Quarterly Report (10-q)

Date : 05/13/2019 @ 9:18PM
Source : Edgar (US Regulatory)
Stock : InspireMD Inc New (NSPR)
Quote : 1.49  -1.11 (-42.69%) @ 5:00AM

Quarterly Report (10-q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: March 31, 2019

 

OR

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                to                 

 

Commission file number: 001-35731

 

InspireMD, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   26-2123838
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

4 Menorat Hamaor St.

Tel Aviv, Israel 6744832

(Address of principal executive offices)

(Zip Code)

 

(888) 776-6204

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ]   Accelerated filer [  ]
Non-accelerated filer [X]   Smaller reporting company [X]
    Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

  Trading Symbol(s)   Name of each exchange on which registered

Common Stock, par value $0.0001

per share

  NSPR   NYSE American

 

The number of shares of the registrant’s common stock, $0.0001 par value, outstanding as of May 10, 2019: 1,397,655

 

 

 

     
     

 

TABLE OF CONTENTS

 

    Page
  PART I  
Item 1. Financial Statements F-1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 3
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
Item 4. Controls and Procedures 11
     
  PART II  
Item 1. Legal Proceedings 12
Item 1A. Risk Factors 12
Item 5. Other Information 14
Item 6. Exhibits 14

 

  2  
     

 

INSPIREMD, INC.

CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEAR ENDED March 31, 2019

 

TABLE OF CONTENTS

 

  Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED FINANCIAL STATEMENTS:  
Consolidated Balance Sheets F-2 - F-3
Consolidated Statements of Operations F-4
Statements of Equity Consolidated F-5 - F-6
Consolidated Statements of Cash Flows F-7
Notes to the Consolidated Financial Statements F-8 - F-15

 

  F- 1  
     

 

INSPIREMD, INC.

CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands)

 

    March 31     December 31  
    2019     2018  
ASSETS            
CURRENT ASSETS:                
Cash and cash equivalents   $ 5,807     $ 9,384  
Accounts receivable:                
Trade, net     464       716  
Other     186       104  
Prepaid expenses     66       81  
Inventory     1,447       1,134  
TOTAL CURRENT ASSETS     7,970       11,419  
                 
NON-CURRENT ASSETS:                
Property, plant and equipment, net     452       421  
Right of use     1,104       -  
Deferred issuance costs     49       -  
Fund in respect of employee rights upon retirement     482       448  
TOTAL NON-CURRENT ASSETS     2,087       869  
TOTAL ASSETS   $ 10,057     $ 12,288  

 

  F- 2  
     

 

INSPIREMD, INC.

CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands other than share and per share data)

 

    March 31     December 31  
    2019     2018  
LIABILITIES AND EQUITY                
                 
CURRENT LIABILITIES:                
Accounts payable and accruals:                
Trade     872       929  
Other     1,740       1,966  
Contract liability     25       25  
TOTAL CURRENT LIABILITIES     2,637       2,920  
                 
LONG-TERM LIABILITIES-                
Leasing liability     1,138       -  
Liability for employees rights upon retirement     642       605  
                 
TOTAL LONG-TERM LIABILITIES     1,780       605  
                 
COMMITMENTS AND CONTINGENT LIABILITIES (Note 9)                
TOTAL LIABILITIES     4,417       3,525  
                 
EQUITY:                
                 
Common stock, par value $0.0001 per share; 150,000,000 shares authorized at March 31, 2019 and December 31, 2018; 871,872 and 768,615 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively     -       -  
Preferred B shares, par value $0.0001 per share;
500,000 shares authorized at March 31, 2019 and December 31, 2018; 17,303 shares issued and outstanding at March 31, 2019 and December 31, 2018.
    -       -  
Preferred C shares, par value $0.0001 per share;
1,172,000 shares authorized at March 31, 2019 and December 31, 2018; 59,423 and 61,423 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively
    -       -  
Additional paid-in capital     156,439       156,355  
Accumulated deficit     (150,799 )     (147,592 )
Total equity     5,640       8,763  
Total liabilities and equity   $ 10,057     $ 12,288  

 

The accompanying notes are an integral part of the consolidated financial statements.

 

  F- 3  
     

 

INSPIREMD, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(U.S. dollars in thousands, except per share data)

 

    Three Months Ended
March 31
 
    2019     2018  
             
REVENUES   $ 415     $ 1,007  
COST OF REVENUES     488       714  
GROSS PROFIT (LOSS)     (73 )     293  
OPERATING EXPENSES:                
Research and development     1,125       252  
Selling and marketing     634       492  
General and administrative     1,298       1,502  
Total operating expenses     3,057       2,246  
LOSS FROM OPERATIONS     (3,130 )     (1,953 )
FINANCIAL EXPENSES, net     77       436  
LOSS BEFORE TAX EXPENSES     (3,207 )     (2,389 )
TAX EXPENSES     -       -  
NET LOSS   $ (3,207 )   $ (2,389 )
NET LOSS PER SHARE - basic and diluted     (3.82 )   $ (54.00 )
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK USED IN COMPUTING NET LOSS PER SHARE - basic and diluted     839,533       45,079  

 

The accompanying notes are an integral part of the consolidated financial statements.

