InspireMD, Inc. — Form 10-Q Summary
Reporting period: Fiscal quarter and six months ended December 31, 2012; filed February 4, 2013. Financial amounts are in U.S. dollars, generally in thousands unless noted. InspireMD develops and commercializes its MGuard stent platform. The company effected a one-for-four reverse stock split in December 2012; share and per-share data were retrospectively adjusted.
Financial performance and position
| Metric | Three months ended Dec. 31, 2012 | Comparable 2011 period | Six months ended Dec. 31, 2012 | Comparable 2011 period |
|---|---|---|---|---|
| Revenue | $1,350 | $1,292 | $1,859 | $3,278 |
| Gross profit / margin | $803 / 59.5% | $621 / 48.1% | $1,082 / 58.2% | $1,806 / 55.1% |
| Operating loss | $(4,366) | $(8,237) | $(7,647) | $(10,387) |
| Net loss | $(1,920) | $(8,233) | $(9,426) | $(10,516) |
| Basic and diluted loss per share | $(0.11) | $(0.49) | $(0.54) | $(0.64) |
- Revenue trends: Quarterly revenue rose 4.5%; six-month revenue fell 43.3%, primarily because sales volume declined by about $1.5 million amid distributor changes and a shift toward direct sales in selected European markets. Quarterly gross profit improved, while six-month gross profit declined with lower sales.
- Expenses and unusual items: Six-month R&D rose to $2.2 million, mainly on clinical trials; selling and marketing rose to $1.6 million, including TCT meeting and global sales expansion costs. A $918,000 royalty buyout expense was recorded. G&A fell substantially versus 2011 largely because prior-period share-based compensation was much higher. Quarterly net loss was also reduced by a noncash $3.569 million gain from revaluing warrants as the share price declined; this contributed to financial income despite $1.081 million of quarterly interest and other financing expense.
- Cash flow: Operating cash use was $5.799 million for the six months, versus $4.217 million in 2011. Investing cash use was $193,000 and financing provided $1.049 million, mainly from option and warrant exercises. Cash and cash equivalents declined $4.851 million to $5.433 million.
- Liquidity and debt: Current assets were $9.102 million and current liabilities $9.532 million, a working-capital deficit of about $430,000. Total liabilities were $11.393 million and equity $204,000. The balance sheet reports $6.461 million of current convertible-loan liability; the June 30 balance included $5.018 million as long-term. The company’s April 2012 senior secured debentures had original principal of about $11.7 million, 8% annual interest, and are secured by substantially all company and subsidiary assets. Holders may require redemption beginning October 5, 2013, for 112% of outstanding principal plus accrued interest.
Outlook, risks, and other material matters
- Liquidity warning: Management estimated available resources would fund operating cash needs only through September 30, 2013. It expects continued operating cash outflows and disclosed substantial doubt about the company’s ability to continue as a going concern, including the potential $13.3 million debenture redemption payment from October 2013. Additional capital will be needed; financing may be unavailable or dilutive. Management said operations, including planned U.S. clinical trials, could be curtailed if funding is insufficient.
- Regulatory and commercialization risk: The FDA disapproved the company’s U.S. pivotal-trial IDE application in August 2012 and again on January 18, 2013, citing deficiencies that may require further analysis, materials, or testing. There is no assurance the application will be approved. Sales also depend on clinical results, regulatory approvals, distributor execution, and physician adoption.
- Royalty amendment: The MGuard Prime royalty rate was reduced to 2.9% of net sales worldwide from tiered rates of 7% and 10%. Consideration included a fee waiver, payment of royalties owed, and 215,000 shares valued at $1.763 million; total consideration was valued at $1.848 million.
- Contingencies: The company accrued $250,000 for an Argentine labor claim and estimated potential loss up to $80,000 above the accrual. A separate service-provider dispute settled for $50,000. Other claims were described as not probable or not estimable. An Israeli criminal complaint concerning facility licensing was pending; the company received the business license on January 31, 2013 and expected no material liability.
- Subsequent events: The CEO resigned on January 3, 2013 and a new CEO was appointed, with a stated annual base salary of at least $450,000, annual bonus eligibility of at least $275,000, and substantial equity awards. On January 8, 2013, 178,029 additional shares were issued because the company had not achieved a national-exchange listing by the specified deadline.
- Other risks: The filing highlights reliance on a single principal manufacturing facility and certain single-source suppliers, foreign-exchange exposure without hedging, competition, product liability, and risks from operations in Israel. Management reported disclosure controls were effective at the reasonable-assurance level and no material change in internal control during the six months.
Key facts for investors to verify
- Whether the company obtained additional financing and how long cash resources lasted relative to the stated September 2013 runway and potential debenture redemption.
- The status and cost of resolving FDA IDE deficiencies, and the timetable and funding for U.S. clinical trials.
- Whether revenue stabilized after distributor and sales-channel changes, including trends by geography and customer concentration.
- The debenture’s carrying amount, redemption terms, secured-asset exposure, and potential dilution from conversion and warrants.
- The resolution and any updated accruals for outstanding litigation and regulatory matters.