Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with the
accompanying condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form
10-Q.
Unless
the context requires otherwise, references in this Form 10-Q to the “Company,” “InspireMD,” “we,”
“our” and “us” refer to InspireMD, Inc., a Delaware corporation, and its subsidiaries.
Forward-Looking
Statements
This
Quarterly Report on Form 10-Q contains “forward-looking statements,” which include information relating to future
events, future financial performance, strategies, expectations, competitive environment and regulation. Words such as “may,”
“will,” “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 may 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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our ability to maintain
compliance with NYSE American listing standards;
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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 our technology is an
attractive alternative to other procedures and products;
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market acceptance
of our products;
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negative clinical
trial results or lengthy product delays in key markets;
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an inability to secure and maintain regulatory approvals for the sale of our 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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inability to carry out research, development and commercialization plans;
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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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product malfunctions;
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price increases for supplies and components;
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adverse economic conditions;
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insufficient or inadequate reimbursement by governmental and other third-party payers for our products;
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our efforts to successfully obtain and maintain intellectual property protection covering our products, which may not be successful;
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adverse federal, state and local government regulation, in the United States, Europe or Israel and other foreign jurisdictions;
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the fact that we conduct business in multiple foreign jurisdictions, exposing us to foreign currency exchange rate fluctuations, logistical and communications challenges, burdens and costs of compliance with foreign laws and political and economic instability in each jurisdiction;
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the escalation of hostilities in Israel, which could impair our ability to manufacture our products; and
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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. For a discussion of these and other risks that relate to our business and investing in our common stock, you should
carefully review the risks and uncertainties described in this Quarterly Report on Form 10-Q, and those described from time to
time in our future reports filed with the Securities and Exchange Commission. The forward-looking statements contained in this
Quarterly Report on Form 10-Q 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.
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 MicroNet 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. Subsequently, we launched CGuard EPS in Russia and certain countries in Latin America and Asia, including India. We
consider the addressable market for our CGuard EPS consists of individuals with diagnosed, symptomatic high-grade carotid artery
stenosis (HGCS, ≥70% occlusion) for whom an intervention is preferable to medical (drug) therapy. This group includes not only
carotid artery stenting patients but also individuals undergoing carotid endarterectomy, as the two approaches compete for the
same patient population. Assuming full penetration of the intervention caseload by CGuard EPS, we estimate that the addressable
market for CGuard EPS was approximately $1.0 billion in 2017. (source: Health Research International 2017 Results of Update Report
on Global Carotid Stenting Procedures and Markets by Major Geography and Addressable Markets).
In
April 2017, we had a pre-investigational device exemption (“IDE”) submission meeting with the U.S. Food and Drug Administration
(“FDA”) regarding CGuard EPS where we presented materials that we believed would support a formal IDE submission seeking
approval to conduct a human clinical trial in the United States which included our draft synopsis for the clinical trial design.
The FDA agreed to our pre-clinical test plan and clinical trial design. We are currently in the process of obtaining an IDE approval
for CGuard EPS, and we intend to ultimately seek FDA approval for commercial sales in the United States. On July 26, 2019, we
submitted our IDE application, which, if approved, would allow us to commence a human clinical trial of CGuard EPS in the
United States. Following FDA’s approval of the IDE application and once sufficient funds are available, we intend to commence
such clinical trial.
While
entering the U.S. market remains our top development priority and therefore we are focusing on, as our highest priority, completing
the testing required for an IDE submission seeking approval to conduct a human clinical trial in the United States using CGuard
EPS, we intend to continue to evaluate potential product enhancements and manufacturing enhancements for CGuard EPS expected to
reduce cost of goods and/or provide the best-in-class performing delivery system. Among other delivery system improvements, we
continue to evaluate the development of a smaller delivery catheter (5 French gauge) CGuard EPS product. If we receive sufficient
proceeds from future financings, we may seek to develop CGuard EPS with a smaller delivery catheter (5 French gauge), which we
would submit for CE mark approval. We cannot give any assurance that we will receive sufficient (or any) proceeds from future
financings or the timing of such financings, if ever. In addition, such additional financings may be costly or difficult to complete.
Even if we receive sufficient proceeds from future financings, there is no assurance that we will be able to timely apply for
CE mark approval following our receipt of such proceeds. We believe these improvements and a smaller delivery system may allow
us to reduce cost of goods, increase penetration in our existing geographies and better position us for entry into the Asia Pacific
market and for transradial catheterization, which, we believe, is gaining favor among interventionalists.