 

  F- 4  
     

 

INSPIREMD, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(U.S. dollars in thousands, except share data)

 

    Common stock     Series B
Preferred Stock
    Series C
Preferred Stock
    Series D
Preferred Stock
    Additional paid-in     Accumulated     Total  
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     capital     deficit     equity  
BALANCE AT DECEMBER 31, 2017     30,106       *       27,075       *       741,651       *       750       *     $ 143,079     $ (140,352 )   $ 2,727  
Net loss                                                                             (2,389 )     (2,389 )
Issuance of common shares, net of $496 issuance costs     20,000       *                                                       2,504               2,504  
Redemption of Series D Preferred Stock                                                     (450 )     *       (450 )             (450 )
Conversion of Series B Preferred Stock to common shares     1,613       *       (9,772 )     *                                       274               274  
Conversion of Series C Preferred Stock to common shares     16,515       *                       (289,956 )     *                       936               936  
Classification of preferred shares                                                                     (3,200 )             (3,200 )
Accretion of redeemable preferred shares                                                                     47               47  
Exercise of Unit Purchase Option     2,229       *                                                       557               557  
Share-based compensation related to restricted stock and stock options award                                                                     38               38  
BALANCE AT MARCH 31, 2018     70,463      

*

      17,303      

*

      451,695      

*

      300      

*

    $ 143,785     $ (142,741 )   $ 1,044  

 

* Represents an amount less than $1 thousand

 

The accompanying notes are an integral part of the consolidated financial statements.

 

  F- 5  
     

 

INSPIREMD, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(U.S. dollars in thousands, except share data)

 

    Common stock     Series B
Convertible
Preferred Stock
    Series C
Convertible
Preferred Stock
    Additional paid-in     Accumulated     Total  
    Shares     Amount     Shares     Amount     Shares     Amount     capital     deficit     equity  
                                                       
BALANCE AT December 31, 2018     768,615       *       17,303       *       61,423       *     $ 156,355     $ (147,592 )   $ 8,763  
Net loss                                                             (3,207 )     (3,207 )
Exercise of pre-funded warrants     32,034       *                                       16               16  
                                                                         
Conversion of Series C Convertible Preferred Stock to common shares     854                               (2,000 )     *                          
Share-based compensation related to restricted stock and stock options award, net of forfeitures of 212 shares     70,369       *                                       68               68  
BALANCE AT March 31, 2019     871,872       *       17,303       *       59,423       *     $ 156,439     $ (150,799 )   $ 5,640  

 

* Represents an amount less than $1 thousand

 

The accompanying notes are an integral part of the consolidated financial statements.

 

  F- 6  
     

 

INSPIREMD, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands)

 

    Three months ended
March 31
 
    2019     2018  
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss   $ (3,207 )   $ (2,389 )
Adjustments required to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     35       41  
Loss from sale of property, plant and equipment             11  
Change in liability for employees rights upon retirement     37       433  
Financial income and interest paid     5       38  
Lease liability     34          
Share-based compensation expenses     68          
Loss on amounts funded in respect of employee rights upon retirement, net     5          
Changes in operating asset and liability items:                
Decrease in prepaid expenses     15       9  
Decrease (Increase) in trade receivables     252       (111 )
Increase in other receivables     (82 )     (34 )
Decrease (Increase) in inventory     (313 )     16  
(Decrease) increase in trade payables     (57 )     184  
(Decrease) increase in other payables and contract liability     (277 )     22  
Net cash used in operating activities     (3,485 )     (1,780 )
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchase of property, plant and equipment     (66 )     (1 )
Amounts (withdrawn) in respect of employee rights upon retirement, net     (39 )     (11 )
Net cash used in investing activities     (105 )     (12 )
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from issuance of shares and warrants and exercise of Pre-Funded Warrants and unit purchase option, net of $0 and $389 issuance costs, respectively     16       3,168  
Redemption of series C and D preferred stock             (450 )
Net cash provided by financing activities     16       2,718  
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS     (3 )     1  
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS     (3,577 )     927

 

BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD     9,384       3,710  
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF THE PERIOD   $ 5,807     $ 4,637  
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES:                
Issuance Costs   $ 49       262  
Classification of Redemption Obligation of Preferred Shares to Mezzanine and Embedded Derivative   $ -       1,943  

 

The accompanying notes are an integral part of the consolidated financial statements.

 

  F- 7  
     

 

INSPIREMD, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

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 vascular and coronary disease. MicroNet, a micron mesh sleeve, is wrapped over a stent to provide embolic protection in stenting procedures.
     
    The Company’s carotid product (CGuard™ EPS) combines MicroNet and a self-expandable nitinol stent in a single device to treat carotid artery disease.
     
    The Company’s coronary product combining MicroNet and a bare-metal stent (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).
     
    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, 2019, as well as a history of 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™ EPS) 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 has sufficient resources to fund operations through the end of the fourth quarter of 2019. 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 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 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, 2018, as found in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 19, 2019. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of results that could be expected for the entire fiscal year.

 

  F- 8  
     

 

NOTE 3 – RECENTLY ADOPTED AND ISSUED ACCOUNTING PRONOUNCEMENTS

 

  a. Newly issued accounting pronouncements

 

  1) In February 2016, the FASB established ASC Topic 842, Leases (Topic 842), by issuing ASU No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations. We adopted the new standard on January 1, 2019 using the modified retrospective transition method and we did not restate comparative periods. The new standard provides a number of optional practical expedients in transition. We have elected the ‘package of practical expedients’, which permit it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs for leases entered into prior to adoption of Topic 842.
     
    Additionally, we did not separate lease and non-lease components for all of our leases. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. Instead, we will continue to recognize the lease payments for those leases in profit or loss on a straight-line basis over the lease term.
     
    The new standard had a material effect on the Company’s financial statements. The most significant effects of adoption relate to (1) the recognition of new ROU assets and lease liabilities on its balance sheet for real estate operating leases; and (2) providing significant new disclosures about its leasing activities.
     
