Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
NSPR > SEC Filings for NSPR > Form 10-Q on 2-Nov-2012All Recent SEC Filings

Show all filings for INSPIREMD, INC.

Form 10-Q for INSPIREMD, INC.


2-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q.

Unless the context requires otherwise, references in this Form 10-Q to the "Company," "InspireMD," "we," "our" and "us" refer to InspireMD, Inc., a Delaware corporation, and its subsidiaries.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains "forward-looking statements," which include information relating to future events, future financial performance, strategies, expectations, competitive environment and regulation. Words such as "may," "should," "could," "would," "predicts," "potential," "continue," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and will probably not be accurate indications of when such performance or results will be achieved. Forward-looking statements are based on information we have when those statements are made or our management's good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:

· our history of recurring losses and negative cash flows from operating activities, significant future commitments and the uncertainty regarding the adequacy of our liquidity to pursue our complete business objectives;

· our ability to complete clinical trials as anticipated and obtain and maintain regulatory approvals for our products;

· our ability to adequately protect our intellectual property;

· disputes over ownership of intellectual property;

· accusations of infringement or violation of third party intellectual property;

· our dependence on a single manufacturing facility and our ability to comply with stringent manufacturing quality standards and to increase production as necessary;

· the risk that the data collected from our current and planned clinical trials may not be sufficient to demonstrate that the MGuard™ technology is an attractive alternative to other procedures and products;

· intense competition in our industry, with competitors having substantially greater financial, technological, research and development, regulatory and clinical, manufacturing, marketing and sales, distribution and personnel resources than we do;

· entry of new competitors and products and potential technological obsolescence of our products;

· loss of a key customer or supplier;

· technical problems with our research and products and potential product liability claims;

· adverse economic conditions;

· adverse federal, state and local government regulation, in the United States, Europe or Israel;

· price increases for supplies and components;

· inability to carry out research, development and commercialization plans; and

· loss or retirement of key executives and research scientists.

For a discussion of these and other risks that relate to our business and investing in shares of our common stock, you should carefully review the risks and uncertainties described under the heading "Part II - Item 1A. Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q and in our Transition Report on Form 10-KT for the six month period ended June 30, 2012 (the "Transition Report"), and those described from time to time in our future reports filed with the Securities and Exchange Commission. The forward-looking statements contained in this Quarterly Report on Form 10-Q are expressly qualified in their entirety by this cautionary statement. We do not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any such statement is made or to reflect the occurrence of unanticipated events.

Overview

We are a medical device company focusing on the development and commercialization of our proprietary stent platform technology, MGuard. MGuard provides embolic protection in stenting procedures by placing a micron mesh sleeve over a stent. Our initial products are marketed for use mainly in patients with acute coronary syndromes, notably acute myocardial infarction (heart attack) and saphenous vein graft coronary interventions (bypass surgery).

Recent Developments

During the past several months, we have been realigning our distributor relationships in anticipation of results from our MGuard for Acute ST Elevation Reperfusion Trial (MASTER Trial), which were published on October 24, 2012. The MASTER trial is the first major randomized study comparing the MGuard Coronary to commercially-approved bare metal or drug-eluting stents in primary angioplasty for the treatment of acute STEMI, the most severe form of heart attack. As such, we are in the process of appointing new distributors in certain territories, and believe that new incentives and broader responsibilities have strengthened arrangements with our best and most experienced country and regional partners. Third party distributors are also being replaced by direct sales channels in key European countries where end user average selling prices and the lack of strong distributors are limiting factors. These activities caused our sales for the three months ended September 30, 2012 to decrease to approximately $0.5 million, as compared to $2.0 million during the same period in 2011.

On April 5, 2012, we issued senior secured convertible debentures due April 5, 2014 in the original aggregate principal amount of $11,702,128 and five-year warrants to purchase an aggregate of 3,343,465 shares of our common stock at an exercise price of $1.80 per share in exchange for aggregate gross proceeds of $11.0 million, with corresponding net proceeds of approximately $9.9 million. The convertible debentures were issued with a 6% original issuance discount, bear interest at an annual rate of 8% and are convertible at any time into shares of common stock at an initial conversion price of $1.75 per share. Upon conversion of the convertible debentures, investors will receive a conversion premium equal to 8%, per annum, with a limit of 12% for the term of the convertible debentures, of the principal amount being converted. In addition, the investors may require us to redeem the convertible debentures at any time after October 5, 2013 (18 months after the date of issuance) for 112% of the then outstanding principal amount, plus all accrued interest, and we may prepay the convertible debentures after six months for 112% of the then outstanding principal amount, plus all accrued interest. In connection with this financing, we paid placement agent fees of $848,750 and issued placement agents warrants to purchase 312,310 shares of common stock, with terms identical to the warrants issued to the investors.