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 MicroNet with a bare-metal cobalt-chromium based stent. 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 with MicroNet and seeking to incorporate MicroNet onto a drug-eluting stent manufactured by a potential
partner. The FDA has clarified that the primary mode of action for drug-eluting cardiovascular stents, which are regulated as
combination products, is that of the device component and has assigned the FDA Center for Devices and Radiological Health (CDRH)
primary responsibility for premarket review and regulation, providing some clarity about what to expect regarding the regulatory
framework related to the development of MGuard DES™.
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 seal aneurysms in the brain.
Presently,
none of our products may be sold or marketed in the United States.
In
2017, we decided to shift our commercial strategy to focus on sales of our products through local distribution partners and our
own internal sales initiatives to gain greater reach into all the relevant clinical specialties and to expand our geographic coverage.
Pursuant to our strategy, we completed our transition away from a single distributor covering 18 European countries to a direct
distribution model intended to broaden our sales efforts to key clinical specialties. All territories previously covered by our
former European distributor were transferred to local distributors by June 2017. We also have been participating in international
trade shows and industry conferences in an attempt to gain market exposure and brand recognition.
Recent
Developments
Public
Offering
On
April 8, 2019, we closed an underwritten public offering of 486,957 shares of our common stock at a price to the public of $5.00
per share. We received net proceeds of approximately $2.0 million from the offering, after deducting underwriter discounts and
commissions and offering expenses payable by us. As a result of such offering, the conversion price for each of our Series B Preferred
Stock and Series C Preferred was reduced to $5.00 per share. In connection with this public offering, on April 12, 2019, the underwriter
partially exercised its over-allotment option and purchased an additional 12,393 shares of our common stock at a price to the
public of $5.00 per share. We received net proceeds of approximately $47,000 from the exercise of the over-allotment option.
NYSE
American Notification
On
January 7, 2019, we received notification from the NYSE American that we are not in compliance with the NYSE American continued
listing standards because our shares of common stock have been selling for a low price per share for a substantial period of time.
Pursuant to Section 1003(f)(v) of the NYSE American Company Guide (the “Company Guide”), the NYSE American staff determined
that our continued listing is predicated on us effecting a reverse stock split of our common stock or otherwise demonstrating
sustained price improvement within a reasonable period of time, which the staff determined to be until July 7, 2019. In addition,
the NYSE American 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.
Effective
as of 5:00 p.m. Eastern Time on March 29, 2019, we amended our amended and restated certificate of incorporation in order to effectuate
a 1-for-50 reverse stock split of our outstanding shares of common stock.
On
July 8, 2019, we received notice from NYSE American that we have resolved the continued listing deficiency with respect to low
selling price pursuant to Section 1003(f)(v) of the Company Guide. We are subject to NYSE Regulation’s normal continued
listing monitoring. However, in accordance with Section 1009(h) of the Company Guide, if we are again determined to be below any
of the continued listing standards within 12 months of July 8, 2019, NYSE American will examine the relationship between the two
incidents of noncompliance and re-evaluate our method of financial recovery from the first incident. NYSE Regulation will then
take the appropriate action, which depending on the circumstances, may include truncating the compliance procedures described
in Section 1009 of the Company Guide or immediately initiating delisting proceedings. If in the future we fall below the
continued listing criterion of a minimum average share price of $0.20 over a 30-day trading period, our common stock will be subject
to immediate review by NYSE American. There can be no assurance that the market price of our common stock will remain above the
levels viewed as abnormally low for a substantial period of time.
Critical
Accounting Policies
A
critical accounting policy is one that is both important to the portrayal of our financial condition and results of operation
and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain. Our critical accounting policies are more fully described in both (i)
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and (ii) Note
2 of the Notes to the Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December
31, 2018. There have not been any material changes to such critical accounting policies since December 31, 2018 other than a change
to the accounting policy of Leases following the adoption of ASU No. 2016-02. See Note 3(a) to our unaudited consolidated financial
statements included in Item 1, “Unaudited Financial Statements,” of this Quarterly Report on Form 10-Q.
The
currency of the primary economic environment in which our operations are conducted is the U.S. dollar (“$” or “dollar”).
