10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on August 7, 2009
Table of Contents
Ìý
Ìý
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JuneÌý30, 2009.
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ÌýÌýÌýÌýÌýÌýÌýÌýÌýÌýÌýÌýÌýÌýÌýÌýÌýÌýÌýÌý to ÌýÌýÌýÌýÌýÌýÌýÌýÌýÌýÌýÌýÌýÌýÌýÌýÌýÌýÌýÌý.
Commission file number 000-27748
СÖíÊÓƵapp Health, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Ìý | Ìý | Ìý |
Delaware | Ìý | 75-2402409 |
Ìý | Ìý | Ìý |
(State or Other Jurisdiction of Incorporation or Organization) |
Ìý | (I.R.S. Employer Identification No.) |
4400 Biscayne Blvd.
ÌýÌýÌýÌýÌýÌýÌýÌýÌýÌý Miami, FL 33137ÌýÌýÌýÌýÌýÌýÌýÌýÌýÌý
(Address of Principal Executive Offices) (ZIP Code)
ÌýÌýÌýÌýÌýÌýÌýÌýÌýÌý Miami, FL 33137ÌýÌýÌýÌýÌýÌýÌýÌýÌýÌý
(Address of Principal Executive Offices) (ZIP Code)
(305)Ìý575-4100
(RegistrantÂ’s Telephone Number, Including Area Code)
(RegistrantÂ’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1)Ìýhas filed all reports required to be filed by
SectionÌý13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12Ìýmonths (or for
such shorter period that the registrant was required to file such reports), and (2)Ìýhas been
subject to such filing requirements for the past 90Ìýdays. x YES ÌýÌýÌýÌýÌýo NO
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to RuleÌý405 of RegulationÌýS-T (§232.405 of this Chapter) during the preceding 12Ìýmonths
(or for such shorter period that the registrant was required to submit and post such files).
YES o ÌýÌýÌýÌýÌý NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in RuleÌý12b-2 of the Exchange Act.
Ìý | Ìý | Ìý |
Large accelerated filer o
|
Ìý | Accelerated filer x |
Non-accelerated filer o (Do not check if a smaller reporting company)
|
Ìý | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in RuleÌý12b-2 of the
Exchange Act):
YES oÌýÌýÌýÌýÌý NO x
As of AugustÌý4, 2009, the registrant had 252,668,938 shares of common stock outstanding.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
ÌýÌýÌýÌýÌýThis report contains “forward-looking statements,” as that term is defined under the Private
Securities Litigation Reform Act of 1995, or PSLRA, SectionÌý27A of the Securities Act of 1933, as
amended, and SectionÌý21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements include statements about our expectations, beliefs or intentions regarding our product
development efforts, business, financial condition, results of operations, strategies or prospects.
You can identify forward-looking statements by the fact that these statements do not relate
strictly to historical or current matters. Rather, forward-looking statements relate to
anticipated or expected events, activities, trends or results as of the date they are made.
Because forward-looking statements relate to matters that have not yet occurred, these statements
are inherently subject to risks and uncertainties that could cause our actual results to differ
materially from any future results expressed or implied by the forward-looking statements. Many
factors could cause our actual activities or results to differ materially from the activities and
results anticipated in forward-looking statements. These factors include those described below and
in “ItemÌý1A-Risk Factors” of our Annual Report on Form 10-K for the year ended DecemberÌý31, 2008,
and described from time to time in our reports filed with the Securities and Exchange Commission.
We do not undertake any obligation to update forward-looking statements. We intend that all
forward-looking statements be subject to the safe-harbor provisions of the PSLRA. These
forward-looking statements are only predictions and reflect our views as of the date they are made
with respect to future events and financial performance.
ÌýÌýÌýÌýÌýRisks and uncertainties, the occurrence of which could adversely affect our business, include
the following:
Ìý | Éù | Ìý | We have a history of operating losses and we do not expect to become profitable in the near future. |
Ìý | |||
Ìý | Éù | Ìý | Our technologies are in an early stage of development and are unproven. |
Ìý | |||
Ìý | Éù | Ìý | Our drug research and development activities may not result in commercially viable products. |
Ìý | |||
Ìý | Éù | Ìý | Following the recommendation of the Independent Data Monitoring Committee, we terminated the Phase III clinical trial of bevasiranib, our most advanced product candidate. As a result, we may not continue to develop or be able to successfully commercialize bevasiranib. |
Ìý | |||
Ìý | Éù | Ìý | Our current and planned clinical trials may not satisfy the requirements of the FDA or other non-United States regulatory authorities. |
Ìý | |||
Ìý | Éù | Ìý | We will require substantial additional funding, which may not be available to us on acceptable terms, or at all. |
Ìý | |||
Ìý | Éù | Ìý | We expect to finance future cash needs primarily through public or private offerings, debt financings or strategic collaborations, which may dilute your stockholdings in the Company. |
Ìý | |||
Ìý | Éù | Ìý | If our competitors develop and market products that are more effective, safer or less expensive than our future product candidates, our commercial opportunities will be negatively impacted. |
Ìý | |||
Ìý | Éù | Ìý | The regulatory approval process is expensive, time consuming and uncertain and may prevent us or our collaboration partners from obtaining approvals for the commercialization of some or all of our product candidates. |
Ìý | |||
Ìý | Éù | Ìý | Failure to recruit and enroll patients for clinical trials may cause the development of our product candidates to be delayed. |
Ìý | |||
Ìý | Éù | Ìý | Even if we obtain regulatory approvals for our product candidates, the terms of approvals and ongoing regulation of our products may limit how we manufacture and market our product candidates, which could materially impair our ability to generate anticipated revenues. |
Ìý | |||
Ìý | Éù | Ìý | We may not meet regulatory quality standards applicable to our manufacturing and quality processes. |
Ìý | |||
Ìý | Éù | Ìý | Even if we receive regulatory approval to market our product candidates, the market may not be receptive to our products. |
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Ìý | Éù | Ìý | If we fail to attract and retain key management and scientific personnel, we may be unable to successfully develop or commercialize our product candidates. |
Ìý | |||
Ìý | Éù | Ìý | In the event that we successfully evolve from a company primarily involved in development to a company also involved in commercialization, we may encounter difficulties in managing our growth and expanding our operations successfully. |
Ìý | |||
Ìý | Éù | Ìý | If we fail to acquire and develop other products or product candidates, at all or on commercially reasonable terms, we may be unable to diversify or grow our business. |
Ìý | |||
Ìý | Éù | Ìý | We have no experience manufacturing our pharmaceutical product candidates and we therefore intend to rely on third parties to manufacture and supply our pharmaceutical product candidates, and would need to meet various standards necessary to satisfy FDA regulations if and when we commence manufacturing. |
Ìý | |||
Ìý | Éù | Ìý | We currently have no pharmaceutical marketing, sales or distribution organization. If we are unable to develop our sales and marketing and distribution capability on our own or through collaborations with marketing partners, we will not be successful in commercializing our pharmaceutical product candidates. |
Ìý | |||
Ìý | Éù | Ìý | Independent clinical investigators and contract research organizations that we engage to conduct our clinical trials may not be diligent, careful or timely. |
Ìý | |||
Ìý | Éù | Ìý | The success of our business is dependent on the actions of our collaborative partners. |
Ìý | |||
Ìý | Éù | Ìý | If we are unable to obtain and enforce patent protection for our products, our business could be materially harmed. |
Ìý | |||
Ìý | Éù | Ìý | If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could be adversely affected. |
Ìý | |||
Ìý | Éù | Ìý | We will rely heavily on licenses from third parties. |
Ìý | |||
Ìý | Éù | Ìý | We license patent rights to certain of our technology from third-party owners. If such owners do not properly maintain or enforce the patents underlying such licenses, our competitive position and business prospects will be harmed. |
Ìý | |||
Ìý | Éù | Ìý | Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties. |
Ìý | |||
Ìý | Éù | Ìý | Adverse results in material litigation matters or governmental inquiries could have a material adverse effect upon our business and financial condition. |
Ìý | |||
Ìý | Éù | Ìý | Medicare prescription drug coverage legislation and future legislative or regulatory reform of the health care system may affect our ability to sell our products profitably. |
Ìý | |||
Ìý | Éù | Ìý | Failure to obtain regulatory approval outside the United States will prevent us from marketing our product candidates abroad. |
Ìý | |||
Ìý | Éù | Ìý | We may not have the funding available to pursue acquisitions. |
Ìý | |||
Ìý | Éù | Ìý | Acquisitions may disrupt our business, distract our management and may not proceed as planned; and we may encounter difficulties in integrating acquired businesses. |
Ìý | |||
Ìý | Éù | Ìý | Non-United States governments often impose strict price controls, which may adversely affect our future profitability. |
Ìý | |||
Ìý | Éù | Ìý | Our business may become subject to economic, political, regulatory and other risks associated with international operations. |
Ìý | |||
Ìý | Éù | Ìý | The market price of our common stock may fluctuate significantly. |
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Ìý | Éù | Ìý | Directors, executive officers, principal stockholders and affiliated entities own a majority of our capital stock, and they may make decisions that you do not consider to be in your best interests or in the best interests of our stockholders. |
Ìý | |||
Ìý | Éù | Ìý | Compliance with changing regulations concerning corporate governance and public disclosure may result in additional expenses. |
Ìý | |||
Ìý | Éù | Ìý | If we are unable to satisfy the requirements of SectionÌý404 of the Sarbanes-Oxley Act of 2002, as they apply to us, or our internal controls over financial reporting are not effective, the reliability of our financial statements may be questioned and our common stock price may suffer. |
Ìý | |||
Ìý | Éù | Ìý | We may be unable to maintain our listing on the NYSE Amex Exchange, which could cause our stock price to fall and decrease the liquidity of our common stock. |
Ìý | |||
Ìý | Éù | Ìý | Future issuances of common stock may depress the trading price of our common stock. |
Ìý | |||
Ìý | Éù | Ìý | Provisions in our charter documents and Delaware law could discourage an acquisition of us by a third party, even if the acquisition would be favorable to you. |
Ìý | |||
Ìý | Éù | Ìý | We do not intend to pay cash dividends on our common stock in the foreseeable future. |
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PART I. FINANCIAL INFORMATION
ÌýÌýÌýÌýÌýUnless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to
the “Company”, “СÖíÊÓƵapp”, “we”, “our”, “ours”, and “us” refers to СÖíÊÓƵapp Health, Inc., a Delaware
corporation, including our wholly-owned subsidiaries.