On October 31, 2011, our stockholders authorized our board of directors to amend our amended and restated certificate of incorporation to effect a reverse stock split of our common stock at a ratio of one-for-two to one-for-four, at any time prior to our 2012 annual stockholders' meeting, the exact ratio of the reverse stock split to be determined by the board. As of the date of this Quarterly Report, we have not effected the reverse stock split and, as such, the information with respect to our common stock in this Quarterly Report and the accompanying financial statements and related notes does not give effect to any reverse stock split. In addition, pursuant to the securities purchase agreement under which the convertible debentures that we issued on April 5, 2012 were sold, until April 5, 2013, we are not permitted to effectuate any reverse stock splits without the prior written consent of the holders of at least 60% of the outstanding principal amount of the convertible debentures other than for purposes of qualifying for initial listing on a national securities exchange or meeting the continued listing requirements of such exchange.

Critical Accounting Policies

A critical accounting policy is one that is both important to the portrayal of our financial condition and results of operation and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies are more fully described in Note 2 of the Notes to the Consolidated Financial Statements included in our Transition Report and are disclosed in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of our Transition Report. There have not been any material changes to such critical accounting policies since June 30, 2012.

The currency of the primary economic environment in which our operations are conducted is the U.S. dollar ("$" or "dollar"). Accordingly, the functional currency of us and of our subsidiaries is the dollar.

Results of Operations

Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011

Revenues. For the three months ended September 30, 2012, total revenue decreased approximately $1.5 million, or 74.4%, to approximately $0.5 million from approximately $2.0 million during the same period in 2011. The following is an explanation of the approximately $1.5 million decrease in revenue broken down by its main two components, a decrease in gross revenues of approximately $1.6 million, partially offset by a net increase in deferred revenues of approximately $0.1 million.

For the three months ended September 30, 2012, total gross revenue decreased by approximately $1.6 million, or approximately 78.4%, to approximately $0.4 million from approximately $2.0 million during the same period in 2011. This decrease in total gross revenue was predominately sales volume based, with decreased sales volume accounting for approximately $1.5 million, or approximately 76.5%, and price decreases to our repeat distributors accounting for the remaining approximately $0.1 million, or approximately 1.9%. The $1.5 million decrease was attributable primarily to activities in anticipation of the release of our MASTER trail results at the Transcatheter Cardiovascular Therapeutics (TCT) meeting in Miami Florida, which included evaluating and appointing new distributors in some territories, as well as replacing third party distributors with direct sales channels in key European countries where end user average selling prices and the lack of strong distributors are limiting current sales. Broken out by individual markets, the decrease in gross revenue was mainly attributable to a decrease of approximately $0.2 million in gross revenue from our distributor in Argentina, a decrease of approximately $0.2 million in gross revenue from our distributor in Brazil, a decrease of approximately $0.2 million in gross revenue from our distributor in Mexico, a decrease of approximately $0.1 million in gross revenue from our distributor in Italy, a decrease of approximately $0.1 million in gross revenue from our distributor in Spain, a decrease of approximately $0.1 million in gross revenue from our distributor in Belarus, a decrease of approximately $0.1 million in gross revenue from our distributor in Russia, a decrease of approximately $0.1 million in gross revenue from our distributor in France, a decrease of approximately $0.1 million in gross revenue from our distributor in Ireland and a net decrease of approximately $0.4 million from our other distributors.

