InspireMD(NSPR) - 2019 Q3 - Quarterly Report

FORM 10-Q Cover Page This section provides the Form 10-Q's basic filing information, registrant, period, and filer status - Registrant: InspireMD, Inc[2] - Quarterly Period Ended: September 30, 2019[2] - Filer Status: Non-accelerated filer and Smaller reporting company[4] - Common Stock Outstanding as of November 12, 2019: 3,632,857 shares[5] Table of Contents This section outlines the Form 10-Q report's structure, detailing its main parts and items PART I - FINANCIAL INFORMATION This part presents the unaudited consolidated financial statements and notes, detailing financial position, performance, and cash flows Item 1. Financial Statements This section presents unaudited consolidated financial statements, including balance sheets, operations, equity, cash flows, and detailed notes Consolidated Balance Sheets These balance sheets present the company's assets, liabilities, and equity as of September 30, 2019, and December 31, 2018 Consolidated Balance Sheet Data | Metric | Sep 30, 2019 (in thousands) | Dec 31, 2018 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Total Assets | $11,622 | $12,288 | | Total Liabilities | $3,726 | $3,525 | | Total Equity | $7,896 | $8,763 | | Cash and cash equivalents | $7,154 | $9,384 | | Total Current Assets | $9,574 | $11,419 | | Total Current Liabilities | $2,323 | $2,920 | Consolidated Statements of Operations These statements detail revenues, costs, and expenses, showing net losses for the three and nine months ended September 30, 2019 Consolidated Statements of Operations Data | Metric | 3 Months Ended Sep 30, 2019 (in thousands) | 3 Months Ended Sep 30, 2018 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2018 (in thousands) | | :-------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Revenues | $939 | $769 | $2,708 | $2,779 | | Cost of Revenues | $811 | $571 | $2,211 | $2,011 | | Gross Profit | $128 | $198 | $497 | $768 | | Total Operating Expenses | $2,125 | $2,177 | $7,807 | $6,173 | | Loss from Operations | $(1,997) | $(1,979) | $(7,310) | $(5,405) | | Financial Income (Expenses), net | $(73) | $(32) | $(173) | $378 | | Net Loss | $(2,070) | $(2,011) | $(7,483) | $(5,027) | | Net Loss Per Share - basic and diluted | $(1.26) | $(2.47) | $(5.79) | $(16.24) | Consolidated Statements of Changes in Equity These statements illustrate changes in equity components, including common stock, preferred stock, and accumulated deficit Equity Summary Data | Metric | Sep 30, 2019 (in thousands) | Dec 31, 2018 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Total Equity | $7,896 | $8,763 | | Additional paid-in capital | $162,971 | $156,355 | | Accumulated deficit | $(155,075) | $(147,592) | | Common Stock Shares Outstanding | 3,456,915 | 768,615 | - Net loss for the nine months ended September 30, 2019, was $(7,483) thousand, contributing to the accumulated deficit[23] - Issuance of common shares, warrants, and pre-funded warrants, net of issuance costs, provided $6,331 thousand in additional paid-in capital during the nine months ended September 30, 2019[23] Consolidated Statements of Cash Flows These statements present cash flows from operating, investing, and financing activities for the nine months ended September 30, 2019 Cash Flow Summary | Cash Flow Activity | 9 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2018 (in thousands) | Change (in thousands) | | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | | Net cash used in operating activities | $(8,242) | $(5,803) | $(2,439) | | Net cash used in investing activities | $(318) | $0 | $(318) | | Net cash provided by financing activities | $6,331 | $13,351 | $(7,020) | | Balance of cash and cash equivalents at end of period | $7,154 | $11,247 | $(4,093) | Notes to the Consolidated Financial Statements These notes provide essential details and explanations for the consolidated financial statements, covering policies, equity, and revenue NOTE 1 - DESCRIPTION OF BUSINESS InspireMD, Inc. is a medical device company focused on MicroNet™ stent technology, facing substantial doubt about its going concern ability - InspireMD, Inc. is a medical device company focused on MicroNet™ stent platform technology for complex vascular and coronary disease[30] - Key products include CGuard™ EPS for carotid artery disease and MGuard Prime™ EPS for acute coronary syndromes, marketed internationally[31][32] - Substantial doubt exists about the company's ability to continue as a going concern, with current resources funding operations only until May 2020, due to accumulated deficit, net losses, and negative operating cash flows[33] NOTE 2 - BASIS OF PRESENTATION Unaudited