InspireMD, Inc. - Quarter Report: 2023 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended: June 30, 2023

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 August 7, 2023: 21,195,103

TABLE OF CONTENTS

Item 1. Financial Statements

INSPIREMD, INC.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE QUARTER ENDED JUNE 30, 2023

TABLE OF CONTENTS

INSPIREMD, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(U.S. dollars in thousands)

INSPIREMD, INC.

CONDENSED 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)

CONDENSED 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.

CONDENSED 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.

CONDENSED 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.

CONDENSED 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.

CONDENSED 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.

CONDENSED 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 CONDENSED 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, 2022. In the opinion of the company, all adjustments considered necessary for a fair statement of the results of the interim periods reported herein have been included (consisting only of normal recurring adjustments). 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, 2022, as found in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 30, 2023. The results of operations for the three and six months ended June 30, 2023, are not necessarily indicative of results that could be expected for the entire fiscal year.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original maturities of three months or less from the purchase date to be cash equivalents. As of June 30, 2023, cash and cash equivalents consisted of cash, short-term deposits (up to three months from the date of deposit) and money market funds. As of December 31, 2022, this balance consisted solely of cash.

Marketable securities

Marketable securities consist of debt securities. The Company elected the fair value option to measure and recognize its investments in debt securities in accordance with ASC 825, Financial Instruments as the Company manages its portfolio and evaluates the performance on a fair value basis. Changes in fair value, realized gains and losses on sales of marketable securities, are reflected in the statements of operation as finance expense (income), net.

NOTE 3 - NEW ACCOUNTING PRONOUNCEMENT

NOTE 4 – FAIR VALUE MEASUREMENTS

Fair value is based on the price that would be received from the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, the guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described as follows:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.

Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

The Company’s financial assets subject to fair value measurements on a recurring basis and the level of inputs used in such measurements were as follows:

 SCHEDULE OF FINANCIAL ASSETS SUBJECT TO FAIR VALUE MEASUREMENTS

The Company’s debt securities are classified within Level 2 because it uses quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair value.

The cost of marketable securities as of June 30, 2023 is $28,838 thousand.

NOTE 5 - MARKETABLE SECURITIES

The following table sets forth the Company’s marketable securities for the indicated period:

 SCHEDULE OF MARKETABLE SECURITIES

The following table summarizes the fair value of the Company’s marketable securities classified by maturity as of June 30, 2023, and December 31, 2022:

SCHEDULE OF FAIR VALUE OF MARKETABLE SECURITIES CLASSIFIED BY MATURITY 

The table below sets forth a summary of the changes in the fair value of the Company’s marketable securities for the six months period ended June 30, 2023:

 SCHEDULE OF CHANGES IN FAIR VALUE OF MARKETABLE SECURITIES

NOTE 6 - EQUITY:

On May 12, 2023, the Company entered into a securities purchase agreement (the “Purchase Agreement”) pursuant to which the Company agreed to sell and issue in a private placement (the “Private Placement Offering) an aggregate of 10,266,270 shares (the “Private Placement Shares”) of the Company’s common stock, pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 15,561,894 shares of common stock and warrants to purchase up to an aggregate of 51,656,328 shares of common stock, consisting of Series H warrants to purchase up to 12,914,086 shares of common stock (the “Series H Warrants”), Series I warrants to purchase up to 12,914,078 shares of common stock (the “Series I Warrants”), Series J warrants to purchase up to 12,914,086 shares of Common Stock (the “Series J Warrants”) and Series K warrants to purchase up to 12,914,078 shares of common stock (the “Series K Warrants” and together with the Series H Warrants, Series I Warrants and Series J Warrants, the “Warrants”), at an offering price of $1.6327 per Private Placement Share and associated Warrants and an offering price of $1.6326 per Pre-Funded Warrant and associated Warrants. The Private Placement Offering closed on May 16, 2023.

Aggregate gross proceeds to the Company in respect of the Private Placement Offering were $42.2 million, before deducting fees payable to the placement agent and other offering expenses payable by the Company which amounted to approximately $4.6 million. If the Warrants are exercised in cash in full this would result in an additional $71.4 million of gross proceeds.