Net deferred revenue recognized during the three months ended September 30, 2012 increased to approximately $0.1 million recognized in revenue from approximately $4,000 deferred during the same period in 2011. This increase was sales volume based, partially offset by approximately $10,000 attributable to price decreases. The deferred revenue recognized and deferred during both periods related to our provision for returns, which is calculated based on our history of returns, and recognized one year later. The reason for the increase in the three months ended September 30, 2012, compared to the same period in 2011, is the decrease in sales between periods, as well as our reassessment of the provision for returns in the three months ended September 30, 2012. Our reassessment of the provision for returns of approximately $55,000 was based on a comparison of our history of returns against the percentage of sales we had been recording in the provision. For the three months ended September 30, 2012, higher sales in the three months ended September 30, 2011, as well as the reassessed provision, caused the recognition of past provision for returns to be higher than the provision recorded relating to sales made during the three months ended September 30, 2012. For the three months ended September 30, 2011, higher sales caused the provision recorded relating to sales made during the three months ended September 30, 2011 to be higher than the recognition of past provision for returns.

Gross Profit. For the three months ended September 30, 2012, gross profit (revenue less cost of revenues) decreased 76.5%, or approximately $0.9 million, to approximately $0.3 million from approximately $1.2 million during the same period in 2011. The key driver of the decrease in gross profit was our decrease in net revenues of approximately $1.5 million, as described above. For the three months ended September 30, 2012, our average selling price per stent recognized in revenue decreased to $569, and we recognized the sale of 826 stents, from an average price of $624 per stent and 3,186 stents recognized in revenue for the same period in 2011. For the three months ended September 30, 2012, our cost of goods sold per stent was $279 per stent recognized in revenue, as compared to $251 per stent recognized in revenue during the same period in 2011. Gross margin decreased from 59.7% in the three months ended September 30, 2011 to 54.8% in the three months ended September 30, 2012.

Research and Development Expense. For the three months ended September 30, 2012, research and development expense increased 72.9%, or approximately $0.4 million, to approximately $0.9 million from approximately $0.5 million during the same period in 2011. The increase in cost resulted primarily from higher clinical trial expenses of approximately $0.3 million, attributable mainly to the MASTER Trial (approximately $0.2 million), and the MGuard Carotid clinical trial (approximately $0.1 million). In addition to the increase in clinical trial expenses, there was an increase of approximately $0.1 million in salaries and share-based compensation due to our hiring of additional clinical trial personnel. Research and development expense as a percentage of revenue increased to 185.9% for the three months ended September 30, 2012 from 27.5% in the same period in 2011.

Selling and Marketing Expense. For the three months ended September 30, 2012, selling and marketing expense increased 33.1%, or approximately $0.1 million, to approximately $0.4 million, from approximately $0.3 million during the same period in 2011. The increase in selling and marketing expense resulted primarily from approximately $60,000 of additional salaries and approximately $50,000 of additional travel expenses as we expanded our sales activities worldwide. Selling and marketing expense as a percentage of revenue increased to 79.0% in 2012 from 15.2% in 2011.

General and Administrative Expense. For the three months ended September 30, 2012, general and administrative expense decreased 11.0%, or approximately $0.3 million, to approximately $2.2 million from approximately $2.5 million during the same period in 2011. This decrease resulted primarily from a decrease in share-based compensation of $0.8 million (which predominately pertained to directors' compensation), partially offset by an increase of approximately $0.2 million in bad debt expense, an increase of approximately $0.1 million in audit fees and an increase of approximately $0.2 million in miscellaneous expenses. General and administrative expense as a percentage of revenue increased to 434.6% in 2012 from 125.2% in 2011.

Financial Expenses. For the three months ended September 30, 2012, financial expense increased to approximately $4.2 million from approximately $0.1 million during the same period in 2011. The increase in expense resulted primarily from approximately $3.2 million of financial expense pertaining to the revaluation of warrants due to our stock price increasing to $2.27 on September 30, 2012, from $1.06 on June 30, 2012, and approximately $1.0 million of amortization expense pertaining to the convertible debentures and their related issuance costs for the three months ended September 30, 2012. Financial expense as a percentage of revenue increased from 5.4% in 2011, to 828.7% in 2012.

Tax Expenses. Tax expense remained relatively flat at $7,000 for the three months ended September 30, 2012, as compared to $25,000 during the same period in 2011.

Net Loss. Our net loss increased by approximately $5.2 million, or 230.0%, to $7.5 million for the three months ended September 30, 2012 from $2.3 million during the same period in 2011. The increase in net loss resulted primarily from an increase in financial expenses of approximately $4.1 million (see above for explanation), a decrease of approximately $0.9 million in gross profit (see above for explanation) and an increase of approximately $0.3 million in operating expenses (see above for explanation).

