InspireMD, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Unaudited consolidated financial statements; amounts below are U.S. dollars unless stated otherwise. InspireMD develops and commercializes MicroNet-based vascular and coronary devices, principally CGuard EPS and MGuard Prime EPS. Products were marketed internationally; none could be sold or marketed in the United States.
Financial results and liquidity
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $569,000 | $563,000 |
| Gross profit / margin | $74,000 / 13.0% | $66,000 / 11.7% |
| Operating expenses | $2.478 million | $2.096 million |
| Operating loss | $2.404 million | $2.030 million |
| Net loss | $2.559 million | $2.252 million |
| Basic and diluted loss per share | $0.81 | $7.00 |
| Net cash used in operations | $2.758 million | $1.865 million |
At March 31, cash and cash equivalents were $8.572 million, versus $7.516 million at December 31, 2016. Current assets were $9.582 million and current liabilities $2.258 million; reported working capital was $7.324 million and the current-assets-to-current-liabilities multiple was 4.2. Total assets were $10.512 million, total liabilities $2.798 million, and equity $7.714 million. The company repaid its remaining loan balance, and reported no current loan maturity at quarter-end.
Investing activities used $156,000, primarily for production equipment. Financing activities provided $3.983 million, including approximately $6.162 million net proceeds from the March offering, offset by $2.179 million in loan repayments. Cash increased by $1.056 million during the quarter.
Changes versus the prior comparable period
- Revenue rose 1.0%. CGuard sales increased 12.1% to $359,000, while MGuard sales fell 13.5% to $210,000; management attributed the latter weakness largely to market preference for drug-eluting stents over bare-metal stents.
- Gross margin improved to 13.0% from 11.7%, but operating expenses rose 18.2% overall. Selling and marketing increased 45.8% to $532,000, and general and administrative expenses increased 18.0% to $1.596 million. Research and development decreased 7.7% to $350,000.
- Net loss increased 13.6% to $2.559 million, primarily because of higher operating expenses. Operating cash use increased by $893,000 year over year.
- Cash rose despite operating and investing outflows, mainly because of the equity financing. The company paid the remaining loan balance and terminated the related liens and security interests.
Financing, outlook, risks and contingencies
- Going concern: The company reported recurring losses, negative operating cash flows and a $134 million accumulated deficit. Management said available resources would fund operations for only up to eight months from the filing date and stated that substantial doubt exists about the company’s ability to continue as a going concern. Plans include commercialization and additional financing; success is not assured. Failure to raise funds or achieve commercialization could require reduced activity or cessation of operations.
- March 2017 offering and dilution: The company received approximately $6.8 million gross proceeds from Series C convertible preferred stock and accompanying warrants; net proceeds were approximately $6.162 million. Series C converts initially at $1.60 per common share; its warrants have a six-month term and $1.60 exercise price. Series B warrants have a five-year term and $2.00 exercise price. Series B conversion terms were reset to $1.60 following the offering; the filing describes anti-dilution provisions and 15% annual cumulative dividends payable in cash or common shares. Potential dilution is material: 14,900,945 potential common shares were excluded from diluted loss per share as anti-dilutive. Common shares issued and outstanding were 6,830,070 at quarter-end and 7,421,846 on May 9, 2017.
- Product plans: Management said development of a smaller-catheter CGuard version and a CE mark submission within three quarters depend on sufficient proceeds from exercise of Series C warrants; exercise and timing are uncertain. Further NGuard development was not expected to resume before at least Q3 2018. No numerical financial guidance was provided.
- Litigation and potential exposure: Management disclosed possible distributor-related losses ranging from a minimal amount to €1.075 million following a voluntary field action. The Microbanc suit seeking approximately $2.2 million and equity-related compensation was dismissed, but a motion to amend remained pending. Medpace’s suit against the subsidiary seeks $1,967,822 plus other costs; its motion to dismiss awaited resolution. Management said it would contest both matters.
- Key operating risks: The 2014 MGuard field action and product reliability, limited market acceptance, competition and the shift away from bare-metal stents, regulatory and clinical requirements, reimbursement, dependence on a single Israeli manufacturing facility and certain sole-source suppliers, foreign exchange and geopolitical exposure, and need for additional capital. Management reported disclosure controls effective at the reasonable-assurance level and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether the stated runway, financing plans and going-concern assessment have changed since the filing.
- Cash burn and any subsequent financing, including actual Series C warrant exercises and resulting proceeds.
- Preferred-stock conversion, anti-dilution adjustments, Series B dividend obligations and resulting common-share dilution.
- Subsequent status and potential financial exposure of the distributor, Microbanc and Medpace matters.
- Commercial progress and regulatory milestones for CGuard, and continued demand for MGuard amid competition from drug-eluting stents.
- The reported loss-per-share calculation and excluded potential shares; the filing reports weighted-average common shares of 3,946,434 for Q1 2017 and 321,684 for Q1 2016.