| Equity | NOTE 10 - EQUITY
a. Share capital The Company’s common
shares are listed on the NYSE American. On May 25, 2016 the Company
filed with the Secretary of State of Delaware a Certificate of Amendment to the Company’s Amended and Restated Certificate
of Incorporation to increase the Company’s number of authorized shares of common stock from 50,000,000 to 150,000,000. Accordingly,
as of December 31, 2017, the Company has authorized 155,000,000 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. On September 28, 2016, the
Company filed with the Secretary of State of Delaware a Certificate of Amendment to the Company’s Amended and Restated Certificate
of Incorporation to effect a one-for-twenty-five reverse stock split of its common stock, par value $0.0001 per share, effective
as of October 7, 2016, which decreased the number of issued and outstanding shares of common stock and restricted shares of common
stock from 1.02 million shares to 0.042 million shares. On February 7, 2018, the
Company filed with the Secretary of State of Delaware a Certificate of Amendment to the Company’s Amended and Restated Certificate
of Incorporation to effect a one-for-thirty-five reverse stock split of its common stock, par value $0.0001 per share, effective
as of February 7, 2018, which decreased the number of issued and outstanding shares of common stock and restricted shares of common
stock as of December 31, 2017 from 51.9 million shares to 1.5 million shares. All related share and per
share data have been retroactively applied to the financial statements and their related notes for all periods presented. On January 26, 2016 the
Company entered into option cancellation and release agreements with the Optionholders. See Note 7c. On March 21, 2016, the Company
sold 3,384 shares of its common stock and warrants to purchase 1,706 shares of common stock in concurrent underwritten public offering
and private placement (the “March 2016 Offering”). The common stock was sold at a price of $516.25 per share and each
purchaser received a warrant to purchase one half of one share of common stock for each share of common stock that it purchased
in the March 2016 Offering. The warrants, which are classified as equity, are exercisable immediately and have a term of exercise
of 5 years from the date of issuance and an exercise price of $516.25. The March 2016 Offering resulted in gross proceeds to the
Company of approximately $1.7 million ($1.4 million after deducting underwriting discount, placement agent fees and other offering
expenses). In connection with the March
2016 Offering, on March 21, 2016, the Company issued to the underwriter and placement agent five-year warrants to purchase up to
168 shares of common stock at an exercise price of $645.31 per share. The warrants, which are classified as equity, are exercisable
at any time during the period commencing six months following the date of issuance and ending five years from the date of issuance. Series B Convertible
Preferred Stock On July 7, 2016, the Company
closed a public offering of 442,424 shares of Series B Convertible Preferred Stock and accompanying warrants (which is referred
to as the “Series A Warrants”) to purchase up to 50,620 shares of common stock (the “July 2016 Offering”).
Each share of Series B Convertible Preferred Stock and the accompanying Series A Warrants were sold at a price of $33.00. Each
share of Series B Convertible Preferred Stock was initially convertible into 0.114 shares of common stock reflecting a conversion
price equal to $288.75 per share. As further described below, in accordance with the anti-dilution price protection contained in
the certificate of designation for the Series B Convertible Preferred Stock, the conversion price for the Series B Convertible
Preferred Stock was adjusted in connection with the March 2017 Offering and the Series D Private Placement, and as of December
31, 2017, each share of Series B Convertible Preferred Stock is convertible into 4.714 shares of common stock at $7.00 per share.
