InspireMD, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2016. Amounts are in U.S. dollars; financial statement amounts are in thousands unless otherwise noted. InspireMD develops and commercializes MicroNet-based vascular and coronary medical devices, including CGuard and MGuard. Its products were marketed internationally, and none could be marketed in the United States at the time of the filing.
Financial results and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $469 | $632 | $1,572 | $1,794 |
| Gross profit (loss) | $31 | $89 | $158 | $(160) |
| Gross margin | 6.6% | 14.1% | 10.1% | (8.9)% |
| Operating loss | $(1,770) | $(3,411) | $(5,958) | $(11,874) |
| Net loss | $(2,007) | $(3,641) | $(6,597) | $(12,731) |
| Operating cash used | Not provided for the quarter | Not provided for the quarter | $(5,614) | $(9,379) |
- At September 30, cash and cash equivalents were $10.468 million, compared with $3.257 million at December 31, 2015. Working capital was $5.996 million; current assets exceeded current liabilities by 2.1 times.
- Nine-month financing cash flow was $12.756 million, including $14.424 million net proceeds from share and warrant issuances, offset in part by $1.651 million of loan repayments. Investing cash flow provided $81,000.
- Current loan maturity was $3.655 million, with no long-term loan reported at September 30. Total liabilities were $6.229 million.
- Management stated that cash and expected operating needs were insufficient to fund operations beyond Q3 2017, and disclosed substantial doubt about the company’s ability to continue as a going concern.
Changes versus comparable periods
- Q3 revenue fell 25.8%; nine-month revenue fell 12.4%. MGuard sales declined, which management attributed largely to physicians’ shift from bare-metal to drug-eluting stents.
- Nine-month CGuard revenue rose 77.3% to $952,000, while MGuard revenue fell 50.7% to $620,000. In Q3, CGuard revenue was $277,000 versus $310,000 a year earlier; MGuard revenue was $192,000 versus $322,000.
- Nine-month gross profit improved by $318,000 to $158,000, partly because inventory write-offs were $450,000 lower than in 2015. Q3 gross margin nonetheless declined, reflecting lower revenue and manufacturing underutilization.
- Net losses narrowed in both comparisons, primarily as operating expenses fell under the company’s cost-reduction and focused-spending plan. Nine-month R&D, selling and marketing, and general and administrative expenses all declined; there were no restructuring and impairment expenses in 2016 versus $964,000 in the first nine months of 2015.
Financing, outlook, risks and unusual items
- On July 7, 2016, the company raised approximately $14.6 million gross through Series B convertible preferred stock and warrants. The preferred stock carries cumulative dividends of 15% annually for five years, is convertible into common stock, and has anti-dilution provisions; early conversion may trigger make-whole dividends. The accompanying warrants are exercisable at $5 per share.
- The preferred financing and other issuances were materially dilutive. A one-for-25 reverse stock split became effective October 7, 2016; share and per-share data were retroactively adjusted in the filing.
- A June loan amendment suspended certain principal payments and set a June 1, 2017 maturity following completion of the equity financing. The amendment increased the end-of-term charge to $520,000 and added a security interest in intellectual property.
- Management plans continued commercialization, particularly of CGuard, and further financing through equity, debt, or strategic partnerships, but gave no assurance that financing would be available. The filing provides no quantified revenue or earnings guidance.
- Key risks include ongoing losses and cash burn; uncertain commercial adoption, regulatory approvals and clinical outcomes; manufacturing and supplier dependence; competition; foreign-exchange and reimbursement exposure; and potential dilution and dividend obligations from Series B preferred stock. The filing also identifies potential NYSE MKT trading and delisting risk.
- Two lawsuits were disclosed: Microbanc and Todd Spenla seek approximately $2.2 million plus stock-related damages; Medpace seeks approximately $1.965 million plus related costs. Management said losses in these matters were not considered probable or estimable. A distributor’s claim related to a voluntary field action was described as reasonably possible, with a potential range from a minimal amount to €1.075 million. A separate Argentina employment dispute was settled for $100,000 including legal fees.
- Share-based compensation was $1.240 million for the first nine months. The company also recognized approximately $800,000 of remaining unrecognized compensation cost when certain options were canceled in January 2016.
Important facts for investors to verify
- Whether available cash, operating performance, and new financing can extend the runway beyond management’s stated Q3 2017 limit.
- The preferred stock’s effective dilution, anti-dilution adjustments, 15% cumulative dividends, and potential make-whole obligations.
- Progress in CGuard commercialization and whether it can offset continuing declines in MGuard sales and improve manufacturing utilization.
- Loan repayment and maturity terms, including the intellectual-property lien and end-of-term charge.
- Developments and possible financial exposure in the disclosed litigation and distributor claim.