    Upon adoption, we recognized additional operating lease liabilities, of approximately $1.2 million based on the present value of the remaining lease payments under current leasing standards for existing operating leases. The Company also recognized corresponding ROU assets of approximately $1.2 million. Lease terms may include options to extend or terminate the lease when the Company is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term. Our leases may include variable payments based on measures that include changes in price index which are expensed as incurred and presented as operating expense on the condensed consolidated statements of operations in the same line item as expense arising from fixed lease payments.
     
    The new standard also provides practical expedients for an entity’s ongoing accounting. Beginning in 2019, the Company changed to its disclosed lease recognition policies and practices, as well as to other related financial statement disclosures due to the adoption of this standard. See Note 9.

 

  F- 9  
     

 

NOTE 4 - EQUITY:

 

  a. On March 27, 2019, 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-fifty reverse stock split of its common stock, par value $0.0001 per share, effective as of March 29, 2019. All related share and per share data have been retroactively applied to the financial statements and their related notes for all periods presented.
     
  b. During the three months ending March 31, 2019, the Company issued a total of 32,034 shares of its common stock in connection with the exercise of 32,034 Pre-Funded Warrants. The Company received aggregate cash proceeds equal to approximately $ 16,017 in connection with such exercises. As of March 31, 2019, the are no outstanding Pre-Funded Warrants.
     
  c. As of March 31, 2019, the Number of Preferred shares and the amount each class is convertible into is below:

 

    Number of Preferred Stock     Number of underlying Common stock  
Series B Convertible Preferred Stock     17,303       66,617  
Series C Convertible Preferred Stock     59,423       25,355  
Total             91,972  

 

* Including the shares of common stock the holders of Series B Convertible Preferred Stock are entitled to receive as cumulative dividends at the rate per share of 15% per annum of the stated value for five years, payable in cash or common stock, at the Company’s discretion, but excluding effect of future conversion price adjustment, if any.

 

As of March 31, 2019, the Company has outstanding warrants to purchase an aggregate of 815,197 shares of common stock as follows:

 

    Number of underlying Common stock     Weighted
average
exercise price
 
Series A Warrants     1,102     $ 8,750  
Series B Warrants     2,448     $ 3,500  
Series D Warrants     806,698     $ 15.19  
Other warrants     4,949     $ 11,258  
                 
Total Warrants     815,197     $ 105.71  

 

As of March 31, 2019, the Company had 155,000,000 authorized 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 March 21, 2019, the stockholders approved the amendment of its Long Term Incentive Plan which was adopted by our board of directors on February 4, 2019, to increase the total number of shares of common stock issuable under such plan by 500,000 shares.

 

  F- 10  
     

 

NOTE 5- NET LOSS PER SHARE:

 

Set forth below is data taken into account in the computation of loss per share:

 

    March 31  
    2019     2018  
    ($ in thousands expect share and share data)  
             
Net Loss   $ (3,207 )   $ (2,389 )
                 
Extinguishment of series C preferred shares     -       (49 )
                 
Adjusted Loss   $ (3,207 )   $ (2,438 )
Weighted average of Common Stock                
outstanding during the period     839,533       45,079  
Basic and diluted loss per share (dollars)     (3.82 )   $ (54.00 )

 

The total number of shares of common stock related to outstanding options, warrants, restricted stock, Series C Preferred Stock and placement agent units excluded from the calculations of diluted loss per share were 913,320 for three month period ended March 31, 2019.

 

The total number of shares of common stock related to outstanding options, warrants, restricted stock, Series C Preferred Stock, Series D Preferred Stock and placement agent units excluded from the calculations of diluted loss per share were 41,373 for the three-month period ended March 31, 2018.

 

NOTE 6 - FAIR VALUE MEASURMENT:

 

Fair value of financial instruments

 

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.

 

As of March 31, 2019, and December 31, 2018, allowance for doubtful accounts was $72,000.

 

NOTE 7 - INVENTORY:

 

    March 31,     December 31,  
    2019     2018  
    ($ in thousands)  
Finished goods   $ 216     $ 284  
Work in process     340       111  
Raw materials and supplies     891       739  
    $ 1,447     $ 1,134  

 

  F- 11  
     

 

NOTE 8 - ACCOUNTS PAYABLE AND ACCRUALS - OTHER:

 

    March 31,     December 31,  
    2019     2018  
    ($ in thousands)  
Employees and employee institutions     398       828  
Accrued vacation and recreation pay     184       171  
Accrued expenses     1,129       903  
Provision for sales commissions     -       37  
Other     29       27  
    $ 1,740     $ 1,966  

 

NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES:

 

  a. Lease Agreements

 

  1) The Company’s Israeli subsidiary has a lease agreement for a facility in Israel, which expires on December 31, 2020 with an option to extend the agreement for two additional years until December 31, 2022 under the terms stipulated in the agreement.
     
  2) The Company leases its motor vehicles under operating lease agreements.
     