Contingencies
We
and our subsidiaries are involved in legal proceedings that arise from time to time in the ordinary course of business. We record
accruals for these types of contingencies to the extent that we conclude the occurrence of such contingencies is probable and
that the related liabilities are estimable. When accruing these costs, we recognize an accrual in the amount within a range of
loss that is the best estimate within the range. When no amount within the range is a better estimate than any other amount, we
accrue for the minimum amount within the range. Legal costs are expensed as incurred.
Results
of Operations
Three
months ended June 30, 2019 compared to the three months ended June 30, 2018
Revenues
.
For the three months ended June 30, 2019, revenue increased by 351,000, or 35.0%, to $1,354,000, from $1,003,000 during the three
months ended June 30, 2018. This increase was predominantly driven by a 34.0% increase in sales volume of CGuard EPS from
$833,000 during the three months ended June 30, 2018, to $1,116,000 during the three months ended June 30, 2019, and a
39.9% increase in sales volume of MGuard Prime EPS from $170,000 during the three months ended June 30, 2018, to $238,000
during the three months ended June 30, 2019. Both increases were primarily due to the shipments during the three months ended
June 30, 2019 of approximately $592,000 of backlog that accumulated in the three months ended March 31, 2019 that we were unable
to previously ship. These increases, however, were partially offset by sales decreases in certain of our markets during the three
months ended June 30, 2019
.
With
respect to regions, the increase in revenue was primarily attributable to a $222,000 increase in revenue from sales made in Europe
(driven by a $180,000 increase in sales volume of CGuard EPS for reasons discussed in the paragraph above), as well as a $65,000
increase in revenue from sales made in Asia (driven by a $90,000 increase in sales volume of CGuard EPS for reasons discussed
in the paragraph above, offset by a $25,000 decrease in sales of MGuard Prime EPS).
Gross
Profit (Loss)
. For the three months ended June 30, 2019, gross profit (revenue less cost of revenues) increased by 59.6%,
or $165,000, to $442,000, compared to a gross profit of $277,000 during the same period in 2018. This increase in gross profit
resulted from a $180,000 increase in revenues (as mentioned above), less the related material and labor costs and receipt of $135,000
compensation from our former third-party sterilizer for the delays related to the product sterilization interruption during the
three months ended March 31, 2019. These increases in gross profit were partially offset by $69,000 of expenses related to upgrades
made to our production facilities, $40,000 of expenses pertaining to annual and new employee training of the production workers
and an increase of $41,000 in miscellaneous expenses. Gross margin (gross profits as a percentage of revenue) increased to 32.6% during the three months ended June 30, 2019, from 27.6% during the three months ended June 30, 2018, driven mainly by the compensation
received from our former third-party sterilizer and cost reductions in raw materials, offset by expenses pertaining to upgrades
made to our production facility, training of production workers and miscellaneous expenses.
Research
and Development Expenses
. For the three months ended June 30, 2019, research and development expenses increased by 276.1%,
or $635,000, to $865,000, from $230,000 during the three months ended June 30, 2018. This increase resulted primarily from an
increase of $426,000 in clinical expenses associated with CGuard EPS, mainly related to IDE approval process, an increase of $183,000
in compensation and quality assurance expenses primarily due to expenses incurred to support various development projects and
an increase of $26,000 in miscellaneous expenses.
Selling
and Marketing Expenses
. For the three months ended June 30, 2019, selling and marketing expenses increased by 6.9%, or $40,000,
to $620,000, from $580,000 during the three months ended June 30, 2018. This increase resulted from an increase of $35,000
in promotional expenses, primarily related to operating our social media infrastructure and an increase of $5,000 in miscellaneous
expenses.
General
and Administrative Expenses
. For the three months ended June 30, 2019, general and administrative expenses increased by 21.3%,
or $200,000, to $1,140,000, from $940,000 during the three months ended June 30, 2018. This increase resulted primarily from an
increase of $212,000 in compensation expenses, mainly due to a salary accrual reversal of approximately $143,000 during
the three months ended June 30, 2018, which did not occur during the three months ended in June 30, 2019, and an increase
of approximately $71,000 of share-based compensation-related expenses in the three months ended June 30, 2019, due to the
vesting of grants made in the first quarter of 2019. These increases in general and administrative expenses were partially offset
by a decrease of approximately $12,000 in miscellaneous expenses.