The holders of Series B Convertible Preferred Stock are entitled to receive cumulative dividends at the rate per share of 15% per
annum of the stated value for five years (the “Dividend Entitlement), payable in cash or common stock, at the Company’s
discretion. The Series B Convertible
Preferred Stock will automatically convert into shares after five years from issuance. Additionally, holders of the shares may
elect to convert at any time. As further described below, the certificate of designation for the Series B Convertible Preferred
Stock was amended in December 2017 to provide for an automatic exchange of each share of Series B Convertible Preferred
Stock upon the consummation of an offering of our common stock or common stock equivalents for gross proceeds of at least $8 million
(a “Qualified Offering”) subject to the beneficial ownership limitation. The Series B Convertible Preferred Stock has
certain anti-dilution provisions. In addition, the Series B Convertible Preferred Stock is subject to provisions providing for
make-whole payments, pursuant to which, if the Series B Convertible Preferred Stock is converted into shares of common stock at
any time prior to the fifth anniversary of the date of issuance, the holders will receive all of the dividends that, but for the
early conversion, would have otherwise accrued on the applicable shares of Series B Convertible Preferred Stock being converted
for the period commencing on the conversion date and ending on the fifth anniversary of the date of issuance, less the amount of
all prior dividends paid on such converted Series B Convertible Preferred Stock before the date of conversion. The Series A Warrants
are exercisable immediately and have a term of exercise of five years from the date of issuance and have an exercise price of $175.00
per share of common stock. The Company received gross
proceeds of approximately $14.6 million from the July 2016 Offering, before deducting placement agent fees and offering expenses
payable by the Company. The Company issued to the placement agent a unit purchase option to purchase a number of our securities
equal to an aggregate of 3.5% of the securities sold in July 2016 Offering. The placement agent unit purchase option has an
exercise price equal to 125% of the public offering price. For accounting purposes,
the Company analyzed the classification of the Series B Convertible Preferred Stock, including whether the embedded conversion
options should be bifurcated. As the Series B Convertible Preferred Stock is not redeemable, and the host contract was determined
to be akin to equity, the entire instrument was classified as equity. The Company has also concluded
that the warrants accompanying Series B Convertible Preferred Stock are classified as equity, since the warrants meet all criteria
for equity classification. Lender Warrants Following the closing of
the July 2016 Offering, pursuant to a warrant agreement (see Note 6b), the Company issued to a lender warrants to purchase 1,106
shares of common stock. Series C Convertible
Preferred Stock On March 14, 2017, the Company
closed a public offering of 1,069,822 shares of Series C Convertible Preferred Stock, Series B warrants to purchase up to 122,269
shares of common stock and Series C warrants to purchase up to 122,269 shares of common stock (the “March 2017 Offering”).
Each share of Series C Convertible Preferred Stock and the accompanying warrants were sold at a price of $6.40. Each share of Series
C Convertible Preferred Stock is convertible into 0.114 shares of common stock reflecting a conversion price equal to $56.00 per
share. The Company received gross
proceeds of approximately $6.8 million from the offering, before deducting placement agent fees payable by the Company equal to
8.0% of the gross proceeds of the offering and a solicitation fee equal to 3.0% of the proceeds from the exercise of the Series
C Warrants and offering expenses payable by the Company. The holders of Series C
Convertible Preferred Stock may elect to convert at any time. The Series C Convertible Preferred Stock has certain anti-dilution
provisions which provisions require the lowering of the applicable conversion price, as then in effect, to the purchase price of
equity or equity-linked securities issued in subsequent offerings. The Series B warrants are
exercisable immediately and have a term of exercise of five years from the date of issuance and have an exercise price of $70.00
per share of common stock. The Series C warrants were
exercisable immediately and had a term of exercise of six months from the date of issuance and had an exercise price of $56.00
per share of common stock. As of December 31, 2017, all Series C warrants were expired, and none were exercised prior to their
expiration. For accounting purposes,
the Company analyzed the classification of the Series C Convertible Preferred Stock, including whether the embedded conversion
options should be bifurcated. As the Series C Convertible Preferred Stock is not redeemable, and the host contract was determined
to be akin to equity, the entire instrument was classified as equity. The Company has also concluded
that the warrants accompanying Series C Convertible Preferred Stock are classified as equity, since the warrants meet all criteria
