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NSPR > SEC Filings for NSPR > Form 10-Q on 12-Nov-2013All Recent SEC Filings

Show all filings for INSPIREMD, INC.

Form 10-Q for INSPIREMD, INC.


12-Nov-2013

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 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;
· 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, Asia 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 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 Annual Report on Form 10-K for the twelve month period ended June 30, 2013, 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 focused 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).

We effectuated a one-for-four reverse stock split of our common stock on December 21, 2012. Our authorized shares of common stock were not adjusted as a result of this reverse stock split. All share and related option and warrant information presented in the following discussion and analysis of our financial condition and results of operations and the accompanying consolidated interim financial statements have been retroactively adjusted to reflect the reduced number of shares outstanding which resulted from this action.

On September 16, 2013, our board of directors approved a change in our fiscal year-end from June 30 to December 31, effective December 31, 2013.

Recent Events

On October 23, 2013, we entered into a loan and security agreement, pursuant to which we received a loan of $10 million. Interest on the loan is determined on a daily basis at a variable rate equal to the greater of either (i) 10.5%, or (ii) the sum of (A) 10.5% plus (B) the prime rate minus 5.5%. Payments under the loan and security agreement are interest only for 9 months, followed by 30 monthly payments of principal and interest through the scheduled maturity date on February 1, 2017. Our obligations under the loan and security agreement are secured by a grant of a security interest in all of our assets (other than our intellectual property). In addition, in connection with the loan and security agreement, we issued the lender a five year warrant to purchase 168,351 shares of our common stock at a per share exercise price of $2.97.

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 both (i) the Management's Discussion and Analysis of Financial Condition and Results of Operations section and (ii) Note 2 of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended June 30, 2013. There have not been any material changes to such critical accounting policies since June 30, 2013.

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

Results of Operations

Three months ended September 30, 2013 compared to three months ended September 30, 2012

Revenues. For the three months ended September 30, 2013, revenue increased by approximately $1.1 million, or 204.9%, to approximately $1.6 million from approximately $0.5 million during the same period in 2012. This increase was predominantly driven by an increase in sales volume of approximately $1.0 million, or approximately 192.5%, with price increases to our repeat distributors driving the remaining increase of approximately $0.1 million, or 12.4%. The $1.0 million increase in sales volume reflects the positive impact of recent steps taken to stabilize the global distribution strategy and the early success of targeted selling activities in Brazil as well as select European countries.

With respect to regions, the increase in revenue was mainly attributable to an increase of approximately $0.8 million in revenue from our distributors in Europe and an increase of approximately $0.3 million in revenue from our distributors in Latin America.

Gross Profit. For the three months ended September 30, 2013, gross profit (revenue less cost of revenues) increased 187.5%, or approximately $0.5 million, to approximately $0.8 million from approximately $0.3 million during the same period in 2012. The increase in gross profit is attributable to an increase in revenue of approximately $1.1 million, as described above, partially offset by an increase in cost of revenues of approximately $0.5 million, which was composed of material and labor costs of approximately $0.4 million associated with our increased sales and approximately $0.2 million of non-recurring expenses related to the consolidation of our manufacturing facilities, partially offset by a decrease of approximately $0.1 million in miscellaneous expenses. Gross margin (gross profits as a percentage of revenue) decreased from 54.8% in the three months ended September 30, 2012 to 51.7% in the three months ended September 30, 2013. If the non-recurring effects of the consolidation of our manufacturing facilities in the three months ended September 30, 2013, are removed, gross margin for the three months ended September 30, 2013 would have been 63.1%.

