InspireMD, Inc. - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended: September 30, 2021

OR

For the transition period from              to

Commission file number: 001-35731

InspireMD, Inc.

(Exact name of registrant as specified in its charter)

4 Menorat Hamaor St.

Tel Aviv, Israel 6744832

(Address of principal executive offices)

(Zip Code)

(888) 776-6204

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

The number of shares of the registrant’s common stock, $0.0001 par value, outstanding as of November 4, 2021: 8,077,047

TABLE OF CONTENTS

INSPIREMD, INC.

CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE QUARTER ENDED SEPTEMBER 30, 2021

TABLE OF CONTENTS

INSPIREMD, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(U.S. dollars in thousands)

INSPIREMD, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(U.S. dollars in thousands other than share and per share data)

The accompanying notes are an integral part of the consolidated financial statements.

INSPIREMD, INC.

(Unaudited)

CONSOLIDATED STATEMENTS OF OPERATIONS

(U.S. dollars in thousands, except per share data)

The accompanying notes are an integral part of the consolidated financial statements.

INSPIREMD, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(U.S. dollars in thousands, except share data)

The accompanying notes are an integral part of the consolidated financial statements.

INSPIREMD, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(U.S. dollars in thousands, except share data)

The accompanying notes are an integral part of the consolidated financial statements.

INSPIREMD, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(U.S. dollars in thousands, except share data)

The accompanying notes are an integral part of the consolidated financial statements.

INSPIREMD, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(U.S. dollars in thousands, except share data)

The accompanying notes are an integral part of the consolidated financial statements.

INSPIREMD, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(U.S. dollars in thousands)

The accompanying notes are an integral part of the consolidated financial statements.

INSPIREMD, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - DESCRIPTION OF BUSINESS

NOTE 2 - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements for the year ended December 31, 2020. In the opinion of the Company, the financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of its financial position as of September 30, 2021 and its results of operations and cash flows for the three and nine months ended September 30, 2021 and 2020. These consolidated financial statements and notes thereto are unaudited and should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2020, as found in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 8, 2021. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of results that could be expected for the entire fiscal year.

NOTE 3 - EQUITY:

As of September 30, 2021, the Company has outstanding warrants to purchase an aggregate of 1,793,983 shares of common stock as follows:

SCHEDULE OF ISSUANCE OF WARRANTS TO PURCHASE COMMON STOCK 

As of September 30, 2021, the Company had 155,000,000 authorized shares of capital stock, par value $0.0001 per share, of which 150,000,000 are shares of common stock and 5,000,000 are shares of “blank check” preferred stock.

NOTE 4 – RELATED PARTIES TRANSACTIONS

On May 10, 2021, the board of directors of the Company appointed a new member. During the nine months ended September 30, 2021, a consulting company whose founder and CEO is our new board member provided certain marketing services in the amount of $30,000.

NOTE 5- NET LOSS PER SHARE:

Basic and diluted net loss per share is computed by dividing the net loss for the period by the weighted average number of shares of common stock outstanding during the period. The calculation of diluted net loss per share excludes potential share issuances of common stock upon the exercise of share options, warrants, unvested restricted stock and unvested restricted stock units as the effect is anti-dilutive.

The total number of shares of common stock related to outstanding options, warrants, unvested restricted stock, unvested restricted stock units and Series C Preferred Stock excluded from the calculations of diluted loss per share were 2,163,741 for the nine and three month periods ended September 30, 2021.

The total number of shares of common stock related to outstanding options, warrants, restricted stock, restricted stock units and Series C Preferred Stock excluded from the calculations of diluted loss per share were 2,091,917 for the nine and three month periods ended September 30, 2020.

NOTE 6 – FINANCIAL INSTRUMENTS:

The carrying amounts of financial instruments included in working capital approximate their fair value either because these amounts are presented at fair value or due to the relatively short-term maturities of such instruments.