  3) Operating lease cost for the three months ended March 31, 2019 was comprised of the following:

 

   

Three months ended

March 31

 
    2019  
    U.S. dollars in thousands  
Operating lease expense     86  
Short-term lease expense     2  
Variable lease expense     -  
      88  

 

  F- 12  
     

 

Supplemental information related to leases are as follows:

 

    March 31  
    2019  
    U.S. dollars in thousands  
Operating lease right-of-use assets     1,104  
Current Operating lease liabilities     (338 )
Non-current operating lease liabilities     (800 )

 

Other information:

 

Operating cash flows from operating leases (cash paid in thousands)     (85 )
Weighted Average Remaining Lease Term     1.27  
Weighted Average Discount Rate     9.07 %

 

Maturities of lease liabilities are as follows:

 

    Amount  
    U.S. dollars in thousands  
2019 (excluding the three months ended March 31, 2019)     266  
2020     355  
2021     356  
2022     334  
Total lease payments     1,311  
Less imputed interest     (173 )
Total     1,138  

 

4) ASC 840 Disclosures

 

The Company elected the modified retrospective transition method and included the following tables previously disclosed.

 

Future contractual obligations under the abovementioned operating lease agreements (not including the extension option) as of December 31, 2018 are as follows:

 

    Amount  
    U.S. dollars in thousands  
2019     344  
2020     355  
2021     22  
Total     721  

 

  F- 13  
     

 

b. Litigation:

 

The Company received written communication from a distributor to provide unspecified compensation for pre-paid goods subject to the voluntary field action (from April 2014). After considering the views of its legal counsel as well as other factors, the Company’s management believes that there is a reasonably possible likelihood of a loss from any related future proceedings would range from a minimal amount up to 1,075,000 Euros.

 

In July 2016, a service provider filed a suit seeking damages from the Company’s subsidiary amounting to $1,967,822. The Company’s subsidiary and the plaintiff have entered into a confidential settlement agreement in the amount of $600,000, and on April 24, 2019, the parties filed a stipulation of dismissal, dismissing all claims in this action. On April 25, 2019, the court denied as moot all pending motions. The related increase in provision of $354,000 was recorded to “Research and development expense” within the Consolidated Statements of Operations for the three months ended March 31, 2019.

 

NOTE 10 - DISAGGREGATED REVENUE AND ENTITY WIDE DISCLOSURES :

 

Revenues are attributed to geographic areas based on the location of the customers. The following is a summary of revenues:

 

    Three months ended
March 31
 
    2019     2018  
    ($ in thousands)  
Germany   $ 128     $ 272  
Italy     80       187  
Other     207       548  
    $ 415     $ 1,007  

 

By product:

 

    Three months ended
March 31
 
    2019     2018  
    ($ in thousands)  
CGuard   $ 376     $ 831  
MGuard     39       176  
    $ 415     $ 1,007  

 

By principal customers:

 

    Three months ended
March 31
 
    2019     2018  
Customer A     29 %     25 %
Customer B     13 %     9 %

 

All tangible long lived assets are located in Israel.

 

  F- 14  
     

 

NOTE 11 - SUBSEQUENT EVENTS

 

a. On April 8, 2019, the Company closed an underwritten public offering of 486,957 shares of the Company’s common stock at the offering price to the public of $5.00 per share. The Company received net proceeds of approximately $2 million from the offering, after deducting underwriter discounts and commissions and other fees and expenses payable by the Company. As a result of such offering, the conversion price for each of the 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. The Company received net proceeds of approximately $47,000 from the exercise of the over-allotment option.

 

In connection with the offering, the Company agreed to issue to the underwriter warrants to purchase up to 34,955 shares of common stock, or 7% of the shares sold in the offering, including the shares issued pursuant to the over-allotment option (the “April Underwriter Warrants”). The April Underwriter Warrants will be exercisable at any time and from time to time, in whole or in part, following the date of issuance and ending April 8, 2026 at a price per share equal to $6.25 (125% of the offering price to the public per April 8, 2019 Share).

 

  F- 15  
     

 

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:

 

  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;
     
  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;
     
  our ability to maintain compliance with NYSE American listing standards;
     
  our ability to generate revenues from our products and obtain and maintain regulatory approvals for our products;
     
  our ability to adequately protect our intellectual property;
     
  our dependence on a single manufacturing facility and our ability to comply with stringent manufacturing quality standards and to increase production as necessary;
     
  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;
     
  market acceptance of our products;
     
  negative clinical trial results or lengthy product delays in key markets;
     
  an inability to secure and maintain regulatory approvals for the sale of our products;
     
  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;
     
  entry of new competitors and products and potential technological obsolescence of our products;
     
   inability to carry out research, development and commercialization plans;

 

  3  
     

 

  loss of a key customer or supplier;
     
  technical problems with our research and products and potential product liability claims;
     
  product malfunctions;
     
  price increases for supplies and components;
     
  adverse economic conditions;
     
  insufficient or inadequate reimbursement by governmental and other third-party payers for our products;
     
  our efforts to successfully obtain and maintain intellectual property protection covering our products, which may not be successful;
     
  adverse federal, state and local government regulation, in the United States, Europe or Israel and other foreign jurisdictions;
     
  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;
     
  the escalation of hostilities in Israel, which could impair our ability to manufacture our products; and
     
  loss or retirement of key executives and research scientists.

 

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).

 

  4  
     

 

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. We intend to make an IDE submission seeking approval to conduct a human clinical trial in the United States in mid-2019.

 

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 new 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 begun to participate in international trade shows and industry conferences in an attempt to gain market exposure and brand recognition.