The Pre-Funded Warrants are immediately exercisable at an exercise price of $0.0001 per share and will not expire until exercised in full. The Warrants are immediately exercisable upon issuance at an exercise price of $1.3827 per share. The Warrants have a term of the earlier of (i) five years from the date of issuance and (ii) (A) in the case of the Series H Warrants, 20 trading days following the Company’s public release of primary and secondary end points related to one year follow up study results from the Company’s C-Guardians pivotal trial, (B) in the case of the Series I Warrants, 20 trading days following the Company’s announcement of receipt of Premarket Approval (PMA) from the Food and Drug Administration, or FDA, for the CGuard Prime Carotid Stent System (135 cm), (C) in the case of the Series J Warrants, 20 trading days following the Company’s announcement of receipt of FDA approval for the SwitchGuard transcarotid system and CGuard Prime 80 cm and (D) in the case on the Series K Warrants, 20 trading days following the end of the fourth fiscal quarter after the fiscal quarter in which the first commercial sales of the CGuard Carotid Stent System in the United States begin. The Warrants may be exercised on a cashless basis if there is no effective registration statement registering the shares underlying the warrants.

As of June 30, 2023, there are 15,561,894 outstanding Pre-Funded Warrants.

Pursuant to the full ratchet anti-dilution adjustment provisions in the respective certificate of designation for the Company’s Series C Preferred Stock, the conversion price of the outstanding shares of the Series C Preferred Stock was reduced to $1.3827 per share, effective as of the date of the securities purchase agreement entered for the Offering, and the number of shares of common stock issuable upon conversion of the Series Series C Preferred Stock increased by 5,668 additional shares of common stock upon conversion of the Series C Preferred Stock, based on 1,718 shares of Series C Preferred Stock outstanding as of May 16, 2023.

As of June 30, 2023, there were 1,718 shares of Series C Preferred Stock outstanding, convertible into an aggregate of 7,952 shares of the company’s common stock.

SCHEDULE OF ISSUANCE OF WARRANTS TO PURCHASE COMMON STOCK

As of June 30, 2023, 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.

The fair value of the above restricted shares was approximately $4.52 million.

The fair value of the above restricted share units was approximately $1,839 thousand.

In calculating the fair value of the above options, the Company used the following assumptions: dividend yield of 0% and expected term of 5.125-6.5 years; expected volatility ranging from 124.58%-125.61%; and risk-free interest rate ranging from 3.65%-3.68%.

The fair value of the above options, using the Black-Scholes option-pricing model, was approximately $50,658.

On May 17, 2023, the Company granted to employees and directors options to purchase a total of 1,011,930 shares of the Company’s common stock. The options have an exercise prices of $1.76 per share, which was the fair market value of the Company’s common stock on the date of the grant. The options are subject to a three-year vesting period, with one-third of such awards vesting each year.

In calculating the fair value of the above options the Company used the following assumptions: dividend yield of 0% and expected term of 5.5-6.5 years; expected volatility of 116.76%-123.30%; and risk-free interest rate of 3.58%.

The fair value of the above options, using the Black-Scholes option-pricing model, was approximately $1.56 million.

On May 17, 2023, the Company granted to consultants options to purchase a total of 575,000 shares of the Company’s common stock. The options have an exercise price of $1.76 per share, which was the fair market value of the Company’s common stock on the date of the grant. The options are subject to a three-year vesting period, with one-third of such awards vesting each year.

In calculating the fair value of the above options the Company used the following assumptions: dividend yield of 0% and expected term of 5.5-6.5 years; expected volatility of 116.76%-123.30%; and risk-free interest rate of 3.58%.

The fair value of the above options, using the Black-Scholes option-pricing model, was approximately $885 thousand.