Financial
Expenses (Income)
. For the three months ended June 30, 2019, financial income decreased by 102.7% or $869,000, to $23,000
of financial expenses, from $846,000 of financial income earned during the three months ended June 30, 2018. The decrease
in financial income primarily resulted from the $871,000 of financial income related to the revaluation of the embedded derivative
of the Series C Preferred Stock recorded during the three months ended June 30, 2018, which did not occur during the three months
ended in June 30, 2019, and a decrease of $2,000 in miscellaneous expenses during the three months ended June 30, 2019.
Tax
Expenses (Income).
For the three months ended June 30, 2019, there was no material change in our tax expenses as compared
to the three months ended June 30, 2018.
Net
Loss
. Our net loss increased by $1,579,000, or 251.8%, to $2,206,000, for the three months ended June 30, 2019, from $627,000
during the three months ended June 30, 2018. The increase in net loss resulted primarily from an increase of $875,000 in operating
expenses and an increase of $869,000 in financial expenses. These increases in net loss were partially offset by an increase of
$165,000 in gross profit.
Six
months ended June 30, 2019 compared to the six months ended June 30, 2018
Revenues
.
For the six months ended June 30, 2019, revenue decreased by $241,000, or 12.0%, to $1,769,000, from $2,010,000 during the six
months ended June 30, 2018. This decrease was predominantly driven by a 10.3% decrease in sales volume of CGuard EPS from $1,664,000
during the six months ended June 30, 2018, to $1,492,000 during the six months ended June 30, 2019, and a 19.9% decrease in sales
volume of MGuard Prime EPS from $346,000 during the six months ended June 30, 2018, to $277,000 during the six months ended June
30, 2019. Both decreases were primarily due to shipment delays in the three months ended March 31, 2019 associated with us changing
sterilization companies and sales decreases in certain of our markets.
The transition to
our new sterilization is now complete and we do not currently anticipate any future disruptions in fulfilling new orders.
With
respect to regions, the decrease in revenue was primarily attributable to a $284,000 decrease in revenue from sales made in Europe
(driven by a $257,000 decline in the sales volume of CGuard EPS for reasons discussed in the paragraph above).
Gross
Profit
. For the six months ended June 30, 2019, gross profit (revenue less cost of revenues) decreased by 35.3%, or $201,000,
to $369,000, compared to a $570,000 for the same period in 2018. This decrease in gross profit resulted from a $69,000 decrease
in revenues (as mentioned above), less the related material and labor costs, $69,000 of expenses related to upgrades made to our
production facilities, $38,000 of expenses pertaining to annual and new employee training of the production workers, and an increase
of $25,000 in miscellaneous expenses. Gross margin (gross profits as a percentage of revenue) decreased to 20.9% during the six
months ended June 30, 2019 from 28.4% during the six months ended June 30, 2018, driven mainly by the increased expenses incurred
in connection with the upgrades made to our production facilities, employee trainings and miscellaneous expenses during the six
months ended June 30, 2019.
Research
and Development Expenses
. For the six months ended June 30, 2019, research and development expenses increased by 312.9%, or
$1,508,000, to $1,990,000, from $482,000 during the six months ended June 30, 2018. This increase resulted primarily from an increase
of $842,000 in clinical expenses associated with CGuard EPS, mainly related to IDE application process, a settlement
payment of $354,000 made to a former service provider pursuant to a settlement agreement (see
Part II, Item 1. “Legal Proceedings” below), an increase of $291,000 in compensation and quality assurance expenses
primarily due to expenses incurred to support various development projects and an increase of $21,000 in miscellaneous expenses.
Selling
and Marketing Expenses
. For the six months ended June 30, 2019, selling and marketing expenses increased by 17.0%, or $182,000,
to $1,254,000, from $1,072,000 during the six months ended June 30, 2018. This increase resulted from an increase of
$137,000 in promotional expenses, primarily related to operating our social media infrastructure and an increase of $45,000 in
miscellaneous expenses.
General
and Administrative Expenses
. For the six months ended June 30, 2019, general and administrative expenses decreased by 0.2%,
or $4,000, to $2,438,000, from $2,442,000 during the six months ended June 30, 2018. This decrease resulted primarily from a decrease
of $429,000 in legal expenses, primarily due to reduced legal work required for a litigation with a former service provider (which
settled in April 2019) during the six months ended June 30, 2019, compared to the amount of legal work required for the same litigation
during the six month ended June 30, 2018. This decrease in general and administrative expenses was partially offset by an increase
of $282,000 in compensation expenses, mainly due to a salary accrual reversal of approximately $230,000 during the three months
ended June 30, 2018, which did not occur during the six months ended in June 30, 2019, an increase of approximately $109,000
of share-based compensation-related expenses in the six months ended June 30, 2019, due to the grants made in the first
quarter of 2019 and an increase of $143,000 in miscellaneous expenses.