 

  5  
     

 

Recent Developments

 

Effective as of 5:00 p.m. Eastern Time on March 29, 2019, we amended our amended and restated certificate of incorporation to effect a 1-for-50 reverse stock split of our outstanding shares of common stock. We have adjusted all outstanding restricted stock units, stock options, preferred stock and warrants entitling the holders to purchase shares of our common stock as a result of the reverse stock split, as required by the terms of these securities. In particular, we have reduced the conversion ratio for each security, and increased the exercise or conversion price in accordance with the terms of each security based on the reverse stock split ratio (i.e., the number of shares issuable under such securities has been divided by fifty, and the exercise or conversion price per share has been multiplied by fifty). Also, we reduced the number of shares reserved for issuance under the InspireMD, Inc. 2013 Long-Term Incentive Plan and the InspireMD, Inc. 2011 UMBRELLA Option Plan, proportionately based on the reverse stock split ratio. The reverse stock split did not otherwise affect any of the rights currently accruing to holders of our common stock, or options or warrants exercisable for our common stock. All share and related option and warrant information presented in this quarterly report on Form 10-Q have been retroactively adjusted to reflect the reduced number of shares outstanding and the increase in share price which resulted from this action.

 

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

 

Stockholder’s Equity

 

On August 17, 2017, we received a notice from NYSE American indicating that we do not meet the continued listing standards of the NYSE American as set forth in Part 10 of the NYSE American Company Guide (the “Company Guide”). Specifically, we were not in compliance with Section 1003(a)(iii) of the Company Guide because we reported stockholders’ equity of less than $6 million as of June 30, 2017, and net losses in our five most recent fiscal years ended December 31, 2016. As a result, we became subject to the procedures and requirements of Section 1009 of the Company Guide. On October 19, 2017, NYSE American accepted our plan to regain compliance with Section 1003(a)(iii) of the Company Guide by February 19, 2019.

 

On November 22, 2017, we received an additional letter from the NYSE American indicating that we are not in compliance with the stockholders’ equity and net income continued listing standards set forth in Section 1003(a)(ii) of the Company Guide because we reported stockholders’ equity of less than $4 million as of September 30, 2017.

 

On February 19, 2019 we received notice from NYSE American that we were back in compliance with three of the NYSE American continued listing standards set forth in Part 10 of the NYSE American Company Guide. We are subject to ongoing review for compliance with the NYSE American requirements and our stockholders’ equity may decline and we may again fall out of compliance with Section 1003(a)(i), Section 1003(a)(ii) or Section 1003(a)(iii) of the Company Guide. If we are again determined to be below any of the continued listing standards within 12 months of the date of such notice, we have been advised that NYSE American will examine the relationship between the two incidents of noncompliance and re-evaluate our method of financial recovery. 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.

 

Low Trading Price

 

On January 16, 2018, we received notification from the NYSE American that we are not in compliance with certain NYSE American continued listing standards. The deficiency letter states that 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 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 16, 2018.

 

  6  
     

 

Effective as of 5:00 p.m. Eastern Time on February 7, 2018, we amended our amended and restated certificate of incorporation in order to effectuate a 1-for-35 reverse stock split of our outstanding shares of common stock.

 

On July 16, 2018, we received notification from the 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.

 

However, on January 7, 2019, we again 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 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 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.

 

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.

 

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.

 

  7  
     

 

Results of Operations

 

Three months ended March 31, 2019 compared to the three months ended March 31, 2018

 

Revenues . For the three months ended March 31, 2019, revenue decreased by $592,000, or 58.8%, to $415,000, from $1,007,000 during the three months ended March 31, 2018. This decrease was predominantly driven by a 54.8% decrease in sales volume of CGuard EPS from $831,000 during the three months ended March 31, 2018, to $376,000 during the three months ended March 31, 2019, and a 77.7% decrease in sales volume of MGuard EPS from $176,000 during the three months ended March 31, 2018, to $39,000 during the three months ended March 31, 2019. Both decreases were due to our third-party sterilizer’s equipment failures that resulted in significant interruption in sterilized product supply for the majority of the quarter. As a result of this interruption in the delivery of sterilized products and our limited inventory levels on hand prior to this interruption, we were unable to fulfill a significant portion of the orders received during the three months ended March 31, 2019. Due to the foregoing issue, as of March 31, 2019, we had a backlog of approximately $600,000. As of the filing of this report, the third-party sterilizer issue has been resolved and the majority of the $600,000 of the backlog recorded as of March 31, 2019, has been shipped.

 

With respect to regions, the decrease in revenue was primarily attributable to a $506,000 decrease in revenue from sales made in Europe (driven by a $437,000 decline of CGuard EPS for reasons discussed in the paragraph above), as well as a $66,000 decrease in revenue from sales of MGuard Prime EPS made in Latin America for reasons discussed in the paragraph above regarding product sterilization.

 

Gross Profit (Loss) . For the three months ended March 31, 2019, gross profit (revenue less cost of revenues) decreased by 124.9%, or $366,000, to a gross loss of $73,000, compared to a gross profit of $293,000 during the same period in 2018. This decrease in gross profit resulted from a $249,000 decrease in revenues (as mentioned above), less the related material and labor costs, resulting from delays related to product sterilization interruption as discussed above and an increase of $118,000 in write-offs of inventory due to the same issue. It is possible that we, in the future, after investigating the inventory subject to the write-off, may adjust such write-off. These decreases in gross profit were partially offset by a decrease of $1,000 in miscellaneous expenses. Gross margin (gross profits as a percentage of revenue) decreased to (17.6)% during the three months ended March 31, 2019 from 29.1% during the three months ended March 31, 2018, driven mainly by delays in product sterilization and write-offs of CGuard EPS inventory.