consolidated financial statements are prepared on the same basis as annual statements, with interim results not indicative of full-year performance - Unaudited consolidated financial statements prepared on the same basis as annual statements, including normal recurring adjustments[35] - Interim results for the three and nine months ended September 30, 2019, are not necessarily indicative of full fiscal year results[35] NOTE 3 – RECENTLY ADOPTED AND ISSUED ACCOUNTING PRONOUNCEMENTS The company adopted ASC Topic 842, Leases, on January 1, 2019, materially impacting financial statements with new ROU assets and lease liabilities - Adopted ASC Topic 842, Leases, on January 1, 2019, using the modified retrospective transition method[38] - Material effect on financial statements, recognizing approximately $1.2 million in new ROU assets and lease liabilities for real estate operating leases[39][40] - Elected the 'package of practical expedients' and the short-term lease recognition exemption[38] NOTE 4 - EQUITY This note details the company's equity structure and significant transactions, including a reverse stock split and public offerings - Effected a one-for-fifty reverse stock split of common stock on March 29, 2019[48] Equity Securities Outstanding | Security Type | Shares Outstanding (Sep 30, 2019) | Underlying Common Stock | | :-------------------------------- | :-------------------------------- | :---------------------- | | Series B Convertible Preferred Stock | 17,303 | 555,138 | | Series C Convertible Preferred Stock | 36,869 | 131,090 | | Total Warrants | 4,016,817 | N/A | - Public offerings in April and September 2019 raised approximately $2.0 million and $4.2 million net proceeds, respectively, and triggered anti-dilution adjustments reducing conversion prices for Series B and C Preferred Stock[49][56][57] NOTE 5 - NET LOSS PER SHARE This note calculates basic and diluted net loss per share, detailing common stock equivalents excluded due to anti-dilutive effects Net Loss Per Share Data | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :----------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Loss (in thousands) | $(2,070) | $(2,011) | $(7,483) | $(5,027) | | Basic and diluted loss per share (dollars) | $(1.26) | $(2.47) | $(5.79) | $(16.24) | | Weighted average shares outstanding | 1,648,302 | 815,283 | 1,293,321 | 334,581 | - 5,001,451 common stock equivalents (options, warrants, restricted stock, preferred stock) were excluded from diluted EPS for the nine and three months ended September 30, 2019, as they were anti-dilutive[61] NOTE 6 - FAIR VALUE MEASUREMENT Carrying amounts of financial instruments in working capital approximate fair value due to short-term maturities - Carrying amounts of financial instruments in working capital approximate fair value due to short-term maturities[64] - Allowance for doubtful accounts was $72,000 as of September 30, 2019, and December 31, 2018[65] NOTE 7 - INVENTORY Inventory increased to $1,283,000 as of September 30, 2019, driven by raw materials and work in process Inventory Breakdown | Inventory Category | Sep 30, 2019 (in thousands) | Dec 31, 2018 (in thousands) | Change (in thousands) | | :----------------- | :-------------------------- | :-------------------------- | :-------------------- | | Finished goods | $124 | $284 | -$160 | | Work in process | $166 | $111 | +$55 | | Raw materials and supplies | $993 | $739 | +$254 | | Total Inventory | $1,283 | $1,134 | +$149 | NOTE 8 - ACCOUNTS PAYABLE AND ACCRUALS - OTHER Other accounts payable and accruals decreased to $1,617,000 as of September 30, 2019, primarily due to lower accrued expenses Accounts Payable and Accruals Breakdown | Category | Sep 30, 2019 (in thousands) | Dec 31, 2018 (in thousands) | Change (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | | Employees and employee institutions | $653 | $828 | -$175 | | Accrued vacation and recreation pay | $172 | $171 | +$1 | | Accrued expenses | $439 | $903 | -$464 | | Provision for sales commissions | $0 | $37 | -$37 | | Current Operating lease liabilities | $352 | $0 | +$352 | | Other | $1 | $27 | -$26 | | Total | $1,617 | $1,966 | -$349 | NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES This note details lease agreements and ongoing litigation, including a distributor lawsuit and a settled service provider claim Lease Expense Summary (9 months ended Sep 30, 2019) | Lease Expense (9 months ended Sep 30, 2019) | Amount (in thousands) | | :---------------------------------------- | :-------------------- | | Operating lease expense | $267 | | Short-term lease expense | $6 | | Variable lease expense | $0 | | Total Lease Cost | $273 | - A former distributor filed a lawsuit in July 2019 seeking damages up to €1,830,000 (approximately $2.0 million) related to a voluntary field action of MGuard Prime EPS[73] - A lawsuit with a service provider was settled for $600,000 in April 2019, with a related increase in provision of $354,000 recorded to R&D expense[74] NOTE 10 - DISAGGREGATED REVENUE AND ENTITY WIDE DISCLOSURES This note disaggregates revenue by geographic area and product type, showing CGuard sales growth and MGuard decline Revenue by Geographic Area | Geographic Area | 3 Months Ended Sep 30, 2019 (in thousands) | 3 Months Ended Sep 30, 2018 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2018 (in thousands) | | :-------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Italy | $211 | $119 | $550 | $512 | | Germany | $189 | $178 | $513 | $650 | | Russia | $100 | $9 | $129 | $168 | | Poland | $90 | $61 | $277 | $179 | | Other | $349 | $402 | $1,239 | $1,270 | | Total Revenues | $939 | $769 | $2,708 | $2,779 | Revenue by Product | Product | 3 Months Ended Sep 30, 2019 (in thousands) | 3 Months Ended Sep 30, 2018 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2018 (in thousands) | | :------ | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | CGuard | $852 | $604 | $2,344 | $2,268 | | MGuard | $87 | $165 | $364 | $511 | | Total Revenues | $939 | $769 | $2,708 | $2,779 | - All tangible long-lived assets are located in Israel[75] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of financial condition and results, highlighting performance, liquidity, and going concern issues Overview InspireMD focuses on MicroNet™ stent technology, with CGuard EPS pursuing FDA approval and MGuard Prime EPS sales declining - InspireMD is a medical device company developing and commercializing MicroNet™ stent platform technology for complex vascular and coronary disease[81] - CGuard EPS received CE mark approval in 2013 and is being launched in Europe, Russia, Latin America, and Asia; an IDE application for U.S. FDA approval was submitted in July 2019[83][85] - MGuard Prime EPS sales are declining due to industry preference for drug-eluting stents over bare-metal stents, leading the company to curtail further development of this product[87][182] - Commercial strategy shifted in 2017 to focus on sales through local distribution partners and internal sales initiatives to broaden market reach[91] Recent Developments Recent developments include public offerings, NYSE American compliance issues, and a reverse stock split - April 2019 public offering raised approximately $2.0 million net proceeds[92] - September 2019 public offering raised approximately $4.2 million net proceeds[93] - Received NYSE American notification for non-compliance with stockholders' equity standards (less than $6 million as of June 30, 2019, and net losses in five most recent fiscal years); compliance plan accepted by NYSE American on October 11, 2019[94][95] - Resolved NYSE American low trading price deficiency after a 1-for-50 reverse stock split effective March 29, 2019[96][97][98] Critical Accounting Policies Critical accounting policies remain largely unchanged since 2018, except for the adoption of ASU No. 2016-02 (Leases) - No material changes to critical accounting policies since December 31, 2018, except for the adoption of ASU No. 2016-02 (Leases)[99] - The currency of the primary economic environment for operations is the U.S. dollar[100] Contingencies The company accrues for legal contingencies when probable and estimable, expensing legal costs as incurred - Accruals for contingencies are recorded when probable and estimable, using the best estimate within a range of loss or the minimum amount if no single best estimate[101] - Legal costs are expensed as incurred[101] Results of Operations This section analyzes financial performance for the three and nine months ended September 30, 2019, detailing revenue, gross profit, and net loss changes Results of Operations Summary (3 Months) | Metric | 3 Months Ended Sep 30, 2019 (in thousands) | 3 Months Ended Sep 30, 2018 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :------- | | Revenues | $939 | $769 | +$170 | +22.1% | | Gross Profit | $128 | $198 | -$70 | -35.4% | | Research and Development Expenses | $442 | $416 | +$26 | +6.3% | | Selling and Marketing Expenses | $537 | $605 | -$68 | -11.2% | | General and Administrative Expenses | $1,146 | $1,156 | -$10 | -0.9% | | Financial Expenses (Income), net | $73 | $32 | +$41 | +128.1% | | Net Loss | $(2,070) | $(2,011) | -$59 | +2.9% | Results of Operations Summary (9 Months) | Metric | 9 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2018 