Beginning on January 1, 2023, non-employee directors may elect to receive all or a portion of their cash retainer amount in shares of the Company’s common stock under the 2021 Equity Incentive Plan. If a director makes that election, a stock award under the 2021 Equity Incentive Plan will be paid quarterly on the first day of each next quarter (“Issuance Dates”) and will become fully vested on the Issuance Dates. The stock award will be determined by dividing (x) the product of the cash retainer amount and percentage of the cash retainer amount elected to be taken in shares by (y) the “Fair Market Value” (as defined in the 2021 Equity Incentive Plan) of a share on the Issuance Dates. If a director’s service on the board terminates for any reasons prior to an Issuance Date, he/she will receive a pro rata portion of shares or cash based on the number of days served on the board during the relevant quarter. On April 1, 2023, the Company issued 29,746 shares of common stock to non-employee directors who elected to receive all or a portion of their cash retainer amount for the three months ended March 31, 2023 in shares of the Company’s common stock under the 2021 Equity Incentive Plan. As of June 30, 2023, there was an accrual for $55,000 for director’s fees for the three months ended June 30, 2023. Out of this an amount of $22,875 will be paid in cash and $32,125 will be issued in shares of the Company’s common stock under the 2021 Equity Incentive Plan and accordingly on July 1, 2023 the Company issued 12,648 share of common stock.

NOTE 7 – RELATED PARTIES TRANSACTIONS

During the six and three months ended June 30, 2022, a consulting company whose founder and CEO is a member of the company’s board of directors, provided certain marketing services in the amount of $8,776 and $2,500, respectively. During the six and three months ended June 30, 2023, no marketing services were provided.

NOTE 8 - 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, fully vested pre-funded warrants and fully vested restricted stock units 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, and unvested restricted stocks, unvested restricted stock units and Series C preferred stock as the effect is anti-dilutive.

For the purpose of calculating basic net loss per share, the additional shares of common stock that are issuable upon exercise of the Pre-funded Warrants have been included since the shares are issuable for a negligible consideration, as determined by the Company according to ASC 260-10-45-13, and have no vesting or other contingencies associated with them. For the six and three-month periods ended June 30, 2023, we had weighted average Pre-funded Warrants of 3,954,956 and 7,866,452, respectively, which were used in the computations of net loss per share for the six and three-month periods.

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 75,186,979 for the six and three-month periods ended June 30, 2023. This amount includes 2,905,615 of unvested restricted stock included in the number of issued and outstanding shares as of June 30, 2023.

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 3,010,707 for the six and three month periods ended June 30, 2022. This amount includes 547,792 of unvested restricted stock included in the number of issued and outstanding shares as of June 30, 2022.

NOTE 9 - FINANCIAL INSTRUMENTS:

The carrying amounts of financial instruments 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 10- INVENTORY:

SCHEDULE OF INVENTORIES 

NOTE 11 - ACCOUNTS PAYABLE AND ACCRUALS - OTHER:

SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUALS - OTHER 

NOTE 12 - 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, including revenue growth. 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.

Overview

We are a medical device company focusing on the development and commercialization of our proprietary MicroNet™ stent platform for the treatment of carotid artery disease and other vascular disease. A stent is an expandable “scaffold-like” device, usually constructed of a metallic material, that is inserted into the lumen of the artery to create patency and revascularization of blood flow. MicroNet, a micron mesh sleeve, is attached over a stent to provide embolic protection both during and after stenting procedures.

Our CGuard™ carotid embolic prevention system (“CGuard EPS™”) combines MicroNet and a unique self-expandable nitinol stent in a single device for use in carotid artery revascularization. Our CGuard EPS originally received CE mark approval under Medical Device Directive 93/42/EEC (“MDD”) in the European Union (“EU”) in March 2013 and was fully launched in Europe in September 2015. Subsequently, we launched CGuard EPS in over 30 countries and on February 3, 2021, we executed a distribution agreement with Chinese partners for the purpose of expanding our presence in the Asian markets. Currently, we are seeking strategic partners for a potential launch of CGuard EPS in Japan and other Asian countries.

Our CE mark for CGuard EPS under the MDD expired on November 12, 2022 and we are in the final stages of technical documentation review by the Notified Body auditor to meet the Medical Device Regulation (“MDR”) (MDR 2017/745) requirements (which replaced the MDD) for recertification. In the meantime, on February 14, 2023, we received a derogation per Article 97 paragraph 1 of Regulation 2017/745 from the Agency for Medicines and Health Products (FAMHP) allowing us to continue marketing CGuard EPS in the EU until August 15, 2023 subject to certain procedural requirements. Subsequently, on March 20, 2023, Regulation (EU) 2023/607 was published allowing us to continue marketing CGuard EPS in EU countries under the MDD directive until December 31, 2027. As a result of the foregoing, we may market and sell CGuard EPS in the EU and certain other jurisdictions subject to certain procedural requirements while our MDR CE recertification is pending. We continue to expedite the review process for recertification under the MDR.  

