel options to purchase an aggregate of 422,443 shares of common stock of the Company previously
granted to each of the Optionholders. For accounting purpose the cancellation was treated as a settlement for no consideration
and accordingly all remaining unrecognized compensation cost amounting to approximatly $800,000 was recognized.
NOTE 10 — COMMITMENT AND CONTINGENT LIABILITIES:
a. Litigation
In December 2012, a former service provider
of InspireMD GmbH filed a claim with the Labor Court in Buenos Aires, Argentina in the amount of $193,378 plus interest (6% in
dollars or 18.5% in pesos), social benefits, legal expenses and fees (25% of the award) against InspireMD Ltd. and InspireMD GmbH.
The Company settled with the plaintiff in the amount of $80,000 plus $20,000 for legal fees, which was approved by the Labor Court
and paid by the Company in March 2016.
The Company received written communication
from a distributor to provide unspecified compensation for pre-paid goods subject to the voluntary field action. After considering
the views of its legal counsel as well as other factors, the Company’s management believes that a loss from any related
future proceedings would range from a minimal amount up to 1,075,000 Euros and is reasonably possible.
INSPIREMD, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 10 — COMMITMENT AND CONTINGENT LIABILITIES:
(cont.)
In November 2015, the Company received written
communication from a service provider to remit payment amounting to $1,965,000. Given the preliminary stage, the Company’s
management and legal counsel cannot estimate the outcome of any legal proceedings or settlements, however believes that neither
a court loss nor settlement are probable.
On April 26, 2016 an alleged finder of the
Company filed a suit seeking damages from the Company amounting to $2.2 million in cash and unspecified compensation in equity
in connection with certain finders’ fees that he claims are owed to him. The Company’s management, after considering
the views of its legal counsel as well as other factors, is of the opinion that a loss to the Company is neither probable nor
in an amount or range of loss that is estimable.
b. Liens and pledges
The Company’s obligations under the
Loan (as defined in Note 6) were secured by Israeli security agreements and deposit account control agreements on all of the assets
and properties of the Company and InspireMD Ltd., other than the intellectual property of the Company and InspireMD Ltd.
NOTE 11 — ENTITY WIDE DISCLOSURE:
The Company operates in one operating segment.
Disaggregated financial data is provided below
as follows:
(1)
Revenues by geographic area and
(2)
Revenues from principal customers.
Revenues are attributed to geographic areas
based on the location of the customers. The following is a summary of revenues:
By geographic areas:
|
|
Three months ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
($ in thousands)
|
|
Germany
|
|
$
|
160
|
|
|
$
|
131
|
|
Italy
|
|
|
155
|
|
|
|
28
|
|
Spain
|
|
|
63
|
|
|
|
45
|
|
Belarus
|
|
|
20
|
|
|
|
78
|
|
Other
|
|
|
165
|
|
|
|
195
|
|
|
|
$
|
563
|
|
|
$
|
477
|
|
INSPIREMD, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 11 — ENTITY WIDE DISCLOSURE:
(cont.)
By product:
|
|
Three months ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
($ in thousands)
|
|
CGuard
|
|
$
|
320
|
|
|
$
|
60
|
|
MGuard*
|
|
|
243
|
|
|
|
417
|
|
|
|
$
|
563
|
|
|
$
|
477
|
|
*
The three months ended March 31, 2015 include revenue from sales of both MGuard Prime and MGuard.
The following
is a summary of revenues by principal customers:
|
|
Three months ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Customer A
|
|
|
22
|
%
|
|
|
0
|
%
|
Customer B
|
|
|
17
|
%
|
|
|
2
|
%
|
Customer C
|
|
|
11
|
%
|
|
|
9
|
%
|
Customer D
|
|
|
6
|
%
|
|
|
21
|
%
|
Customer E
|
|
|
4
|
%
|
|
|
16
|
%
|
All tangible long-lived assets are located
in Israel.
InspireMD, Inc.
397,298 Shares of Series B Convertible
Preferred Stock
39,729,800 Shares of Common Stock Underlying
the Series B Convertible Preferred Stock
Warrants to Purchase 39,729,800 Shares
of Common Stock
39,729,800 Shares of Common Stock Underlying
the Warrants
,
2016
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and
expenses, other than placement agent fees and expenses, payable by us in connection with the sale and distribution of the Series
B Preferred Stock being registered. All amounts are estimates except for the Securities and Exchange Commission registration fee
and the FINRA filing fee.