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :----------------------------------------- | | Revenues | $2,708 | $2,779 | -$71 | -2.6% | | Gross Profit | $497 | $768 | -$271 | -35.3% | | Research and Development Expenses | $2,432 | $898 | +$1,534 | +170.8% | | Selling and Marketing Expenses | $1,791 | $1,677 | +$114 | +6.8% | | General and Administrative Expenses | $3,584 | $3,598 | -$14 | -0.4% | | Financial Expenses (Income), net | $173 | $(378) | +$551 | +145.8% | | Net Loss | $(7,483) | $(5,027) | -$2,456 | +48.9% | - CGuard EPS sales increased by 41.1% for the three months and 3.4% for the nine months ended September 30, 2019, driven by expansion in existing and new markets[102][111] - MGuard Prime EPS sales decreased by 47.3% for the three months and 28.8% for the nine months ended September 30, 2019, due to industry preference for drug-eluting stents[102][111] Liquidity and Capital Resources The company faces liquidity challenges with an accumulated deficit and negative cash flows, raising substantial doubt about its going concern ability - Accumulated deficit of $155 million as of September 30, 2019, with net loss of $7,483,000 and negative operating cash flows for the nine months ended September 30, 2019[120] - Substantial doubt about ability to continue as a going concern; current resources fund operations until May 2020[120] - Plans include continued commercialization and raising capital through equity, debt, or strategic partnerships[122] Cash Flow Summary | Cash Flow Activity | 9 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2018 (in thousands) | Change (in thousands) | | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | | Net cash used in operating activities | $(8,242) | $(5,803) | $(2,439) | | Net cash provided by financing activities | $6,331 | $13,351 | $(7,020) | - Working capital decreased by $1,248,000 to $7,251,000 as of September 30, 2019[134] Off Balance Sheet Arrangements The company has no material off-balance sheet transactions, arrangements, obligations, or relationships with unconsolidated entities - No material off-balance sheet transactions, arrangements, obligations, or relationships with unconsolidated entities[135] Recent Accounting Pronouncements This section refers to Note 3 for details on recently adopted and issued accounting pronouncements - Refer to Note 3 for details on recent accounting pronouncements[136] Factors That May Affect Future Operations Future operating results are subject to variations from distributor patterns, regulatory approvals, manufacturing, and currency fluctuations - Future operating results are subject to quarterly variations influenced by distributor ordering patterns, regulatory approvals, clinical trial timing, and manufacturing efficiencies[137] - Operating results could be impacted by weakening Euro and strengthening New Israeli Shekel (NIS) against the U.S. dollar, and other economic conditions affecting customer demand and reimbursement policies[137] Contractual Obligations and Commitments No material changes occurred in contractual obligations and commitments during the nine months ended September 30, 2019 - No material changes to contractual obligations and commitments during the nine months ended September 30, 2019[138] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is marked as "Not applicable," indicating no material market risk disclosures for the period - This section is marked as "Not applicable"[139] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2019[140] - No material changes in internal control over financial reporting during the fiscal quarter ended September 30, 2019[141] PART II - OTHER INFORMATION This part covers other important information, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings The company is involved in a lawsuit filed by a former Russian distributor seeking damages related to a product field action - A former Russian distributor, Bosti Trading Ltd., filed a lawsuit in July 2019 seeking damages up to €1,830,000 (approximately $2 million) from InspireMD Ltd[144] - The lawsuit relates to alleged breaches under a distribution agreement in connection with a voluntary field corrective action of MGuard Prime EPS initiated in 2014[144] - InspireMD Ltd. intends to vigorously contest the matter[144] Item 1A. Risk Factors This section details various risks that could materially affect the company's business, financial condition, and operating results Risks Related to Our Business The company faces business risks including net losses, going concern doubts, capital needs, regulatory hurdles, and competition - History of net losses ($7.5 million for nine months ended Sep 30, 2019) and