NOTE 7 – INVENTORY:

 SCHEDULE OF INVENTORY

NOTE 8 - ACCOUNTS PAYABLE AND ACCRUALS - OTHER:

 SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUALS - OTHER

NOTE 9 - DISAGGREGATED REVENUE AND ENTITY WIDE DISCLOSURES:

Revenues are attributed to geographic areas based on the location of the customers. The following is a summary of revenues:

 SCHEDULE OF REVENUES ATTRIBUTED TO GEOGRAPHIC AREAS

By product:

 SCHEDULE OF REVENUES ATTRIBUTED TO GEOGRAPHIC AREAS BY PRODUCT

By principal customers:

 SCHEDULE OF REVENUES ATTRIBUTED TO GEOGRAPHIC AREAS BY PRINCIPAL CUSTOMERS

All tangible long lived assets are located in Israel.

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,” “will,” “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 may 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:

The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. 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 in this Quarterly Report on Form 10-Q, 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.

All information in this Quarterly Report on Form 10-Q relating to shares or price per share reflects the 1-for-15 reverse stock split effected by us on April 26, 2021.

Overview

We are a medical device company focusing on the development and commercialization of our proprietary MicroNet™ stent platform technology for the treatment of complex vascular and coronary disease. A stent is an expandable “scaffold-like” device, usually constructed of a metallic material, that is inserted into an artery to expand the inside passage and improve blood flow. MicroNet, a micron mesh sleeve, is wrapped over a stent to provide embolic protection in stenting procedures.

Our CGuard™ carotid embolic prevention system (“CGuard EPS”) combines MicroNet and a self-expandable nitinol stent in a single device for use in carotid artery applications. Our CGuard EPS received CE mark approval in the European Union in March 2013 and was fully launched in Europe in September 2015. Subsequently, we launched CGuard EPS in Russia and certain countries in Latin America and Asia, including India. In September 2020, we launched CGuard EPS in Brazil after receiving regulatory approval in July 2020 and as discussed below, on February 3, 2021, we executed a distribution agreement with Chinese partners for the purpose of expanding our presence in China. Currently, we are seeking strategic partners for a potential launch of CGuard EPS in Japan.

On September 8, 2020, we received approval from the U.S. Food and Drug Administration (“FDA”) of our Investigation Device Exemption (“IDE”), thereby allowing us to proceed with a pivotal study of our CGuard™ Carotid Stent System, C-Guardians, for prevention of stroke in patients in the United States. C-Guardians is a prospective, multicenter, single-arm, pivotal study to evaluate the safety and efficacy of the CGuard™ Carotid Stent System when used to treat symptomatic and asymptomatic carotid artery stenosis in patients undergoing carotid artery stenting. The trial will enroll approximately 315 subjects in a maximum of 40 study sites located in the United States and Europe. Study sites in Europe may contribute a maximum of approximately 50% of the total enrollees. The primary endpoint of the study will be the composite of incidence of death (all-cause mortality), all stroke, and myocardial infarction (DSMI) through 30-days post-index procedure, based on the clinical events committee (CEC) adjudication and ipsilateral stroke from 31-365 day follow-up, based on Clinical Events Committee (CEC) adjudication.

On July 22, 2021, we announced the initiation of enrollment and successful completion of the first cases of our C-Guardian trial of CGuard EPS. The first patients, who were under the care of principal investigator, Chris Metzger, M.D., system chair of clinical research at Ballard Health System in Eastern Tennessee, were successfully implanted with the CGuard EPS stent device. These are the first of 315 patients who are expected to be enrolled in the trial and receive CGuard EPS in the treatment of carotid artery stenosis in symptomatic and asymptomatic patients undergoing carotid artery stenting.

Additionally, we intend to continue to invest in current and future potential product and manufacturing enhancements for CGuard EPS that are expected to reduce cost of goods and/or provide the best-in-class performing delivery system. In furtherance of our strategy that focuses on establishing CGuard EPS as a viable alternative to vascular surgery, we are exploring adding new delivery systems and accessory solutions for procedural protection to our portfolio.

We consider the addressable market for our CGuard EPS to be individuals with diagnosed, symptomatic high-grade carotid artery stenosis (HGCS, ≥70% occlusion) for whom intervention is preferable to medical (drug) therapy. This group includes not only carotid artery stenting patients but also individuals undergoing carotid endarterectomy, as the two approaches compete for the same patient population. Assuming full penetration of the intervention caseload by CGuard EPS, we estimate that the addressable market for CGuard EPS was approximately $1.0 billion in 2017 (source: Health Research International 2017 Results of Update Report on Global Carotid Stenting Procedures and Markets by Major Geography and Addressable Markets).