Securities and Exchange Commission
Registration Fee
|
|
$
|
3,687.93
|
|
FINRA Filing Fee
|
|
$
|
6,904.10
|
|
Accounting Fees and Expenses
|
|
$
|
17,500
|
|
Legal Fees and Expenses
|
|
$
|
100,000
|
|
Transfer Agent and Registrar Fees and
Expenses
|
|
$
|
5,000
|
|
Printing and Engraving Expenses
|
|
$
|
25,000
|
|
Miscellaneous Fees
and Expenses
|
|
$
|
—
|
|
Total
|
|
$
|
158,092.03
|
|
Item 14. Indemnification of Directors and
Officers.
Section 145 of the General Corporation Law
of the State of Delaware provides, in general, that a corporation incorporated under the laws of the State of Delaware, as we
are, may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding (other than a derivative action by or in the right of the corporation) by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another enterprise, against expenses (including attorneys’ fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding
if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests
of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s
conduct was unlawful. In the case of a derivative action, a Delaware corporation may indemnify any such person against expenses
(including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed
to the best interests of the corporation, except that no indemnification will be made in respect of any claim, issue or matter
as to which such person will have been adjudged to be liable to the corporation unless and only to the extent that the Court of
Chancery of the State of Delaware or any other court in which such action was brought determines such person is fairly and reasonably
entitled to indemnity for such expenses.
Our certificate of incorporation and bylaws
provide that we will indemnify our directors, officers, employees and agents to the extent and in the manner permitted by the
provisions of the General Corporation Law of the State of Delaware, as amended from time to time, subject to any permissible expansion
or limitation of such indemnification, as may be set forth in any stockholders’ or directors’ resolution or by contract.
Any repeal or modification of these provisions approved by our stockholders will be prospective only and will not adversely affect
any limitation on the liability of any of our directors or officers existing as of the time of such repeal or modification.
We are also permitted to apply for insurance
on behalf of any director, officer, employee or other agent for liability arising out of his actions, whether or not the General
Corporation Law of the State of Delaware would permit indemnification.
We are also permitted to apply for insurance
on behalf of any director, officer, employee or other agent for liability arising out of his actions, whether or not the DGCL
would permit indemnification.
Item 15. Recent Sales of Unregistered Securities.
On June 25, 2013, we issued 6,780 shares of
our common stock pursuant to the InspireMD, Inc. 2011 UMBRELLA Option Plan in connection with the settlement of a dispute with
a former consultant. These shares of common stock were not registered under the Securities Act of 1933, as amended, or the securities
laws of any state, and were offered and sold in reliance on the exemption from registration under the Securities Act of 1933,
as amended, provided by Section 4(a)(2) of the Securities Act of 1933, as amended.
On October 23, 2013, in connection with
that certain Loan and Security Agreement, dated October 23, 2014, between us and Hercules Capital, Inc. (formerly Hercules Technology
Growth Capital, Inc.), pursuant to which Hercules Capital, Inc. made a term loan to us in the aggregate amount of $10 million,
we issued Hercules Capital, Inc. a warrant to purchase 16,836 shares of our common stock at an exercise price of $29.70 per share.
This warrant was not registered under the Securities Act of 1933, as amended, or the securities laws of any state, and were offered
and sold in reliance on the exemption from registration under the Securities Act of 1933, as amended, provided by Section 4(a)(2)
of the Securities Act of 1933, as amended.
On March 21, 2016, we sold to certain of our
officers and directors 1,033,051 shares of our common stock and warrants to purchase 516,526 shares of our common stock in a private
placement. The common stock was sold at a price of $0.59 per share, and each purchaser received a warrant to purchase one half
of one share of common stock for each share of common stock that it purchased in the private placement. The warrants are exercisable
immediately and have a term of exercise of 5 years from the date of issuance and an exercise price of $0.59. We received gross
proceeds from the private placement of approximately $0.6 million, before deducting placement agent fees and estimated offering
expenses payable by us. These shares of common stock were not registered under the Securities Act of 1933, as amended, or the
securities laws of any state, and were offered and sold in reliance on the exemption from registration under the Securities Act
of 1933, as amended, provided by Section 4(a)(2) of the Securities Act of 1933, as amended.
In connection with the private placement,
on March 21, 2016, we issued to Dawson James Securities, Inc., the exclusive placement agent in the private placement, warrants
to purchase 51,653 shares of our common stock. The placement agent’s warrants will be exercisable at any time and from time
to time, in whole or in part, during the period commencing on September 17, 2016 and ending on March 16, 2021, at $0.7375 per
share. These warrants were not registered under the Securities Act of 1933, as amended, or the securities laws of any state, and
were offered and sold in reliance on the exemption from registration under the Securities Act of 1933, as amended, provided by
Section 4(a)(2) of the Securities Act of 1933, as amended.
