InspireMD, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Unaudited consolidated results; dollar amounts below are in U.S. dollars, generally thousands unless stated otherwise. InspireMD develops and sells medical devices using its MicroNet stent platform, principally CGuard EPS and MGuard Prime EPS. Products were marketed internationally through distributors; none could be sold in the United States.
Key financial results
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Revenue | $415 | $1,007; down 58.8% |
| Gross profit (loss) and margin | $(73); (17.6)% | $293; 29.1% |
| Operating expenses | $3,057 | $2,246 |
| Operating loss | $(3,130) | $(1,953) |
| Net loss | $(3,207) | $(2,389) |
| Basic and diluted loss per share | $(3.82) | $(54.00) |
| Net cash used in operating activities | $(3,485) | $(1,780) |
Revenue fell principally because a third-party sterilizer’s equipment failures disrupted supply for most of the quarter, preventing fulfillment of a significant portion of orders. CGuard revenue was $376, down from $831; MGuard revenue was $39, down from $176. Management reported approximately $600 of backlog at quarter-end, most of which had shipped by the filing date after the sterilization issue was resolved. Gross loss also reflected $118 of additional inventory write-offs; the company said these could be adjusted after further investigation.
Research and development expense increased to $1,125 from $252, including higher CGuard clinical/IDE costs and a $354 provision related to a former service-provider settlement. Selling and marketing expense rose to $634 from $492. General and administrative expense declined to $1,298 from $1,502. Net financial expense declined to $77 from $436, mainly because the prior-year period included revaluation expense on an embedded derivative.
Cash, liquidity and capital
- Cash and cash equivalents were $5,807 at March 31, 2019, down from $9,384 at December 31, 2018. Operating cash use was $3,485; investing cash use was $105; financing provided $16. Cash at March 31, 2018 was $4,637.
- Working capital was $5,333; current assets exceeded current liabilities by approximately 3.0 times. Current liabilities were $2,637. The filing reports no conventional borrowings; balance-sheet liabilities include $1,138 of lease liabilities ($338 current and $800 non-current).
- Accumulated deficit was $150,799. Management said available resources were sufficient to fund operations only through the end of Q4 2019 and disclosed substantial doubt about the company’s ability to continue as a going concern. Plans included further commercialization and raising capital through equity, debt or strategic partnerships; success was not assured.
- After quarter-end, an April public offering and partial over-allotment generated approximately $2.0 million and $47,000 in net proceeds, respectively. The offering reduced Series B and C preferred conversion prices to $5.00 per share, creating potential dilution.
Material developments, outlook and risks
- On March 29, 2019, the company effected a 1-for-50 reverse stock split. Share and per-share figures in the filing were retrospectively adjusted. The company also reported a prior 1-for-35 reverse split in 2018.
- Management intended to submit a U.S. Investigational Device Exemption application for a CGuard clinical trial in mid-2019. The company had no U.S. product sales; regulatory approval, clinical evidence, financing and commercialization remained uncertain. No financial guidance was provided.
- The company adopted the new lease accounting standard on January 1, 2019, recognizing approximately $1.2 million of operating lease assets and liabilities. Q1 operating lease expense was $86.
- A former service provider’s lawsuit was settled confidentially; the parties dismissed all claims with prejudice on April 24, 2019. A $354 provision was recorded in Q1 research and development expense. A separate distributor claim related to a 2014 voluntary field action had a reasonably possible loss range from a minimal amount to €1.075 million.
- NYSE American had notified the company of low-share-price compliance concerns, with a stated compliance period through July 7, 2019, and warned that trading below $0.06 per share at any time could prompt immediate suspension and delisting proceedings. The company reported it had regained compliance with certain stockholders’ equity standards in February 2019, but remained subject to review.
- Other stated risks included recurring losses and cash burn, need for additional capital and resulting dilution, distributor and customer concentration, dependence on a single manufacturing facility, regulatory and clinical-trial risk, competition, foreign-exchange exposure, and potential disruption from hostilities in Israel.
Important facts for investors to verify
- Whether the sterilizer problem remained resolved and whether the reported backlog was shipped and converted into revenue and cash.
- Cash burn, funding runway, and the availability and terms of additional financing given the going-concern disclosure.
- Progress and timing of the planned CGuard IDE submission and any subsequent FDA or clinical-trial milestones.
- Potential dilution from preferred-stock conversion terms, warrants, and the April 2019 offering; the filing reports 1,397,655 common shares outstanding as of May 10, 2019.
- Current NYSE American listing compliance, including the low-price requirements, and the status or payment terms of the settled litigation and distributor claim.