Our MGuard™ Prime™ embolic protection system (“MGuard Prime EPS”) is marketed for use in patients with acute coronary syndromes, notably acute myocardial infarction (heart attack) and saphenous vein graft coronary interventions, or bypass surgery. MGuard Prime EPS combines MicroNet with a bare-metal cobalt-chromium based stent. MGuard Prime EPS received CE mark approval in the European Union in October 2010 for improving luminal diameter and providing embolic protection. However, as a result of a shift in industry preferences away from bare-metal stents in favor of drug-eluting, or drug-coated, stents, in 2014 we decided to curtail further development of this product in order to focus on the development of a drug-eluting stent product, MGuard DES™. Due to limited resources, however, our efforts have been limited to testing drug-eluting stents manufactured by potential partners for compatibility with MicroNet and seeking to incorporate MicroNet onto a drug-eluting stent manufactured by a potential partner. The FDA has clarified that the primary mode of action for drug-eluting cardiovascular stents, which are regulated as combination products, is that of the device component and has assigned the FDA Center for Devices and Radiological Health (CDRH) primary responsibility for premarket review and regulation, providing some clarity about what to expect regarding the regulatory framework related to the development of MGuard DES™. As a result of declining sales of the MGuard Prime EPS, which we believe is largely driven by the predominant industry preferences favoring drug-eluting stents rather than bare metal stents such as MGuard Prime EPS in ST-Elevation Myocardial Infarction (“STEMI”) patients, we intend to phase out future sales of our MGuard Prime EPS in 2022.

We also intend to develop a pipeline of other products and additional applications by leveraging our MicroNet technology to new applications to improve peripheral vascular and neurovascular procedures, such as the treatment of the superficial femoral artery disease, vascular disease below the knee and neurovascular stenting to seal aneurysms in the brain.

Presently, none of our products may be sold or marketed in the United States.

We were organized in the State of Delaware on February 29, 2008.

Recent Developments

On September 30, 2021, at our 2021 annual meeting of stockholders, our stockholders approved our 2021 Equity Incentive Plan.

On October 13, 2021, we announced that our CGuard EPS stent system received a positive opinion from the National Commission for the Evaluation of Medical Devices and Health Technologies (CNEDIMTS) of the French National Authority for Health (HAS) regarding reimbursement in France, and the CGuard EPS was being added to the list of reimbursed medical products (LPPR) effective October 25, 2021. This was the final step to full commercial launch of CGuard EPS following CNEDIMTS’ positive opinion for reimbursement received by the Company on May 11, 2021 for the treatment of symptomatic and non-symptomatic lesions when surgery is not indicated.

COVID-19 Developments

The COVID-19 global pandemic has led governments and authorities around the globe to take various precautionary measures in order to limit the spread of COVID-19, including government-imposed quarantines, lockdowns, and other public health safety measures. We experienced a significant COVID-19 related impact on our financial condition and results of operations, primarily during the year ended December 31, 2020, which we primarily attribute to the postponement of CGuard EPS procedures (non-emergency procedures), as hospitals have shifted resources to patients affected by COVID-19. To the best of our knowledge, most European countries in which we operate reinstated non-emergency procedures. However, new COVID-19 variants, and potentially increasing infection rates make the current COVID-related environment highly volatile and uncertain and we anticipate that the continuation of the pandemic and related restrictions and safety measures will likely result in continued fluctuations in sales of our products, and potentially enrollments in our studies, for the upcoming periods.

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) “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and (ii) Note 2 of the Notes to the Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2020. There have not been any material changes to such critical accounting policies since December 31, 2020.

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

Contingencies

We and our subsidiaries are involved in legal proceedings that arise from time to time in the ordinary course of business. We record accruals for these types of contingencies to the extent that we conclude the occurrence of such contingencies is probable and that the related liabilities are estimable. When accruing these costs, we recognize an accrual in the amount within a range of loss that is the best estimate within the range. When no amount within the range is a better estimate than any other amount, we accrue for the minimum amount within the range. Legal costs are expensed as incurred.