Financial
Expenses (Income)
. For the six months ended June 30, 2019, financial expenses increased by 124.4%, or $510,000, to $100,000,
from $410,000 of financial income during the six months ended June 30, 2018. The increase in financial expenses primarily resulted
from the $438,000 of financial income related to the revaluation of the embedded derivative of the Series C Preferred Stock recorded
during the six months ended June 30, 2018, which did not occur during the six months ended in June 30, 2019, and an increase of
$81,000 in financial expenses related to changes in exchange rates. These increases in financial expenses were partially offset
by a decrease of $9,000 in miscellaneous expenses during the six months ended June 30, 2019.
Tax
Expenses (Income).
For the six months ended June 30, 2019, there was no material change in our tax expenses as compared to
the six months ended June 30, 2018.
Net
Loss
. Our net loss increased by $2,397,000, or 79.5%, to $5,413,000, for the six months ended June 30, 2019, from $3,016,000
during the six months ended June 30, 2018. The increase in net loss resulted primarily from an increase of $1,686,000 in operating
expenses, an increase of $510,000 in financial expenses and a decrease of $201,000 in gross profit.
Liquidity
and Capital Resources
We
had an accumulated deficit as of June 30, 2019, of $153 million, as well as a net loss of $5,413,000 and negative operating cash
flows for the six months ended June 30, 2019. 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 only have sufficient resources to fund operations until the end
of the fourth quarter of 2019. 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 the 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 or raising capital, we
may need to reduce activities, curtail or cease operations.
On
March 1, 2018, we closed an underwritten public offering of 20,000 shares of our common stock at a price to the public of $150.00
per share. We received gross proceeds of approximately $3.0 million from the offering, before deducting underwriter discounts
and commissions and offering expenses payable by us. Upon closing of the offering, we used $450,000 of the proceeds from the offering
to redeem 450 shares of Series D Preferred Stock. As a result of such offering, the conversion price for each of our Series C
Preferred Stock and our Series D Preferred Stock was reduced to $150.00 per share.
On
April 2, 2018, we closed an underwritten public offering of 57,143 shares of our common stock at a price to the public of $87.50
per share. We received gross proceeds of approximately $5.0 million from the offering, before deducting underwriter discounts
and commissions and offering expenses payable by us. Upon closing of the offering, we used $300,000 of the proceeds from the offering
to redeem 46,875 shares of our Series C Preferred Stock held by the Series D Investor. As a result of such offering, the conversion
price for each of our Series B Preferred Stock, our Series C Preferred Stock and our Series D Preferred Stock was reduced to $87.50
per share.
On
July 3, 2018, we closed an underwritten public offering of (i) 10,851,417 Common Units, with each Common Unit being comprised
of one fiftieth share of our common stock, and one Series D Warrant to purchase one fiftieth share of common stock, (ii) 22,481,916
Pre-Funded Units (“Pre-Funded Units”), with each Pre-Funded Unit being comprised of one Pre-Funded Warrant to purchase
one fiftieth share of common stock and one Series D Warrant, and (iii) additional Series D Warrants to purchase 100,000 shares
of common stock pursuant to the underwriter’s option. We received net proceeds from the offering and the exercise of the
underwriter’s option to purchase additional Series D Warrants to purchase 100,000 shares of common stock of approximately
$8.7 million, excluding the proceeds, if any, from the exercise of the Series D Warrants and the Pre-Funded Warrants sold in the
offering, and after deducting underwriting discounts and commissions and payment of other estimated expenses associated with the
offering that are payable by us. We used $2,264,269 of the net proceeds of the offering to redeem 306,917 shares of Series C Preferred
Stock and 300 shares of Series D Preferred Stock held by the Series D Investor. As a result of such offering, the conversion price
of the outstanding shares of the Series B Preferred Stock and the Series C Preferred Stock was reduced to $15.00 per share, effective
as of June 29, 2018.
