InspireMD, Inc. 10-K

Item 7. 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 consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. 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 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 the MDD in the 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. In January 2024, we received CE mark recertification under the EU’s Medical Device Regulation regulatory framework. Currently, we are seeking strategic partners for a potential launch of CGuard EPS in Japan and other Asian countries. On September 8, 2020, we received approval from the FDA of our 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 CAS. The study, which completed enrollment in June 2023, enrolled 316 patients across 24 trial sites in the U.S. and Europe and from April 2023 included deployment of the CGuard stent using CGuard Prime, our next generation CAS stent platform. The primary endpoint is a composite of: (1) incidence of major adverse events including Death (all-cause mortality), any Stroke, and Myocardial Infarction (DSMI) through 30-days post index procedure, or (2) ipsilateral stroke from day 31 to day 365 post-procedure. All events are adjudicated by an independent clinical events committee. 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 November 2023, we announced positive 30-day follow up results from the C-GUARDIANS trial in which stenting with the C-Guard Carotid Stent System in patients with carotid artery stenosis and at high risk for carotid endarterectomy had a DSMI rate of 0.95%, measured from the date of the procedure through 30 days follow-up post-procedure. We anticipate reporting primary endpoint results from the C-GUARDIANS trial in mid 2024 that may support the submission of a PMA application in the third quarter of 2024 with a view to potential FDA approval of the CGuard Prime stent system in the first half of 2025. - 59 - We continue to invest in current and future potential new indications, products and manufacturing enhancements for CGuard that are expected to reduce cost of goods and/or provide the best-in-class performing delivery systems, such as CGuard Prime. In furtherance of our strategy that focuses on establishing the CGuard Carotid Stent System as a viable alternative to vascular surgery, we are developing a new transcarotid artery revascularization (TCAR) delivery system, SwitchGuard NPS, for transcarotid access and neuro protection. In addition, we intend to explore new indications for CGuard 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 Carotid Stent System and SwitchGuard NPS to be both symptomatic and asymptomatic individuals with diagnosed high-grade carotid artery stenosis ) 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 Carotid Stent System, we estimate that the addressable market for CGuard Carotid Stent System and SwitchGuard NPS is approximately $1.3 billion (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 treatment for all individuals diagnosed with high-grade carotid artery stenosis, we estimate the total available market for CGuard Carotid Stent System and SwitchGuard NPS to be approximately $9.3 billion, which may grow over time if expanded treatment options such as CGuard Carotid Stent System and SwitchGuard NPS lead to increased patient screening for carotid artery disease. 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 12,914,078 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 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. - 60 - 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 were 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 were 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 We prepared our consolidated financial statements in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). U.S. GAAP represents a comprehensive set of accounting and disclosure rules and requirements, and applying these rules and requirements requires management judgments and estimates including, in certain circumstances, choices between acceptable U.S. GAAP alternatives. The following is a discussion of our most critical accounting policies, judgments and uncertainties that are inherent in our application of U.S. GAAP. Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates using assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting periods. Actual results could differ from those estimates. As applicable to these consolidated financial statements, the most significant estimates and assumptions relate to inventory valuations and assessing the likelihood of exercise of options to extend the lease term. Marketable securities Marketable securities consist of debt securities. We elected the fair value option to measure and recognize our 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. Concentration of credit risk and allowance for doubtful accounts Financial instruments that may potentially subject us to a concentration of credit risk consist of cash and cash equivalents and short-term bank deposits, which are deposited in major financially sound institutions in the U.S, Israel and Germany, and trade accounts receivable and other receivables. Our trade accounts receivable is derived from revenues earned from customers from various countries. We perform ongoing credit evaluations of our customers’ financial condition and, requires no collateral from our customers. We