ItemÌý1. | Ìý | Financial Statements |
СÖíÊÓƵapp Health, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands except share data)
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands except share data)
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
Ìý | Ìý | June 30, | Ìý | Ìý | December 31, | Ìý | ||
Ìý | Ìý | 2009 | Ìý | Ìý | 2008 | Ìý | ||
ASSETS |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
Current assets |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
Cash and cash equivalents |
Ìý | $ | 35,939 | Ìý | Ìý | $ | 6,678 | Ìý |
Marketable securities |
Ìý | Ìý | 4,997 | Ìý | Ìý | Ìý | — | Ìý |
Accounts receivable, net |
Ìý | Ìý | 2,165 | Ìý | Ìý | Ìý | 1,005 | Ìý |
Inventory |
Ìý | Ìý | 5,151 | Ìý | Ìý | Ìý | 4,063 | Ìý |
Prepaid expenses and other current assets |
Ìý | Ìý | 1,675 | Ìý | Ìý | Ìý | 1,720 | Ìý |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||
Total current assets |
Ìý | Ìý | 49,927 | Ìý | Ìý | Ìý | 13,466 | Ìý |
Property and equipment, net |
Ìý | Ìý | 560 | Ìý | Ìý | Ìý | 659 | Ìý |
Intangible assets, net |
Ìý | Ìý | 5,524 | Ìý | Ìý | Ìý | 6,336 | Ìý |
Goodwill |
Ìý | Ìý | 1,097 | Ìý | Ìý | Ìý | 1,097 | Ìý |
Investment |
Ìý | Ìý | 2,262 | Ìý | Ìý | Ìý | — | Ìý |
Other assets |
Ìý | Ìý | 335 | Ìý | Ìý | Ìý | 206 | Ìý |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||
Total assets |
Ìý | $ | 59,705 | Ìý | Ìý | $ | 21,764 | Ìý |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
LIABILITIES AND SHAREHOLDERSÂ’ EQUITY |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
Current liabilities |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
Accounts payable |
Ìý | $ | 2,201 | Ìý | Ìý | $ | 2,221 | Ìý |
Accrued expenses |
Ìý | Ìý | 4,014 | Ìý | Ìý | Ìý | 5,394 | Ìý |
Current portion of notes payable and capital lease obligations |
Ìý | Ìý | 86 | Ìý | Ìý | Ìý | 97 | Ìý |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||
Total current liabilities |
Ìý | Ìý | 6,301 | Ìý | Ìý | Ìý | 7,712 | Ìý |
Long-term liabilities and capital lease obligations |
Ìý | Ìý | 2,595 | Ìý | Ìý | Ìý | 1,826 | Ìý |
Line of credit with related party, net unamortized discount of $101 and
$133, respectively |
Ìý | Ìý | 11,899 | Ìý | Ìý | Ìý | 11,867 | Ìý |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||
Total liabilities |
Ìý | Ìý | 20,795 | Ìý | Ìý | Ìý | 21,405 | Ìý |
Commitments and contingencies |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
ShareholdersÂ’ equity |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
SeriesÌýA Preferred stock — $0.01 par value, 4,000,000 shares authorized;
932,667 and 953,756 shares issued and outstanding (liquidation value of
$2,448 and $2,384) at JuneÌý30, 2009 and DecemberÌý31, 2008,
respectively |
Ìý | Ìý | 9 | Ìý | Ìý | Ìý | 10 | Ìý |
SeriesÌýC Preferred Stock — $0.01 par value, 500,000 shares authorized;
No shares issued or outstanding |
Ìý | Ìý | — | Ìý | Ìý | Ìý | — | Ìý |
Common Stock — $0.01 par value, 500,000,000 shares authorized;
252,594,059 and 199,020,379 shares issued and outstanding at
JuneÌý30, 2009 and DecemberÌý31, 2008, respectively |
Ìý | Ìý | 2,526 | Ìý | Ìý | Ìý | 1,991 | Ìý |
Treasury stock - 45,154 and 18,000 shares at JuneÌý30, 2009 and
DecemberÌý31, 2008, respectively |
Ìý | Ìý | (61 | ) | Ìý | Ìý | (24 | ) |
Additional paid-in capital |
Ìý | Ìý | 360,341 | Ìý | Ìý | Ìý | 307,498 | Ìý |
Accumulated deficit |
Ìý | Ìý | (323,905 | ) | Ìý | Ìý | (309,116 | ) |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||
Total shareholdersÂ’ equity |
Ìý | Ìý | 38,910 | Ìý | Ìý | Ìý | 359 | Ìý |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||
Total liabilities and shareholdersÂ’ equity |
Ìý | $ | 59,705 | Ìý | Ìý | $ | 21,764 | Ìý |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
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СÖíÊÓƵapp Health, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share data)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share data)
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
Ìý | Ìý | For the three months ended | Ìý | Ìý | For the six months ended | Ìý | ||||||||||
Ìý | Ìý | June 30, | Ìý | Ìý | June 30, | Ìý | ||||||||||
Ìý | Ìý | 2009 | Ìý | Ìý | 2008 | Ìý | Ìý | 2009 | Ìý | Ìý | 2008 | Ìý | ||||
Revenue |
Ìý | $ | 2,347 | Ìý | Ìý | $ | 879 | Ìý | Ìý | $ | 4,648 | Ìý | Ìý | $ | 3,703 | Ìý |
Cost of goods sold |
Ìý | Ìý | 1,764 | Ìý | Ìý | Ìý | 1,025 | Ìý | Ìý | Ìý | 3,325 | Ìý | Ìý | Ìý | 4,355 | Ìý |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||||
Gross margin (deficit) |
Ìý | Ìý | 583 | Ìý | Ìý | Ìý | (146 | ) | Ìý | Ìý | 1,323 | Ìý | Ìý | Ìý | (652 | ) |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
Operating expenses |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
Selling, general and administrative |
Ìý | Ìý | 2,926 | Ìý | Ìý | Ìý | 3,218 | Ìý | Ìý | Ìý | 6,183 | Ìý | Ìý | Ìý | 8,562 | Ìý |
Research and development |
Ìý | Ìý | 2,498 | Ìý | Ìý | Ìý | 5,479 | Ìý | Ìý | Ìý | 8,157 | Ìý | Ìý | Ìý | 9,835 | Ìý |
Write-off of acquired in-process
research and development |
Ìý | Ìý | — | Ìý | Ìý | Ìý | 1,398 | Ìý | Ìý | Ìý | — | Ìý | Ìý | Ìý | 1,398 | Ìý |
Other operating expenses, principally
amortization of intangible assets |
Ìý | Ìý | 406 | Ìý | Ìý | Ìý | 428 | Ìý | Ìý | Ìý | 812 | Ìý | Ìý | Ìý | 854 | Ìý |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||||
Total operating expenses |
Ìý | Ìý | 5,830 | Ìý | Ìý | Ìý | 10,523 | Ìý | Ìý | Ìý | 15,152 | Ìý | Ìý | Ìý | 20,649 | Ìý |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||||
Operating loss |
Ìý | Ìý | (5,247 | ) | Ìý | Ìý | (10,669 | ) | Ìý | Ìý | (13,829 | ) | Ìý | Ìý | (21,301 | ) |
Other (expense)Ìýincome, net |
Ìý | Ìý | (494 | ) | Ìý | Ìý | (249 | ) | Ìý | Ìý | (944 | ) | Ìý | Ìý | (518 | ) |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||||
Loss before income taxes and investment
loss |
Ìý | Ìý | (5,741 | ) | Ìý | Ìý | (10,918 | ) | Ìý | Ìý | (14,773 | ) | Ìý | Ìý | (21,819 | ) |
Income tax benefit |
Ìý | Ìý | (103 | ) | Ìý | Ìý | (39 | ) | Ìý | Ìý | (138 | ) | Ìý | Ìý | (60 | ) |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||||
Loss before investment loss in investee |
Ìý | Ìý | (5,638 | ) | Ìý | Ìý | (10,879 | ) | Ìý | Ìý | (14,635 | ) | Ìý | Ìý | (21,759 | ) |
Loss from investment in investee |
Ìý | Ìý | (38 | ) | Ìý | Ìý | — | Ìý | Ìý | Ìý | (38 | ) | Ìý | Ìý | — | Ìý |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||||
Net loss |
Ìý | Ìý | (5,676 | ) | Ìý | Ìý | (10,879 | ) | Ìý | Ìý | (14,673 | ) | Ìý | Ìý | (21,759 | ) |
Preferred stock dividend |
Ìý | Ìý | (58 | ) | Ìý | Ìý | (55 | ) | Ìý | Ìý | (116 | ) | Ìý | Ìý | (110 | ) |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||||
Net loss attributable to common
shareholders |
Ìý | $ | (5,734 | ) | Ìý | $ | (10,934 | ) | Ìý | $ | (14,789 | ) | Ìý | $ | (21,869 | ) |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||||
Loss per common share, basic and diluted |
Ìý | $ | (0.03 | ) | Ìý | $ | (0.06 | ) | Ìý | $ | (0.07 | ) | Ìý | $ | (0.12 | ) |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||||
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
Weighted average number of common
shares outstanding, basic and diluted |
Ìý | Ìý | 225,648,244 | Ìý | Ìý | Ìý | 183,707,302 | Ìý | Ìý | Ìý | 212,695,483 | Ìý | Ìý | Ìý | 182,139,632 | Ìý |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
7
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СÖíÊÓƵapp Health, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
Ìý | Ìý | For the six months ended | Ìý | |||||
Ìý | Ìý | June 30, | Ìý | |||||
Ìý | Ìý | 2009 | Ìý | Ìý | 2008 | Ìý | ||
Cash flows from operating activities |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
Net loss |
Ìý | $ | (14,673 | ) | Ìý | $ | (21,759 | ) |
Adjustments to reconcile net loss to net cash used in
operating activities: |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
Depreciation and amortization |
Ìý | Ìý | 935 | Ìý | Ìý | Ìý | 906 | Ìý |
Write-off of acquired in-process research and development |
Ìý | Ìý | — | Ìý | Ìý | Ìý | 1,398 | Ìý |
Accretion of debt discount related to notes payable |
Ìý | Ìý | 32 | Ìý | Ìý | Ìý | 109 | Ìý |
Share based compensation |
Ìý | Ìý | 1,767 | Ìý | Ìý | Ìý | 4,209 | Ìý |
Net recovery of bad debts |
Ìý | Ìý | (133 | ) | Ìý | Ìý | — | Ìý |
Provision for inventory obsolescence |
Ìý | Ìý | 52 | Ìý | Ìý | Ìý | — | Ìý |
Loss from investment in investee |
Ìý | Ìý | 38 | Ìý | Ìý | Ìý | — | Ìý |
Changes in: |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
Accounts receivable |
Ìý | Ìý | (1,027 | ) | Ìý | Ìý | 558 | Ìý |
Inventory |
Ìý | Ìý | (1,140 | ) | Ìý | Ìý | (1,015 | ) |
Prepaid expenses and other current assets |
Ìý | Ìý | 45 | Ìý | Ìý | Ìý | 222 | Ìý |
Other assets |
Ìý | Ìý | (129 | ) | Ìý | Ìý | (148 | ) |
Accounts payable |
Ìý | Ìý | (20 | ) | Ìý | Ìý | (812 | ) |
Accrued expenses |
Ìý | Ìý | (762 | ) | Ìý | Ìý | 882 | Ìý |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||
Net cash used in operating activities |
Ìý | Ìý | (15,015 | ) | Ìý | Ìý | (15,450 | ) |
Cash flows from investing activities |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
Acquisition of business, net of cash |
Ìý | Ìý | — | Ìý | Ìý | Ìý | 48 | Ìý |
Investment in investee |
Ìý | Ìý | (2,300 | ) | Ìý | Ìý | — | Ìý |
Purchase of short-term marketable securities |
Ìý | Ìý | (4,997 | ) | Ìý | Ìý | — | Ìý |
Capital expenditures |
Ìý | Ìý | (24 | ) | Ìý | Ìý | (239 | ) |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||
Net cash used in investing activities |
Ìý | Ìý | (7,321 | ) | Ìý | Ìý | (191 | ) |
Cash flows from financing activities: |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
Issuance of common stock for cash, to related parties |
Ìý | Ìý | 25,000 | Ìý | Ìý | Ìý | Ìý | Ìý |
Issuance of common stock for cash |
Ìý | Ìý | 25,990 | Ìý | Ìý | Ìý | — | Ìý |
Proceeds from bridge loan with related party |
Ìý | Ìý | 3,000 | Ìý | Ìý | Ìý | — | Ìý |
Repayment of bridge loan with related party |
Ìý | Ìý | (3,000 | ) | Ìý | Ìý | — | Ìý |
Insurance financing |
Ìý | Ìý | 217 | Ìý | Ìý | Ìý | 190 | Ìý |
Proceeds from the exercise of stock options and warrants |
Ìý | Ìý | 621 | Ìý | Ìý | Ìý | 269 | Ìý |
Repayments of notes payable and capital lease obligations |
Ìý | Ìý | (231 | ) | Ìý | Ìý | (2,707 | ) |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||
Net cash provided by (used in) financing activities |
Ìý | Ìý | 51,597 | Ìý | Ìý | Ìý | (2,248 | ) |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||
Net increase (decrease)Ìýin cash and cash equivalents |
Ìý | Ìý | 29,261 | Ìý | Ìý | Ìý | (17,889 | ) |
Cash and cash equivalents at beginning of period |
Ìý | Ìý | 6,678 | Ìý | Ìý | Ìý | 23,373 | Ìý |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||
Cash and cash equivalents at end of period |
Ìý | $ | 35,939 | Ìý | Ìý | $ | 5,484 | Ìý |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
SUPPLEMENTAL INFORMATION |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
Interest paid |
Ìý | $ | 50 | Ìý | Ìý | $ | 98 | Ìý |
NON-CASH INVESTING AND FINANCING ACTIVITES |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
Issuance of capital stock to acquire Vidus in 2008 |
Ìý | $ | — | Ìý | Ìý | $ | 1,319 | Ìý |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
8
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СÖíÊÓƵapp Health, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1. BUSINESS AND ORGANIZATION
ÌýÌýÌýÌýÌýWe are a specialty healthcare company focused on the discovery, development, and
commercialization of proprietary pharmaceuticals, diagnostic and imaging systems and
instrumentation products for the treatment, diagnosis and management of ophthalmic diseases. We
are expanding our operations in the ophthalmology business, as well as in other medical areas that
can lead to important commercial opportunities. We are a Delaware corporation, headquartered in
Miami, Florida.