Results of Operations

Three months ended September 30, 2021 compared to the three months ended September 30, 2020

Revenues. For the three months ended September 30, 2021, revenue increased by $91,000, or 9.3%, to $1,071,000, from $980,000 during the three months ended September 30, 2020. This increase was predominantly driven by a 23.8% increase in sales volume of CGuard EPS from $833,000 during the three months ended September 30, 2020, to $1,031,000 during the three months ended September 30, 2021. This sales increase was mainly due to the fact that in the three months ended September 30, 2021, procedures with CGuard EPS, which are generally scheduled for non-emergency cases, continued to return to normal levels in additional territories as compared to the three months ended September 30, 2020, when procedures with CGuard EPS were still somewhat postponed as hospitals shifted resources to patients affected by COVID-19. In addition, the sales increased due to sales related to stents used in our FDA clinical trial which occurred in the three months ended September 30, 2021, but not in the corresponding period in 2020. The increase in sales of CGuard EPS was partially offset by a decrease of 72.8% in sales of MGuard Prime EPS from $147,000 during the three months ended September 30, 2020, to $40,000 during the three months ended September 30, 2021, largely driven by the predominant industry preferences favoring drug-eluting stents rather than bare metal stents such as MGuard Prime EPS in STEMI patients.

With respect to geographical regions, the increase in revenue was primarily attributable to a $78,000 increase in revenue from Europe (primarily driven by a $134,000 increase of CGuard EPS sales, offset, in part, by a $56,000 decrease of MGuard Prime EPS sales for reasons discussed in the paragraph above).

Gross Profit. For the three months ended September 30, 2021, gross profit (revenue less cost of revenues) decreased by $206,000, to $92,000, from $298,000 during the three months ended September 30, 2020. This decrease in gross profit resulted from a $136,000 increase in material and labor costs (mainly due to an increase in sales volume as well as a short term increase in production cost per unit), an increase in write-offs of $66,000, due to components supply issues, a $57,000 increase in new employee training costs, and an increase of $38,000 in miscellaneous expenses during the three months ended September 30, 2021. This decrease was partially offset by a $91,000 increase in revenues mainly due to an increase in sales volume (as mentioned above). Gross margin (gross profits as a percentage of revenue) decreased to 8.6% during the three months ended September 30, 2021 from 30.4% during the three months ended September 30, 2020, driven by the reasons mentioned above.

Research and Development Expenses. For the three months ended September 30, 2021, research and development expenses increased by 173.8%, or $949,000, to $1,495,000, from $546,000 during the three months ended September 30, 2020. This increase resulted primarily from an increase of $708,000 in expenses related to the commencement of the C-Guardians FDA study, $151,000 in development expenses related to CGuard EPS new delivery system and accessory solutions and $91,000 in compensation expenses offset by a decrease of $1,000 in miscellaneous expenses.

Selling and Marketing Expenses. For the three months ended September 30, 2021, selling and marketing expenses increased by 65.4%, or $317,000, to $802,000, from $485,000 during the three months ended September 30, 2020. This increase resulted primarily from an increase in compensation expenses of $215,000 and other sales and marketing expenses of $102,000, both relating to increased activity associated with expansion of existing and new markets.

General and Administrative Expenses. For the three months ended September 30, 2021, general and administrative expenses increased by 24.9%, or $364,000, to $1,826,000, from $1,462,000 during the three months ended September 30, 2020. This increase resulted primarily from an increase in compensation expenses of $258,000, mainly due to an increase in salary expenses and related accruals of $137,000, and an increase of approximately $121,000 of share-based compensation-related expenses due to the expense recognition of grants made since August 31, 2020. In addition, we had an increase in Directors’ and Officers’ Liability Insurance expenses of $81,000, due to increased premiums caused by recent trends in the overall insurance industry, expenses pertaining to the higher costs of our annual stockholders meeting in 2021 compared to our annual stockholders meeting in 2020 of $63,000 offset by a decrease of $38,000 in miscellaneous expenses.