also have a credit insurance policy for some of our customers. We maintain the allowance for estimated losses resulting from the inability of our customers to make required payments. The allowance represents the current estimate of lifetime expected credit losses over the remaining duration of existing accounts receivable considering current market conditions and supportable forecasts when appropriate. The estimate is a result of our ongoing evaluation of collectability, customer creditworthiness, historical levels of credit losses, and future expectations. The allowance for expected credit losses was immaterial during the periods presented. - 61 - Inventory Inventories are stated at the lower of cost (cost is determined on a “first-in, first-out” basis) or net realizable value. Our inventories generally have a limited shelf life and are subject to impairment as they approach their expiration dates. We regularly evaluate the carrying value of our inventories and when, based on such evaluation, factors indicate that impairment has occurred, we impair the inventories’ carrying value. In addition, we write-off fails in production based on actual and estimated. Leases Operating leases are included in operating lease right-of-use (“ROU”) assets, Accounts payable and accruals - Other, and operating lease liabilities. ROU assets represent Company’s right to use an underlying asset for the lease term and lease liabilities represent obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, we use the incremental borrowing rate based on the information available at the lease commencement date as the rate implicit in the lease is not readily determinable. The determination of the incremental borrowing rate requires management judgment based on information available at lease commencement. The lease terms may include periods covered by options to extend the lease when it is reasonably certain that we will exercise such options, and periods covered by options to terminate the lease when it is reasonably certain that we will not exercise such options. Operating lease cost is recognized on a straight-line basis over the lease term. Lease agreements that include lease and non-lease components are accounted for as a single lease component. The Company elected the short-term lease recognition exemption for leases with a lease term of 12 months or less. Revenue recognition A contract with a customer exists only when: 1) the parties to the contract have approved it and are committed to perform their respective obligations, 2) we can identify each party’s rights regarding the distinct goods or services to be transferred (“Performance Obligations”), 3) we can determine the transaction price for the goods or services to be transferred, 4) the contract has commercial substance and 5) it is probable that we will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer. Revenues are recorded in the amount of consideration to which we expect to be entitled in exchange for Performance Obligations upon transfer of control to the customer, excluding sales taxes. Revenue from sales of goods, including sales to distributors, is recognized when the customer obtains control of the product, once we have a present right to payment, legal title, and risk and rewards of ownership are obtained by the customer. This occurs when products are shipped. We recognize the incremental costs of obtaining contracts as an expense since the amortization period of the assets that we otherwise would have recognized is one year or less. The costs are recorded under selling and marketing expenses. We recognize revenue net of value added tax (VAT). - 62 - Share-based compensation Employee option awards are classified as equity awards and accounted for using the grant-date fair value method. The fair value of share-based awards is estimated using the Black-Scholes valuation model and expensed over the requisite service period, net of estimated forfeitures. We elected to account for forfeitures as they occur. We elected to recognize compensation expenses for awards with only service conditions that have graded vesting schedules using the accelerated multiple option approach. The attribution for nonemployee awards is in the same manner as if we had paid cash for the goods or services. In addition, certain of our share-based awards to service providers are performance based, i.e., the vesting of these awards depends upon achieving certain goals. We recognize compensation expenses for awards with performance conditions when we conclude that it is probable that the performance condition will be achieved. Results of Operations Twelve months ended December 31, 2023 compared to the twelve months ended December 31, 2022 Revenues . For the twelve months ended December 31, 2023, revenue increased by $1,034,000, or 20.0%, to $6,205,000, from $5,171,000 during the twelve months ended December 31, 2022. This increase was predominantly driven by a 21.1% increase in sales volume of CGuard EPS, from $5,123,000 during the twelve months ended December 31, 2022, to $6,205,000 during the twelve months ended December 31, 2023. This sales increase was mainly due to growth in existing and new markets. With respect to regions, the increase in revenue was primarily attributable to a $1,036,000 increase in Europe, a $76,000 increase in Asia and $24,000 increase in Latin America. This