NOTE 2. SUMMARY OF SIGNIFICANT ACCCOUNTING POLICIES
ÌýÌýÌýÌýÌýBasis of Presentation. The accompanying unaudited interim condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the
United States and with the instructions to Form 10-Q and ArticleÌý10 of RegulationÌýS-X.
Accordingly, they do not include all information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements. In the opinion of
management, all adjustments (consisting of only normal recurring adjustments) considered necessary
to present fairly the CompanyÂ’s results of operations, financial position and cash flows have been
made. The results of operations and cash flows for the six months ended JuneÌý30, 2009, are not
necessarily indicative of the results of operations and cash flows that may be reported for the
remainder of 2009 or for future periods. The interim condensed consolidated financial statements
should be read in conjunction with the Consolidated Financial Statements and the Notes to
Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended
DecemberÌý31, 2008.
ÌýÌýÌýÌýÌýPrinciples of consolidation. The accompanying unaudited condensed consolidated financial
statements include the accounts of СÖíÊÓƵapp Health, Inc. and our wholly-owned subsidiaries. All
significant intercompany accounts and transactions are eliminated in consolidation.
ÌýÌýÌýÌýÌýUse of estimates. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
ÌýÌýÌýÌýÌýComprehensive loss. Our comprehensive loss has no components other than net loss for all
periods presented.
ÌýÌýÌýÌýÌýRevenue recognition. Generally, we recognize revenue from product sales when goods are
shipped and title and risk of loss transfer to our customers. Certain of our products are sold
directly to end-users and require that we deliver, install and train the staff at the end-usersÂ’
facility. As a result, we do not recognize revenue until the product is delivered, installed and
training has occurred. During the three months ended JuneÌý30, 2009, revenue derived from sales to
four significant international customers represented approximately 19%, 16%, 15% and 13% of our
revenue, respectively. During the three months ended JuneÌý30, 2008, revenue derived from sales to
four significant international customers represented 38%, 14%, 12% and 11% of our revenue,
respectively. During the six months ended JuneÌý30, 2009, revenue derived from sales to three
significant international customers represented approximately 19%, 16%, and 15% of our revenue,
respectively. During the six months ended JuneÌý30, 2008, revenue derived from sales to four
significant international customers represented approximately 17%, 15%, 14% and 10% of our revenue,
respectively.
9
Table of Contents
ÌýÌýÌýÌýÌýProduct warranties. Product warranty expense is recorded concurrently with the recording of
revenue for product sales. The costs of warranties are accounted for as a component of cost of
sales. We estimate warranty costs based on our estimated historical experience and adjust for any
known product reliability issues.
ÌýÌýÌýÌýÌýThe following table reflects the amounts recorded for the three months ended JuneÌý30, 2009 and
2008.
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
(in thousands) | Ìý | June 30, 2009 | Ìý | Ìý | June 30, 2008 | Ìý | ||
Beginning balance |
Ìý | $ | 290 | Ìý | Ìý | $ | 226 | Ìý |
Accrual for products sold |
Ìý | Ìý | 67 | Ìý | Ìý | Ìý | — | Ìý |
Settlements in kind or expired |
Ìý | Ìý | (62 | ) | Ìý | Ìý | — | Ìý |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||
Ending balance |
Ìý | $ | 295 | Ìý | Ìý | $ | 226 | Ìý |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
ÌýÌýÌýÌýÌýThe following table reflects the amounts recorded for the six months ended JuneÌý30, 2009 and 2008.
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
(in thousands) | Ìý | June 30, 2009 | Ìý | Ìý | June 30, 2008 | Ìý | ||
Beginning balance |
Ìý | $ | 259 | Ìý | Ìý | $ | 227 | Ìý |
Accrual for products sold |
Ìý | Ìý | 128 | Ìý | Ìý | Ìý | 55 | Ìý |
Settlements in kind or expired |
Ìý | Ìý | (92 | ) | Ìý | Ìý | (56 | ) |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||
Ending balance |
Ìý | $ | 295 | Ìý | Ìý | $ | 226 | Ìý |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
ÌýÌýÌýÌýÌýAllowance for returns and doubtful accounts. Allowances for estimated sales returns are based
upon our history of product returns. The amount of allowance for doubtful accounts at JuneÌý30,
2009 and DecemberÌý31, 2008, was $0.2Ìýmillion and $0.4Ìýmillion, respectively. As of JuneÌý30, 2009,
accounts receivable from four of our international distributors represented approximately 27%, 17%,
14% and 11%, respectively, of our net accounts receivable balance. As of DecemberÌý31, 2008,
accounts receivable from two of our international distributors represented approximately 47% and
19%, respectively, of our net accounts receivable balance.
ÌýÌýÌýÌýÌýSegment reporting. Our chief operating decision-maker (“CODM”) is comprised of our executive
management with the oversight of our board of directors. Our CODM reviews our operating results
and operating plans and makes resource allocation decisions on a company-wide or aggregate basis.
Accordingly, we have aggregated our instrumentation and ophthalmic pharmaceutical and device
research and development activities into a single segment reporting basis. Our products are being
used by and developed for retina specialists, ophthalmologists, and optometrists.
ÌýÌýÌýÌýÌýEquity-Based Compensation. We account for equity-based compensation under Statement of
Financial Accounting Standards, or SFAS 123(R), Share-Based Payments. SFAS 123(R) requires that
all equity-based compensation be recognized as an expense in the financial statements and that such
cost be measured at the fair value of the award. Equity-based compensation arrangements to
non-employees are accounted for in accordance with SFAS 123(R) and Emerging Issues Task Force Issue
No.Ìý96-18 (EITF 96-18), “Accounting for Equity Instruments That Are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling, Goods or Services,” which requires that these equity
instruments are recorded at their fair value on the measurement date. As prescribed under SFAS
123(R), we estimate the grant-date fair value of our stock option grants using a valuation model
known as the Black-Scholes-Merton formula or the “Black-Scholes Model” and allocate the resulting
compensation expense over the corresponding requisite service period associated with each grant.
The Black-Scholes Model requires the use of several variables to estimate the grant-date fair value
of stock options including expected term, expected volatility, expected dividends and risk-free
interest rate. We perform significant analyses to calculate and select the appropriate variable
assumptions used in the Black-Scholes Model. We also perform significant analyses to estimate
forfeitures of equity-based awards as required by SFAS 123(R). We are required to adjust our
forfeiture estimates on at least an annual basis based on the number of share-based awards that
ultimately vest. The selection of assumptions and estimated forfeiture rates is subject to
significant judgment and future
changes to our assumptions and estimates may have a material impact on our consolidated
financial statements. During the three and six months ended JuneÌý30, 2009 we recorded $1.1
million, $1.8Ìýmillion, respectively, of equity-based compensation expense. During the three and
six months ended JuneÌý30, 2008, we recorded $1.5Ìýmillion and $4.2Ìýmillion, respectively, of
equity-based compensation expense. During the six months ended JuneÌý30, 2009 and 2008, 1,916,765
and 4,451,585 shares of common stock, respectively, were issued in connection with the exercise of
stock options.
10
Table of Contents
ÌýÌýÌýÌýÌýFair value. We adopted the provisions of SFAS 157, “Fair Value Measurements,” or SFAS 157, on
JanuaryÌý1, 2008. SFAS 157 defines fair value, establishes a framework for measuring fair value in
accordance with GAAP, and expands disclosures about fair value measurements. In accordance with
the FASB Staff Position No.ÌýFAS 157-2, “Effective Date of the FASB Statement No.Ìý157,” or FSP
157-2, we adopted the provisions of SFAS 157 pertaining to our nonfinancial assets and nonfinancial
liabilities, except those items recognized or disclosed at fair value on an annual or more
recurring basis, on JanuaryÌý1, 2009. Neither of the adoptions of SFAS 157 had a material impact on
our fair value measurements.
ÌýÌýÌýÌýÌýSFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in
measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted
prices in active markets; Level 2, defined as inputs other than quoted prices in active markets
that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in
which little or no market data exists, therefore requiring an entity to develop its own
assumptions.
ÌýÌýÌýÌýÌýAs of JuneÌý30, 2009, we held money market funds and treasury securities, maturing September
17, 2009, that qualify as cash equivalents as well as marketable securities which were comprised of
treasury securities, maturing OctoberÌý22, 2009, that are required to be measured at fair value on a
recurring basis. We have $10Ìýmillion of treasury securities that are recorded at amortized cost,
which reflects their approximate fair value. We intend to hold the treasury securities through
their maturity. In addition, the Ophthalmic Technologies Inc., or (“OTI”), put options were valued
at fair value utilizing the Black-Scholes valuation method. During
the three and six months ended JuneÌý30, 2009, we recorded a
reversal of expense of $0.1Ìýmillion and $0.1Ìýmillion,
respectively, reflecting our stock price fluctuations. During the
three and six months ended JuneÌý30, 2008, we recorded
$30Ìýthousand and $50Ìýthousand of expense, respectively,
reflecting our stock price fluctuations during that period. Refer to Note 9.
ÌýÌýÌýÌýÌýAny future fluctuation in fair value related to these instruments that is judged to be
temporary, including any recoveries of previous write-downs, would be recorded in accumulated other
comprehensive income or loss. If we determine that any future valuation adjustment was
other-than-temporary, we would record a charge to the consolidated statement of operations as
appropriate.
ÌýÌýÌýÌýÌýOur financial assets measured at fair value on a recurring basis, subject to the disclosure
requirements of SFAS 157 are as follows (in thousands):
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
Ìý | Ìý | Fair value measurements as of June 30, 2009 | Ìý | |||||||||||||
Ìý | Ìý | Quoted Prices in | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||||
Ìý | Ìý | Active Markets for | Ìý | Ìý | Significant Other | Ìý | Ìý | Significant | Ìý | Ìý | Ìý | Ìý | ||||
Ìý | Ìý | Identical Assets | Ìý | Ìý | Observable Inputs | Ìý | Ìý | Unobservable Inputs | Ìý | Ìý | Ìý | Ìý | ||||
Ìý | Ìý | (Level 1) | Ìý | Ìý | (Level 2) | Ìý | Ìý | (Level 3) | Ìý | Ìý | Total | Ìý | ||||
Assets: |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
Money market funds |
Ìý | $ | 30,941 | Ìý | Ìý | $ | — | Ìý | Ìý | $ | — | Ìý | Ìý | $ | 30,941 | Ìý |
Treasury securities |
Ìý | Ìý | 9,995 | Ìý | Ìý | Ìý | — | Ìý | Ìý | Ìý | — | Ìý | Ìý | Ìý | 9,995 | Ìý |
OTI put option |
Ìý | Ìý | — | Ìý | Ìý | Ìý | 187 | Ìý | Ìý | Ìý | — | Ìý | Ìý | Ìý | 187 | Ìý |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||||
Total |
Ìý | $ | 40,936 | Ìý | Ìý | $ | 187 | Ìý | Ìý | $ | — | Ìý | Ìý | $ | 41,123 | Ìý |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
ÌýÌýÌýÌýÌýIn FebruaryÌý2007, the FASB issued SFAS No.Ìý159, The Fair Value Option for Financial Assets and
Financial Liabilities, or SFAS 159, which gives companies the option to measure eligible financial
assets, financial liabilities, and firm commitments at fair value (i.e., the fair value option), on
an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair
value under other accounting standards. The election to use the fair value option is available
when an entity first recognizes a financial asset or financial liability or upon entering into a
firm commitment. Subsequent changes in fair value must be recorded in earnings. SFAS 159 is
effective for financial statements issued for fiscal years beginning after NovemberÌý15, 2007. We
adopted SFAS 159 in the first quarter of 2008 and the adoption did not have any impact on our
financial position or results of operations as we elected not to apply fair value measurement on an
instrument by instrument basis.
11
Table of Contents
ÌýÌýÌýÌýÌýRecent accounting pronouncements: In DecemberÌý2007, the FASB issued SFAS No.Ìý141R, Business
Combinations, or SFAS 141R. SFAS 141R applies to business combinations and requires, among other
things, the expensing of transaction costs, including deal costs and restructuring costs as
incurred, the capitalization of acquired in-process research and development assets, the recording
at fair value of, certain contingent assets and liabilities including and earn-out arrangements.
Changes in fair value of contingent consideration may be required to be recognized each period into
earnings. In addition, material adjustments made to the initial acquisition purchase accounting
will be required to be recorded back to the acquisition date. This will cause companies to revise
previously reported results when reporting comparative financial information in subsequent filings.
SFAS No.Ìý141R is effective for the Company on a prospective basis for transactions occurring
beginning on JanuaryÌý1, 2009 and earlier adoption is not permitted. We adopted SFAS No.Ìý141R on
JanuaryÌý1, 2009. The adoptions may have a material impact on the CompanyÂ’s consolidated financial
position, results of operations and cash flows if we enter into material business combinations
after JanuaryÌý1, 2009.