Financial Expenses. For the three months ended September 30, 2021, financial expenses increased by 5.3%, or $2,000, to $40,000, from $38,000 during the three months ended September 30, 2020.

Tax Expenses. For the three months ended September 30, 2021, there was no change in our tax expenses as compared to the three months ended September 30, 2020.

Net Loss. Our net loss increased by $1,838,000, or 82.3%, to $4,071,000, for the three months ended September 30, 2021, from $2,233,000 during the three months ended September 30, 2020. The increase in net loss resulted primarily from an increase of $1,630,000 in operating expenses and a decrease of $206,000 in gross profit.

Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020

Revenues. For the nine months ended September 30, 2021, revenue increased by $788,000, or 33.9%, to $3,115,000, from $2,327,000 during the nine months ended September 30, 2020. This increase was predominantly driven by a 45.4% increase in sales volume of CGuard EPS from $2,075,000 during the nine months ended September 30, 2020, to $3,018,000 during the nine months ended September 30, 2021. This sales increase was mainly due to the fact that in the nine months ended September 30, 2021, procedures with CGuard EPS, which are generally scheduled for non-emergency procedures began to return to normal levels as compared to the nine months ended September 30, 2020, when procedures with CGuard EPS were postponed as hospitals shifted resources to patients affected by COVID-19 beginning in February 2020. This increase in sales of CGuard EPS was partially offset by a decrease of 61.5% in sales of MGuard Prime EPS from $252,000 during the nine months ended September 30, 2020, to $97,000 during the nine months ended September 30, 2021, largely driven by the predominant industry preferences favoring drug-eluting stents rather than bare metal stents such as MGuard Prime EPS in STEMI patients.

With respect to geographical regions, the increase in revenue was primarily attributable to a $743,000 increase in revenue from sales made in Europe (driven by a $835,000 increase of CGuard EPS sales, offset, in part, by a $92,000 decrease of MGuard Prime EPS sales for reasons discussed in the paragraph above), as well as a $60,000 increase in CGuard EPS revenue from sales made in Asia.

Gross Profit. For the nine months ended September 30, 2021, gross profit (revenue less cost of revenues) decreased by 2.7%, or $13,000, to $460,000, compared to a gross profit of $473,000 for the same period in 2020. This decrease in gross profit resulted from an increase in write-offs of $89,000, which were driven mainly by components supply issues, a $45,000 increase in new employees training costs and an increase of $91,000 in miscellaneous expenses. This decrease was partially offset by a $212,000 increase in revenues less the related material and labor costs (as mentioned above). Gross margin (gross profits as a percentage of revenue) decreased to 14.8% during the nine months ended September 30, 2021 from 20.3% during the nine months ended September 30, 2020, driven by the reasons mentioned above.

Research and Development Expenses. For the nine months ended September 30, 2021, research and development expenses increased by 139.5%, or $2,111,000, to $3,624,000, from $1,513,000 during the nine months ended September 30, 2020. This increase resulted primarily from an increase of $1,191,000 in expenses related to the commencement of the C-Guardians FDA study, $515,000 in development expenses related to CGuard EPS new delivery system and accessory solutions, $386,000 in compensation expenses and $19,000 in miscellaneous expenses.

Selling and Marketing Expenses. For the nine months ended September 30, 2021, selling and marketing expenses increased by 44.4%, or $660,000, to $2,146,000, from $1,486,000 during the nine months ended September 30, 2020. This increase resulted primarily from an increase in compensation expenses of $627,000 and other sales and marketing expenses of $33,000 both relating to increased activity associated with expansion of existing and new markets.