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 was designed to 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. The composite index will be compared to a performance goal based on the observed rate of the two components of the primary endpoint from previous pivotal stent trials which are considered industry standard. The performance goal will be considered met if the upper bound of the two-sided 95% confidence interval calculated from the observed primary endpoint rate is < 11.6% and the p-value is less than 0.025. In June 2023, we completed enrollment of 315 patients across 25 trial sites in the U.S. and Europe in our IDE clinical trial,

Additionally, we intend to continue to invest in current and future potential new indications, products and manufacturing enhancements for CGuard EPS that are expected to reduce cost of goods and/or provide the best-in-class performing delivery systems, such as CGuard Prime™for transfemoral access. In furtherance of our strategy that focuses on establishing CGuard EPS as a viable alternative to vascular surgery, we are developing a new transcarotid artery revascularization (TCAR) delivery system, SwitchGuard™, for transcarotid access and neuro protection. In addition, we intend to explore new indications for CGuard EPS to leverage the advantages of stent design and mesh protection, well suited in labels such as acute stroke with tandem lesions.

We consider our current 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 will be approximately $1.3 billion in 2023 (source: Health Research International Personal Medical Systems, Inc. September 13, 2021 Results of Update Report on Global Carotid Stenting Procedures and Markets by Major Geography and Addressable Markets and internal estimates). According to this same report, and internal estimates, assuming full penetration of the caseload for all individuals diagnosed with high-grade carotid artery stenosis, we estimate that the total available market for CGuard EPS in 2022 will be approximately $9.3 billion. Our mission is to offer a comprehensive set of delivery solutions (TCAR and Transfemoral) in order to deliver best in class results through patient outcomes by way of stent performance with CGuard EPS.

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

Recent Developments

Private Placement

On May 12, 2023, we entered into a securities purchase agreement (the “Purchase Agreement”) pursuant to which we agreed to sell and issue in a private placement (the “Private Placement Offering) an aggregate of 10,266,270 shares (the “Private Placement Shares”) of our common stock, pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 15,561,894 shares of common stock and warrants to purchase up to an aggregate of 51,656,328 shares of common stock, consisting of Series H warrants to purchase up to 12,914,086 shares of common stock (the “Series H Warrants”), Series I warrants to purchase up to 12,914,078 shares of common stock (the “Series I Warrants”), Series J warrants to purchase up to 12,914,086 shares of Common Stock (the “Series J Warrants”) and Series K warrants to purchase up to 12,914,086 shares of common stock (the “Series K Warrants” and together with the Series H Warrants, Series I Warrants and Series J Warrants, the “Warrants”), at an offering price of $1.6327 per Private Placement Share and associated Warrants and an offering price of $1.6326 per Pre-Funded Warrant and associated Warrants.

The Pre-Funded Warrants will be immediately exercisable at an exercise price of $0.0001 per share and will not expire until exercised in full. The Warrants will be immediately exercisable upon issuance at an exercise price of $1.3827 per share, subject to adjustment as set forth therein. The Warrants have a term of the earlier of (i) five years from the date of issuance and (ii) (A) in the case of the Series H Warrants, 20 trading days following the Company’s public release of primary and secondary end points related to one year follow up study results from the Company’s C-Guardians pivotal trial, (B) in the case of the Series I Warrants, 20 trading days following the Company’s announcement of receipt of Premarket Approval from the Food and Drug Administration (“FDA”) for the CGuard Prime Carotid Stent System (135 cm), (C) in the case of the Series J Warrants, 20 trading days following the Company’s announcement of receipt of FDA approval for the SwitchGuard and CGuard Prime 80 and (D) in the case on the Series K Warrants, 20 trading days following the end of the fourth fiscal quarter after the fiscal quarter in which the first commercial sales of the CGuard Carotid Stent System in the United States begins.