On June 13, 2016, in connection with an
amendment entered into on June 13, 2016, to the Loan and Security Agreement, dated October 23, 2013, between us and Hercules Capital,
Inc., pursuant to which the parties agreed to a deferral of payment of principal for a four month period beginning May 1, 2016,
subject to the satisfaction of certain interest only period extension conditions, we issued Hercules Capital, Inc. a warrant to
purchase up to the number of shares of common stock equal to $182,399.30, divided by (i) the lowest effective price per share,
determined on a common stock-equivalent basis, for which our equity securities are sold and issued by us in an equity financing
in which we receive unrestricted aggregate gross cash proceeds of at least $7.5 million, subject to adjustment from time to time
in accordance with the terms of the warrant agreement, or (ii) if such equity financing shall not have been consummated on or
before July 30, 2016, or if, prior to the consummation of such equity financing, there shall be a transaction involving a change
of control or our dissolution, liquidation or winding-up, then the closing price of our common stock on June 13, 2016, subject
to adjustment thereafter from time to time in accordance with the terms of the warrant agreement. This warrant was not registered
under the Securities Act of 1933, as amended, or the securities laws of any state, and were offered and sold in reliance on the
exemption from registration under the Securities Act of 1933, as amended, provided by Section 4(a)(2) of the Securities Act of
1933, as amended.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
Exhibit
No.
|
|
Description
|
1.1
|
|
Form of Placement Agent Agreement
|
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission
on November 9, 2015)
|
|
|
|
3.2
|
|
Amended and Restated Bylaws (incorporated by
reference to Exhibit 3.2 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 1, 2011)
|
|
|
|
3.3
|
|
Certificate of Designation, Preferences and
Rights of Series A Preferred Stock (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed with the
Securities and Exchange Commission on October 25, 2013)
|
|
|
|
3.4
|
|
Form of Certificate of Designation of Preferences,
Rights and Limitations of Series B Convertible Preferred Stock
|
|
|
|
3.5
|
|
Certificate of Amendment to Amended and Restated
Certificate of Incorporation of InspireMD, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K
filed on May 25, 2016)
|
|
|
|
4.1
|
|
Form of Common Stock Certificate (incorporated
by reference to Exhibit 4.1 to Amendment No. 3 to Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on March 5, 2013)
|
Exhibit
No.
|
|
Description
|
4.2
|
|
Rights Agreement dated as of October 22, 2013
between InspireMD, Inc. and Action Stock transfer Corporation, as Rights Agent, including exhibits thereto (incorporated by
reference to an exhibit to the Registration Statement on Form 8-A filed with Securities and Exchange Commission on October
25, 2013)
|
|
|
|
4.3
|
|
Form of Placement Agent Unit Purchase Option
|
|
|
|
4.4
|
|
Form of Warrant Agent Agreement and Form
of Warrant
|
|
|
|
5.1*
|
|
Opinion of Haynes and Boone, LLP
|
|
|
|
10.1+
|
|
Amended and Restated 2011 Umbrella Option Plan
(incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission
on November 4, 2011)
|
|
|
|
10.2+
|
|
Form of Stock Option Award Agreement (incorporated
by reference to Exhibit 10.2 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2011)
|
|
|
|
10.3
|
|
License Agreement, by and between Svelte Medical
Systems, Inc. and InspireMD Ltd., dated as of March 19, 2010 (incorporated by reference to Exhibit 10.5 to Amendment No. 1
to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 26, 2011)
|
|
|
|
10.4+
|
|
Employment Agreement, by and between InspireMD
Ltd. and Craig Shore, dated as of November 28, 2010 (incorporated by reference to Exhibit 10.21 to Current Report on Form
8-K filed with the Securities and Exchange Commission on April 6, 2011)
|
|
|
|
10.5+
|
|
Form of Indemnity Agreement between InspireMD,
Inc. and each of the directors and executive officers thereof (incorporated by reference to Exhibit 10.22 to Amendment No.
