InspireMD, Inc. — Form 10-Q Summary
Reporting period: Quarter ended June 30, 2011; filed August 15, 2011. Financial amounts below are in U.S. dollars, thousands, except per-share data. The March 31, 2011 share exchange was accounted for as a reverse recapitalization, so historical results reflect InspireMD Ltd., not Saguaro Resources’ former business.
Business context
InspireMD develops and commercializes MGuard stents, which use a micron-mesh sleeve intended to provide embolic protection during stenting. It sells mainly through international distributors and conducts manufacturing in Israel and through a German subcontractor.
Financial results
| Metric | Three months ended June 30, 2011 | Three months ended June 30, 2010 | Six months ended June 30, 2011 | Six months ended June 30, 2010 |
|---|---|---|---|---|
| Revenue | $1,040 | $908 | $2,726 | $3,005 |
| Gross profit | $400 | $429 | $1,187 | $1,189 |
| Gross margin | 38.5% | 47.2% | 43.5% | 39.6% |
| Operating expenses | $2,572 | $1,118 | $4,529 | $2,522 |
| Operating loss | $(2,172) | $(689) | $(3,342) | $(1,333) |
| Financial expense (income), net | $72 | $(41) | $787 | $29 |
| Net loss | $(2,254) | $(663) | $(4,149) | $(1,392) |
| Basic and diluted loss per share | $(0.04) | $(0.01) | $(0.07) | $(0.03) |
- First-half operating cash use was $1,786, versus $1,224 in the prior-year period. Investing activities used $144; financing activities provided $9,356. Cash increased $7,434 to $8,070.
- At June 30, cash and cash equivalents were $8,070 and restricted cash was $343. Current assets were $10,836 and current liabilities $3,919, resulting in working capital of approximately $6.9 million.
- The company disclosed approximately $0.3 million outstanding on its bank loan, bearing interest at three-month U.S. LIBOR plus 4%. The $1.0 million remaining principal on 8% convertible bridge notes was repaid in May; other amounts converted to shares. Current loan maturities were reported as $268.
- Order backlog was approximately $0.9 million. The filing does not provide an EBITDA figure.
Changes versus comparable periods
- Quarterly revenue increased 14.5%, while first-half revenue declined 9.3%. First-half gross revenue rose about 93%, including a first-time shipment of approximately $1.2 million to the Indian distributor, but lower deferred revenue recognition offset the increase.
- First-half gross profit was nearly unchanged, while gross margin improved to 43.5% from 39.6%, which management attributed to lower production cost per stent and scale efficiencies. In the second quarter, margin fell to 38.5% from 47.2%; the filing cites higher labor cost per stent, share-based compensation, and NIS appreciation.
- First-half operating expenses increased to $4.5 million from $2.5 million, driven by higher R&D, sales and marketing, and G&A costs. Net loss nearly tripled. A one-time approximately $0.6 million fair-value remeasurement of convertible debt contributed to first-half financial expense.
- Cash and equity improved substantially following the share exchange and equity financings. Shares issued and outstanding increased from 49.9 million at year-end 2010 to 64.2 million at June 30, 2011; further dilution is possible from outstanding warrants and options.
Outlook, risks and unusual items
- Management stated it believed cash was sufficient to fund operations into 2013, but that additional funding might be needed in 2013 depending on 2011–2012 results. The filing also cautions that recent proceeds may not fund all business objectives and that additional capital will be needed.
- Key risks include the cost and uncertainty of FDA and other regulatory approval and clinical trials; commercialization, physician adoption and reimbursement; competition; manufacturing capacity and reliance on certain suppliers; product liability or recall; intellectual-property challenges; international and currency exposure; and future financing needs.
- The company recognized a $624,000 fair-value increase on a convertible loan in the first quarter. It also factored $1.2 million of receivables on a non-recourse basis during the first half; related discounts and commissions were recorded as financial expense.
- Legal matters include a settled service-provider claim requiring $96,000 cash and 18,785 shares, and a $327,000 provision for a finder’s claim. A former senior employee’s August 2011 claim seeks $118,000 and the right to exercise 486,966 options; management said it could not assess the outcome. Other claims and a threatened finder claim are also disclosed.
- Subsequent to quarter-end, the bank approved release of a $300,000 lien, allowing that amount of restricted cash to be reclassified as cash equivalents. The company also disclosed director and former-director option grants after quarter-end.
- Management concluded disclosure controls were effective at a reasonable assurance level as of June 30, 2011. No material change in internal control over financial reporting was reported for the first quarter.
Important facts for investors to verify
- Whether distributor shipments, particularly to India, translate into recurring orders, collections, and sustainable revenue rather than period-specific shipment activity.
- Cash runway assumptions behind management’s expectation of funding into 2013, including ongoing operating cash burn and the timing or terms of any further financing.
- Clinical-trial progress, FDA pathway and costs, regulatory status in existing markets, and the evidence supporting safety, efficacy, and physician adoption.
- Gross-margin sustainability given recent quarterly margin pressure, production costs, currency movements, and dependence on limited manufacturing suppliers.
- Potential dilution from outstanding options, warrants, and shares, and the financial or share impacts of the disclosed legal claims and contingencies.