The Warrants may be exercised on a cashless basis if there is no effective registration statement registering the shares underlying the Warrants. Under the terms of the Pre-Funded Warrants and Warrants, certain of the selling stockholders may not exercise the Pre-Funded Warrants or Warrants to the extent such exercise would cause such selling stockholder, together with its affiliates and attribution parties, to beneficially own a number of shares of common stock which would exceed 4.99% or 9.99% of our then outstanding common stock following such exercise, excluding for purposes of such determination common stock issuable upon exercise of the Pre-Funded Warrants or Warrants which have not been exercised. The Warrants may be exercised into pre-funded warrants if the selling stockholder is unable to exercise the Warrant due to the foregoing beneficial ownership limitation or at the selling shareholder’s election.

In connection with the Purchase Agreement, we entered into a registration rights agreement (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, we are required to file a resale registration statement (the “Registration Statement”) with the SEC to register for resale the Private Placement Shares and the shares of common stock issuable upon exercise of the Pre-Funded Warrants and Warrants, within 20 days of the signing date of the Purchase Agreement (the “Signing Date”), and to have such Registration Statement declared effective within 45 days after the Signing Date in the event the Registration Statement is not reviewed by the SEC, or 90 days of the Signing Date in the event the Registration Statement is reviewed by the SEC. We will be obligated to pay certain liquidated damages if we fail to file the Registration Statement when required, fails to cause the Registration Statement to be declared effective by the SEC when required, of if we fail to maintain the effectiveness of the Registration Statement. The Registration Statement was subsequently filed on May 23, 2023 and declared effective on June 1, 2023. We paid LifeSci Capital LLC, a placement fee equal to 5.6% of the aggregate gross proceeds from the closing of the Private Placement Offering, or approximately $2.4 million, and legal expenses of $41,600. In addition, we paid Piper Sandler & Co. a financial advisory fee of $1.5 million, AGP/Alliance Global Partners a financial advisory fee of $250,000 and lead investor counsel expenses of $125,000.

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, 2022. Other than the following new accounting policies, there have not been any material changes to such critical accounting policies since December 31, 2022.

Cash and Cash Equivalents

We consider all highly liquid investments purchased with original maturities of three months or less from the purchase date to be cash equivalents. As of June 30, 2023, cash and cash equivalents consisted of cash, short-term deposits (up to three months from the date of deposit) and money market funds. As of December 31, 2022, this balance consisted solely of cash.

Marketable securities

Marketable securities consist of debt securities. we elected the fair value option to measure and recognize its investments in debt securities in accordance with ASC 825, Financial Instruments as we manage our portfolio and evaluates the performance on a fair value basis. Changes in fair value, realized gains and losses on sales of marketable securities, are reflected in the statements of operation as finance expense (income), net.

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 June 30, 2023, compared to the three months ended June 30, 2022

Revenues. For the three months ended June 30, 2023, revenue increased by $118,000, or 7.7%, to $1,649,000, from $1,531,000 during the three months ended June 30, 2022. This increase was predominantly driven by a 9.6% increase in sales of CGuard EPS from $1,505,000 during the three months ended June 30, 2022, to $1,649,000 during the three months ended June 30, 2023. This sales increase was mainly due to growth in existing markets. 

With respect to geographical regions, the increase in revenue was primarily attributable to a $63,000 increase in Asia, a $53,000 increase in Latin America and a $13,000 increase in other geographies, for reasons mentioned in the paragraph above. This increase was offset by a $11,000 decrease in Europe.

Gross Profit. For the three months ended June 30, 2023, gross profit (revenue less cost of revenues) increased by $60,000, or 14.0%, to $491,000, from $431,000 during the three months ended June 30, 2022. This increase in gross profit resulted from a $90,000 increase in revenues (as mentioned above), less the associated related material and labor offset by $30,000 in miscellaneous expenses. Gross margin (gross profits as a percentage of revenue) increased to 29.8% during the three months ended June 30, 2023, from 28.1% during the three months ended June 30, 2022, driven by the factors mentioned above.

Research and Development Expenses. For the three months ended June 30, 2023, research and development expenses decreased by $63,000, or 3.1%, to $1,993,000, from $2,056,000 during the three months ended June 30, 2022. This decrease resulted primarily from a decrease of $261,000 in expenses related to the C-Guardians FDA study, offset, in part, by an increase of $132,000 in compensation expenses, and an increase of $66,000 in miscellaneous expenses.