for equity classification. Pursuant to the terms of
the July 2016 Offering that provided the holders of the Series B Convertible Preferred Stock with certain anti-dilution provisions,
which provisions require the lowering of the applicable conversion price, as then in effect, to the purchase price of equity or
equity-linked securities issued in subsequent offerings, upon closing of the March 2017 Offering, the conversion price of the Series
B Convertible Preferred Stock was adjusted to $56.00 per share of common stock, and each share of Series B Convertible Preferred
Stock became convertible into 0.589 shares of common stock. As a result of such adjustment, the Company was required to issue to
the holders of the Series B Convertible Preferred Stock an aggregate of 258,952 additional shares of common stock upon conversion
of the Series B Convertible Preferred Stock and as payment of the dividends thereunder in common stock, based on 311,521 shares
of Series B Convertible Preferred Stock outstanding as of March 8, 2017. Series D Convertible
Preferred Stock and amendment to existing preferred stock On December 1, 2017, as
part of a planned recapitalization, the Company sold 750 shares of Series D Convertible Preferred Stock (“Series D Preferred
Stock”) to an institutional investor in a private placement (the “Series D Private Placement”) pursuant to a
securities purchase agreement (the “SPA”), dated November 28, 2017, for aggregate gross proceeds of $750,000. The initial
stated value of each share of Series D Preferred Stock is $1,000, and each share of Series D Preferred Stock is convertible into
142.86 shares of common stock at $7.00 per share. The Series D Preferred Stock does not contain any substantive features that differ
materially from common stock other than a mechanism that would prevent the Company from issuing, upon conversion of the Series
D Preferred Stock into common stock, a number of shares of common stock which would exceed 42,677 shares (19.99% of the number
of shares of common stock outstanding on the trading day immediately preceding the date of the SPA) of the Company common stock,
unless the Company obtains shareholders’ approval required by the NYSE American. In addition, the SPA contains a “most
favored nation” provision, which provides that, until the Company consummates a “Qualified Offering”, in the
event the Company undertakes, or enter into any agreement to undertake, the issuance and sale of common stock and/or common stock
equivalents to third party investors for cash (a “Subsequent Financing”), the investor who participated in the Series
D Private Placement may elect, in its sole discretion, to exchange all or some of the Series D Preferred Stock then held by such
investor for any securities or units issued in such Subsequent Financing on a $1.00 per stated value for $1.00 new subscription
amount basis (the “MFN Adjustment”). The surrender of Series D Preferred Stock shall be in lieu of any cash subscription
amount required for the participation in such Subsequent Financing. The purchaser of Series D Preferred Stock also has the option
to exchange their Series D Preferred Stock into the securities issued in a Qualified Offering upon consummation of a Qualified
Offering. As a result of the issuance
and sale of the Series D Preferred Stock, the conversion price of the outstanding shares of Series B Convertible Preferred Stock
was reduced to $7.00 pursuant to the anti-dilution adjustment provisions of the Series B Preferred Stock, and the number of
shares the Company would be required to issue to the holders of the Series B Convertible Preferred Stock upon conversion
of the Series B Convertible Preferred Stock and as payment of the dividends thereunder in common stock was increased by an
aggregate of 1,306,536 shares of common stock, based on 180,992 shares of Series B Convertible Preferred Stock outstanding as of
November 28, 2017. There was no change to the conversion price of our outstanding Series C Preferred Stock as a result of an amendment
made to the terms of the Series C Preferred Stock exempting the issuance of the Series D Preferred Stock from the anti-dilution
adjustment provisions of the Series C Preferred Stock The Company also agreed
to use 12.5% of the proceeds from any subsequent offering of the Company’s securities to redeem the outstanding shares of
Series B Convertible Preferred Stock owned by the purchaser of the Series D Preferred Stock executing the SPA until such time that
the Company has redeemed, in the aggregate, at least $1 million of Series B Convertible Preferred Stock, up to $1.5 million of
stated value of Series B Preferred Stock (“Redemption Obligation”). The certificate of designation
for the Series B Convertible Preferred Stock was amended in December 2017 to provide for an automatic exchange of each share of
Series B Preferred Stock upon the consummation of a Qualified Offering subject to the beneficial ownership limitation. In addition, upon the consummation
of a Qualified Offering, the shares of Series C Preferred Stock owned by the purchaser of the Series D Preferred Stock will be
automatically exchanged into the securities sold by the Company in a Qualified Offering upon the terms set forth in the Agreement.