accumulated deficit ($155 million), leading to substantial doubt about going concern[149][150] - Need to raise additional capital to fund operations beyond May 2020, which may be costly, difficult to obtain, and could dilute stockholder ownership[151][152][154] - Regulatory delays or denials for CGuard EPS in the U.S. (IDE application submitted, FDA requested additional information) could increase costs and delay commercialization[85][172][175] - Operates in an intensely competitive medical device market with larger, better-resourced competitors, posing risks of product obsolescence and intellectual property infringement claims[201][203] - Dependence on a single manufacturing facility in Tel Aviv, Israel, and single-source suppliers for critical components, creating supply chain and production disruption risks[166][206] Risks Related to Operating in Israel Operating in Israel exposes the company to risks from currency fluctuations, regional instability, military service, and tax benefit dependencies - Exposed to foreign currency exchange rate fluctuations, particularly between the Euro, NIS, and U.S. dollar, which can adversely affect cash flows and results of operations[224] - Business is directly affected by political, economic, and military conditions in Israel and its neighbors, including ongoing conflicts and regional instability, which could disrupt operations[225] - Operations could be disrupted by key personnel residing in Israel being called to annual military reserve duty or active duty under emergency circumstances[226] - May face claims for remuneration or royalties for assigned service invention rights by employees, despite waivers, potentially leading to litigation and increased costs[228] - Relies on "Beneficiary Enterprise" status for tax benefits under Israeli law, which requires satisfying specific conditions (e.g., maintaining manufacturing in Israel) and could be reduced or eliminated in the future, increasing tax liability[231][234] Risks Related to Our Common Stock, Preferred Stock and Warrants Risks include stock price volatility, potential NYSE American delisting, dilution from anti-dilution provisions, and no expected future dividends - Market prices of common stock and publicly traded warrants are highly volatile and subject to significant fluctuations[236] - Risk of delisting from NYSE American due to non-compliance with stockholders' equity standards, which would adversely affect ability to raise capital and stock liquidity[238][239][240] - Anti-dilution provisions in Series B and C Preferred Stock may result in an indeterminate number of common shares being issued upon conversion, causing significant dilution to existing stockholders and potentially depressing stock price[244] - Sales of a substantial number of common shares or warrants in the public market could harm market prices and make future fundraising more difficult[245] - No expectation to pay cash dividends in the foreseeable future, limiting return on investment to stock price appreciation[246] Other Risks Other risks include demands from financial reporting, internal control limitations, anti-takeover provisions, and restricted stock resale limitations - Subject to significant demands on resources for financial reporting and internal controls (Sarbanes-Oxley Act Section 404), with inherent limitations in control systems that may not prevent all errors or fraud[250][251] - Delaware law and corporate charter/bylaws contain anti-takeover provisions (e.g., Section 203, staggered board) that could delay or discourage takeover attempts[254][256] - As a former shell company, resales of restricted common stock under Rule 144 are subject to Rule 144(i) requirements, limiting liquidity unless reporting requirements are continuously met[257] Item 5. Other Information This section is marked as "Not applicable," indicating no other material information to disclose - This section is marked as "Not applicable"[260] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including corporate documents and certifications - Includes Amended and Restated Certificate of Incorporation, various Certificates of Designation for Preferred Stock (Series A, B, C, D), and forms of Series E, Pre-Funded, and Underwriter Warrants[261][262] - Contains certifications from Principal Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[262] Signatures This section contains the official signatures of the company's executive officers, certifying the report filing - Report signed by James Barry, Ph.D., President and Chief Executive Officer, and Craig Shore, Chief Financial Officer, Secretary and Treasurer[264] - Date of signing: November 12, 2019[264]