Selling and Marketing Expenses. For the three months ended June 30, 2023, selling and marketing expenses decreased by $94,000, or 9.5%, to $892,000, from $986,000 during the three months ended June 30, 2022. This decrease resulted primarily from a decrease in compensation expenses of $104,000 offset, in part, by an increase of $10,000 in miscellaneous expenses.

General and Administrative Expenses. For the three months ended June 30, 2023, general and administrative expenses increased by $851,000, or 41.1%, to $2,921,000, from $2,070,000 during the three months ended June 30, 2022. This increase resulted primarily from an increase in compensation expenses of $457,000, mainly due to an increase of approximately $257,000 of share-based compensation-related expenses due to the expense recognition of grants made during the second quarter of 2023 and an increase in salary expenses and related accruals of $208,000  mainly due to hiring of a General Manager of North America and VP of Global Marketing, an increase of legal expenses of $219,000 and an increase of $175,000 in miscellaneous expenses.

Financial Income. For the three months ended June 30, 2023, financial income increased by $193,000, to $238,000, from $45,000 during the three months ended June 30, 2022. The increase in financial income primarily resulted from a $211,000 increase in interest income from investment in marketable securities, money market funds and short-term bank deposits.

Tax Expenses. For the three months ended June 30, 2023, there was no change in our tax expenses as compared to the three months ended June 30, 2022.

Net Loss. Our net loss increased by $441,000, or 9.5%, to $5,077,000, for the three months ended June 30, 2023, from $4,636,000 during the three months ended June 30, 2022. The increase in net loss resulted primarily from an increase of $694,000 in operating expenses partially offset by an increase of $193,000 in financial income and an increase of $60,000 in gross profit.

Six months ended June 30, 2023, compared to the six months ended June 30, 2022

Revenues. For the six months ended June 30, 2023, revenue increased by $174,000, or 6.4%, to $2,888,000, from $2,714,000 during the six months ended June 30, 2022. This increase was predominantly driven by a 8.3% increase in sales volume of CGuard EPS from $2,666,000 during the six months ended June 30, 2022, to $2,888,000 during the six months ended June 30, 2023. This sales increase was mainly due to growth in existing markets.

With respect to geographical regions, the increase in revenue was primarily attributable to a $167,000 increase in Europe, a $38,000 increase in Asia and a $3,000 increase in other geographies. This increase in sales of was partially offset by a $34,000 decrease in Latin America. This growth was mainly due to reason mentioned in the paragraph above.

Gross Profit. For the six months ended June 30, 2023, gross profit (revenue less cost of revenues) increased by 56.2%, or $311,000, to $864,000, compared to a $553,000 for the same period in 2022. This increase in gross profit resulted from a decrease in write-offs of $181,000 and a $161,000 increase in revenues (as mentioned above) less the associated related material and labor costs. This increase was partially offset by an increase of $31,000 in miscellaneous expenses. Gross margin (gross profits as a percentage of revenue) increased to 29.9% during the six months ended June 30, 2023, from 20.4% during the six months ended June 30, 2022, driven by the reasons mentioned above.

Research and Development Expenses. Research and Development Expenses. For the six months ended June 30, 2023, research and development expenses increased by 2.7%, or $100,000, to $3,836,000, from $3,736,000 during the six months ended June 30, 2022. This increase resulted primarily from an increase of $158,000 in expenses related to the CGuard Prime regulatory and approval process, increase in compensation expenses of $169,000 and an increase of $129,000 in miscellaneous expenses offset, in part, by a decrease of $356,000 in expenses related to the C-Guardians FDA study.

Selling and Marketing Expenses. For the six months ended June 30, 2023, selling and marketing expenses decreased by 3.0%, or $52,000, to $1,680,000, from $1,732,000 during the six months ended June 30, 2022. This decrease resulted primarily from a decrease of approximately $64,000 of share-based compensation-related expenses, offset, in part, by an increase of $12,000 in miscellaneous expenses.

General and Administrative Expenses. For the six months ended June 30, 2023, general and administrative expenses increased by 18.6%, or $792,000, to $5,044,000, from $4,252,000 during the six months ended June 30, 2022. This increase resulted primarily from an increase in salary expenses of $276,000, an increase in legal expenses of $261,000, an increase in regulatory expenses of $193,000 related to MDR registration process and an increase of $62,000 in miscellaneous expenses.