However, under the rules of the NYSE American, the Company shall be required to obtain shareholder approval for the exchange by
such purchaser of any securities in the Qualified Offering that represent 20% or more of the Company’s total shares of common
stock outstanding immediately prior to such offering. If in the future, while
any of the Series B Convertible Preferred Stock or Series C Convertible Preferred Stock is outstanding, the Company issues additional
shares of common stock or common stock equivalents at an effective common stock purchase price of less than the applicable conversion
price of our Series B Convertible Preferred Stock or Series C Convertible Preferred Stock, as then in effect, the Company will
be required, subject to certain limitations and adjustments as provided in the respective certificate of designation for the Series
B Convertible Preferred Stock and the Series C Convertible Preferred Stock, to reduce the relevant conversion price or exchange
the securities into offering securities as described above, which will result in a greater number of shares of common stock being
required to be issued to the holders of Series B and C Convertible Preferred Stock. Such issuance of additional shares of common
stock or common stock equivalents at an effective common stock purchase price of less than the applicable conversion price of our
Series D Preferred Stock will also result in a greater number of shares of common stock being required to be issued to the holder
of the Series D Preferred Stock pursuant to the MFN Adjustment or the option to exchange the Series D Preferred Stock into securities
sold in a Subsequent Financing or a Qualified Offering. For accounting purposes,
the Company analyzed the classification of the Series D Preferred Stock, including whether the embedded conversion options should
be bifurcated. As the Series D Preferred Stock is not redeemable, and the host contract was determined to be akin to equity, the
entire instrument was classified as equity. In addition, the Company
analyzed the classification of the Redemption Obligation of the Company regarding the Series B Convertible Preferred Stock as agreed
upon in the SPA. Based on ASC 480-10-S99 the Company determined that since the Redemption Obligation is outside of its control,
the Series B Convertible Preferred Stock is considered as contingently redeemable upon the occurrence of an event that is outside
of its control and should be classified as a mezzanine equity. The Company determined that subsequent financing and the related
payment of Redemption Obligation is considered to be outside of the Company’s control. Accordingly, as of the date of the
SPA, the redemption amount net of the embedded derivative (as described below), which amounts to $934,000, was classified as “Redeemable
Preferred Shares” in the Consolidated Balance Sheet. In addition, the Company
analyzed whether the conversion feature embedded in the shares of the Series B Convertible Preferred Stock subject to the Redemption
Obligation should be bifurcated. As certain shares of the Series B Convertible Preferred Stock is contingently redeemable, the
host contract was determined to be akin to debt, and the other criteria under ASC 815-15-25-1 were met, an embedded derivative
was separated from the host contract and accounted for as a derivative instrument pursuant to Subtopic 815-10. As of the date of
the SPA, the embedded derivative was valued at $66,000. The Company values Level
3 embedded derivative using an internally developed valuation model, whose inputs include potential equity transactions probability
of completing successful fund raising during the relevant period and stock prices. In addition, the company
analyzed whether the change in the conversion price of the convertible preferred B constitutes an extinguishment accounting purpose,
by comparing the fair value of such preferred stock immediately before and after such change in terms. Since the fair value increased
substantially, i.e by more than 10%, the change in terms was accounted for as an extinguishment. As a result, the difference
between the fair value of the preferred stock immediately after the change in term and the carrying amount immediately before such
change, in the amount of 3.9 million, was added to the basic loss per share contributable to the company ordinary share holders. Of the 284,446 shares of
Series B Convertible Preferred Stock that were converted during the year ended December 31, 2017, 206,105 shares were converted
by the purchaser of Series D Convertible Preferred Stock. Therefore, as of December 31, 2017, the purchaser of Series D Convertible
Preferred Stock held 8,295 shares Series B Convertible Preferred Stock with a stated value of $274,000. Accordingly, the maximum
Redemption Obligation amount as of December 31, 2017, was $274,000. In addition, following these conversions of Series B Convertible
Preferred Stock, the value of the embedded derivative as of December 31, 2017, was $0. During the year ended December
31, 2017, 284,446 shares of Series B Convertible Preferred Stock were converted into 1,404,424 shares of common stock. During the year ended December
31, 2017, 328,171 shares of Series C Convertible Preferred Stock were converted into 37,506 shares of common stock. During the year ended December
31, 2017, there was no conversions of Series D Preferred Stock. As of December 31, 2017,
the outstanding shares of Series B Convertible Preferred Stock are convertible into 223,344 shares of common stock, including
the Dividend Entitlement but excluding effect of future conversion price adjustment, if any. As of December 31, 2017,
the outstanding shares of Series C Convertible Preferred Stock are convertible into 84,753 shares of common stock. As of December 31, 2017, the
outstanding shares of Series D Convertible Preferred Stock are convertible into 107,143 shares of common stock. As of December 31, 2017,
the outstanding Series A Warrants are convertible into 50,620 shares of common stock. As of December 31, 2017,
the outstanding Series B Warrants are convertible into 122,269 shares of common stock. In the event of our liquidation,
dissolution, or winding up, holders of Series B Convertible Preferred Stock, Series C Convertible Preferred Stock and Series D
Convertible Preferred Stock will be entitled to receive the amount of cash, securities or other property to which such holder would
be entitled to receive with respect to such shares of Preferred Stock if such shares had been converted to common stock immediately
prior to such event. As of December 31, 2017,
the Company issued warrants to purchase an aggregate of 180,367 shares of common stock.
