InspireMD, Inc. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. Unaudited consolidated financial statements; amounts below are U.S. dollars in thousands unless noted. InspireMD develops and commercializes MicroNet-based vascular devices, principally CGuard carotid stents and MGuard coronary products. Its products were not approved for sale in the United States.
Financial results
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $640 | $540 | $1,209 | $1,103 |
| Gross profit / margin | $147 / 23.0% | $62 / 11.5% | $221 / 18.3% | $128 / 11.6% |
| Operating expenses | $2,441 | $1,828 | $4,919 | $3,924 |
| Operating loss | $(2,294) | $(1,766) | $(4,698) | $(3,796) |
| Net loss | $(2,294) | $(1,946) | $(4,853) | $(4,198) |
| Net loss per share | $(0.21) | $(4.56) | $(0.73) | $(11.21) |
Quarterly revenue rose 18.5%; six-month revenue rose 9.6%. CGuard sales increased to $430 for the quarter and $789 year to date; MGuard sales were $210 and $420, respectively. The filing attributes growth to CGuard market expansion and distributor changes, and to a Belarus tender for MGuard in Q2. For the first half, MGuard sales declined slightly, which management attributed in part to doctors’ increasing use of drug-eluting stents.
Operating expenses increased in both periods, notably selling and marketing and general and administrative costs. Management cited spending to support CGuard commercialization, compensation-related items, clinical and development activity, and other costs. Gross-margin improvement reflected higher revenue and lower inventory write-offs, partly offset by higher material and labor costs.
Cash, liquidity and capital
- Cash and cash equivalents were $6,879 at June 30, 2017, versus $7,516 at December 31, 2016. Working capital was approximately $5,400; current assets were 3.1 times current liabilities.
- For the six months, operating cash use was $4,348 (versus $2,659 in 2016); investing cash use was $195; financing provided $3,893. Cash declined $637 over the period.
- The March 2017 offering generated approximately $6,800 gross and $6,072 net proceeds. The company repaid its remaining loan balance in March; no loan balance remained at June 30, and associated liens were released.
- Total liabilities were $3,165, down from $5,365 at year-end. Accumulated deficit was $136,767.
- The filing states that existing resources were expected to fund operations for only up to six months from issuance of the statements and concludes there is substantial doubt about the company’s ability to continue as a going concern. Management planned continued commercialization and additional financing through equity, debt, or strategic partnerships, with no assurance of success.
Outlook, risks and contingencies
- Management planned to prioritize CGuard sales and marketing and, subject to available resources, development of a smaller-catheter CGuard product and a CE-mark submission. NGuard development was not expected to resume before at least Q3 2018.
- Key risks include recurring losses and cash burn, the need for additional capital and potential dilution, market acceptance and regulatory approvals, clinical outcomes, competition, manufacturing concentration and quality, reimbursement, foreign-exchange exposure, and possible disruption related to operations in Israel. Management reported no material changes to previously disclosed risk factors during the quarter, apart from those described in the preceding Q1 filing.
- A distributor sought unspecified compensation related to a voluntary field action; management assessed a reasonably possible loss ranging from a minimal amount up to €1.075 million. Medpace sought $1.968 million plus other amounts in litigation; the company said it would contest the claim. A separate finder-fee case seeking approximately $2.2 million and equity compensation had been dismissed, but a motion to amend the complaint remained pending.
- Management reported disclosure controls and procedures were effective at the reasonable-assurance level and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the company secured financing after the filing date and how that affects the stated going-concern uncertainty.
- Subsequent cash burn, revenue growth, gross margins, and the commercial performance of CGuard across distributor markets.
- Potential dilution from preferred shares and warrants. The March offering included convertible preferred stock and warrants; Series B preferred stock carries 15% annual cumulative dividends. The filing reports 7,467,646 common shares issued and outstanding at June 30 and 7,450,952 outstanding as of August 8; verify the share-count difference and subsequent capitalization.
- Developments and possible exposure in the distributor, Medpace, and finder-fee matters, including whether any amounts become estimable or accrued.
- The loss-per-share calculation includes specified preferred-stock-related shares, while potential securities excluded as anti-dilutive totaled 14,625,902 for the 2017 periods; verify the impact of conversions and warrant exercises on fully diluted ownership.