General and Administrative Expenses. For the nine months ended September 30, 2021, general and administrative expenses increased by 32.4%, or $1,339,000, to $5,475,000, from $4,136,000 during the nine months ended September 30, 2020. This increase resulted primarily from an increase in compensation expenses of $1,289,000 mainly due to increases in salary expenses and related accruals of $699,000 primarily as a result of temporary salary reductions during the nine months ended September 30, 2020 that were implemented in response to the COVID-19 effect on revenues as well as additional headcount. In addition, compensation expenses increased due to an increase in $590,000 of share-based compensation-related expenses following the expense recognition of grants made since August 31, 2020. In addition, we had an increase in Directors’ and Officers’ Liability insurance expenses of $308,000, due to increased premiums caused by recent trends in the overall insurance industry and an increase in shareholder related expenses of $181,000 mainly due to a special shareholders meeting (which occurred in 2021, but not in 2020) and also due to higher costs of our annual stockholder meeting in 2021 compared to our annual stockholder meeting in 2020. These increases were partially offset by a decrease of $400,000 due to expenses for a settlement agreement with an underwriter of prior offerings which occurred in the three months ended March 31, 2020 and a decrease of $39,000 in miscellaneous expenses.

Financial Expenses. For the nine months ended September 30, 2021, financial expenses increased by 24.1%, or $7,000, to $36,000, from $29,000 during the nine months ended September 30, 2020.

Tax Expenses. For the nine months ended September 30, 2021, there was no material change in our tax expenses as compared to the nine months ended September 30, 2020.

Net Loss. Our net loss increased by $4,130,000, or 61.7%, to $10,821,000, for the nine months ended September 30, 2021, from $6,691,000 during the nine months ended September 30, 2020. The increase in net loss resulted primarily from an increase of $4,110,000 in operating expenses.

Liquidity and Capital Resources

As of September 30, 2021, we have the ability to fund our planned operations for at least the next 12 months from issuance date of the financial statement. However, we expect to continue incurring losses and negative cash flows from operations until our products (primarily CGuard™ EPS) reach commercial profitability. Therefore, in order to fund our operations until such time that we can generate substantial revenues, we may need to raise additional funds.

On July 28, 2020, we entered into a Sales Agreement with A.G.P. pursuant to which we were able to offer and sell, from time to time, at our option, through or to A.G.P., up to an aggregate of approximately $9,300,000 of shares of our common stock (the “ATM Facility”). On January 11, 2021, we increased the aggregate amount of our shares of common stock that may be sold under the Sales Agreement from $9,300,000 to $10,382,954, and, as a result, utilized and sold the maximum amount allowable under the ATM Facility, which resulted in an aggregate amount of $10,381,958.

On February 3, 2021, we entered into a Distribution Agreement with three China-based partners and on the same day, we entered into an investment transaction with QIDI, which included (i) a securities purchase agreement (“SPA”), pursuant to which QIDI agreed to invest $900,000 in exchange for shares of our common stock at a purchase price of $10.062 per share, and (ii) an IRA, whereby QIDI was provided certain customary registration rights, including a commitment by us to file a registration statement with the SEC on Form S-1 or Form S-3 and have such registration statement become effective not later than 150 days following the closing of the transactions under the SPA. The transaction closed on February 5, 2021.

On February 8, 2021, we closed an underwritten public offering of 1,935,484 units, with each such unit being comprised of one share of our common stock, par value $0.0001 per share, and one Series G Warrant to purchase one-half of one share of common stock. The offering price to the public was $9.30 per unit. The Series G Warrants were immediately exercisable at a price of $10.23 per share, subject to adjustment in certain circumstances, and expire five years from the date of issuance. We also granted the underwriter of the offering an option to purchase an additional 290,322 shares of common stock and Series G Warrants to purchase 145,161 shares of common stock, which the underwriter exercised in full. In connection with the offering, we granted to the underwriter a compensation warrant to purchase up to 111,290 shares of common stock with an exercise price of $10.23 per share and which are exercisable for five years from February 3, 2021, the date of effectiveness of the registration statement filed in connection with the offering. Our net proceeds from the offering, after giving effect to the exercise of the underwriter’s over-allotment option, were approximately $18.9 million, after deducting underwriting discounts and commissions and payment of other estimated expenses associated with the offering, but excluding the proceeds, if any, from the exercise of Series G Warrants sold in the offering.

Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020

General. At September 30, 2021, we had cash and cash equivalents of $13,059,000, as compared to $12,645,000 as of December 31, 2020. 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 research and development, marketing and sales activities, finance and administrative costs, capital expenditures and general working capital.