1 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 26, 2011)
|
|
|
|
10.6
|
|
Agreement by and between InspireMD Ltd. and
MeKo Laser Material Processing, dated as of April 15, 2010 (incorporated by reference to Exhibit 10.26 to Amendment No. 1
to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 26, 2011)
|
|
|
|
10.7
|
|
Agreement by and between InspireMD Ltd. and
Natec Medical Ltd, dated as of September 23, 2009 (incorporated by reference to Exhibit 10.27 to Amendment No. 1 to Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on August 26, 2011)
|
|
|
|
10.8+
|
|
Stock Award Agreement, dated as of November
16, 2011, by and between InspireMD, Inc. and Sol J. Barer, Ph.D. (Incorporated by reference to Exhibit 10.1 to Current Report
on Form 8-K filed with the Securities and Exchange Commission on November 18, 2011)
|
|
|
|
10.9+
|
|
Nonqualified Stock Option Agreement, dated as
of November 16, 2011, by and between InspireMD, Inc. and Sol J. Barer, Ph.D. (Incorporated by reference to Exhibit 10.2 to
Current Report on Form 8-K filed with the Securities and Exchange Commission on November 18, 2011)
|
|
|
|
10.10
|
|
Form of April 2012 $72.00 Warrant (incorporated
by reference to Exhibit 10.3 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2012)
|
|
|
|
10.11
|
|
First Amendment to License Agreement, dated
October 20, 2012, by and among Svelte Medical Systems, Inc., InspireMD, Inc. and InspireMD Ltd. (incorporated by reference
to Exhibit 10.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on October 23, 2012)
|
|
|
|
10.12+
|
|
Second Amendment to the InspireMD, Inc. Amended
and Restated 2011 UMBRELLA Option Plan (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with
the Securities and Exchange Commission on December 26, 2012)
|
Exhibit
No.
|
|
Description
|
10.13+
|
|
Employment Agreement, dated January 3, 2013,
by and between InspireMD, Inc. and Alan Milinazzo (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K
filed with the Securities and Exchange Commission on January 9, 2013)
|
|
|
|
10.14+
|
|
Restricted Stock Award Agreement, dated January
3, 2013, by and between InspireMD, Inc. and Alan Milinazzo (incorporated by reference to Exhibit 10.5 to Current Report on
Form 8-K filed with the Securities and Exchange Commission on January 9, 2013)
|
|
|
|
10.15
|
|
Form of $30.00 Warrant (incorporated by reference
to Exhibit 10.76 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on April 9, 2013)
|
|
|
|
10.16
|
|
Exchange and Amendment Agreement, dated April
9, 2013, by and among InspireMD, Inc., holders of convertible debentures and holders of $72.00 warrants issued in April 2012
(incorporated by reference to Exhibit 10.75 to Amendment No. 6 to Registration Statement on Form S-1 filed with the Securities
and Exchange Commission on April 9, 2013)
|
|
|
|
10.17
|
|
Letter Agreement, dated as of April 15, 2013,
by and among InspireMD, Inc. and each holder of Senior Secured Convertible Debentures Due April 15, 2014 (incorporated by
reference to Exhibit 10.3 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 15, 2013)
|
|
|
|
10.18
|
|
Form of Amended $30.00 Warrant (incorporated
by reference to Exhibit 10.4 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 15,
2013)
|
|
|
|
10.19+
|
|
First Amendment to Employment Agreement, dated
April 24, 2013, by and between InspireMD, Inc. and Alan Milinazzo (incorporated by reference to Exhibit 10.1 to Current Report
on Form 8-K filed with the Securities and Exchange Commission on April 26, 2013)
|
|
|
|
10.20+
|
|
First Amendment to Restricted Stock Award Agreement,
dated April 24, 2013, by and between InspireMD, Inc. and Alan Milinazzo (incorporated by reference to Exhibit 10.2 to Current
Report on Form 8-K filed with the Securities and Exchange Commission on April 26, 2013)
|
|
|
|
10.21
|
|
Second Amendment to License Agreement, dated
August 22, 2013, by and among Svelte Medical Systems, Inc., InspireMD, Inc. and InspireMD Ltd. (incorporated by reference
to Exhibit 10.2 to Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 12, 2013)
|
|
|
|
10.22
|
|
Loan and Security Agreement, dated October 23,
2013, by and among InspireMD, Inc., InspireM.D Ltd and Hercules Technology Growth Capital, Inc. (incorporated by reference
to Exhibit 10.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on October 25, 2013)
|
|
|
|
10.23
|
|
Fixed Charge Debenture, dated October 23, 2013,
by and among InspireMD, Inc., Inspire M.D Ltd and Hercules Technology Growth Capital, Inc. (incorporated by reference to Exhibit
10.2 to Current Report on Form 8-K filed with the Securities and Exchange Commission on October 25, 2013)
|
|
|
|
10.24
|
|
Floating Charge Debenture, dated October 23,
2013, by and among InspireMD, Inc., Inspire M.D Ltd and Hercules Technology Growth Capital, Inc. (incorporated by reference
to Exhibit 10.3 to Current Report on Form 8-K filed with the Securities and Exchange Commission on October 25, 2013)
|
|
|
|
10.25
|
|
Warrant Agreement, dated October 23, 2013, by
and between InspireMD, Inc. and Hercules Technology Growth Capital, Inc. (incorporated by reference to Exhibit 10.4 to Current
Report on Form 8-K filed with the Securities and Exchange Commission on October 25, 2013)
|
Exhibit
No.
