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 7-May-2014All Recent SEC Filings

Show all filings for INSPIREMD, INC.

Form 10-Q for INSPIREMD, INC.


7-May-2014

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 Transition Report on Form 10-KT for the six month period ended December 31, 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.

Recent Events

On April 30, 2014, we publicly announced our decision to initiate a voluntary field corrective action or product recall with respect to our MGuard Prime embolic protection systems to address reports of stent dislodgement. In connection with such action, we have ceased shipments of all MGuard Prime units and suspended enrollment in our MASTER II trial pending a review by the U.S. Food and Drug Administration and other regulatory agencies. We believe that we have identified the cause of the dislodgement issue and, upon approval from the European regulatory agency, intend to modify all existing units of the MGuard Prime to improve stent retention and performance. Our voluntary recall and field corrective action is subject to numerous risks and uncertainties as discussed more fully in the section entitled "Risk Factors."

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 Transition Report on Form 10-KT for the six month period ended December 31, 2013. There have not been any material changes to such critical accounting policies since December 31, 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 March 31, 2014 compared to the three months ended March 31, 2013

Revenues. For the three months ended March 31, 2014, revenue decreased by $32,000, or 2.2%, to $1.5 million from $1.5 million during the same period in 2013. This decrease was driven by a decrease in sales volume of $16,000, or 1.1%, with price decreases to our repeat distributors driving the remaining decrease of $16,000, or 1.1%.

With respect to regions, revenue from our distributors in the Middle East increased $0.5 million, which was offset by a decrease of $0.5 million in revenue from our distributors in Europe as we moved to direct sales channels in key European countries. Moving from distributor based sales to direct sales adversely impacted revenues for the three months ended March 31, 2014, as we did not either (i) sell material quantities of product to distributors in territories where we chose to transition to direct sales or (ii) begin material direct sales in those affected territories as the affected distributors already had inventory consigned to individual hospitals that must be consumed before direct sales can successfully commence. This transition can last two to three quarters or longer based on inventory levels. We believe that the move to direct sales activities, however, will prove to be successful in the long term, as it allows us to work directly with customers to better deliver clinical education and improve adoption of our technology. Direct sales should also translate into a higher gross margin, as it will allow us to benefit from end user versus transfer pricing in those select markets.

Gross Profit. For the three months ended March 31, 2014, gross profit (revenue less cost of revenues) increased 2.0%, or $17,000, to $0.9 million from $0.8 million during the same period in 2013. This increase in gross profit was attributable to a decrease in cost of revenues of $49,000. This increase in gross profit was partially offset by a decrease in revenue of $32,000, as described above. Gross margin (gross profits as a percentage of revenue) increased from 55.5% in the three months ended March 31, 2013 to 57.8% in same period in 2014 mostly as a result of the decrease in cost of revenues, as noted above. The cost of revenues for the three months ended March 31, 2014 included a write-off of slow moving inventory of $52,000. If the effects of the write-off of slow moving inventory in the three months ended March 31, 2014, are removed, gross margin for the three months ended March 31, 2014 would have been 61.3%.

Research and Development Expenses. For the three months ended March 31, 2014, research and development expenses increased 184.1%, or $1.7 million, to $2.6 million, from $0.9 million during the same period in 2013. This increase in research and development expenses resulted primarily from increases of $0.2 million in related salaries, $0.1 million in related travel expenses, $0.2 million in miscellaneous expenses and $1.4 million in clinical trial expenses associated with our MASTER II trial moving from the pre-clinical stage to the set-up and enrollment phases. This increase in research and development expenses, however, was partially offset by a decrease of $0.2 million in expenses associated with the conclusion of our MASTER I trial in 2013. Research and development expense as a percentage of revenue increased to 173.9% for the three months ended March 31, 2014, from 59.9% in the same period in 2013.

Selling and Marketing Expenses. For the three months ended March 31, 2014, selling and marketing expenses increased 58.7%, or $0.5 million, to $1.3 million, from $0.8 million during the same period in 2013. This increase in selling and marketing expenses resulted primarily from an increase of $0.3 million in salaries and an increase of $0.1 million in share based compensation, as we hired additional sales personnel in an effort to expand our sales activities worldwide, an increase of $0.1 million in travel expenses for our increased sales force and an increase of $0.2 million in miscellaneous expenses. Much of these sales initiatives were driven by our efforts to capitalize on the publication of our MASTER I trial results, our first randomized data related to our MGuard technology, and efforts to support our new direct sales channels in key European countries. This increase in selling and marketing expenses, however, was partially offset by a decrease of $0.2 million in product promotion expenses. Selling and marketing expenses as a percentage of revenue increased to 86.1% in the three months ended March 31, 2014 from 53.1% in the same period in 2013.

General and Administrative Expenses. For the three months ended March 31, 2014, general and administrative expenses increased 8.5%, or $0.2 million, to $2.5 million from $2.3 million during the same period in 2013. The increase in general and administrative expenses resulted primarily from an increase of $0.1 million in salaries, an increase in director's compensation of $0.1 million, an increase in travel expense of $0.1 million and an increase in miscellaneous expenses of $0.2 million. This increase was partially offset by a decrease in share based compensation of $0.3 million. General and administrative expenses as a percentage of revenue increased to 171.3% in the three months ended March 31, 2014 from 154.6% in the same period in 2013.