ÌýÌýÌýÌýÌýIn DecemberÌý2007, the FASB issued SFAS No.Ìý160, Noncontrolling Interests in Consolidated
Financial Statements, an Amendment of ARB No.Ìý51, or SFAS 160. SFAS 160 requires minority
interests to be recharacterized as noncontrolling interests and reported as a component of equity.
In addition, SFAS160 requires that purchases or sales of equity interests that do not result in a
change in control be accounted for as equity transactions and, upon a loss of control, requires the
interests sold, as well as any interests retained, to be recorded at fair value with any gain or
loss recognized in earnings. SFAS 160 is effective for fiscal years beginning on or after December
15, 2008, with early adoption prohibited. We adopted SFAS No.Ìý160 on JanuaryÌý1, 2009. The
adoption of SFAS No.Ìý160 did not have a material impact on our condensed consolidated financial
statements.
ÌýÌýÌýÌýÌýIn AprilÌý2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments. FSP FAS 107-1 and APB 28-1 enhance consistency in financial
reporting by increasing the frequency of fair value disclosures. FSP FAS 107-1 and APB 28-1 relate
to fair value disclosures for any financial instruments that are not currently reflected on the
balance sheet of companies at fair value. Prior to issuing this FSP, fair values for these assets
and liabilities were disclosed only once a year. The FSP now requires these disclosures to be made
on a quarterly basis, providing qualitative and quantitative information about fair value estimates
for all those financial instruments not measured on the balance sheet at fair value. FSP FAS 107-1
and APB 28-1 are effective for interim and annual periods ending after JuneÌý15, 2009. We adopted
FSP FAS 107-1 and APB 28-1 in the second quarter of fiscal 2009. The adoption of FSP FAS 107-1 and
APB 28-1 did not have a material impact on our condensed consolidated financial statements.
ÌýÌýÌýÌýÌýIn
AprilÌý2009, the FASB issued FSP No.Ìý115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. This FSP amends the other-than-temporary impairment guidance in
U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation
and disclosure of the other-than-temporary impairments on debt and equity securities in the
financial statements. The FSP is effective for interim and annual reporting periods ending after
JuneÌý15, 2009. We adopted FSP No.Ìý115-2 and FAS 124-2 in the second quarter of fiscal 2009. The
adoption of FSP No.Ìý115-2 and FAS 124-2 did not have a material impact on our condensed
consolidated financial statements.
ÌýÌýÌýÌýÌýIn AprilÌý2009, the FASB issued FASB Staff Position, or FSP, FAS 157-4, Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly. FSP FAS 157-4 provides guidelines for making fair
value measurements more consistent with the principles presented in FASB Statement No.Ìý157, Fair
Value Measurements. FSP FAS 157-4 relates to determining fair values when there is no active market
or where the price inputs being used represent distressed sales. It reaffirms what FASB Statement
No.Ìý157 states is the objective of fair value measurement—to reflect how much an asset would be
sold for in an orderly transaction (as opposed to a distressed or forced transaction) at the date
of the financial statements under current market conditions. Specifically, it reaffirms the need to
use judgment to ascertain if a formerly active market has become inactive and in determining fair
values when markets have become inactive. FSP FAS 157-4 is effective for interim and annual periods
ending after JuneÌý15, 2009. We adopted FSP FAS 157-4 in the second quarter of fiscal 2009. The
adoption of FSP FAS 157-4 did not have a material impact on our condensed consolidated financial
statements.
ÌýÌýÌýÌýÌýIn
MayÌý2009, the FASB issued SFAS No.Ìý165, Subsequent Events. SFAS No.Ìý165 establishes general
standards of accounting for and disclosure of events that occur after the balance sheet date but
before financial statements are issued or are available to be issued. SFAS No.165 requires entities
to disclose the date through which they have evaluated subsequent events and whether the date
corresponds with the issuance of their financial statements. SFAS No.Ìý165 is effective for interim
and annual reporting periods ending after JuneÌý15, 2009. We adopted SFAS No.Ìý165
in the second quarter of fiscal 2009. The adoption of SFAS No.Ìý165 did not have a material
impact on our condensed consolidated financial statements.
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ÌýÌýÌýÌýÌýIn JuneÌý2009, the FASB issued Statement No.Ìý168, or
SFAS No.168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles. SFAS No.168 will become the single source of authoritative nongovernmental
U.S. generally accepted accounting principles, or GAAP, superseding existing FASB, American
Institute of Certified Public Accountants, or AICPA, Emerging Issues Task Force, or EITF, and
related accounting literature. SFAS No.168 reorganizes the thousands of GAAP pronouncements into
roughly 90 accounting topics and displays them using a consistent structure. Also included is
relevant Securities and Exchange Commission guidance organized using the same topical structure in
separate sections. SFAS No.168 will be effective for financial statements issued for reporting
periods that end after SeptemberÌý15, 2009. As a result, SFAS No.168 is effective for us in the
third quarter of fiscal 2009. This will have an impact on our disclosures in the condensed
consolidated financial statements since all future references to authoritative accounting
literature will be references in accordance with SFAS No.168.
NOTE 3. LOSS PER SHARE
ÌýÌýÌýÌýÌýBasic loss per common share is computed by dividing our net loss by the weighted average
number of common shares outstanding during the period. Diluted earnings per common share is
computed by dividing our net loss by the weighted average number of shares outstanding and the
impact of all dilutive potential common shares, primarily stock options. The dilutive impact of
stock options and warrants are determined by applying the “treasury stock” method.
ÌýÌýÌýÌýÌýA total of 15,692,101 and 29,515,241 potential common shares have been excluded from the
calculation of net loss per common share for the three months ended JuneÌý30, 2009 and 2008,
respectively, because their inclusion would be anti-dilutive. A total of 15,238,119 and 26,856,410
potential common shares have been excluded from the calculation of net loss per common share for
the six months ended JuneÌý30, 2009 and 2008, respectively, because their inclusion would be
anti-dilutive.
NOTE 4. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
Ìý | Ìý | June 30, 2009 | Ìý | Ìý | December 31, | Ìý | ||
(in thousands) | Ìý | 2009 | Ìý | Ìý | 2008 | Ìý | ||
Accounts receivable, net: |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
Accounts receivable |
Ìý | $ | 2,366 | Ìý | Ìý | $ | 1,412 | Ìý |
Less allowance for doubtful accounts |
Ìý | Ìý | (201 | ) | Ìý | Ìý | (407 | ) |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||
Ìý |
Ìý | $ | 2,165 | Ìý | Ìý | $ | 1,005 | Ìý |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
Inventories, net: |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
Raw materials (components) |
Ìý | $ | 2,712 | Ìý | Ìý | $ | 2,635 | Ìý |
Work-in process |
Ìý | Ìý | 1,520 | Ìý | Ìý | Ìý | 934 | Ìý |
Finished products |
Ìý | Ìý | 1,154 | Ìý | Ìý | Ìý | 749 | Ìý |
Less provision for inventory reserve |
Ìý | Ìý | (235 | ) | Ìý | Ìý | (255 | ) |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||
Ìý |
Ìý | $ | 5,151 | Ìý | Ìý | $ | 4,063 | Ìý |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
Intangible assets, net: |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
Technology |
Ìý | $ | 4,597 | Ìý | Ìý | $ | 4,597 | Ìý |
Customer relationships |
Ìý | Ìý | 2,978 | Ìý | Ìý | Ìý | 2,978 | Ìý |
Covenants not to compete |
Ìý | Ìý | 317 | Ìý | Ìý | Ìý | 317 | Ìý |
Tradename |
Ìý | Ìý | 195 | Ìý | Ìý | Ìý | 195 | Ìý |
Other |
Ìý | Ìý | 7 | Ìý | Ìý | Ìý | 7 | Ìý |
Less amortization |
Ìý | Ìý | (2,570 | ) | Ìý | Ìý | (1,758 | ) |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý | ||
Ìý |
Ìý | $ | 5,524 | Ìý | Ìý | $ | 6,336 | Ìý |
Ìý |
Ìý | Ìý | Ìý | Ìý | Ìý | Ìý |
NOTE 5. PRIVATE PLACEMENTS OF STOCK
ÌýÌýÌýÌýÌýOn MayÌý26, 2009, MayÌý29, 2009, and JuneÌý1, 2009, we entered into stock purchase agreements
with a total of seven accredited investors (“Investors”) pursuant to which the Investors agreed to
make a $31.0Ìýmillion investment in the Company in exchange for 31,000,000 shares of our common stock, par value $.01 at $1.00 per share representing a range of
discounts of approximately 16% to 21% to the average closing price of
our common stock on the NYSE Amex for the five trading days
immediately preceding the closing date of the agreements.
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ÌýÌýÌýÌýÌýOn FebruaryÌý23, 2009, we entered into a Stock Purchase Agreement with Frost Gamma Investments
Trust (the “Gamma Trust”), of which Phillip Frost, M.D., our Chairman and CEO, is the sole trustee,
pursuant to which the Gamma Trust agreed to make a $20.0Ìýmillion cash investment in the Company in
exchange for 20,000,000 shares of our common stock, par value $.01 (the “Shares”), at $1.00 per
share, representing an approximately 20% discount to the average closing price of our common stock
on the NYSE Amex Exchange for the five trading days immediately preceding the effective date of
Audit Committee and stockholder approval of the transaction. We issued the Shares and received the
proceeds on AprilÌý27, 2009.
NOTE 6. PROMISSORY NOTE
ÌýÌýÌýÌýÌýOn MarchÌý4, 2009, the Gamma Trust advanced $3.0Ìýmillion to us pursuant to a Promissory Note we
issued to the Gamma Trust (the “Note”). The entire amount of this advance and all accrued interest
thereon was due and payable on the earlier of MayÌý4, 2009, or such earlier date following the
closing of the Stock Purchase Transaction with the Gamma Trust discussed in Note 5. The Note bears
interest at a rate equal to 11% per annum and may be prepaid in whole or in part without penalty or
premium. We repaid the Note and $48 thousand of interest on AprilÌý27, 2009.
NOTE 7. INVESTMENT IN BIOTECHNOLOGY COMPANY
ÌýÌýÌýÌýÌýOn JuneÌý10, 2009, we entered into a stock purchase agreement with Sorrento Therapeutics, Inc.
(“Sorrento”), a privately held company with a technology for generating fully human monoclonal
antibodies, pursuant to which we invested $2.3Ìýmillion in Sorrento. In exchange for the
investment, we acquired approximately one-third of the outstanding common shares of Sorrento and
received a fully-paid, exclusive license to the Sorrento antibody library for the discovery and
development of therapeutic antibodies in the field of ophthalmology.
NOTE 8. RELATED PARTY TRANSACTIONS
ÌýÌýÌýÌýÌýOn
JuneÌý16, 2009, we entered into an agreement to lease approximately 10,000 square feet of
space in Hialeah, Florida to house manufacturing and service operations for our ophthalmic
instrumentation business (the “Hialeah Facility”) from an entity controlled by Dr.ÌýFrost, and Dr.
Jane Hsiao. Pursuant to the terms of a lease agreement, which is effective as of FebruaryÌý1, 2009,
we anticipate paying gross rent of $0.1Ìýmillion per year for a one-year lease which may be
extended, at our option, for one additional year. From AprilÌý2008 through JanuaryÌý2009, we leased
20,000 square feet at the Hialeah Facility from a third party landlord pursuant to a lease
agreement which contained an option to purchase the facility. We initially elected to exercise the
option to purchase the Hialeah Facility in SeptemberÌý2008. Prior to closing, however, we assigned
the right to purchase the Hialeah Facility to an entity controlled by Drs.ÌýFrost and Hsiao and
leased back a smaller portion of the facility as a result of several factors, including our
inability to obtain outside financing for the purchase, current business needs, the reduced
operating costs for the smaller space, and the minimization of risk and expense of unutilized
space.
ÌýÌýÌýÌýÌýOn FebruaryÌý23, 2009, we entered into a Stock Purchase Agreement with the Gamma Trust, of
which Phillip Frost, M.D., our Chairman and CEO is the sole trustee. Refer to Note 5.
ÌýÌýÌýÌýÌýOn MarchÌý4, 2009, the Gamma Trust advanced $3.0Ìýmillion to us under a Promissory Note we
issued to the Gamma Trust, which was repaid in full on AprilÌý27, 2009. Refer to Note 6.