|
|
Description
|
10.26
|
|
Account Control Agreement, dated October 23,
2013, among InspireMD, Inc., Hercules Technology Growth Capital, Inc. and Bank Leumi USA (incorporated by reference to Exhibit
10.5 to Current Report on Form 8-K filed with the Securities and Exchange Commission on October 25, 2013)
|
|
|
|
10.27+
|
|
InspireMD, Inc. 2013 Long-Term Incentive Plan
(incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission
on December 20, 2013)
|
|
|
|
10.28+
|
|
Consulting Agreement, dated February 25, 2014,
by and between InspireMD, Inc. and James Barry (incorporated by reference to Exhibit 10.55 to Transition Report on Form 10-KT
filed with the Securities and Exchange Commission on February 26, 2014)
|
|
|
|
10.29+
|
|
Amended and Restated Employment Agreement, dated
May 5, 2014, by and between InspireMD, Inc. and Craig Shore (incorporated by reference to Exhibit 10.2 to Quarterly Report
on Form 10-Q filed with the Securities and Exchange Commission on May 7, 2014)
|
|
|
|
10.30+
|
|
First Amendment to the InspireMD, Inc. Amended
and Restated 2011 UMBRELLA Option Plan (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q filed with
the Securities and Exchange Commission on May 7, 2014)
|
|
|
|
10.31+
|
|
Form of Incentive Stock Option Award Agreement
under the InspireMD, Inc. 2013 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.2 to Registration Statement
on Form S-8 filed with the Securities and Exchange Commission on June 5, 2014)
|
|
|
|
10.32+
|
|
Form of Nonqualified Stock Option Award Agreement
under the InspireMD, Inc. 2013 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.3 to Registration Statement
on Form S-8 filed with the Securities and Exchange Commission on June 5, 2014)
|
|
|
|
10.33+
|
|
Form of Restricted Stock Award Agreement under
the InspireMD, Inc. 2013 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.4 to Registration Statement on
Form S-8 filed with the Securities and Exchange Commission on June 5, 2014)
|
|
|
|
10.34+
|
|
Form of Restricted Stock Unit Award Agreement
under the InspireMD, Inc. 2013 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.5 to Registration Statement
on Form S-8 filed with the Securities and Exchange Commission on June 5, 2014)
|
|
|
|
10.35+
|
|
Form of Section 3(i) Stock Option Award Agreement
under the InspireMD, Inc. 2013 Long-Term Incentive Plan (Israeli) (incorporated by reference to Exhibit 99.6 to Registration
Statement on Form S-8 filed with the Securities and Exchange Commission on June 5, 2014)
|
|
|
|
10.36+
|
|
Form of Section 102 Capital Gain Stock Option
Award Agreement under the InspireMD, Inc. 2013 Long-Term Incentive Plan (Israeli) (incorporated by reference to Exhibit 99.7
to Registration Statement on Form S-8 filed with the Securities and Exchange Commission on June 5, 2014)
|
|
|
|
10.37+
|
|
Form of Section 102 Capital Gain Restricted
Stock Award Agreement under the InspireMD, Inc. 2013 Long-Term Incentive Plan (Israeli) (incorporated by reference to Exhibit
99.8 to Registration Statement on Form S-8 filed with the Securities and Exchange Commission on June 5, 2014)
|
|
|
|
10.38+
|
|
Form of Stock Option Award Agreement under the
InspireMD, Inc. 2013 Long-Term Incentive Plan (European) (incorporated by reference to Exhibit 99.9 to Registration Statement
on Form S-8 filed with the Securities and Exchange Commission on June 5, 2014)
|
Exhibit
No.