Our
outstanding shares of Series B Preferred Stock and Series C Preferred Stock contain anti-dilution provisions that may result in
the reduction of the conversion price thereof in the future. This feature may result in an indeterminate number of shares of common
stock being issued upon conversion of the Series B Preferred Stock or the Series C Preferred Stock. Sales of additional shares
of common stock issuable upon conversion of the Series B Preferred Stock or Series C Preferred Stock as a result of anti-dilution
adjustments will dilute the interests of other security holders and may depress the price of our common stock. Accordingly, we
may find it more difficult to raise additional equity capital while any of our Series B Preferred Stock or Series C Preferred
Stock is outstanding. As of June 30, 2019, 17,303 shares of Series B Preferred Stock and 38,806 shares of Series C Preferred Stock
were outstanding.
During
January and February 2018, the placement agent from the public offering that closed in July 2016 exercised its unit purchase option
to purchase 13,508 units and received 13,508 shares of Series B Preferred Stock and Series A warrants to purchase 31 shares of
common stock. The placement agent subsequently converted its Series B Preferred Stock and received an aggregate of 2,229 shares
of common stock. We received an aggregate of $557,205 from the placement agent for the exercise of the unit purchase option.
On
April 8, 2019, we closed an underwritten public offering of 486,957 shares of our common stock at a price to the public of $5.00
per share. We received net proceeds of approximately $2.0 million from the offering, after deducting underwriter discounts and
commissions and offering expenses payable by us. As a result of such offering, the conversion price for each of our Series B Preferred
Stock and Series C Preferred was reduced to $5.00 per share. In connection with this public offering, on April 12, 2019, the underwriter
partially exercised its over-allotment option and purchased an additional 12,393 shares of our common stock at a price to the
public of $5.00 per share. We received net proceeds of approximately $47,000 from the exercise of the over-allotment option.
Six
months ended June 30, 2019 compared to the six months ended June 30, 2018
General
.
At June 30, 2019, we had cash and cash equivalents of $4,823,000, as compared to $9,384,000 as of December 31, 2018. 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.
For
the six months ended June 30, 2019, net cash used in our operating activities increased by $2,408,000 to $6,382,000, from $3,974,000
during the same period in 2018. The primary reason for the increase in cash used in our operating activities was an increase of
payments for third party related expenses and for professional services of $1,741,000 (primarily due to production related payments,
payments related to IDE application process and a settlement payment made to a former service provider pursuant to a settlement
agreement), an increase of $553,000 in salary and bonus payments from $2,458,000 in the six months ended June 30, 2018 to $3,011,000
during the same period in 2019 and a decrease of $114,000 in payments received from customers to $1,625,000 during the six months
ended June 30, 2019, from $1,739,000 during the same period in 2018.
Cash
used by our investing activities was $224,000 during the six months ended June 30, 2019 compared to $41,000 during the six months
ended June 30, 2018 resulting primarily from purchases related to upgrades made to our production facilities and our information
technology infrastructure.
Cash
provided by financing activities for the six months ended June 30, 2019 was $2,046,000 compared to $6,780,000 during the same
period in 2018. The principal source of the cash provided by financing activities during the six months ended June 30, 2019, was
the funds received from our April 2019 public offering of common stock that resulted in approximately $2,030,000 of aggregate
net proceeds. The principal source of the cash provided by financing activities during the six months ended June 30, 2018, was
the funds received from our April 2018 public offering of common stock that resulted in approximately $4,169,000 of aggregate
net proceeds and the funds received from our March 2018 public offering of common stock that resulted in approximately $2,611,000
of aggregate net proceeds.
As
of June 30, 2019, our current assets exceeded our current liabilities by a multiple of 3.7. Current assets decreased by $4,197,000
during the period and current liabilities decreased by $975,000 during the period. As a result, our working capital decreased
by $3,222,000 to $5,277,000 as of June 30, 2019.
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
See
Note 3 – “Recently Issued Accounting Pronouncements” in the accompanying financial statements.
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 New Israeli Shekel,
or 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. For a discussion of these and other risks that relate to
our business, you should carefully review the risks and uncertainties described under the heading “Part II – Item
1A. Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year
ended December 31, 2018, and those described from time to time in our future reports filed with the Securities and Exchange Commission.
Contractual
Obligations and Commitments
During
the six months ended June 30, 2019, there were no material changes to our contractual obligations and commitments.