growth was mainly due to growth in existing and new markets. This increase was offset by a $92,000 decline in revenue in the U.S. as less stents were used in our C-GUARDIANS FDA study as trial enrollment ended in June 2023 as well as a $10,000 decline in other markets. Gross Profit . For the twelve months ended December 31, 2023, gross profit (revenue less cost of revenues) increased by 61.8%, or $690,000, to $1,807,000, compared to a gross profit of $1,117,000 for the same period in 2022. This increase in gross profit resulted from a $484,000 increase in revenues less the associated related material and labor costs, a decrease in write-offs of $179,000 and a decrease of $27,000 in miscellaneous expenses. Gross margin (gross profits as a percentage of revenue) increased to 29.1% during the twelve months ended December 31, 2023, from 21.6% during the twelve months ended December 31, 2022, driven by the reasons mentioned above. Research and Development Expenses . For the twelve months ended December 31, 2023, research and development expenses increased by 2.2%, or $171,000, to $7,981,000, from $7,810,000 during the twelve months ended December 31, 2022. This increase resulted primarily from an increase of compensation expenses to employees and consultants of $638,000 mainly due to an increase of approximately $341,000 of share-based compensation-related expenses due to the expense recognition of grants made during the second quarter of 2023, an increase of $165,000 in expenses related to the SwitchGuard regulatory and approval process, and an increase of $513,000 in miscellaneous expenses offset, in part, by a decrease of $1,145,000 in expenses related to the C-GUARDIANS FDA study as we completed enrollment in June 2023. Selling and Marketing Expenses . For the twelve months ended December 31, 2023, selling and marketing expenses increased by 5.5%, or $201,000, to $3,865,000, from $3,664,000 during the twelve months ended December 31, 2022. This increase resulted primarily from an increase of compensation expenses of $151,000 mainly due to an increase of share-based compensation-related expenses due to the expense recognition of grants made during the second quarter of 2023 and an increase of $50,000 in miscellaneous expenses. General and Administrative Expenses . For the twelve months ended December 31, 2023, general and administrative expenses increased by 32.9%, or $2,748,000, to $11,104,000, from $8,356,000 during the twelve months ended December 31, 2022. This increase resulted primarily from an increase in compensation expenses of $2,177,000, mainly due to an increase of approximately $1,585,000 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 $592,000 mainly due to hiring of a General Manager of North America and VP of Global Marketing (who was subsequently promoted to the Company’s Chief Commercial Officer in the third quarter of 2023), an increase in legal expenses of $292,000 and an increase of $279,000 in miscellaneous expenses. - 63 - Financial Income (Expenses) . For the twelve months ended December 31, 2023, financial income increased by $1,042,000, to $1,292,000 from $250,000 during the twelve months ended December 31, 2022. The increase in financial income primarily resulted from a $1,152,000 increase in interest income from investment in marketable securities, money market funds and short-term bank deposits. Tax Expenses . For the twelve months ended December 31, 2023, tax increased by $37,000 compared to the twelve months ended December 31, 2022. Our expenses for income taxes reflect primarily the tax liability due to potential tax exposure. Net Loss . Our net loss increased by $1,425,000, or 7.7%, to $19,916,000 for the twelve months ended December 31, 2022, from $18,491,000 during the twelve months ended December 31, 2022. The increase in net loss resulted primarily from an increase of $3,120,000 in operating expenses, offset by an increase of $1,042,000 in financial income and increase of $690,000 in gross profit. Liquidity and Capital Resources As of the date of issuance of the consolidated financial statements, we have the ability to fund our planned operations for at least the next 12 months. However, we expect to continue incurring losses and negative cash flows from operations until our products (primarily CGuard reaches 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. There can be no assurance that we will achieve any of the milestones set forth in the Warrants or that the Warrants will be exercised in cash in full. Twelve months ended December 31, 2023 compared to the twelve months ended December 31, 2022 General . At December 31, 2023, we had cash and cash equivalents of $9,640,000 and marketable securities of $29,383,000 as compared to $4,632,000 of cash and cash equivalents and $13,171,000 Short-term bank deposits 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 cost, capital expenditures and general working capital. For the twelve months ended December 31, 2023, net cash used in our operating activities increased by $834,000 to $16,376,000, from $15,542,000 during the same period in 2022. The primary reason for the increase in cash used in our operating activities was an increase of $731,000 in payments for third party related expenses and for professional services, an increase of $937,000 in salary and bonus payments from $8,558,000 in the twelve months