|
|
Description
|
10.39+
|
|
Form of Restricted Stock Award Agreement under
the InspireMD, Inc. 2013 Long-Term Incentive Plan (European) (incorporated by reference to Exhibit 99.10 to Registration Statement
on Form S-8 filed with the Securities and Exchange Commission on June 5, 2014)
|
|
|
|
10.40+
|
|
Form of Stock Option Award Agreement outside
the InspireMD, Inc. 2013 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.11 to Registration Statement on
Form S-8 filed with the Securities and Exchange Commission on June 5, 2014)
|
|
|
|
10.41+
|
|
Employment Agreement, dated July 14, 2014, by
and between InspireMD, Inc. and James J. Barry, Ph.D. (incorporated by reference to Exhibit 10.1 to Current Report on Form
8-K filed with the Securities and Exchange Commission on July 18, 2014)
|
|
|
|
10.42
|
|
Form of $17.50 Warrant (incorporated by reference
to Exhibit 10.2 to Current Report on Form 8-K filed with the Securities and Exchange Commission on November 5, 2014)
|
|
|
|
10.43+
|
|
Second Amendment to Employment Agreement, dated
January 5, 2015, by and between InspireMD, Inc. and Alan Milinazzo (incorporated by reference to Exhibit 10.1 to Current Report
on Form 8-K filed with the Securities and Exchange Commission on January 6, 2015)
|
|
|
|
10.44+
|
|
Amendment to Employment Agreement, dated January
5, 2015, by and between InspireMD, Inc. and James J. Barry, PhD (incorporated by reference to Exhibit 10.2 to Current Report
on Form 8-K filed with the Securities and Exchange Commission on January 6, 2015)
|
|
|
|
10.45+
|
|
First Amendment to Amended and Restated Employment
Agreement, dated January 5, 2015, by and between InspireMD, Inc. and Craig Shore (incorporated by reference to Exhibit 10.3
to Current Report on Form 8-K filed with the Securities and Exchange Commission on January 6, 2015)
|
|
|
|
10.46+
|
|
Amendment Number Two to Employment Agreement,
dated February 22, 2015, by and between InspireMD, Inc. and James J. Barry, PhD (incorporated by reference to Exhibit 10.1
to Current Report on Form 8-K filed with the Securities and Exchange Commission on February 25, 2015)
|
|
|
|
10.47
|
|
Form of $5.50 Warrant (incorporated by reference
to Exhibit 10.2 to Current Report on Form 8-K filed with the Securities and Exchange Commission on March 4, 2015)
|
|
|
|
10.48+
|
|
Third Amendment to Employment Agreement, dated
June 29, 2015, by and between InspireMD, Inc. and Alan Milinazzo (incorporated by reference to Exhibit 10.1 to Current Report
on Form 8-K filed with the Securities and Exchange Commission on July 6, 2015)
|
|
|
|
10.49^
|
|
Distribution Agreement, dated August 5, 2015,
by and between Penumbra, Inc. and InspireMD, Inc. (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on November 9, 2015)
|
|
|
|
10.50+
|
|
First Amendment to the InspireMD, Inc. 2013
Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on September 9,
2015)
|
|
|
|
10.51+
|
|
Offer Letter, between InspireMD, Inc. and Isaac
Blech, dated January 16, 2016 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on January
22, 2016)
|
Exhibit
No.
|
|
Description
|
10.52+
|
|
Fourth Amendment to Employment Agreement, dated
January 21, 2016, by and between InspireMD, Inc. and Alan Milinazzo (incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K filed on January 22, 2016)
|
|
|
|
10.53+
|
|
Option Cancellation and Release Agreement, dated
January 26, 2016, by and between InspireMD, Inc. and Sol J. Barer (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K filed on January 28, 2016)
|
|
|
|
10.54+
|
|
Option Cancellation and Release Agreement, dated
January 26, 2016, by and between InspireMD, Inc. and James Barry (incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K filed on January 28, 2016)
|
|
|
|
10.55+
|
|
Option Cancellation and Release Agreement, dated
January 26, 2016, by and between InspireMD, Inc. and Michael Berman (incorporated by reference to Exhibit 10.3 to the Current
Report on Form 8-K filed on January 28, 2016)
|
|
|
|
10.56+
|
|
Option Cancellation and Release Agreement, dated
January 26, 2016, by and between InspireMD, Inc. and Paul Stuka (incorporated by reference to Exhibit 10.4 to the Current
Report on Form 8-K filed on January 28, 2016)
|
|
|
|
10.57+
|
|
Option Cancellation and Release Agreement, dated
January 26, 2016, by and between InspireMD, Inc. and Campbell Rogers (incorporated by reference to Exhibit 10.5 to the Current
Report on Form 8-K filed on January 28, 2016)
|
|
|
|
10.58+
|
|
Option Cancellation and Release Agreement, dated
January 26, 2016, by and between InspireMD, Inc. and James Loughlin (incorporated by reference to Exhibit 10.6 to the Current
Report on Form 8-K filed on January 28, 2016)
|
|
|
|
10.59+
|
|
Option Cancellation and Release Agreement, dated
January 26, 2016, by and between InspireMD, Inc. and Alan Milinazzo (incorporated by reference to Exhibit 10.7 to the Current
Report on Form 8-K filed on January 28, 2016)