                                                         Three months ended
                                                            September 30,
                                                        2013            2012
                                                          ($ in thousands)
      Gross Profit                                    $     802       $     279
      Non-recurring expenses                                178               -
      Gross profit excluding non-recurring expenses   $     980       $     279

Research and Development Expenses. For the three months ended September 30, 2013, research and development expenses increased 63.2%, or approximately $0.6 million, to approximately $1.5 million, from approximately $0.9 million during the same period in 2012. This increase in research and development expenses resulted primarily from an increase of approximately $0.1 in related travel expenses and $0.8 million in clinical trial expenses associated with our U.S Food and Drug Administration trial moving from the pre-clinical stage to the set-up phase, triggering costs associated with the selection and qualification of trial sites, and contract research organization management fees, among others. This increase in research and development expenses, however, was partially offset by a decrease of $0.2 million in expenses associated with our MASTER trial, which is near conclusion, and a decrease of approximately $0.1 million in expenditures related to the development of the MGuard Carotid product. Research and development expense as a percentage of revenue decreased to 99.5% for the three months ended September 30, 2013, from 185.9% in the same period in 2012. Research and development expenses related to our U.S. Food and Drug Administration trial are expected to continue to increase sharply, as we received an approval with conditions to commence the trial on April 19, 2013 and had the first patient enrolled in July 2013.

Selling and Marketing Expenses. For the three months ended September 30, 2013, selling and marketing expenses increased 106.5%, or approximately $0.4 million, to approximately $0.8 million, from approximately $0.4 million during the same period in 2012. The increase in selling and marketing expenses resulted primarily from an increase of approximately $0.3 million in salaries, as we expanded our sales activities worldwide, and an increase of approximately $0.1 million in miscellaneous expense. Much of these sales initiatives were driven by our efforts to capitalize on the publication of the MASTER trial results, which represented our first randomized data related to our MGuard technology, and efforts to support our new direct sales channels in key European countries. Selling and marketing expenses as a percentage of revenue decreased to 53.5% in the three months ended September 30, 2013 from 79.0% in the same period in 2012.

General and Administrative Expenses. For the three months ended September 30, 2013, general and administrative expenses increased 4.6%, or approximately $0.1 million, to approximately $2.3 million from approximately $2.2 million during the same period in 2012. The increase in general and administrative expenses resulted primarily from an increase of approximately $0.3 million in salaries (which predominately relates to the hiring of our new chief executive officer and our vice president of corporate development) and an increase of approximately $0.1 million in miscellaneous expenses. This increase was partially offset by a decrease in bad debt expense of approximately $0.2 million and a decrease of approximately $0.1 million in audit fees. General and administrative expenses as a percentage of revenue decreased to 149.0% in the three months ended September 30, 2013 from 434.6% in the same period in 2012.

Financial Expenses. For the three months ended September 30, 2013, financial expenses decreased 98.6%, or approximately $4.1 million, to approximately $0.1 million from approximately $4.2 million during the same period in 2012. The decrease in financial expenses resulted primarily from the absence of any non-cash revaluations of our warrants or amortization expenses during the three months ended September 30, 2013. In contrast, during the three months ended September 30, 2012, we recognized approximately $3.2 million of financial expense pertaining to the non-cash revaluation of certain of our warrants due to our stock price increasing from $4.24 to $9.08 during such period and approximately $1.0 million of amortization expense pertaining to our previously outstanding senior convertible debentures and their related issuance costs (of which approximately $0.8 million represented the non-cash amortization of the discount of the convertible debentures and their related issuance costs). This decrease in expenses was partially offset by approximately $0.1 million of non-cash expense pertaining to our obligation to issue shares of common stock without new consideration to the investors in our March 2011 private placement due to certain anti-dilution rights held by such stockholders. Financial expense as a percentage of revenue decreased from 828.7% in the three months ended September 30, 2012, to 3.7% in the same period in 2013. If the non-cash effects of the warrant revaluation and amortization expense in the three months ended September 30, 2012, as well as the non-cash effects of the anti-dilution rights in the three months ended September 30, 2013 are removed, financial expenses for the three months ended September 30, 2012 would have totaled approximately $0.2 million, as compared to approximately $20,000 of financial income for the three months ended September 30, 2013, resulting in a decrease of approximately $0.2 million

                                                              Three months ended
                                                                 September 30,
                                                              2013           2012
                                                               ($ in thousands)
  Financial expenses                                        $     57       $  4,218
  Non-cash expenses:
  Anti-dilution rights                                            77              -
  Revaluation of warrants                                          -          3,225
  Amortization expense                                             -            752
  Total non-cash expenses                                         77          3,977
  Financial expenses (income) excluding non-cash expenses   $    (20 )     $    241

Tax Expenses. For the three months ended September 30, 2013, tax expenses decreased approximately $4,000 to approximately $3,000 for the three months ended September 30, 2013, from approximately $7,000 during the same period in 2012.