ÌýÌýÌýÌýÌýIn MarchÌý2009, we paid the $45 thousand filing fee to the Federal Trade Commission in
connection with filings made by us and Dr.ÌýFrost, under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (“HSR”). The filings permitted Dr.ÌýFrost and his affiliates to acquire
additional shares of our common stock upon expiration of the HSR waiting period on MarchÌý23, 2009.
ÌýÌýÌýÌýÌýIn NovemberÌý2007, we entered into an office lease with Frost Real Estate Holdings, LLC, an
entity affiliated with Dr.ÌýFrost. The lease is for approximately 8,300 square feet of space in an
office building in Miami, Florida, where the CompanyÂ’s principal executive offices are located.
The lease provides for payments of approximately $0.3Ìýmillion during 2009. The rent is inclusive
of operating expenses, property taxes and parking.
ÌýÌýÌýÌýÌýWe reimburse Dr.ÌýFrost for Company-related use by Dr.ÌýFrost and our other executives of an
airplane owned by a company that is beneficially owned by Dr.ÌýFrost. We reimburse Dr.ÌýFrost in an
amount equal to the cost of a first class airline ticket between the travel cities for each
executive, including Dr.ÌýFrost, traveling on the airplane for Company-related business. We do not
reimburse Dr.ÌýFrost for personal use of the airplane by Dr.ÌýFrost or any other
executive; nor do we pay for any other fixed or variable operating costs of the airplane.
During the three and six months ended JuneÌý30, 2009, we recorded general and administrative
expenses of approximately $13 thousand and $46 thousand, respectively, for Company-related travel
by Dr.ÌýFrost and other СÖíÊÓƵapp executives. For the comparable periods of 2008, we recorded
approximately $44 thousand and $86 thousand of general and administrative expense.
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ÌýÌýÌýÌýÌýWe have a fully utilized $12.0Ìýmillion line of credit with the Frost Group, LLC. The Frost
Group members include a trust controlled by Dr.ÌýFrost, Dr.ÌýJane H. Hsiao, who is the Vice Chairman
of the board of directors and Chief Technical Officer, Steven D. Rubin who is Executive Vice
President — Administration and a director of the Company, and Rao Uppaluri who is the Chief
Financial Officer of the Company. We are obligated to pay interest upon maturity, compounded
quarterly, on outstanding borrowings under the line of credit at an 11% annual rate, which is due
JanuaryÌý11, 2011. The line of credit is collateralized by all of our personal property except our
intellectual property.
ÌýÌýÌýÌýÌýOn SeptemberÌý19, 2007, we entered into an exclusive technology license agreement with Winston
Laboratories, Inc. (“Winston”). Subsequent to our entering into the license agreement with
Winston, on NovemberÌý13, 2007, a group of investors led by the Frost Group, made an investment in
Winston. Currently, the group of investors, led by Dr.ÌýFrost, Dr.ÌýHsiao, Mr.ÌýRubin and Dr.
Uppaluri, beneficially own approximately 30% of Winston Pharmaceuticals, Inc., and Mr.ÌýUppaluri has
served as a member of WinstonÂ’s board of directors since SeptemberÌý2008.
ÌýÌýÌýÌýÌýOn MayÌý26, 2009, MayÌý29, 2009, and JuneÌý1, 2009, we entered into stock purchase agreements
with a total of seven accredited investors pursuant to which we agreed to sell an aggregate of 31
million shares of the CompanyÂ’s Common Stock in exchange for $31Ìýmillion. Under the terms of each
investment, СÖíÊÓƵapp issued shares to the investors at a price of $1.00 per Share. Refer to Note 5.
Oracle Partners, LP and Vector Group Ltd. were among the investors in the transaction and purchased
4Ìýmillion and 5Ìýmillion shares of our common stock, respectively. Dr.ÌýFrost is a limited partner
in Oracle Partners LP. Dr.ÌýFrost may also be deemed to beneficially own 11.5% of Vector Group
Ltd.Â’s outstanding stock.
ÌýÌýÌýÌýÌýOn JuneÌý10, 2009, we entered into a stock purchase agreement with Sorrento, pursuant to which
we invested $2.3Ìýmillion in Sorrento and acquired approximately one-third of the outstanding common
shares of Sorrento and a fully-paid, exclusive license to the Sorrento antibody library for the
discovery and development of therapeutic antibodies in the field of ophthalmology. Refer to Note
7. Dr.ÌýRichard Lerner, a member of our Board of Directors, serves as a consultant and scientific
advisory board member to Sorrento and owns less than five percent of its shares. On JulyÌý14, 2009,
QuikByte Software, Inc., a Colorado corporation (“Quikbyte”), entered into a Merger Agreement (the
“Merger Agreement”) by and among QuikByte, Sorrento, and certain other parties named therein. Upon
the satisfaction or waiver of the conditions set forth in the Merger Agreement, QuikByte will
acquire Sorrento via a merger. At the effective time of the Merger, all of the issued and
outstanding shares of Sorrento common stock (the “Sorrento Shares”) will be converted into the
right to receive shares of QuikByte common stock, par value $0.0001 per share (the “QuikByte Common
Stock”). Immediately following the completion of the Merger, the current QuikByte shareholders
will own approximately 4.92% of the surviving company, the Investors (as defined below) will own
approximately 19.83% of the surviving company, and the former holders of Sorrento Shares will own
approximately 75.25% of the surviving company, in each case on a fully-diluted basis. The closing
of the Merger is subject to, among other conditions, QuikByteÂ’s receipt of an aggregate investment
of $2Ìýmillion from certain investors (the “Investors”) in exchange for shares of QuikByte Common
Stock. QuikByte anticipates that affiliates of Dr.ÌýFrost will be included among the Investors.
ÌýÌýÌýÌýÌýA group of investors led by the Frost Group (the “Frost Investors”) previously invested $5
million in Cocrystal Discovery, Inc., a privately held biopharmaceutical company, and agreed to
invest an additional $5Ìýmillion payable in two equal tranches. As a result of an amendment to the
Frost Investor agreements dated JuneÌý9, 2009, СÖíÊÓƵapp, rather than the Frost Investors, intends to
make the first tranche investment ($2.5Ìýmillion) on or around SeptemberÌý18, 2009 pursuant to a
definitive agreement to be entered by СÖíÊÓƵapp at the time of the investment on the same terms as those
previously agreed by the Frost Investors. Following the second tranche investment of $2.5Ìýmillion
in Cocrystal by the Frost Investors, СÖíÊÓƵapp will own approximately 16% of Cocrystal and the Frost
Group will own approximately 42% of Cocrystal, each on a fully diluted basis. Dr.ÌýFrost, Steve
Rubin, and Jane Hsiao currently serve on the Board of Directors of Cocrystal.
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NOTE 9. COMMITMENTS AND CONTINGENCIES
ÌýÌýÌýÌýÌýOn MayÌý7, 2007, Ophthalmic Imaging Systems, or OIS, sued Steven Verdooner, its former
president and our then Executive Vice President, Instrumentation, in California Superior Court for
the County of Sacramento. OIS
later amended its complaint to add claims against the Company and The Frost Group, LLC
alleging breach of fiduciary duty, intentional interference with contract and intentional
interference with prospective economic advantage. Trial in the matter was scheduled to commence on
AprilÌý28, 2009. In order to avoid the expense and uncertainty of litigation, and without making
any admission of wrongdoing or liability, we entered into a settlement agreement to fully and
finally resolve the lawsuit on MayÌý4, 2009. The impact of the settlement was not material to the
Company.
ÌýÌýÌýÌýÌýWe are a party to other litigation in the ordinary course of business. We do not believe that
any such litigation will have a material adverse effect on our business, financial condition, or
results of operations.
ÌýÌýÌýÌýÌýWe intend to invest $2.5Ìýmillion in Cocrystal on or about SeptemberÌý18, 2009. Refer to Note
8.
ÌýÌýÌýÌýÌýIn the event of a termination of an existing employee of OTI, we would become obligated at
such employeeÂ’s sole option to acquire up to 10% of the shares issued to the employee in connection
with the acquisition of OTI at a price of $3.55 per share. In connection with the potential
obligation, we have recorded approximately $0.2Ìýmillion in accrued expenses as of JuneÌý30, 2009,
based on the estimated fair value of the unexercised put option.
ÌýÌýÌýÌýÌýOn MayÌý6, 2008, we completed the acquisition of Vidus Ocular, Inc., or Vidus. Pursuant to a
Securities Purchase Agreement with Vidus, each of its stockholders, and the holders of convertible
promissory notes issued by Vidus, we acquired all of the outstanding stock and convertible debt of
Vidus in exchange for (i)Ìýthe issuance and delivery at closing of 658,080 shares of our common
stock (the “Closing Shares”); (ii)Ìýthe issuance of 488,420 shares of our common stock to be held in
escrow pending the occurrence of certain development milestones (the “Milestone Shares”); and (iii)
the issuance of options to acquire 200,000 shares of our common stock. Additionally, in the event
that the stock price for our common stock at the time of receipt of approval or clearance by the
U.S. Food & Drug Administration of a pre-market notification 510(k) relating to the Aquashunt is
not at or above a specified price, we will be obligated to issue an additional 413,850 shares of
our common stock.
ÌýÌýÌýÌýÌýWe expect to incur losses from operations for the foreseeable future. We expect to incur
substantial research and development expenses, including expenses related to the hiring of
personnel and additional clinical trials. We expect that selling, general and administrative
expenses will also increase as we expand our sales, marketing and administrative staff and add
infrastructure. We intend to finance additional research and development projects, clinical trials
and our future operations with a combination of private placements, payments from potential
strategic research and development, licensing and/or marketing arrangements, public offerings, debt
financing and revenues from future product sales, if any. There can be no assurance, however, that
additional capital will be available to us on acceptable terms, or at all.
NOTE 10. SUBSEQUENT EVENTS
ÌýÌýÌýÌýÌýPursuant to FAS 165, we have reviewed all subsequent events and transactions that occurred
after our JuneÌý30, 2009 unaudited condensed consolidated balance sheet dated as of AugustÌý7, 2009,
our issue date.
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Table of Contents
ItemÌý2. | Ìý | ManagementÂ’s Discussion and Analysis of Financial Condition and Results of Operations |
OVERVIEW
ÌýÌýÌýÌýÌýYou should read this discussion together with the condensed consolidated financial statements,
related Notes, and other financial information included elsewhere in this report and in our Annual
Report on Form 10-K for the year ended DecemberÌý31, 2008 (the “Form 10-K”). The following
discussion contains assumptions, estimates and other forward-looking statements that involve a
number of risks and uncertainties, including those discussed under “Risk Factors,” in PartÌýII, Item
1A of our Form 10-K for the year ended DecemberÌý31, 2008. These risks could cause our actual
results to differ materially from those anticipated in these forward-looking statements.
ÌýÌýÌýÌýÌýWe are a specialty healthcare company focused on the discovery, development, and
commercialization of proprietary pharmaceuticals, imaging and diagnostic systems, and instruments
for the treatment, diagnosis, and management of ophthalmic disorders. We are seeking to expand our
operations in the ophthalmology business, as well as in other areas of medicine that may lead to
important commercial opportunities. We actively explore opportunities to acquire complementary
pharmaceuticals, compounds, and technologies, which could, individually or in the aggregate,
materially increase the scale of our business. We also intend to continue exploring strategic
opportunities in medical markets that would allow us to benefit from our business and global
distribution expertise.
ÌýÌýÌýÌýÌýWe expect to incur substantial losses as we continue the development of our product candidates
and establish a sales and marketing infrastructure in anticipation of the commercialization of our
product candidates. We currently have limited commercialization capabilities, and it is possible
that we may never successfully commercialize any of our pharmaceutical product candidates. To
date, we have devoted a significant portion of our efforts towards research and development. As of
JuneÌý30, 2009, we had an accumulated deficit of $323.9Ìýmillion. Since we do not generate revenue
from any of our pharmaceutical product candidates and have only generated limited revenue from our
instrumentation business, we expect to continue to generate losses in connection with the research
and development activities relating to our product candidates and other technologies. Such
research and development activities are budgeted to expand over time and will require further
resources if we are to be successful. As a result, we believe that our operating losses are likely
to be substantial over the next several years. We will need to obtain additional funds to further
develop our research and development programs, and there can be no assurance that additional
capital will be available to us on acceptable terms, or at all.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2009 AND 2008
ÌýÌýÌýÌýÌýRevenue. Revenue for the three months ended JuneÌý30, 2009, was $2.3Ìýmillion, compared to $0.9
million for the comparable 2008 period. The increase in revenue during the three months ended June
30, 2009, is the result of our decision during the 2008 period to only ship a limited number of
OCT/SLO units internationally while we addressed a warning letter received from the U.S. Food &
Drug Administration (“FDA”). Results from the three months ended JuneÌý30, 2009 primarily reflect
sales of our OCT/SLO product to our international customers. We anticipate demand in both the
U.S. market and international markets will increase during the remainder of 2009 as we begin to
actively promote the OCT/SLO product at tradeshows in the U.S. and internationally.