|
|
|
|
10.60+
|
|
Option Cancellation and Release Agreement, dated
January 26, 2016, by and between InspireMD, Inc. and Craig Shore (incorporated by reference to Exhibit 10.8 to the Current
Report on Form 8-K filed on January 28, 2016)
|
|
|
|
10.61+
|
|
Third Amendment to Employment Agreement, dated
March 28, 2016, by and between InspireMD, Inc. and James J. Barry, PhD (incorporated by reference to Exhibit 10.66 to the
Annual Report on Form 10-K filed on March 28, 2016)
|
|
|
|
10.62
|
|
Form of $0.59 Underwritten Warrant (incorporated
by reference to Exhibit 10.2 to Current Report on Form 8-K filed with the Securities and Exchange Commission on March 16,
2016)
|
|
|
|
10.63
|
|
Form of $0.7375 Underwriter Warrant (incorporated
by reference to Exhibit 10.3 to Current Report on Form 8-K filed with the Securities and Exchange Commission on March 16,
2016)
|
|
|
|
10.64
|
|
Form of $0.59 Private Placement Warrant (incorporated
by reference to Exhibit 10.5 to Current Report on Form 8-K filed with the Securities and Exchange Commission on March 16,
2016)
|
|
|
|
10.65
|
|
Form of $0.7375 Placement Agent Warrant (incorporated
by reference to Exhibit 10.7 to Current Report on Form 8-K filed with the Securities and Exchange Commission on March 16,
2016)
|
|
|
|
10.66
|
|
Second Amendment to the InspireMD, Inc. 2013 Long-Term Incentive Plan (incorporated by reference
to Exhibit 10.1 to the Current Report on Form 8-K filed on May 25, 2016)
|
|
|
|
10.67+
|
|
Fourth Amendment to Employment Agreement, dated June 6, 2016, by and
between InspireMD, Inc. and James Barry, Ph.D. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K
filed on June 7, 2016)
|
|
|
|
10.68
|
|
Amendment No.1 to Loan and Security Agreement, dated November 19, 2013, by and
among InspireMD, Inc., Inspire M.D Ltd and Hercules Technology Growth Capital, Inc. (incorporated by reference to Exhibit
10.1 to the Current Report on Form 8-K filed on June 14, 2016)
|
|
|
|
10.69
|
|
Amendment No.2 to Loan and Security Agreement, dated July 23, 2014, by and among InspireMD,
Inc., Inspire M.D Ltd and Hercules Technology Growth Capital, Inc. (incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K filed on June 14, 2016)
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10.70
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Amendment No.3 to Loan and Security Agreement, dated June 13, 2016, by and among InspireMD,
Inc., Inspire M.D Ltd and Hercules Capital, Inc. (incorporated by reference to Exhibit 10.3 to the Current Report on Form
8-K filed on June 14, 2016)
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10.71
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Amendment to Debenture of Fixed Charge, dated June 13, 2016, by and between Inspire M.D
Ltd and Hercules Capital, Inc. (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed on June
14, 2016)
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10.72
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Amendment to Debenture of Floating Charge, dated June 13, 2016, by and between Inspire M.D
Ltd and Hercules Capital, Inc. (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed on June
14, 2016)
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10.73
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Warrant Agreement, dated June 13, 2016, by and between InspireMD, Inc. and Hercules Capital,
Inc. (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed on June 14, 2016)
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10.74
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Intellectual Property Security Agreement, dated as of June 13, 2016, by and among InspireMD,
Inc., several banks and other financial institutions or entities from time to time parties to the Loan and Security Agreement,
and Hercules Capital, Inc., as agent (incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K filed on
June 14, 2016)
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10.75
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Intellectual Property Security Agreement, dated as of June 13, 2016, by and among Inspire
M.D LTD, several banks and other financial institutions or entities from time to time parties to the Loan and Security Agreement,
and Hercules Capital, Inc., as agent (incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K filed on
June 14, 2016)
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10.76
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Amendment to Securities Purchase Agreement, dated June 17, 2016, by and among InspireMD, Inc. and the Purchasers identified
on the signature pages thereto
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21.1
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List of Subsidiaries (incorporated by reference
to Exhibit 21.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2011)
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Exhibit
No.
