InspireMD, Inc. — 2019 Form 10-K Summary
Business context and reporting period. The filing covers the fiscal year ended December 31, 2019, with 2018 comparatives; it does not provide standalone fourth-quarter financial results. InspireMD develops and sells MicroNet mesh-covered stent systems, primarily CGuard EPS for carotid artery disease and MGuard Prime EPS for coronary applications. Sales are made internationally through distributors. No products were approved for sale in the United States.
Financial performance and position
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $3.721 million | $3.601 million |
| Gross profit / margin | $0.756 million / 20.3% | $0.995 million / 27.6% |
| Operating expenses | $10.572 million | $8.606 million |
| Operating loss | $9.816 million | $7.611 million |
| Net loss | $10.040 million | $7.240 million |
| Net cash used in operating activities | $9.810 million | $7.606 million |
| Cash and cash equivalents at year-end | $5.514 million | $9.384 million |
- Revenue rose 3.3%. CGuard sales increased 10.0% to $3.265 million; MGuard Prime sales fell 27.7% to $456,000.
- Gross profit declined 24.0%, and gross margin contracted 7.3 percentage points. The company attributed this principally to inventory write-offs, production-facility upgrades and employee training costs.
- Research and development expense increased 92.4% to $2.954 million, mainly due to CGuard U.S. IDE work, a $354,000 settlement payment to a former service provider, and higher compensation. General and administrative expense rose 8.1% to $5.222 million, including costs related to the former CEO’s separation.
- Working capital was $4.695 million, down $3.804 million year over year; current assets exceeded current liabilities by 2.5 times. Total liabilities were $4.497 million and equity was $5.383 million.
- Operating lease liabilities totaled $1.015 million ($362,000 current and $653,000 long term). The filing reports no off-balance-sheet arrangements; it does not identify material conventional borrowings in the financial statements presented.
- Cash used in investing activities was $387,000; financing provided $6.335 million, principally from 2019 equity and warrant offerings. Cash decreased by $3.870 million during the year.
Material changes and developments
- In April and September 2019, public offerings generated approximately $2.0 million and $4.2 million in net proceeds, respectively. The September offering included common shares, pre-funded warrants and Series E warrants.
- Series B and Series C preferred-stock conversion prices were reduced to $1.80 per share after the September financing. Their full-ratchet anti-dilution provisions, together with preferred dividends and warrants, may cause substantial additional dilution.
- A 1-for-50 reverse stock split took effect in March 2019. In August, NYSE American notified the company that it failed the stockholders’ equity continued-listing standard; the exchange accepted a compliance plan requiring remediation by August 7, 2020. The earlier low-price listing deficiency was reported resolved in July 2019.
- A former third-party sterilizer’s equipment failure disrupted supply for most of the first quarter, preventing fulfillment of a significant portion of orders. The transition to a replacement sterilizer was completed in early April.
- James Barry left as CEO effective December 31, 2019; Marvin Slosman became CEO on January 1, 2020. Barry’s separation agreement included $400,000 in severance, a fully vested award of 165,000 restricted stock units, and additional benefits.
Outlook, risks and contingencies
- Going concern and funding: The auditor’s report highlights substantial doubt about the company’s ability to continue as a going concern. Management estimated available resources would fund operations only through the end of May 2020 without materially curtailing operations. It planned to continue commercialization and seek equity, debt or strategic-partner funding, with no assurance financing would be available.
- Product and regulatory outlook: CGuard expansion and U.S. clinical testing are priorities. The company submitted a CGuard IDE application in July 2019, received an FDA request for additional information in August, and planned to address comments and resubmit. IDE approval and clinical testing had not been secured. Management described CGuard as positioned for commercial growth in 2020, but this is not quantified financial guidance.
- Commercial and operating risks: CGuard growth was offset by declining bare-metal MGuard demand, while the company remains loss-making and dependent on external capital, international distributors and suppliers. Manufacturing is concentrated at one facility in Israel; certain components and sterilization are sourced externally.
- Other risks and contingencies: A former Russian distributor sued for €1.83 million (approximately $2.0 million), or alternatively €1.024 million (approximately $1.1 million). Management assessed a reasonably possible loss ranging from a minimal amount to €1.83 million; the matter remained unresolved. The filing also noted the emerging coronavirus outbreak, potential supplier disruption from China, and possible postponement of scheduled procedures, particularly in Italy.
- Additional exposures include foreign-exchange movements, evolving European medical-device rules, clinical and regulatory delays, product-liability claims, and possible delisting if NYSE American requirements are not met.
Most important facts for investors to verify
- Whether subsequent financing extended the disclosed May 2020 cash runway, and the company’s current liquidity and going-concern status.
- Whether the NYSE American compliance plan was satisfied by August 7, 2020, and whether listing deficiencies or trading-price concerns recurred.
- The current FDA status and timing for the CGuard IDE, U.S. clinical trial, and any related costs or regulatory requirements.
- Subsequent CGuard sales, gross margins, inventory write-offs, and the effect of distributor and sterilization arrangements on supply and revenue.
- The outcome or updated estimated exposure of the Bosti litigation, and the potential dilution from preferred-stock conversions, dividends, warrants and later financings.
- The impact of the coronavirus outbreak and other developments on procedure volumes, suppliers and the company’s financial outlook.