 

Research and Development Expenses . For the three months ended March 31, 2019, research and development expenses increased by 346.4%, or $873,000, to $1,125,000, from $252,000 during the three months ended March 31, 2018. This increase resulted primarily from an increase of $385,000 in clinical expenses associated with CGuard EPS, mainly related to IDE approval process, an increase of $354,000 due to a settlement payment made to a former service provider pursuant to a settlement agreement accrued for the three months ended March 31, 2019 (see Part II, Item 1. “Legal Proceedings” below), an increase of $88,000 in quality assurance and regulatory expenses related to the development of various projects and an increase of $46,000 in miscellaneous expenses.

 

Selling and Marketing Expenses . For the three months ended March 31, 2019, selling and marketing expenses increased by 28.9%, or $142,000, to $634,000, from $492,000 during the three months ended March 31, 2018. This increase resulted primarily from an increase of $68,000 in promotional expenses, primarily related to our social media infrastructure, an increase of $47,000 in travel expenses due primarily to an increase in our headcount to further support the new local distributors in Europe and an increase of $27,000 in miscellaneous expenses.

 

General and Administrative Expenses . For the three months ended March 31, 2019, general and administrative expenses decreased by 13.6%, or $204,000, to 1,298,000, from 1,502,000 during the three months ended March 31, 2018. This decrease resulted primarily from a decrease of $315,000 in legal expenses, primarily due to reduced legal work required for a litigation with a former service provider (which settled in April 2019) that had been during the three months ended March 31, 2019, compared to the amount of legal work required for the same litigation during the three months ended March 31, 2018, partially offset by an increase of $60,000 in compensation expenses, primarily due to a salary accrual in 2019 and an increase of $51,000 in miscellaneous expenses.

 

Financial Expenses (Income) . For the three months ended March 31, 2019, financial expenses decreased by 82.3% or $359,000, to $77,000, from $436,000 during the three months ended March 31, 2018. The decrease in financial expenses primarily resulted from a decrease of $433,000 in financial expenses related to the revaluation of the embedded derivative of the Series C Preferred Stock incurred during the three months ended March 31, 2018, which we did not incur during the three months ended in March 31, 2019, and a decrease of $3,000 in miscellaneous expenses, partially offset by an increase of $77,000 in financial expenses related to the changes in the exchange rates.

 

Tax Expenses (Income). For the three months ended March 31, 2019, there was no material change in our tax expenses as compared to the three months ended March 31, 2018.

 

Net Loss . Our net loss increased by $818,000, or 34.2%, to $3,207,000, for the three months ended March 31, 2019, from $2,389,000 during the three months ended March 31, 2018. The increase in net loss resulted primarily from an increase of $811,000 in operating expenses and a decrease of $366,000 in gross loss. These increases in net loss were partially offset by a decrease of $359,000 in financial expenses.

 

  8  
     

 

Liquidity and Capital Resources

 

We had an accumulated deficit as of March 31, 2019, of $151 million, as well as a net loss of $3,207,000 and negative operating cash flows for the three months ended March 31, 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 through 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 March 31, 2019, 17,303 shares of Series B Preferred Stock and 59,423 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.

 

  9  
     

 

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.

 

Three months ended March 31, 2019 compared to the three months ended March 31, 2018

 

General . At March 31, 2019, we had cash and cash equivalents of $5,807,000, 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 three months ended March 31, 2019, net cash used in our operating activities increased by $1,705,000 to $3,485,000, from $1,780,000 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 $903,000 (primarily due to production related payments), an increase of $556,000 in salary and bonus payments from $1,218,000 in the three months ended March 31, 2018 to $1,862,000 during the same period in 2019 and a decrease of $246,000 in payments received from customers to $666,000 during the three months ended March 31, 2019, from $912,000 during the same period in 2018.

 

Cash used by our investing activities was $105,000 during the three months ended March 31, 2019 compared to $12,000 during the three months ended March 31, 2018 resulting primarily from the purchase of production equipment.

 

Cash provided by financing activities for the three months March 31, 2019 was $16,000, compared to $2,718,000 during the same period in 2018. The principal source of the cash provided by financing activities during the three months ended March 31, 2019, was the funds received from the exercise of pre-funded warrants that resulted in approximately $16,000 of aggregate net proceeds. The principal source of the cash provided by financing activities during the three months ended March 31, 2018, was the funds received from our March 2018 public offering of common stock that resulted in approximately $2,718,000 of aggregate net proceeds.

 

As of March 31, 2019, our current assets exceeded our current liabilities by a multiple of 3.0. Current assets decreased by $3,449,000 during the period and current liabilities decreased by $283,000 during the period. As a result, our working capital decreased by $3,166,000 to $5,333,000 as of March 31, 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.

 

  10  
     

 

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 three months ended March 31, 2019, there were no material changes to our contractual obligations and commitments.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable

 

Item 4. Controls and Procedures

 

Management’s Conclusions Regarding Effectiveness of Disclosure Controls and Procedures

 

As of March 31, 2019, we conducted an evaluation, under the supervision and participation of management including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended). There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

 

Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level as of March 31, 2019.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the fiscal quarter ended March 31, 2019, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

  11  
     

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, we may be involved in litigation that arises through the normal course of business.