Financial Income. For the six months ended June 30, 2023, financial income increased by $313,000, to $363,000 of financial income, from $50,000 of financial income during the six months ended June 30, 2022. The increase in financial income primarily resulted from a $299,000 increase in interest income from investment in marketable securities, money market funds and short-term bank deposits.

Tax Expenses. For the six months ended June 30, 2023, there was no change in our tax expenses as compared to the six months ended June 30, 2022.

Net Loss. Our net loss increased by $216,000, or 2.4%, to $9,333,000, for the six months ended June 30, 2023, from $9,117,000 during the six months ended June 30, 2022. The increase in net loss resulted primarily from an increase of $840,000 in operating expenses, offset by an increase of $313,000 in financial income and increase of $311,000 in gross profit.

Liquidity and Capital Resources

As of June 30, 2023, 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.

Our plans include continued commercialization of our products and raising capital through sale of additional equity securities, debt or capital inflows from strategic partnerships. There are no assurances, however, that we will be successful in obtaining the level of financing needed for our operations. If we are unsuccessful in commercializing our products or raising capital, we may need to reduce activities, curtail or cease operations.

In May 2023, we closed a Private Placement Offering that resulted in aggregate gross proceeds of approximately $42.2 million, before deducting fees payable to the placement agent and other offering expenses payable by the Company. If the Warrants from the Private Placement Offering are exercised in cash in full this would result in an additional $71.4 million of gross proceeds.

Six months ended June 30, 2023 compared to the six months ended June 30, 2022

General. At June 30, 2023, we had cash and cash equivalents of $11,545,000 short-term bank deposits of $6,631,000 and marketable securities of $28,817,000 as compared to cash and cash equivalents of $4,632,000 and short-term bank deposits of $13,171,000 as of December 31, 2022. 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 six months ended June 30, 2023, net cash used in our operating activities increased by $913,000, or 12.6%, to $8,156,000, from $7,243,000 during the same period in 2022. The primary reason for the increase in cash used in our operating activities was an increase of $687,000 in compensation costs paid during the six months ended June 30, 2023 from $4,625,000 in the six months ended June 30, 2022 to $5,312,000 during the same period in 2023 and a decrease of $235,000 in payments received from customers, to $2,472,000 during the six months ended June 30, 2023 from $2,707,000 during the same period in 2022, offset in part by a decrease of $9,000 in payments for third party related expenses and for professional services.

Cash used in our investing activities was $22,442,000 during the six months ended June 30, 2023, compared to cash provided of $1,801,000 during the six months ended June 30, 2022. The primary reasons for the increase in cash used by our investing activities is an investment in marketable securities of $28,838,000, offset by an increase in withdrawal from short-term bank deposits, net of investment in short-term deposits, of $4,500,00, and a decrease of $82,000 in payments made for purchase of property, plant and equipment to $70,000 during the three months ended June 30, 2023.

Cash provided by financing activities for the six months June 30, 2023, was $37,534,000. The principal source of the cash provided by financing activities during the six months ended June 30, 2023 were the proceeds from the Private Placement Offering in May 2023 that resulted in approximately $37,534,000 of aggregate net proceeds. Cash used by financing activities for the six months ended June 30, 2022 was $37,000 and the cash used by financing activities during the six months ended June 30, 2022 were due to issuance cost associated with a shelf registration statement on Form S-3 filed with the SEC on June 3, 2022.

As of June 30, 2023, our current assets exceeded our current liabilities by a multiple of 10.5. Current assets increased by $29,194,000 during the period and current liabilities decreased by $241,000 during the period. As a result, our working capital increased by $29,435,000 to $45,691,000 as of June 30, 2023.

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 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 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 June 30, 2023, there were no material changes to our contractual obligations and commitments.

Recently Adopted and Issued Accounting Pronouncements

See Note 3 to our condensed financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for new accounting pronouncements adopted.

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 June 30, 2023, 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 June 30, 2023.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the fiscal quarter ended June 30, 2023, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. There are currently no pending material legal proceedings, and we are currently not aware of any legal proceedings or claims against us or our property that we believe will have any significant effect on our business, financial position or operating results.

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 30, 2023.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

During the quarter ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (in each case, as defined in Item 408 of Regulation S-K).

Item 6. Exhibits

EXHIBIT INDEX

* Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.