ÌýÌýÌýÌýÌýGross margin (deficit). Gross margin for the three months ended JuneÌý30, 2009, was $0.6
million compared to a gross deficit of ($0.1) million for the comparable period of 2008. Gross
margin improved for the three months ended JuneÌý30, 2009 as compared to the same period in 2008 as
a result of the cost reduction initiatives we began implementing in 2008 to reduce our costs
associated with our OCT/SLO product. During the first half of 2008, we changed a number of
suppliers and processes related to our OCT/SLO product which resulted in lower manufacturing costs,
resulting in higher gross margins on that product during the second half of 2008 and during 2009.
During the three months ended JuneÌý30, 2008, we incurred approximately $0.4Ìýmillion in expense
related to production development including bringing a portion of the manufacturing process for our
OCT/SLO product in-house.
ÌýÌýÌýÌýÌýSelling, general and administrative expense. Selling, general and administrative expense for
the three months ended JuneÌý30, 2009, was $2.9Ìýmillion compared to $3.2Ìýmillion of expense for the
comparable period of 2008. Selling, general and administrative expenses during the three months
ended JuneÌý30, 2009 and 2008, primarily include personnel expenses, including equity-based
compensation expense of $0.8Ìýmillion and $0.9Ìýmillion, respectively, and professional fees. The
decrease in selling, general and administrative expenses primarily reflects decreased personnel
costs and sales commissions to our international distributors.
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Table of Contents
ÌýÌýÌýÌýÌýResearch and development expense. Research and development expense during the three months
ended JuneÌý30, 2009, was $2.5Ìýmillion compared to $5.5Ìýmillion for the comparable period of 2008.
The decrease for the three months ended JuneÌý30, 2009, primarily reflects the decision in March
2009 to terminate the Phase III clinical trial for bevasiranib. All site close-out activities were
completed during the first half of the second quarter of 2009 and we anticipate that all activities
for the Phase III trial will be complete during the third quarter of 2009. The decrease in
research and development expense in the 2009 period as a result of the clinical trial shut down was
partially offset by increased costs relating to the Aquashunt™ clinical trial which began in the
first quarter of 2009 and ongoing development costs for our ophthalmic instrumentation business,
which are primarily personnel related expenses. The 2008 period primarily reflects the cost of our
Phase III clinical trial for bevasiranib, including costs of clinical trial site and monitoring
expenses, personnel costs and outside professional fees. The amount for the three months ended
JuneÌý30, 2009, includes equity-based compensation expense of $0.4Ìýmillion, compared to the 2008
period which includes $0.6Ìýmillion of equity-based compensation expense.
ÌýÌýÌýÌýÌýWrite-off of Acquired In-Process Research and Development. On MayÌý6, 2008, we acquired Vidus
Ocular, Inc. (“Vidus”), a privately held company that is developing Aquashunt™, for the treatment
of glaucoma, in a stock for stock transaction. We recorded the assets and liabilities at fair
value, and as a result, we recorded acquired in-process research and development expense and
recorded a charge of $1.4Ìýmillion. We did not have any such activity during the three months ended
JuneÌý30, 2009.
ÌýÌýÌýÌýÌýOther operating expenses. Other operating expenses primarily include amortization of our
intangible assets acquired from OTI.
ÌýÌýÌýÌýÌýOther income and expenses. Other expense was $0.5Ìýmillion for the first three months of 2009
compared to $0.2Ìýmillion, net of $0.1Ìýmillion of interest income for the comparable 2008 period.
Other income primarily consists of interest earned on our cash and cash equivalents and interest
expense reflects the interest incurred on our line of credit. As a result of reduced interest
rates during the three months ended JuneÌý30, 2009, interest earned decreased significantly.
ÌýÌýÌýÌýÌýIncome
taxes. Income tax benefit for the three months ended JuneÌý30, 2009 and 2008, reflects
the Canadian provincial tax credit that is refundable once we file our tax return. This credit
relates to research and development expenses incurred at our OTI locations.
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
ÌýÌýÌýÌýÌýRevenue. Revenue for the six months ended JuneÌý30, 2009, was $4.6Ìýmillion, compared to $3.7
million for the comparable 2008 period. The increase in revenue for the six months ended JuneÌý30,
2009, as compared to the first six months of 2008 is a result of our decision in the second quarter
of 2008 to ship only a limited number of OCT/SLO products internationally while we addressed the
FDA warning letter received for our Toronto manufacturing facility. We believe revenue for the six
months ended JuneÌý30, 2009, was also impacted by our limited participation at tradeshows during 2008
while we focused on enhancing the product and our manufacturing processes. We began marketing and
selling our OCT/SLO product in the U.S. at the beginning of 2009. We anticipate demand in both
the U.S. market and international markets will increase during the remainder of 2009 as we begin to
actively promote the OCT/SLO product at tradeshows in the U.S. and internationally.
ÌýÌýÌýÌýÌýGross margin (deficit). Gross margin for the six months ended JuneÌý30, 2009, was $1.3Ìýmillion
compared to a gross deficit of ($0.7) million for the comparable period of 2008. Gross margin for
the six months ended JuneÌý30, 2009, improved as a result of the cost reduction initiatives we began
implementing in 2008 to reduce our costs associated with the OCT/SLO product. During the first
half of 2008, we changed a number of suppliers and processes related to our OCT/SLO product which
resulted in lower manufacturing costs, resulting in higher gross margins on that product during the
second half of 2008 and the first six months of 2009. During the three months ended JuneÌý30, 2008,
we incurred approximately $0.9Ìýmillion in expense related to production development including
bringing a portion of the manufacturing process for our OCT/SLO product in-house.
ÌýÌýÌýÌýÌýSelling, general and administrative expense. Selling, general and administrative expense for
the six months ended JuneÌý30, 2009, was $6.2Ìýmillion compared to $8.6Ìýmillion of expense for the
comparable period of 2008. Selling, general and administrative expenses during the first six
months of 2009 and 2008, primarily include personnel expenses, including equity-based compensation
expense of $1.5Ìýmillion and $2.9Ìýmillion, respectively, and professional fees. The decrease in
selling, general and administrative expenses primarily reflects decreased personnel costs,
including severance and approximately $1.4Ìýmillion related to the acceleration of vesting for stock
options in connection with the termination of certain employees in 2008. In addition, there were
decreased sales
commissions to our international distributors in the six months of 2009. Partially offsetting
these decreases was an increase in professional fees during the six
months ended JuneÌý30, 2009, as
compared to the 2008 period. We anticipate selling, general and administrative expenses will
increase during the remainder of 2009 while we increase our sales and marketing activities to
promote and support our OCT/SLO product, including the launch costs in the U.S. and participation
in additional tradeshows in the U.S. and internationally.
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ÌýÌýÌýÌýÌýResearch and development expense. Research and development expense during the six months
ended JuneÌý30, 2009, was $8.2Ìýmillion compared to $9.8Ìýmillion for the comparable period of 2008.
The decrease for the six months ended JuneÌý30, 2009, primarily reflects the decrease in activity of
the Phase III clinical trial for bevasiranib which was terminated in MarchÌý2009. The 2008 period
primarily reflects the cost of our Phase III clinical trial for bevasiranib, including costs of
clinical trial site and monitoring expenses, personnel costs and outside professional fees. The
decrease in research and development expense also reflects the decrease in personnel costs,
including equity-based compensation partially offset by increased costs relating to the AquaShunt™
clinical trial which began in the first quarter of 2009 and ongoing development costs for our
ophthalmic instrumentation business, which are primarily personnel related expenses. The amount
for the six months ended JuneÌý30, 2009, includes equity-based compensation expense of $0.2Ìýmillion,
compared to the 2008 period which includes $1.3Ìýmillion of equity-based compensation expense. The
amount for the 2009 period includes the estimated shutdown costs of the trial, including
transitioning patients from the trial onto the standard of care therapy and the costs of analyzing
the data collected and performing statistical analysis. We anticipate all activities related to
this trial will cease in the third quarter of 2009.
ÌýÌýÌýÌýÌýWrite-off of Acquired In-Process Research and Development. On MayÌý6, 2008, we acquired Vidus, a privately held company that is developing Aquashunt™, for the treatment
of glaucoma, in a stock for stock transaction. We recorded the assets and liabilities at fair
value, and as a result, we recorded acquired in-process research and development expense and
recorded a charge of $1.4Ìýmillion. We did not have any such activity during the six months ended
JuneÌý30, 2009.
ÌýÌýÌýÌýÌýOther operating expenses. Other operating expenses primarily include amortization of our
intangible assets acquired from OTI.
ÌýÌýÌýÌýÌýOther income and expenses. Other expense was $0.9Ìýmillion for the first six months of 2009
compared to $0.5Ìýmillion, net of $0.2Ìýmillion of interest income for the comparable 2008 period.
Other income primarily consists of interest earned on our cash and cash equivalents and interest
expense reflects the interest incurred on our line of credit. As a result of reduced interest
rates, interest earned during the six months ended JuneÌý30, 2009, decreased significantly.
ÌýÌýÌýÌýÌýIncome
taxes. Income tax benefit for the six months ended JuneÌý30, 2009 and 2008, reflects the
Canadian provincial tax credit that is refundable once we file our tax return. This credit relates
to research and development expenses incurred at our Canadian instrumentation locations.
LIQUIDITY AND CAPITAL RESOURCES
ÌýÌýÌýÌýÌýAt JuneÌý30, 2009, we had cash, cash equivalents and marketable securities of approximately
$40.9Ìýmillion. Cash used in operations during 2009 primarily reflects payment of liabilities
related to the Phase III clinical trial for bevasiranib and related shut down expenses of that
trial, as well as selling, general and administrative activities related to our corporate and
instrumentation operations. Since our inception, we have not generated significant gross margins
to offset our operating and other expenses and our primary source of cash has been from the private
placement of stock and through credit facilities available to us.
ÌýÌýÌýÌýÌýOn MayÌý26, 2009, MayÌý29, 2009, and JuneÌý1, 2009, we entered into stock purchase agreements
with a total of seven accredited investors (“Investors”) pursuant to which the Investors agreed to
make a $31.0Ìýmillion investment in the Company in exchange for 31,000,000 shares of our common
stock, par value $.01 (the “Shares”), at $1.00 per share.
ÌýÌýÌýÌýÌýOn MarchÌý4, 2009, Frost Gamma Investments Trust (the “Gamma Trust”), of which Phillip Frost,
M.D., our Chairman and CEO, is the sole trustee, advanced $3.0Ìýmillion to us under a Promissory
Note we issued to the Gamma Trust (the “Note”). The entire amount of this Note and all accrued
interest thereon was due and payable on MayÌý4, 2009 or such earlier date following the closing of
the transaction contemplated by the Stock Purchase Agreement with the Gamma Trust, dated February
23, 2009. The Note bears interest at a rate equal to 11% per
annum and may be prepaid in whole or in part without penalty or premium. We repaid the Note
in full, plus accrued interest of $48 thousand on AprilÌý27, 2009.
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ÌýÌýÌýÌýÌýOn FebruaryÌý23, 2009, we entered into a stock purchase agreement with the Gamma Trust pursuant
to which the Gamma Trust agreed to make a $20.0Ìýmillion investment in exchange for 20,000,000
shares of our common stock, par value $.01 (the “Shares”), at $1.00 per share, representing an
approximately 20% discount to the average closing price of our common stock on the NYSE Amex
exchange for the five trading days immediately preceding the effective date of Audit Committee and
stockholder approval of the transaction. We issued the Shares and received the proceeds of $20.0
million on AprilÌý27, 2009.
ÌýÌýÌýÌýÌýA group of investors led by the Frost Group (the “Frost Investors”) previously invested $5
million in Cocrystal Discovery, Inc., a privately held biopharmaceutical company, and agreed to
invest an additional $5Ìýmillion payable in two equal tranches. As a result of an amendment to the
Frost Investor agreements dated JuneÌý9, 2009, СÖíÊÓƵapp, rather than the Frost Investors, intends to
make the first tranche investment ($2.5Ìýmillion) on or around SeptemberÌý18, 2009 pursuant to a
definitive agreement to be entered by СÖíÊÓƵapp at the time of the investment on the same terms as those
previously agreed by the Frost Investors. Following the second tranche investment of $2.5Ìýmillion
in Cocrystal by the Frost Investors, СÖíÊÓƵapp will own approximately 16% of Cocrystal and the Frost
Group will own approximately 42% of Cocrystal, each on a fully diluted basis. Dr.ÌýFrost, Steve
Rubin, and Jane Hsiao currently serve on the Board of Directors of Cocrystal.