 

On July 12, 2016, Medpace Inc., a former service provider, filed suit with the Court of Common Pleas, Hamilton County, Ohio, against us asserting that we breached a master services agreement with Medpace Inc. by failing to pay Medpace Inc. certain fees purportedly owed to it in connection with Medpace Inc.’s provision of certain clinical development program services to Inspire Ltd. We have removed the suit to the U.S. District Court for the Southern District of Ohio. Since removal, Medpace Inc. has amended its complaint to name InspireMD Ltd., our wholly owned subsidiary, as the only defendant. Medpace Inc. is seeking $1,967,822 in damages plus interest, costs, attorneys’ fees and expenses against InspireMD Ltd. InspireMD Ltd. filed a motion to dismiss all claims on February 10, 2017. On May 17, 2017, the district court denied InspireMD’s motion to dismiss, but ordered Medpace Inc. to file a second amended complaint by June 5, 2017. Medpace Inc. filed a second amended complaint on June 5, 2017, and InspireMD Ltd. again moved to dismiss all claims on June 19, 2017. The district court denied our second motion to dismiss on August 11, 2017. Thereafter, we answered the complaint and asserted several counterclaims. Specifically, we brought counterclaims for fraudulent inducement, negligent misrepresentation, and violation of Ohio’s Deceptive Trade Practices Act arising from Medpace’s false marketing of its purported abilities to manage the clinical trial, and brings a counterclaim for breach of contract, alleging that Medpace breached the master services agreement by, among other things, failing to assign personnel to the clinical trial who were qualified and professionally capable of performing the services called for by the master services agreement and the related Task Order in accordance with the agreed-upon schedule and budget. We are seeking damages believed to be in excess of $3 million, as well as punitive damages and attorney’s fees. Medpace Inc. has denied our allegations. On February 21, 2018, InspireMD Ltd. filed a motion for summary judgment, seeking to dismiss Medpace’s affirmative claims in their entirety, or in the alternative to limit those claims to invoice payments totaling $468,586. On March 21, 2018, Medpace responded to InspireMD Ltd.’s motion for summary judgment, and also filed two additional motions: (1) a motion under Federal Rule of Civil Procedure 56(d), seeking to deny or delay summary judgment pending completion of additional discovery; and (2) a motion seeking to strike the Declaration of Jonathan Pressment, submitted in support of InspireMD Ltd.’s motion for summary judgment. InspireMD Ltd.’s motion for summary judgment remains pending before the Court. Medpace’s motion under Federal Rule of Civil Procedure 56(d) and motion to strike also remain pending before the Court. Pursuant to InspireMD Ltd.’s motion to stay discovery pending the Court’s resolution of InspireMD Ltd.’s motion for summary judgment and the completion of Court-ordered mediation, discovery is stayed until the earlier of (1) three days after the entry of an order adjudicating Inspire Ltd.’s motion for summary judgment or (2) August 13, 2018. On August 9, 2018, InspireMD Ltd. filed an unopposed motion to further extend the stay of discovery pending the court’s resolution of InspireMD Ltd.’s motion for summary judgment. The court granted this motion on August 9, 2018, and stayed discovery until three days after the entry of an order adjudicating InspireMD Ltd.’s motion for summary judgment. On January 24, 2019, the court held oral argument on (1) InspireMD Ltd.’s motion for summary judgment, (2) Medpace’s motion under Federal Rule of Civil Procedure 56(d), and (3) Medpace’s motion to strike the Declaration of Jonathan Pressment. On January 29, 2019, the court ordered that the pending motions are taken under submission. On March 8, 2019, the court issued a Memorandum Opinion and Order, in which the court held (1) that Medpace’s claims for unjust enrichment and promissory estoppel were not viable, and (2) that Medpace could recover a total possible judgment of $470,871 on its breach of contract claim. The court further ordered the parties to proceed to mediation and file a status report on or before May 31, 2019. Medpace and Inspire have entered into a confidential settlement agreement related to the foregoing matters. On April 24, 2019, the parties filed a stipulation of dismissal, dismissing all claims and counterclaims asserted in this action with prejudice, with each party to bear its own attorneys’ fees and costs. On April 25, 2019, the court denied as moot all pending motions.

 

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 or any such proceedings known to be contemplated by governmental authorities other than other than the foregoing suits filed by Medpace Inc.

 

We are not aware of any 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 a party adverse to or has a material interest adverse to, us or any of our subsidiaries.

 

Item 1A. Risk Factors

 

Except as set forth below, there have been no material changes from the information set forth in “Item 1A. Risk Factors” in the Form 10-K filed with the SEC on February 19, 2019.

 

  12  
     

 

Our common stock could be delisted from the NYSE American if we fail to maintain compliance with the NYSE American’s stockholders’ equity continued listing standards. Our ability to publicly or privately sell equity securities and the liquidity of our common stock could be adversely affected if we are delisted from the NYSE American.

 

On August 17, 2017, we received a notice indicating that we do not meet certain of the NYSE American’s continued listing standards as set forth in Part 10 of the Company Guide. Specifically, we were not in compliance with Section 1003(a)(iii) of the Company Guide because we reported stockholders’ equity of less than $6 million as of June 30, 2017, and had net losses in our five most recent fiscal years ended December 31, 2016. As a result, we had become subject to the procedures and requirements of Section 1009 of the Company Guide. The notice also included an early warning of our potential noncompliance with Section 1003(a)(iv) of the Company Guide because the uncertainty regarding our ability to generate sufficient cash flows and liquidity to fund operations raises substantial doubt about our ability to continue as a going concern. In order to maintain our listing on NYSE American, we submitted a plan of compliance to NYSE American addressing how we intend to regain compliance with Section 1003(a)(iii) of the Company Guide, which was accepted by NYSE American on October 19, 2017. On November 22, 2017, we received an additional letter from the NYSE American indicating that we were not in compliance with the stockholders’ equity and net income continued listing standards under Section 1003(a)(ii) of the Company Guide.