For the nine months ended September 30, 2021, net cash used in our operating activities increased by $3,428,000 to $10,309,000, from $6,881,000 during the same period in 2020. The primary reason for the increase in cash used in our operating activities was an increase of $2,123,000 in payments for third party related expenses and for professional services (primarily due to the commencement of the C-Guardians study and an increase in premium payments of our Directors’ and Officers’ Liability Insurance and an increase of $1,267,000 in compensation costs paid during the nine months ended September 30, 2021, from $4,601,000 in the nine months ended September 30, 2020 to $5,868,000 during the same period in 2021 as well as a decrease of $38,000 in payments received from customers, to $2,561,000 during the nine months ended September 30, 2021, from $2,599,000 during the same period in 2020.

Cash used in our investing activities was $24,298,000 during the nine months ended September 30, 2021, compared to $83,000 during the nine months ended September 30, 2020. The primary reasons for the increase in cash used by our investing activities were an investment of $24,000,000 in short term bank deposits, an increase of $211,000 in payments made for purchase of property, plant and equipment to $237,000 during the nine months ended September 30, 2021, from $26 during the same period in 2020.

Cash provided by financing activities for the nine months September 30, 2021, was $35,034,000, compared to $12,327,000 during the same period in 2020. The principal sources of the cash provided by financing activities during the nine months ended September 30, 2021 were our February 2021 public offering of common stock and warrants, exercise of Series F and Series G warrants, proceeds from an At-the-market offering as well as proceeds from the issuance of shares to Chinese distributor that resulted in approximately $35,034,000 of aggregate net proceeds. The principal sources of the cash provided by financing activities during the nine months ended September 30, 2020 were our June 2020 public offering of common stock, pre-funded warrants and warrants, the subsequent exercise of the pre-funded warrants sold in the offering, as well as exercise of our Series F warrants and unit purchase options that resulted in approximately $12,327,000 of aggregate net proceeds.

As of September 30, 2021, our current assets exceeded our current liabilities by a multiple of 10.8. Current assets increased by $24,752,000 during the period and current liabilities increased by $15,000 during the period. As a result, our working capital increased by $24,737,000 to $36,371,000 as of September 30, 2021.

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.

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 impact of the COVID-19 pandemic, 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. For a discussion of these and other risks that relate to our business, 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 year ended December 31, 2020, and those described from time to time in our future reports filed with the Securities and Exchange Commission.

The ultimate impact of the COVID-19 pandemic on the Company’s operations remains undetermined and will depend on future developments, which are highly uncertain and cannot be predicted with confidence at this time, including the duration of the COVID-19 pandemic, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that regulators, or the board or management of the Company, may determine are needed.

Contractual Obligations and Commitments

During the nine months ended September 30, 2021, there were no material changes to our contractual obligations and commitments.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures

Management’s Conclusions Regarding Effectiveness of Disclosure Controls and Procedures

As of September 30, 2021, we conducted an evaluation, under the supervision and participation of management including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended). There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level as of September 30, 2021.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the fiscal quarter ended September 30, 2021, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material changes to our legal proceedings as described in “Part I, Item 3. Legal Proceedings” in our Annual Report on Form 10-K filed with the SEC on March 8, 2021.

Item 1A. Risk Factors

Except for the Risk Factors included in our previous filings made with the SEC, there have been no material changes to our risk factors from those disclosed in “Part I. Item 1A. Risk Factors” in the Form 10-K filed with the SEC on March 8, 2021.

Item 5. Other Information

On November 8, 2021, we entered into an amendment to the employment agreement of our chief executive officer, Marvin Slosman, dated December 9, 2019, pursuant to which we agreed to remove the definitive term of his employment such that his employment agreement shall expire if and when terminated by either party pursuant to the terms thereof.

On November 4, 2021, we entered into an amendment to the amended and restated employment agreement of our chief financial officer, chief administrative officer, secretary and treasurer, Craig Shore, dated May 5, 2014, as amended on January 5, 2015, July 25, 2016, March 25, 2019 and on August 14, 2020, pursuant to which we agreed to remove the definitive term of his employment such that his employment agreement shall expire if and when terminated by either party pursuant to the terms thereof.

Item 6. Exhibits

EXHIBIT INDEX