Financial Expenses. For the three months ended March 31, 2014, financial expenses decreased 75.6%, or $1.3 million, to $0.4 million from $1.7 million during the same period in 2013. The decrease in financial expenses resulted from a decrease of $0.9 million of amortization and interest expenses. In the three months ended March 31, 2014, we recognized $0.4 million in amortization and interest expense, in contrast to the three months ended March 31, 2013, during which we recognized $1.3 million of amortization and interest expense pertaining to our previously outstanding senior convertible debentures and their related issuance costs (of which $1.0 million represented the non-cash amortization of the discount of the convertible debentures and their related issuance costs). In addition, we incurred $1.3 million of non-cash expense in the three months ended March 31, 2013 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 and the non-cash revaluations of our warrants. No such expense occurred during the three months ended March 31, 2014. This decrease in expenses was partially offset by the absence of any non-cash revaluations of our warrants during the three months ended March 31, 2014. During the three months ended March 31, 2013, we recognized $0.9 million of financial income pertaining to the non-cash revaluation of certain of our warrants due to our stock price decreasing from $3.90 to $2.52 during such period. No such income was recognized during the three months ended March 31, 2014. Financial expense as a percentage of revenue decreased to 27.9% in the three months ended March 31, 2014, from 111.8% in the same period in 2013.

Tax Expenses. For the three months ended March 31, 2014, tax expenses increased $38,000 to $20,000 from $18,000 of tax income during the same period in 2013.

Net Loss. Our net loss increased by $1.1 million, or 22.2%, to $6.0 million for the three months ended March 31, 2014 from $4.9 million during the same period in 2013. The increase in net loss resulted primarily from an increase of $2.4 million in operating expenses primarily associated with research and development and sales and marketing expansion (see above for explanation), partially offset by a decrease of $1.3 million in financial expenses, of which $1.5 million were non-cash (see above for explanation). If the non-cash effects of the warrant revaluation, amortization expense and effects of the anti-dilution rights in the three months ended March 31, 2013 are removed our net loss would be $3.4 million for the three months ended March 31, 2013, as compared to a net loss of $6.0 million for the same period in 2014.

Liquidity and Capital Resources

We had an accumulated deficit of $88.3 million as of March 31, 2014, as well as net losses and negative operating cash flows in recent years and the current quarter. We expect to continue incurring losses and negative cash flows from operations until our MGuard products reach profitability. Based on our most recent forecasts, we do not anticipate having sufficient resources to fund operations into the third quarter of 2015. Therefore, there is substantial doubt about our ability to continue as a going concern.

Our plans include the continued successful commercialization of the MGuard product and raising capital through the sale of additional equity securities or debt, including through our "At-the-Market" equity program. There are no assurances, however, that we will be successful in obtaining sufficient financing to fund our operations. If we are unsuccessful in commercializing our MGuard products to the level of profitability and raising capital, we may need to reduce activities or curtail or, in the extreme case, cease operations.

Three months ended March 31, 2014 compared to the three months ended March 31, 2013

General. At March 31, 2014, we had cash and cash equivalents of $13.7 million, as compared to $17.5 million as of December 31, 2013. We have historically met our cash needs through a combination of issuing new shares, borrowing activities and product 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 $3.7 million for the three months ended March 31, 2014 and $2.8 million for the same period in 2012. The principal reason for the usage of cash in our operating activities for the three months ended March 31, 2014 was a net loss of $6.0 million, offset by $1.0 million in non-cash share-based compensation that was largely paid to our directors and chief executive officer, a decrease in working capital of $1.1 million, $0.1 million of non-cash financial expense, and $0.1 million of depreciation and amortization expenses. The principal reasons for the usage of cash in our operating activities for the three months ended March 31, 2013 included a net loss of approximately $4.9 million and an increase in working capital of approximately $0.8 million, offset by approximately $1.3 million in non-cash share-based compensation, approximately $1.5 million in non-cash financial expenses and approximately $0.1 million in depreciation and amortization expenses.

Cash used in our investing activities was $34,000 during the three months ended March 31, 2014, compared to $74,000 during the same period in 2013. The principal reason for the decrease in cash used in investing activities during 2014 was the purchase of property, plant and equipment of $13,000, as compared to $31,000 in the same period in 2013, as well as the funding of employee retirement funds of $21,000 in the three months ended March 31, 2014, as compared to $45,000 in the same period in 2013.

Cash used by financing activities for the three months ended March 31, 2014 was $77,000, compared to $20,000 during the same period in 2013. The reason for the increase in cash used by financing activities during the three months ended March 31, 2014 related largely to payments made by us in satisfaction of tax withholding obligations associated with the vesting of restricted stock held by our chief executive officer.

As of March 31, 2014, our current assets exceeded our current liabilities by a multiple of 2.3. Current assets decreased $4.3 million during the period, mainly due to cash used in operations, and current liabilities increased by $1.4 million during the period. As a result, our working capital surplus decreased by $5.7 million to $9.7 million at March 31, 2014.

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.

  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.