1) On March 28, 2011, the board of directors and stockholders of the Company adopted and approved the InspireMD, Inc. 2011 UMBRELLA Option Plan (the “Umbrella Plan”) which expires on March 27, 2021. Under the Umbrella Plan, as subsequently amended, the Company reserved 572 shares of common stock as awards to employees, consultants, and service providers. As of December 31, 2017, the Company had 276 shares of common stock available for future issuance under the plans as described above.
On December 16, 2013, the board of directors and stockholders of the Company adopted and approved the 2013 Plan. Under the 2013 Plan, the Company initially reserved 572 shares of common stock for awards to employees, officers, directors, consultants, and service providers. On September 9, 2015, May 24, 2016 and September 28, 2016, the stockholders approved an amendment to the 2013 Plan to increase the number of shares of common stock available for issuance pursuant to awards under the 2013 Plan by 537, 11,428 and 7,200 shares of common stock, respectively, to a total of 19,737 shares of common stock. As of December 31, 2017, the Company reserved 8,612 shares of common stock available for future issuance under the plans as described above.
The 2013 Plan provides for the granting of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights, and other awards, which may be granted singly, in combination, or in tandem. The 2013 Plan is administered by the Company’s compensation committee.
In 2004, Section 409A was added to the U.S. Internal Revenue Code of 1986, as amended (the “Code”) to regulate all types of deferred compensation. Certain performance awards, stock options, stock appreciation rights, restricted stock units, and certain types of restricted stock are subject to Section 409A of the Code.
Pursuant to the current Section 102 of the Israeli Tax Ordinance, which came into effect on January 1, 2003, options may be granted through a trustee (i.e., Approved 102 Options) or not through a trustee (i.e., Unapproved 102 Options). As a result of an election made by the Company under Section 102 of the Income Tax Ordinance, the Company will not be allowed to claim as an expense for tax purposes in Israel the amounts credited to the employee as capital gains to the grantees, although it will generally be entitled to do so in respect of the salary income component (if any) of such awards when the related tax is paid by the employee.
2) During the years ended December 31, 2017 and 2016, the Company granted stock options to the CEO, employees and directors to purchase a total of 118 and 9,392 shares of the Company’s common stock, respectively. The options have exercise prices ranging from $24.85-$34.65 and $65.1-$437.5 per share, respectively, which were the fair market value of the company’s common stock on the date of each respective grant. The fair value of the above options, using the Black-Scholes and the Monte-Carlo option pricing models, was approximately $3,000 and $1,023,000, respectively. The 118 stock options granted in 2017 are subject to a three-year vesting period, with one-third of such awards vesting each year. Of the 9,392 stock options granted in 2016, 4,601 options are subject to a three-year vesting period with one-third of such awards vesting each year, 915 options are subject to a two-year vesting period with one-half of such awards vesting each year, 2,399 options are subject to a one-year vesting period, 810 options are fully vested as of their grant date and the remaining options are subject to certain market and performance conditions.