ÌýÌýÌýÌýÌýWe have a fully-drawn $12.0Ìýmillion line of credit with The Frost Group, LLC, or the Frost
Group, a related party. The Frost Group members include a trust controlled by Dr.ÌýFrost, the
CompanyÂ’s Chief Executive Officer and Chairman of the board of directors, Dr.ÌýJane H. Hsiao, Vice
Chairman of the board of directors and Chief Technical Officer, Steven D. Rubin, Executive Vice
President — Administration and a director of the Company, and Rao Uppaluri who is the Chief
Financial Officer of the Company. We are obligated to pay interest upon maturity, compounded
quarterly, on outstanding borrowings under the line of credit at an 11% annual rate, which is due
JanuaryÌý11, 2011. The line of credit is collateralized by all of our personal property except our
intellectual property.
ÌýÌýÌýÌýÌýWe expect to incur losses from operations for the foreseeable future. We expect to incur
substantial research and development expenses, including expenses related to the hiring of
personnel and additional clinical trials. We expect that selling, general and administrative
expenses will also increase as we expand our sales, marketing and administrative staff and add
infrastructure.
ÌýÌýÌýÌýÌýWe believe the cash and cash equivalents on hand at JuneÌý30, 2009, are sufficient to meet our
anticipated cash requirements for operations and debt service for the next 12Ìýmonths. We based
this estimate on assumptions that may prove to be wrong or are subject to change, and we may be
required to use our available cash resources sooner than we currently expect. If we acquire
additional assets or companies, accelerate our product development programs or initiate additional
clinical trials, we will need additional funds. Our future cash requirements will depend on a
number of factors, including possible acquisitions, the continued progress of our research and
development of product candidates, the timing and outcome of clinical trials and regulatory
approvals, the costs involved in preparing, filing, prosecuting, maintaining, defending, and
enforcing patent claims, and other intellectual property rights, the status of competitive
products, the availability of financing, and our success in developing markets for our product
candidates. If we are not able to secure additional funding when needed, we may have to delay,
reduce the scope of, or eliminate one or more of our clinical trials or research and development
programs.
ÌýÌýÌýÌýÌýWe intend to finance additional research and development projects, clinical trials, and our
future operations with a combination of private placements, payments from potential strategic
research and development, licensing and/or marketing arrangements, public offerings, debt
financing, and revenues from future product sales, if any. There can be no assurance, however,
that additional capital will be available to us on acceptable terms, or at all.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
ÌýÌýÌýÌýÌýAccounting Estimates. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of sales and expenses during the
reporting period. Actual results could differ from those estimates.
ÌýÌýÌýÌýÌýEquity-based compensation. As of JuneÌý23, 2006 (the date of inception), we adopted Statement
of Financial Accounting Standards, or SFAS 123(R), Share-Based Payments. SFAS123(R) replaces SFAS
No.Ìý123, Accounting for Stock-Based Compensation, and supersedes APB No.Ìý25. SFAS 123(R) requires
that all stock-based compensation be recognized as an expense in the financial statements and that
such cost be measured at the fair value of the award. Equity-based compensation arrangements to
non-employees are accounted for in accordance with SFAS 123(R) and Emerging Issues Task Force Issue
No.Ìý96-18 (EITF 96-18), Accounting for Equity Instruments That Are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling, Goods or Services, which requires that these equity
instruments are recorded at their fair value on the measurement date. As prescribed under SFAS
123(R), we estimate the grant-date fair value of our stock option grants using a valuation model
known as the Black-Scholes-Merton formula or the “Black-Scholes Model” and allocate the resulting
compensation expense over the corresponding requisite service period associated with each grant.
The Black-Scholes Model requires the use of several variables to estimate the grant-date fair value
of stock options including expected term, expected volatility, expected dividends and risk-free
interest rate. We perform significant analyses to calculate and select the appropriate variable
assumptions used in the Black-Scholes Model. We also perform significant analyses to estimate
forfeitures of equity-based awards as required by SFAS 123(R). We are required to adjust our
forfeiture estimates on at least an annual basis based on the number of share-based awards that
ultimately vest. The selection of assumptions and estimated forfeiture rates is subject to
significant judgment and future changes to our assumptions and estimates may have a material impact
on our Consolidated Financial Statements.
ÌýÌýÌýÌýÌýGoodwill and intangible assets. The allocation of the purchase price for acquisitions
requires extensive use of accounting estimates and judgments to allocate the purchase price to the
identifiable tangible and intangible assets acquired, including in-process research and
development, and liabilities assumed based on their respective fair values under the provisions of
SFAS No.Ìý141, Business Combinations or, SFAS 141. Additionally, we must determine whether an
acquired entity is considered to be a business or a set of net assets, because a portion of the
purchase price can only be allocated to goodwill in a business combination.
ÌýÌýÌýÌýÌýAppraisals inherently require significant estimates and assumptions, including but not limited
to, determining the timing and estimated costs to complete the in-process R&D projects, projecting
regulatory approvals, estimating future cash flows, and developing appropriate discount rates. We
believe the estimated fair values assigned to the Vidus assets acquired and liabilities assumed are
based on reasonable assumptions. However, the fair value estimates for the purchase price
allocation may change during the allowable allocation period under SFAS 141, which is up to one
year from the acquisition date, if additional information becomes available that would require
changes to our estimates.
ÌýÌýÌýÌýÌýAllowance for doubtful accounts and revenue recognition. Generally, we recognize revenue from
product sales when goods are shipped and title and risk of loss transfer to our customers. Certain
of our products are sold directly to end-users and require that we deliver, install and train the
staff at the end-usersÂ’ facility. As a result, we do not recognize revenue until the product is
delivered, installed and training has occurred. Return policies in certain international markets
for our medical device products provide for stringent guidelines in accordance with the terms of
contractual agreements with customers. Our estimates for sales returns are based upon the
historical patterns of products returned matched against the sales from which they originated, and
managementÂ’s evaluation of specific factors that may increase the risk of product returns. The
allowance for doubtful accounts recognized in our consolidated balance sheets at JuneÌý30, 2009 and
DecemberÌý31, 2008 was $0.2Ìýmillion and $0.4Ìýmillion, respectively.
ÌýÌýÌýÌýÌýRecent accounting pronouncements: In DecemberÌý2007, the FASB issued SFAS No.Ìý141R, Business
Combinations, or SFAS 141R. SFAS 141R applies to business combinations and requires, among other
things, the expensing of transaction costs, including deal costs and restructuring costs as
incurred, the capitalization of acquired in-process research and development assets, the recording
at fair value of, certain contingent assets and liabilities including and earn-out arrangements.
Changes in fair value of contingent consideration may be required to be recognized each period into
earnings. In addition, material adjustments made to the initial acquisition purchase accounting
will be required to be recorded back to the acquisition date. This will cause companies to revise
previously reported results when reporting comparative financial information in subsequent
filings. SFAS 141R is effective for the Company on a prospective basis for transactions occurring
beginning on JanuaryÌý1, 2009 and earlier adoption is not permitted. We adopted SFAS 141R on
JanuaryÌý1, 2009. The adoptions may have a material impact on the CompanyÂ’s consolidated financial
position, results of operations and cash flows if we enter into material business combinations
after JanuaryÌý1, 2009.
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ÌýÌýÌýÌýÌýIn DecemberÌý2007, the FASB issued SFAS No.Ìý160, Noncontrolling Interests in Consolidated
Financial Statements, an Amendment of ARB No.Ìý51,or SFAS 160. SFAS 160 requires minority interests
to be recharacterized as noncontrolling interests and reported as a component of equity. In
addition, SFAS 160 requires that purchases or sales of equity interests that do not result in a
change in control be accounted for as equity transactions and, upon a loss of control, requires the
interests sold, as well as any interests retained, to be recorded at fair value with any gain or
loss recognized in earnings. SFAS 160 is effective for fiscal years beginning on or after December
15, 2008, with early adoption prohibited. We adopted SFAS 160 on JanuaryÌý1, 2009. The adoption of
SFAS 160 did not have a material impact on our condensed consolidated financial statements.
ÌýÌýÌýÌýÌýIn AprilÌý2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments. FSP FAS 107-1 and APB 28-1 enhance consistency in financial
reporting by increasing the frequency of fair value disclosures. FSP FAS 107-1 and APB 28-1 relate
to fair value disclosures for any financial instruments that are not currently reflected on the
balance sheet of companies at fair value. Prior to issuing this FSP, fair values for these assets
and liabilities were disclosed only once a year. The FSP now requires these disclosures to be made
on a quarterly basis, providing qualitative and quantitative information about fair value estimates
for all those financial instruments not measured on the balance sheet at fair value. FSP FAS 107-1
and APB 28-1 are effective for interim and annual periods ending after JuneÌý15, 2009. We adopted
FSP FAS 107-1 and APB 28-1 in the second quarter of fiscal 2009. The adoption of FSP FAS 107-1 and
APB 28-1 did not have a material impact on our condensed consolidated financial statements.
ÌýÌýÌýÌýÌýIn
AprilÌý2009, the FASB issued FSP No.Ìý115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. This FSP amends the other-than-temporary impairment guidance in
U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation
and disclosure of the other-than-temporary impairments on debt and equity securities in the
financial statements. The FSP is effective for interim and annual reporting periods ending after
JuneÌý15, 2009. We adopted FSP No.Ìý115-2 and FAS 124-2 in the second quarter of fiscal 2009. The
adoption of FSP No.Ìý115-2 and FAS 124-2 did not have a material impact on our condensed
consolidated financial statements.
ÌýÌýÌýÌýÌýIn AprilÌý2009, the FASB issued FASB Staff Position, or FSP, FAS 157-4, Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly. FSP FAS 157-4 provides guidelines for making fair
value measurements more consistent with the principles presented in FASB Statement No.Ìý157, Fair
Value Measurements. FSP FAS 157-4 relates to determining fair values when there is no active market
or where the price inputs being used represent distressed sales. It reaffirms what FASB Statement
No.Ìý157 states is the objective of fair value measurement—to reflect how much an asset would be
sold for in an orderly transaction (as opposed to a distressed or forced transaction) at the date
of the financial statements under current market conditions. Specifically, it reaffirms the need to
use judgment to ascertain if a formerly active market has become inactive and in determining fair
values when markets have become inactive. FSP FAS 157-4 is effective for interim and annual periods
ending after JuneÌý15, 2009. We adopted FSP FAS 157-4 in the second quarter of fiscal 2009. The
adoption of FSP FAS 157-4 did not have a material impact on our condensed consolidated financial
statements.
ÌýÌýÌýÌýÌýIn
MayÌý2009, the FASB issued SFAS No.Ìý165, Subsequent Events. SFAS No.Ìý165 establishes general
standards of accounting for and disclosure of events that occur after the balance sheet date but
before financial statements are issued or are available to be issued. SFAS No.165 requires entities
to disclose the date through which they have evaluated subsequent events and whether the date
corresponds with the issuance of their financial statements. SFAS No.Ìý165 is effective for interim
and annual reporting periods ending after JuneÌý15, 2009. We adopted SFAS No.Ìý165 in the second
quarter of fiscal 2009. The adoption of SFAS No.Ìý165 did not have a material impact on our
condensed consolidated financial statements.
ÌýÌýÌýÌýÌýIn JuneÌý2009, the FASB issued Statement No.Ìý168, or
SFAS No.168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles. SFAS No.168 will become the single source of authoritative nongovernmental
U.S. generally accepted accounting principles, or GAAP, superseding existing FASB, American
Institute of Certified Public Accountants, or AICPA, Emerging Issues Task Force, or EITF, and
related accounting literature. SFAS No.168 reorganizes the thousands of
GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent
structure. Also included is relevant Securities and Exchange Commission guidance organized using
the same topical structure in separate sections. SFAS No.168 will be effective for financial
statements issued for reporting periods that end after SeptemberÌý15, 2009. As a result, SFAS No.168
is effective for us in the third quarter of fiscal 2009. This will have an impact on our
disclosures in the condensed consolidated financial statements since all future references to
authoritative accounting literature will be references in accordance with SFAS No.168.