Net Loss. Our net loss decreased by approximately $3.6 million, or 47.4%, to approximately $3.9 million for the three months ended September 30, 2013 from approximately $7.5 million during the same period in 2012. The decrease in net loss resulted primarily from a decrease of approximately $4.1 million in financial expenses, of which approximately $3.9 million were non-cash (see above for explanation), and an increase of approximately $0.6 million in gross profit (see above for explanation), partially offset by an increase of approximately $1.1 million in operating expenses (see above for explanation). If the non-cash effects of the warrant revaluation and amortization expense in the three months ended September 30, 2012, as well as the anti-dilution rights in the three months ended September 30, 2013 are removed, our net loss would be approximately $3.5 million for the three months ended September 30, 2012, as compared to a net loss of approximately $3.9 million for the same period in 2013, resulting in an increase of approximately $0.4 million, or 9.6%.

Liquidity and Capital Resources

On April 16, 2013, we consummated an underwritten public offering, pursuant to which we sold 12.5 million shares of common stock at a public offering price of $2.00 per share. In connection with this offering, we received net proceeds of approximately $22.6 million, after deducting the underwriters' commissions and offering expenses.

Due to the underwritten public offering of our common stock in April 2013, pursuant to which we received net proceeds of approximately $22.6 million, the exchange and amendment agreement pursuant to which, as described below, we fully satisfied our obligations under our senior secured convertible debentures due April 15, 2014 in the prior principal amount of $11.7 million and our receipt of net proceeds of approximately $9.9 million in connection with the loan and security agreement we entered into in October 2013, we believe that we have sufficient cash to continue our operations into 2015. However, depending on the operating results in 2014, we may need to raise additional funds in 2015 to continue financing our operations.

Three months ended September 30, 2013 compared to three months ended September 30, 2012

General. At September 30, 2013, we had cash and cash equivalents of approximately $11.4 million, as compared to $14.8 million as of June 30, 2013. We have historically met our cash needs through a combination of issuing new shares, borrowing activities and sales. Our cash requirements are generally for clinical trials, marketing and sales activities, finance and administrative cost, capital expenditures and general working capital.

Cash used in our operating activities was approximately $3.3 million for the three months ended September 30, 2013 and $2.4 million for the same period in 2012. The principal reasons for the usage of cash in our operating activities for the three months ended September 30, 2013 include a net loss of approximately $3.9 million and an increase in working capital of approximately $0.3 million, offset by approximately $0.9 million in non-cash share-based compensation that was largely paid to our directors and chief executive officer.

Cash used in our investing activities was approximately $110,000 during the three months ended September 30, 2013, compared to approximately $57,000 during the same period in 2012. The principal reason for the increase in cash used in investing activities during 2013 was the purchase of property, plant and equipment of approximately $80,000 (primarily new manufacturing equipment and leasehold improvements for our production facilities) and the funding of employee retirement funds of approximately $30,000.

There was no cash generated or used by financing activities for the three months ended September 30, 2013, compared to $0.4 million generated during the same period in 2012. The principal source of cash generated from financing activities during the three months ended September 30, 2012 was approximately $0.4 million of funds received from the exercise of options and warrants.

As of September 30, 2013, our current assets exceeded our current liabilities by a multiple of 3.9. Current assets decreased approximately $3.3 million during the three month period, mainly due to cash used in operations, and current liabilities remained flat during the period. As a result, our working capital surplus decreased by approximately $3.3 million to approximately $11.6 million at September 30, 2013.

Off Balance Sheet Arrangements

We have no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Recent 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.

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