3) During the year ended December 31, 2017 and 2016, the Company granted to the CEO, employees and directors 84 and 3,710 restricted shares of the Company’s common stock, respectively. The fair value of these restricted shares was approximately $3,000 and $545,000. The 84 restricted shares granted during the year ended December 31, 2017 are subject to a three-year vesting period, with one-third of such awards vesting each year. Of the 3,710 restricted shares granted during the year ended December 31, 2016, 2,015 restricted shares are subject to a one-year vesting period and the remaining restricted shares are subject to a three-year vesting period, with one-third of such awards vesting each year.
4) The following table summarizes information about warrants and share options to employees:
Year ended December 31
2017 2016
Number of warrants and options
Weighted average exercise Number of warrants and options
Weighted average exercise price
Outstanding - beginning of period 9,655 $ 891.8 864 $ 26,337.5
Granted 118 32.2 9,392 159.95
Forfeited (1,606 ) 414.05 (596 ) 24,131.45
Exercised - (5 ) -
Outstanding -end of period 8,167 $ 970.55 9,655 $ 891.8
Exercisable at the end of the period 5,295 $ 1,431.85 1,465 $ 5,087.25
5) The following table summarizes information about warrants and share options to non-employees:
Year ended December 31
2017 2016
Number of warrants and options
Weighted average exercise price Number of warrants and options
Weighted average exercise price
Outstanding - beginning of period 61 $31,164.7 155 $ 39,690
Granted - - - -
Forfeited (12) 58,165.8 (107 ) 44,749.25
Exercised - - (5 ) -
Outstanding - end of period 49 $21,238.7 43 $ 31,164.7
Exercisable at the end of the period 31 $20,874.35 43 $ 31,019.8
6) The following table summarizes information about restricted shares to employees:
Year ended December 31
2017 2016
Number of restricted shares
Outstanding - beginning of period 3,755 197
Granted 84 3,710
Forfeited (202 ) (37 )
Vested (2,544 ) (115 )
Outstanding - end of period 1,093 3,755
7) The following table provides additional information about all options outstanding and exercisable:
Outstanding as of December 31, 2017
Exercise price Options outstanding Weighted average remaining contractual life (years) Options exercisable
$0-$65.1 1,483 8.8 850
$106.4-$113.75 3,452 8.69 1,532
$166.25-$288.75 3,049 8.56 2,714
$1,487.5-$7,262.5 98 6.43 96
$19,512.5-$73,500 134 3.26 134
8,216 8.54 5,326 The weighted average of
the remaining contractual life of total vested and exercisable options as of December 31, 2017 was 8.47 years. The aggregate intrinsic
value of the total exercisable warrants and options as of December 31, 2017 was approximately $49. The weighted average fair
value of options granted was approximately $24.85 and $108.85 for the years ended December 31, 2017 and 2016,
respectively. The weighted average fair value of warrants and options granted was estimated using the Black-Scholes option-pricing
model.
8) The following table sets forth the assumptions that were used in determining the fair value of options granted to employees for the years ended December 31, 2017 and 2016:
Year ended December 31
2017 2016
Expected life 5-6.5 years 5-6.5 years
Risk-free interest rates 1.78%-2.18% 1.01%-2.06%
Volatility 94.42%-97.62% 85.8%-91.03%
Dividend yield 0 % 0 % The Company does not have
sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. Accordingly, as to ordinary
course options granted, the expected term was determined using the simplified method, which takes into consideration the option’s
contractual life and the vesting periods (for non-employees, the expected term is equal to the option’s contractual life). The annual risk-free rates
are based on the yield rates of zero coupon non-index linked U.S. Federal Reserve treasury bonds as both the exercise price and
the share price are in dollar terms. The Company’s expected volatility is derived from its historical data.
9) As of December 31, 2017, the total unrecognized compensation cost on employee and non-employee stock options and restricted shares, related to unvested stock-based compensation, amounted to approximately $0.2 million. This cost is expected to be recognized over a weighted-average period of approximately 0.83 years. This expected cost does not include the impact of any future stock-based compensation awards.
10) The following table summarizes the allocation of total share-based compensation expense in the consolidated statements of operations:
Year ended December 31
2017 2016
($ in thousands)
Cost of revenues $ 7 $ 1
Research and development 32 182
Sales and marketing 86 (85 )
General and administrative 547 880
$ 672 $ 978 |