 

On February 19, 2019 we received notice from NYSE American that we were back in compliance with the NYSE American continued listing standards set forth in Sections 1003(a)(ii) and 1003(a)(iii) of the Company Guide. We are subject to ongoing review for compliance with the NYSE American requirements and our stockholders’ equity may decline and we may again fall out of compliance with Section 1003(a)(i), Section 1003(a)(ii) or Section 1003(a)(iii) of the Company Guide. If we are again determined to be below any of the continued listing standards within 12 months of the date of such notice, we have been advised that NYSE American will examine the relationship between the two incidents of noncompliance and re-evaluate our method of financial recovery. 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.

 

Delisting from NYSE American would adversely affect our ability to raise additional financing through the public or private sale of equity securities, would significantly affect the ability of investors to trade our securities and would negatively affect the value and liquidity of our common stock. Delisting also could have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities.

 

A low trading price could lead the NYSE American to take actions toward delisting our common stock, including immediately suspending trading in our common stock.

 

On January 7, 2019, we received notification from the NYSE American that 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 Company Guide, the NYSE American 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. NYSE American had advised us that if our common stock trades below $0.20 on a 30 trading day average, then it will be considered non-compliant with NYSE American’s low selling price requirement. Pursuant to Section 1003(f)(v) of 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. We had previously received a notification of non-compliance of the same kind on January 16, 2018, effected a 1-for-35 reverse stock split of our common stock on February 7, 2018, and regained compliance on July 16, 2018.

 

On March 29, 2019, we effected a 1-for-50 reverse stock split of our common stock. One of the primary intents for each reverse stock split was that the anticipated increase in the price of our common stock immediately following and resulting from a reverse stock split due to the reduction in the number of issued and outstanding shares of common stock would help us meet the price criteria for continued listing on NYSE American. However, the increase in the price of our common stock from the reverse stock split effected on February 7, 2018, was not maintained, and our common stock again traded for a low price per share for a substantial period of time. There can be no assurance that the market price of our new common stock after our March 29, 2019 reverse stock split will remain above the levels viewed as abnormally low for a substantial period of time. It is not uncommon for the market price of a company’s common stock to decline in the period following a reverse stock split. If the market price of our common stock declines following the reverse stock split, the percentage decline may be greater than would occur in the absence of a reverse stock split. In any event, other factors unrelated to the number of shares of our common stock outstanding, such as negative financial or operational results, could adversely affect the market price of our common stock to fall below the levels viewed as low selling price for a substantial period of time and lead the NYSE American to immediately suspend trading in our common stock.

 

  13  
     

 

In addition, the NYSE American 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 reverse stock split may decrease the liquidity of the shares of our common stock.

 

The liquidity of the shares of our common stock may be affected adversely by the reverse stock split given the reduced number of shares that are outstanding following the reverse stock split. In addition, the reverse stock split increased the number of stockholders who own odd lots (less than 100 shares) of our common stock, creating the potential for such stockholders to experience an increase in the cost of selling their shares and greater difficulty effecting such sales.

 

Item 5. Other Information

 

Not applicable

 

Item 6. Exhibits

 

EXHIBIT INDEX

 

Exhibit No.   Description
     
3.1   Amended and Restated Certificate of Incorporation, as amended through September 30, 2015 (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   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)
     
 3.5   Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (incorporated by reference to Exhibit 3.5 to the Quarterly Report on Form 10-Q filed on August 9, 2016)
     
3.6   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 September 29, 2016)
     
3.7   Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on March 15, 2017)
     
3.8   Certificate of Amendment to Certificate of Designation of Preferences, Rights and Limitation of Series C Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on November 29, 2017)

 

  14  
     

 

3.9   Certificate of Designation of Preferences, Rights and Limitation of Series D Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on December 4, 2017)
     
3.10   Certificate of Amendment to Certificate of Designation of Preferences, Rights and Limitation of Series B Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on December 12, 2017)
     
3.11   Certificate of Amendment to Certificate of Designation of Preferences, Rights and Limitation of Series B Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on December 22, 2017)
     
3.12   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 February 7, 2018)
     
3.13   Certificate of Amendment to Certificate of Designation of Preferences, Rights and Limitation of Series D Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on March 1, 2018)
     
3.14   Certificate of Amendment to Certificate of Designation of Preferences, Rights and Limitation of Series D Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on April 3, 2018)
     
3.15   Certificate of Amendment to Certificate of Designation of Preferences, Rights and Limitation of Series B Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on July 5, 2018)
     
3.16   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 March 28, 2019)
     
10.1+    Amended and Restated Employment Agreement, dated February 4, 2019, by and between InspireMD, Inc. and James J. Barry, Ph.D. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on February 6, 2019)
     
10.2+   Fifth 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 March 21, 2019)
     
10.3+    Third Amendment to Amended and Restated Employment Agreement, dated March 25, 2019, by and between InspireMD, Inc. and Craig Shore (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on March 28, 2019)
     
10.4   Form of Underwriter Warrant, dated April 8, 2019 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on April 8, 2019)
     
31.1   Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1*   Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2*   Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101*   The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, formatted in XBRL (eXtensible Business Reporting Language), (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Cash Flows, and (v) the Notes to the Condensed Consolidated Financial Statements

 

* Filed herewith.

+ Management contract or compensatory plan or arrangement.

 

  15  
     

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  INSPIREMD, INC.
     
Date: May 13, 2019 By: /s/ James Barry, Ph.D.
  Name: James Barry, Ph.D
  Title: President and Chief Executive Officer
     
Date: May 13, 2019 By: /s/ Craig Shore
  Name:   Craig Shore
  Title: Chief Financial Officer, Secretary and Treasurer

 

  16  
     

 

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