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Description
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23.1*
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Consent of Kesselman & Kesselman, Independent
Registered Public Accounting Firm
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23.2*
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Consent of Haynes and Boone, LLP (included in
Exhibit 5.1)
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24.1
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Power of Attorney
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101.NS**
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XBRL Instance Document
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101.SCH**
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XBRL Taxonomy Extension Schema Document
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101.CAL**
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|
XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF**
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|
XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB**
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|
XBRL Taxonomy Extension Label Linkbase Document
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101.PRE**
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XBRL Taxonomy Extension Presentation Linkbase Document
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*
Filed herewith.
**
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Pursuant to Rule 406T of Regulation S-T, the Interactive Data
Files on Exhibit 101 hereto are deemed furnished and not filed or part of a registration statement or prospectus for purposes
of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed furnished and not filed for purposes of Section
18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.
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+
Management contract or compensatory plan or arrangement.
^
Confidential treatment has been granted with respect to certain portions of this exhibit by the Securities and Exchange Commission
under a confidential treatment request pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
(b) Financial Statement Schedules
No financial statement schedules are provided
because the information is not required or is shown either in the financial statements or the notes thereto.
Item 17. Undertakings.
a.
The undersigned registrant hereby undertakes:
1.
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
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i.
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To include
any prospectus required by section 10(a)(3) of the Securities Act of 1933;
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ii.
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To reflect
in the prospectus any facts or events arising after the effective date of the registration
statement (or the most recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than 20% change in the maximum aggregate offering price set forth in the “Calculation
of Registration Fee” table in the effective registration statement.
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iii.
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To include
any material information with respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such information in the registration
statement;
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provided, however
, that paragraphs
(a)(1)(i), (ii), and (iii) of this section do not apply if the information required to be included in a post-effective amendment
by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to section 13
or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) that are incorporated by reference in the registration
statement, or, as to a registration statement.
2.
That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
3.
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold
at the termination of the offering.
4.
That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial
distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned
registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser,
if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant
will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
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i.
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Any preliminary
prospectus or prospectus of the undersigned registrant relating to the offering required
to be filed pursuant to Rule 424;
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ii.
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Any free
writing prospectus relating to the offering prepared by or on behalf of the undersigned
registrant or used or referred to by the undersigned registrant;
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iii.
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The
portion of any other free writing prospectus relating to the offering containing material
information about the undersigned registrant or its securities provided by or on behalf
of the undersigned registrant; and
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iv.
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Any other
communication that is an offer in the offering made by the undersigned registrant to
the purchaser.
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b.
The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933,
each filing of the registrant’s annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
c.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final adjudication of such issue.
d.
The undersigned registrant hereby undertakes that:
1.
For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement
as of the time it was declared effective.
2.
For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the
Securities Act of 1933, the registrant has duly caused this Amendment No.6 to registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of Boston, Commonwealth of Massachusetts on June 29, 2016.
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INSPIREMD, INC.
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By:
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/s/
James Barry
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Name: James Barry, Ph.D.
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Title: Chief Executive Officer
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In accordance with the requirements of
the Securities Act of 1933, this Amendment No.6 to registration statement has been signed by the following persons in the capacities
and on the dates indicated.
Signature
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Title
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Date
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/s/
James Barry
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President, Chief Executive Officer and Director
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June 29, 2016
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James Barry
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(principal executive officer)
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/s/
Craig Shore
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|
Chief Financial Officer, Chief Administrative
Officer Secretary and
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June 29, 2016
|
Craig Shore
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|
Treasurer (principal financial and accounting
officer)
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*
|
|
Chairman of the Board of Directors
|
|
June 29, 2016
|
Sol J. Barer, Ph.D.
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*
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|
Vice Chairman of the Board of Directors
|
|
June 29, 2016
|
Isaac Blech
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|
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*
|
|
Director
|
|
June 29, 2016
|
Michael Berman
|
|
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*
|
|
Director
|
|
June 29, 2016
|
Campbell Rogers, M.D.
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*
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Director
|
|
June 29, 2016
|
Paul Stuka
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*By:
|
|
/s/
Craig Shore
|
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|
|
Craig Shore
Attorney-in-Fact
|
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