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Table of Contents
ItemÌý3. | Ìý | Quantitative and Qualitative Disclosures About Market Risk |
ÌýÌýÌýÌýÌýIn the normal course of doing business, we are exposed to the risks associated with foreign
currency exchange rates and changes in interest rates. We do not engage in trading market risk
sensitive instruments or purchasing hedging instruments or “other than trading” instruments that
are likely to expose us to significant market risk, whether interest rate, foreign currency
exchange, commodity price, or equity price risk.
ÌýÌýÌýÌýÌýOur exposure to market risk relates to our cash and investments and to our borrowings. We
maintain an investment portfolio of money market funds and treasury securities. The securities in
our investment portfolio are not leveraged, and are, due to their very short-term nature, subject
to minimal interest rate risk. We currently do not hedge interest rate exposure. Because of the
short-term maturities of our investments, we do not believe that a change in market interest rates
would have a significant negative impact on the value of our investment portfolio except for
reduced income in a low interest rate environment. At JuneÌý30, 2009, we had cash, cash equivalents
and marketable securities of $40.9Ìýmillion. The weighted average interest rate related to our cash
and cash equivalents for the year ended JuneÌý30, 2009 was 0.1%. As of JuneÌý30, 2009, the principal
value of our credit line was $12.0Ìýmillion, which bears a weighted average interest rate of 11.0%.
ÌýÌýÌýÌýÌýThe primary objective of our investment activities is to preserve principal while at the same
time maximizing yields without significantly increasing risk. To achieve this objective, we invest
our excess cash in debt instruments of the U.S. Government and its agencies, bank obligations,
repurchase agreements and high-quality corporate issuers, and money market funds that invest in
such debt instruments, and, by policy, restrict our exposure to any single corporate issuer by
imposing concentration limits. To minimize the exposure due to adverse shifts in interest rates,
we maintain investments at an average maturity of generally less than one month.
ItemÌý4. | Ìý | Controls and Procedures |
ÌýÌýÌýÌýÌýThe CompanyÂ’s management, under the supervision and with the participation of the CompanyÂ’s
Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the
effectiveness of the CompanyÂ’s disclosure controls and procedures as defined in Securities and
Exchange Commission (“SEC”) RuleÌý13a-15(e) as of JuneÌý30, 2009. Based on that evaluation,
management has concluded that the CompanyÂ’s disclosure controls and procedures are effective to
ensure that information the Company is required to disclose in reports that it files or submits
under the Securities Exchange Act is accumulated and communicated to management, including the CEO
and CFO, as appropriate, to allow timely decisions regarding required disclosure and is recorded,
processed, summarized, and reported within the time periods specified in the SECÂ’s rules and forms.
ÌýÌýÌýÌýÌýThere have been no changes to the CompanyÂ’s internal control over financial reporting that
occurred during the CompanyÂ’s second quarter of 2009 that have materially affected, or are
reasonably likely to materially affect, the CompanyÂ’s internal control over financial reporting.
PART II. OTHER INFORMATION
ItemÌý1. | Ìý | Legal Proceedings |
ÌýÌýÌýÌýÌýOn MayÌý7, 2007, Ophthalmic Imaging Systems, or OIS, sued Steven Verdooner, its former
president and our then Executive Vice President, Instrumentation, in California Superior Court for
the County of Sacramento. OIS later amended its complaint to add claims against the Company and
The Frost Group, LLC. Trial in the matter was scheduled to commence on AprilÌý28, 2009. In order
to avoid the expense and uncertainty of litigation, and without making any admission of wrongdoing
or liability, the parties agreed to fully and finally resolve the lawsuit and entered into a
settlement and release on MayÌý4, 2009. The net impact of the settlement was not material to the
Company.
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Table of Contents
ItemÌý1A. Risk Factors
ÌýÌýÌýÌýÌýThere have been no material changes from the risk factors as previously disclosed in the Item
1A of the Company Annual Report on Form 10-K.
ItemÌý2. | Ìý | Unregistered Sales of Equity Securities and Use of Proceeds |
ÌýÌýÌýÌýÌýRefer to the CompanyÂ’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on JuneÌý1, 2009.
ItemÌý3. Defaults Upon Senior Securities
ÌýÌýÌýÌýÌýNone.
ItemÌý4. | Ìý | Submission of Matters to a Vote of Security Holders |
ÌýÌýÌýÌýÌýThe following matter was approved at our annual stockholders meeting, which was held on JuneÌý10,
2009.
ÌýÌýÌýÌýÌýThe election to the Board of Directors of the following nominees:
Ìý | Ìý | Ìý | Ìý | Ìý |
Ìý | Ìý | Number of | Ìý | Number of |
Name of Nominee | Ìý | Votes Cast For | Ìý | Votes Withheld |
Phillip Frost, M.D. |
Ìý | 155,037,370 | Ìý | 405,281 |
Jane H. Hsiao, Ph.D. |
Ìý | 154,970,972 | Ìý | 471,679 |
Steven D. Rubin |
Ìý | 154,042,862 | Ìý | 1,399,789 |
Robert A. Baron |
Ìý | 155,159,442 | Ìý | 283,209 |
Thomas E. Beier |
Ìý | 155,159,442 | Ìý | 283,209 |
Pascal J. Goldschmidt, M.D. |
Ìý | 155,162,142 | Ìý | 280,509 |
Richard A. Lerner, M.D. |
Ìý | 155,151,048 | Ìý | 291,603 |
John A. Paganelli |
Ìý | 155,157,524 | Ìý | 285,127 |
Richard C. Pfenniger, Jr. |
Ìý | 153,895,161 | Ìý | 1,547,490 |
Alice Lin-Tsing Yu , M.D., Ph.D. |
Ìý | 155,162,142 | Ìý | 280,509 |
ItemÌý5. | Ìý | Other Information |
ÌýÌýÌýÌýÌýNone.
ItemÌý6. | Ìý | Exhibits. |
Ìý | Ìý | Ìý |
ExhibitÌý2.1(1) | Ìý | Merger Agreement and Plan of Reorganization,
dated as of MarchÌý27, 2007, by and among Acuity
Pharmaceuticals, Inc., Froptix Corporation,
eXegenics, Inc., e-Acquisition Company I-A, LLC,
and e-Acquisition Company II-B, LLC. |
Ìý | Ìý | Ìý |
ExhibitÌý2.2(4)+ | Ìý | Securities Purchase Agreement dated MayÌý2, 2008,
among Vidus Ocular, Inc., СÖíÊÓƵapp Instrumentation,
LLC, СÖíÊÓƵapp Health, Inc., and the individual
sellers and noteholders named therein. |
Ìý | Ìý | Ìý |
ExhibitÌý3.1(2) | Ìý | Amended and Restated Certificate of Incorporation. |
Ìý | Ìý | Ìý |
ExhibitÌý3.2(3) | Ìý | Amended and Restated By-Laws. |
Ìý | Ìý | Ìý |
ExhibitÌý4.1(1) | Ìý | Form of Common Stock Warrant. |
24
Table of Contents
Ìý | Ìý | Ìý |
ExhibitÌý10.1 | Ìý | Form of Stock Purchase Agreement for transactions
between the Company and Nora Real Estate SA.,
Vector Group Ltd., Oracle Partners LP, Oracle
Institutional Partners, LP., Chung Chia Company
Limited, Gold Sino Assets Limited and Grandtime
Associates Limited. |
Ìý | Ìý | Ìý |
ExhibitÌý10.2 | Ìý | Stock Purchase Agreement dated JuneÌý10, 2009,
among Sorrento Therapeutics, Inc. and the
Company. |
Ìý | Ìý | Ìý |
ExhibitÌý31.1 | Ìý | Certification by Phillip Frost, Chief Executive
Officer, pursuant to RuleÌý13a-14(a) and 15d-14(a)
of the Securities and Exchange Act of 1934 as
adopted pursuant to SectionÌý302 of the
Sarbanes-Oxley Act of 2002 for the quarterly
period ended JuneÌý30, 2009. |
Ìý | Ìý | Ìý |
ExhibitÌý31.2 | Ìý | Certification by Rao Uppaluri, Chief Financial
Officer, pursuant to RuleÌý13a-14(a) and 15d-14(a)
of the Securities and Exchange Act of 1934 as
adopted pursuant to SectionÌý302 of the
Sarbanes-Oxley Act of 2002 for the quarterly
period ended JuneÌý30, 2009. |
Ìý | Ìý | Ìý |
ExhibitÌý32.1 | Ìý | Certification by Phillip Frost, Chief Executive
Officer pursuant to 18 U.S.C. SectionÌý1350, as
adopted pursuant to SectionÌý906 of the
Sarbanes-Oxley Act of 2002 for the quarterly
period ended JuneÌý30, 2009. |
Ìý | Ìý | Ìý |
ExhibitÌý32.2 | Ìý | Certification by Rao Uppaluri, Chief Financial
Officer pursuant to 18 U.S.C. SectionÌý1350, as
adopted pursuant to SectionÌý906 of the
Sarbanes-Oxley Act of 2002 for the quarterly
period ended JuneÌý30, 2009. |
Ìý
+ | Ìý | Certain confidential material contained in the document has been omitted and filed separately with the Securities and Exchange Commission. |
Ìý | ||
(1) | Ìý | Filed with the CompanyÂ’s Current Report on Form 8-K filed with the Securities and Exchange Commission on AprilÌý2, 2007, and incorporated herein by reference. |
Ìý | ||
(2) | Ìý | Filed with the CompanyÂ’s Current Report on Form 8-A filed with the Securities and Exchange Commission on JuneÌý11, 2007, and incorporated herein by reference. |
Ìý | ||
(3) | Ìý | Filed with the CompanyÂ’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on MarchÌý31, 2008 and incorporated herein by reference. |
Ìý | ||
(4) | Ìý | Filed with the CompanyÂ’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 8, 2008 for the CompanyÂ’s three-month period ended JuneÌý30, 2008, and incorporated herein by reference. |
25
Table of Contents
SIGNATURES
ÌýÌýÌýÌýÌýPursuant 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.
Ìý | Ìý | Ìý | Ìý | Ìý |
Date: AugustÌý7, 2009 Ìý |
СÖíÊÓƵapp Health, Inc. Ìý |
Ìý | ||
Ìý | /s/ Adam Logal Ìý | Ìý | ||
Ìý | Adam LogalÌý | Ìý | ||
Ìý | Executive Director of Finance, Chief Accounting Officer and TreasurerÌý | Ìý |
26
Table of Contents
Ìý | Ìý | Ìý | Ìý | Ìý |
ExhibitÌýIndex
Ìý | Ìý | Ìý |
Exhibit Number | Ìý | Description |
ExhibitÌý10.1 | Ìý | Form of Stock Purchase Agreement for transactions between
the Company and Nora Real Estate SA., Vector Group Ltd.,
Oracle Partners LP, Oracle Institutional Partners, LP.,
Chung Chia Company Limited, Gold Sino Assets Limited and
Grandtime Associates Limited. |
Ìý | Ìý | Ìý |
ExhibitÌý10.2 | Ìý | Stock Purchase Agreement dated JuneÌý10, 2009, among
Sorrento Therapeutics, Inc. and the Company. |
Ìý | Ìý | Ìý |
ExhibitÌý31.1 | Ìý | Certification by Phillip Frost, Chief Executive Officer,
pursuant to RuleÌý13a-14(a) and 15d-14(a) of the Securities
and Exchange Act of 1934 as adopted pursuant to SectionÌý302
of the Sarbanes-Oxley Act of 2002 for the quarterly period
ended JuneÌý30, 2009. |
Ìý | Ìý | Ìý |
ExhibitÌý31.2 | Ìý | Certification by Rao Uppaluri, Chief Financial Officer,
pursuant to RuleÌý13a-14(a) and 15d-14(a) of the Securities
and Exchange Act of 1934 as adopted pursuant to SectionÌý302
of the Sarbanes-Oxley Act of 2002 for the quarterly period
ended JuneÌý30, 2009. |
Ìý | Ìý | Ìý |
ExhibitÌý32.1 | Ìý | Certification by Phillip Frost, Chief Executive Officer
pursuant to 18 U.S.C. SectionÌý1350, as adopted pursuant to
SectionÌý906 of the Sarbanes-Oxley Act of 2002 for the
quarterly period ended JuneÌý30, 2009. |
Ìý | Ìý | Ìý |
ExhibitÌý32.2 | Ìý | Certification by Rao Uppaluri, Chief Financial Officer
pursuant to 18 U.S.C. SectionÌý1350, as adopted pursuant to
SectionÌý906 of the Sarbanes-Oxley Act of 2002 for the
quarterly period ended JuneÌý30, 2009. |
27