ended December 31, 2022 to $9,495,000 during the same period in 2022, offset, in part, by an increase of $137,000 in payments received from customers to $5,470,000 during the twelve months ended December 31, 2023, from $5,333,000 during the same period in 2022 and an increase of $697,000 in interest income received from marketable securities, money market funds and short-term bank deposits Cash used by our investing activities was $16,092,000 during the twelve months ended December 31, 2023, compared to cash provided by our investing activities of $8,441,000 during the twelve months ended December 31, 2022. The primary reason for the increase in cash used by our investing activities is an investment in marketable securities, net of withdrawal of $28,644,000, offset by an increase in withdrawal from short-term bank deposits, net of investment in short-term deposits, of $4,000,000, and a decrease of $92,000 in payments made for purchase of property, plant and equipment during the twelve months ended December 31, 2023. - 64 - Cash provided by financing activities for the twelve months December 31, 2023, was $37,534,000. The principal source of the cash provided by financing activities during the twelve months ended December 31, 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 twelve months ended December, 2022 was $140,000, the cash used by financing activities during the twelve months ended December, 2022 were due to issuance costs associated with a shelf registration statement on Form S-3 filed with the SEC on June 3, 2022. As of December 31, 2023, our current assets exceeded our current liabilities by a multiple of 7.3. Current assets increased by $22,833,000 during the period and current liabilities increased by $950,000 during the period. As a result, our working capital increased by $21,883,000 to $38,139,000 as of December 31, 2023. Contractual Obligations Operating lease payments represent our commitment for future rent made under non-cancelable lease for our offices in Israel. The total future payments for our operating lease obligation at December 31, 2023 were approximately $1,815,000 and are due in the next twelve months. For additional details regarding our lease, see Note 7_ to our consolidated financial statements included in this Annual Report on Form 10-K. Off Balance Sheet Arrangements We have no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Recent Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326)-Measurement of Credit Losses on Financial Instruments. This guidance replaces the current incurred loss impairment methodology. Under the new guidance, on initial recognition and at each reporting period, an entity is required to recognize an allowance that reflects its current estimate of credit losses expected to be incurred over the life of the financial instrument based on historical experience, current conditions and reasonable and supportable forecasts. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates (“ASU 2019-10”). The purpose of this amendment is to create a two tier rollout of major updates, staggering the effective dates between larger public companies and all other entities. This granted certain classes of companies, including Smaller Reporting Companies (“SRCs”), additional time to implement major FASB standards, including ASU 2016-13. Larger public companies had an effective date of December 15, 2019, including interim periods within those fiscal years. +All other entities are permitted to defer adoption of ASU 2016-13, and its related amendments, until the earlier of fiscal periods beginning after December 15, 2022. Under the current SEC definitions, we meet the definition of an SRC and are adopting the deferral period for ASU 2016-13. The guidance requires a modified retrospective transition approach through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. We adopted the provisions of this update as of January 1, 2023 with no material impact on our consolidated financial statements. - 65 - In November 2023, the FASB issued ASU 2023-07 “Segment Reporting: Improvements to Reportable Segment Disclosures”. This guidance expands public entities ‘segment disclosures primarily by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. Public entities with a single reportable segment are required to provide the new disclosures and all the disclosures required under ASC 280. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments are required to be applied retrospectively to all prior periods presented in an entity’s financial statements. We are currently evaluating this guidance to determine the impact it may have on our consolidated financial statements related disclosures. In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. This guidance is intended to enhance the transparency and decision-usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to disclosure regarding rate reconciliation and income taxes paid both in the U.S. and in foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 on a prospective basis, with the option to apply the standard retrospectively. Early adoption is permitted. We are currently evaluating this guidance to determine the impact it may have on our consolidated financial statements related disclosures. 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. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Not applicable.