Liquidity and Capital Resources

Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011

We have had recurring losses and negative cash flows from operating activities and have significant future commitments. For the three months ended September 30, 2012, we had losses of approximately $7.5 million and negative cash flows from operating activities of approximately $2.4 million. Additionally, as of September 30, 2012, we had a capital deficiency of $756,000. Our management believes that its working capital as of September 30, 2012 of approximately $8.6 million should enable us to continue funding the negative cash flows from operating activities until October 2013, when our convertible debentures are subject to a non-contingent redemption option that could require us to make a payment of approximately $13.3 million, including accrued interest. Since we expect to continue incurring negative cash flows from operations and in light of the potential cash requirement in connection with our convertible debentures, there is substantial doubt about our ability to continue operating as a going concern.

We will need to raise further capital at some future point in time, through the sale of additional equity securities or debt. Our future capital requirements and the adequacy of our available funds will depend on many factors, including our ability to successfully commercialize our MGuard products, our development of future products and competing technological and market developments. However, we may be unable to raise sufficient additional capital when we require it or upon terms favorable to us. In addition, the terms of any securities we issue in future financings may be more favorable to new investors and may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect on the holders of any of our securities then outstanding. If we are unable to obtain adequate funds on reasonable terms, we will need to curtail operations significantly, including possibly postponing or halting our U.S. Food and Drug Administration clinical trials or entering into financing agreements with unattractive terms.

General. At September 30, 2012, we had cash and cash equivalents of approximately $8.3 million, as compared to $10.3 million as of June 30, 2012. The decrease is attributable primarily to our net loss, excluding non-cash financial expenses. We have historically met our cash needs through a combination of issuance of new shares, borrowing activities and sales. Our cash requirements are generally for product development, clinical trials, marketing and sales activities, finance and administrative cost, capital expenditures and general working capital.

Cash used in our operating activities was approximately $2.4 million for the three months ended September 30, 2012 and $2.1 million for the same period in 2011. The principal reasons for the usage of cash in our operating activities for the three months ended September 30, 2012 include a net loss of approximately $7.5 million, offset by approximately $4.0 million in non-cash financial expenses, approximately $1.0 million in non-cash share-based compensation and a decrease in working capital of approximately $0.1 million.

Cash used in our investing activities was approximately $57,000 during the three months ended September 30, 2012, compared to approximately $264,000 of cash generated by investing activities during the same period in 2011. The principal reason for the decrease in cash flow from investing activities during 2012 was the purchase of approximately $35,000 of new manufacturing equipment and the funding of employee retirement funds of approximately $22,000.

Cash generated by financing activities was approximately $0.4 million for the three months ended September 30, 2012, compared to $1.4 million generated from financing activities for the same period in 2011. The principal source of cash from financing activities during the three months ended September 30, 2012 was funds received for the exercise of options and warrants in the amount of approximately $0.4 million. In contrast, during the three months ended September 30, 2011, we received approximately $1.5 million from the exercise of options, partially offset by a repayment of a long term loan of approximately $0.1 million.

As of September 30, 2012, our current assets exceeded current liabilities by a multiple of 3.6. Current assets decreased approximately $2.3 million during the three month period, mainly due to cash used in operations, and current liabilities decreased by approximately $0.2 million during the same period. As a result, our working capital surplus decreased by approximately $2.1 million to approximately $8.6 million during the three months ended September 30, 2012.

Recently Issued Accounting Pronouncements

None

Factors That May Affect Future Operations

We believe that our future operating results will continue to be subject to quarterly variations based upon a wide variety of factors, including the cyclical nature of the ordering patterns of our distributors, timing of regulatory approvals, the implementation of various phases of our clinical trials and manufacturing efficiencies due to the learning curve of utilizing new materials and equipment. Our operating results could also be impacted by a weakening of the Euro and strengthening of the New Israeli Shekel, or NIS, both against the U.S. dollar. Lastly, other economic conditions we cannot foresee may affect customer demand, such as individual country reimbursement policies pertaining to our products.

Contractual Obligations and Commitments

During the three months ended September 30, 2012, there were no material changes to our contractual obligations and commitments.

  Add NSPR to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for NSPR - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.